Back to the future: The case for scenario planning

During South Africa’s transition from apartheid to a multiracial government in the 1990s, uncertainty abounded. Looking back some three decades later, we can see how scenario planning played a positive role in bringing stakeholders together to tackle the unknown.

Today, in many parts of the world, we find ourselves again facing a large degree of uncertainty. For example, the current wars in Ukraine and Gaza have laid bare an urgent need to factor uncertainty into our strategic planning – something scenario planning is well equipped to do. I urge us to get back to it.

Why do we avoid discussing future uncertainty in the strategy room?

To be sure, uncertainties are broached in organizations’ strategy rooms. However, a common pitfall is that we conduct just a single exercise and then set whatever is learned from it on the shelf.

Ignoring uncertainties renders organizations and society at large vulnerable to incoming threats. At the same time, non-obvious opportunities can pass us by – leaving us to miss out on their potentially valuable benefits.

How do we usually face the future?

In late 2019, before 2020’s pandemic was yet evident, end-of-year executive committee and board meetings certainly discussed their updated strategic plans for 2020 and beyond. Mapping out the next two to three years, strategy teams worked hard to feed their planning processes with sophisticated analyses of the previous year’s facts and figures. Projected prices, market conditions, customers, and competitors were all surely discussed.

And yet, even if looming uncertainty was addressed, it was often on the strategy report’s final page as a brief mention. Shouldn’t we be better prepared now than we were then?

Over 100 years ago, in 1921, Frank H Knight, the idiosyncratic economist at the University of Chicago, wrote a great book called Risk, Uncertainty and Profit. In it, Knight distinguished between two types of uncertainty:

1. Uncertainty risk, in which we know potential outcomes in advance and may even know the odds of these outcomes. Think of rolling a pair of dice, as we know the odds before we roll in a game.  
2. Genuine uncertainty, in which we don’t know the possible outcomes in advance, let alone their probabilities. This is often the case in complex systems, where many actors and forces interact over time, such as in geopolitics, economies, societal transformations, environmental forces, and, undoubtedly, technological changes.

Knight’s critical point is this: genuine uncertainty creates opportunities for profit that are not eliminated by perfect competition. In other words, if we want to innovate successfully in business, we must not only deal with uncertainty but seek it out.

21st century thinking

In their 2001 bestselling book, Mind of a Fox, South Africa-based authors Chantell Ilbury and Clem Sunter look at how we, as human beings, think about events and uncertainty. They offer a useful matrix with two continuums: (1) certainty/uncertainty and (2) control/absence of control.

How we think about events and uncertainty