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Scenarios are qualitatively different descriptions of plausible futures. They can give you a deeper understanding of potential environments in which you might have to operate and what you may need to do in the present. Scenario analysis helps you to identify what environmental factors to monitor over time, so that when the environment shifts, you can recognize where it may be headed.
Thinking through scenarios, while it may seem an exercise in speculation to some, is a less risky, more conservative approach to planning than relying on standard business forecasts and trend analyses. The latter have their place, but often do not employ sufficient imagination to discover how circumstances will change. Good scenario thinking helps management to take more innovative actions, and prevent undesirable outcomes. Scenarios can explore general alternative futures and specific problems or strategies.
Both Factors-Based and Growth-Based methods may be used in alternative scenario development.
1. To develop Alternative Factors Scenarios (AFS):
- State the specific decision that needs to be made.
- Identify the major environmental factors (forces, drivers, trends, limits, etc.) that impact on the decision. For example, suppose you need to decide how to invest R & D funds in order to be positioned for opportunities that might emerge by the year 2010. The major environmental factors might include social values, economic growth world-wide and international trade access (tariffs etc.).
- Build four scenarios based on the principal factors. To do this, use information available to you to identify four (or more) plausible and qualitatively different possibilities for each force. Alternatively, identify the two most important and most uncertain factors that are outside the control of organizational strategy (eg., high/low economic growth, good/bad weather, etc.) and develop a matrix of four outcomes based on the two factors. Assemble the alternatives for each factors outcome into internally consistent 'stories', with both a narrative and a table of key factors and scenarios. Build your scenarios around these factors. For instance, a mid-western bank used scenarios to stimulate new ideas for maintaining a strong consumer-lending business in upcoming deregulation. Scenario story lines emerged for 'As at present', 'Heated', 'Belt Tightening' and 'Isolation'.
- With the scenarios in hand, identify business opportunities and risk management strategies within each scenario.
- Examine the links and synergies of opportunities and risk abatement across the range of scenarios. This would help you to formulate more realistic and robust strategy.
For more on AFS:
- See Wikipedia's entry on Scenario Planning.
- See Wendy Shultz's summary of the Peter Schwartz/GBN scenario building approach.
2. To develop Alternative Growth Scenarios (AGS):
Beginning in the mid-1970's, after analysing images of the future in many cultures, Jim Dator of the Hawaii Research Center for Futures Studies, proposed that all futures stories can be categorized into "Four Futures", or Generic Alternative Scenarios (GAS):
- Continuation (usually "continued economic growth")
- Collapse (from one or more of a variety of different reasons)
- Disciplined Society (in which society in the future is seen as organized around some set of overarching values, ancient, traditional, natural, ideologically-correct, or God-given)
- Transformational Society (usually either "high tech" or "high spirit," or both, with the end of some current patterns/values, and emergence of new ones, rather than the return to older traditional patterns/values)
- Continuation (A future in which current key conditions persist, including continued historical exponential growth in certain domains (economics, science and technology (S&T), cultural complexity, etc.) This marginal rate of growth increases the longer S&T have been in use by a civilization. Also known as PTE "present trends extended")
- Limits and Discipline (A future in which we encounter resource-based or values-based limits to PTE. A saturation or "sustainability" regime emerges, slowing previous growth and organizing around values that are ancient, traditional, natural, ideologically-correct, or God-given)
- Decline and Collapse (A future in which at least some conditions deteriorate from their present favorable levels, and at least some critical systems fail, due to either probable, possible, or wildcard factors)
- Transformation (A future of disruptive emergence, "high tech," "high spirit" (consciousness, complexity), or both, with the end of some current patterns/values, and the development of new ones, rather than the return to older traditional ones. This is a transition to an "innovation" regime of new and even steeper growth, rather than the "Continuation" regime)
The baseline scenario expects continuation of the historical (and usually low) exponential growth in select domains, as well as the stably (regular or irregular) cyclic behaviour that is a feature of most environments. Growth/transformation/non-cyclic change always occurs in complex systems, even when conditions appear to be unchanging or cyclic over very long periods.
Because we live in a complex and pluralistic world, all four AGS are likely to occur in some form in the future for any issue, each in various enclaves, under differing circumstances and contexts. To maximize the AGS's value as thinking and planning tools, scenarios for each of the four growth conditions should be written to represent the key opinions that can presently be found for each, treated as independent "schools of thought." For example, if there are presently three significant (and potentially conflicting) schools of thought on the way an institution/strategy/society might Decline and Collapse (i.e., via economics, resources, or values), one or more may be chosen by the scenario writer as key to the Decline and Collapse story, but the other types of declines and those who currently propose them as risks should also be briefly mentioned, with short reasons given as to why those particular factors did not end up being as important as their advocates had expected.
With proper development, the four classic AGS provide a rich set of alternative futures, each of which are likely to transpire, to a greater or lesser degree, depending on the circumstances and stakeholders being described.
1. Dator, Jim. "The futures of culture/cultures of the future," in Anthony Marsella, et al., eds., Perspectives in Cross-Cultural Psychology. Academic Press, 1979. This is Dator's first publication of his Four Futures/GAS model. See also "The Future Lies Behind! Thirty Years of Teaching Futures Studies," American Behavioral Scientist, Nov 1998, for more recent discussion.