Uncertainty and 2024 - How prepared are you.....?
Editor's Note: Many articles have surfaced in recent months about strategic planning. Acronyms abound - RED (rapid), FAST, EASY. Some others stress the creation of assumptions, or financial-based models. While acronyms and simple approaches may sell books or make for interesting speaking engagements, the truth is there is no magic button, no easy way to predict the future. Uncertainty and pace of change have accelerated, resulting in the need for a more flexible approach to planning. The Mead Consulting Group has been utilizing scenario planning to help clients build flexibility into planning and execution for almost 25 years. While scenario planning was once conducted primarily with our larger clients, today, over half of our clients (owner-operated, strategic, and private-equity- backed) have discovered the benefits of scenario planning. - dpm] How well are you prepared for what you think will happen in the future? How well are you prepared for what you don't think will happen?
Imagine yourself inside your business in September 2007 or September 2019. Life is pretty good. Your business has been consistently growing with the market. The Dow Jones is at record levels, unemployment is low. You are in the middle of developing your company's plans and budgets for 2007 or 2020. How likely is it that the assumptions in your plan accurately forecast that one year later in September. (Think the Great Recession and Covid-19). The Dow was way down and unemployment had skyrocketed.
Uncertainty, volatility and risk are here to stay. Were these one-time, isolated events? Life and planning in businesses have changed. Uncertainty, volatility and risk are here to stay. The world has been transformed from a series of loosely connected, reasonably predictable economies to a complex web of relationships where the global impact of local events is felt almost instantaneously.
The past is no longer a good predictor of the future. In response to such uncertainty, traditional strategic planning and budgeting simply no longer works. Scenario planning, which was pioneered by Royal Dutch Shell in the 1970's, was traditionally used only by large organizations such as AutoNation, British Airways, Corning, Disney, General Electric, KinderCare, Mercedes, UPS, etc.
Today, scenario planning is being widely used by many small and mid-size organizations. In the past 15 years , Mead Consulting has seen the number of middle-market and lower middle-market companies embracing scenario planning grow by more than 4X. These companies cross a broad array of industries from technology, software, education, and consumer, to manufacturing, distribution, health care, and business services. These companies are seeing a dramatic improvement in their management team's ability to adapt to changes in the environment, and to move more quickly to gain competitive advantage. In addition, business owners, boards, and investors are beginning to ask questions that can only be answered by scenario planning.
Scenario Planning is NOT the same as contingency planning. All organizations should include contingencies in its planning - a good example is disaster recovery from power failures, natural disasters, etc. However, scenario planning looks at the dynamics of potential changes in competitive landscape, disruptive innovation, changes to buying patterns, etc.
Traditional strategic planning alone can be based on a foundation of shifting sand. Traditional strategic planning causes us to make calculated "guesses" about the future. We make a series of assumptions about our industry and competition, as well as social, economic, political, and technological factors. Then we develop strategies based on those assumptions. Many times, it is the most senior, most dynamic, or most powerful person in the room that forces decisions about these assumptions. Black swans never seem to make it into the discussion and are seen as unlikely and their consideration is regarded as a diversion, or waste of precious management time. Really? Since we now know how uncertain the future is, why would we ever base our future on such a faulty foundation?
Scenario planning is largely focused on answering three questions: (1) What could happen? (2) What impact would a given scenario have on our strategies, plans and budgets? (3) How should we respond to maximize our competitive position?
Differences between traditional strategic planning and scenario planning | 
