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Scenario planning: how to navigate multiple crises
Scenario planning is more valuable than ever – but what is it and how can executives implement it effectively? Peter Schwartz, author of the highly influential book The Art of the Long...
Scenario planning is more valuable than ever – but what is it and how can executives implement it effectively? Peter Schwartz, author of the highly influential book The Art of the Long View, explains to David Bach what needs to be done – and why he remains optimistic about the future.
First came the COVID-19 pandemic, millions of deaths and the most traumatic disruption of supply chains in the modern era of globalization. Then came Russia’s invasion of Ukraine, the food and energy crises, and the return of rampant inflation. Only last month, the US shot down a suspected Chinese spy balloon over the waters of South Carolina – the latest snapshot in a real-life movie of rising US-China tensions. If you can conclude anything about the last three years, it is that they have brought upheaval and uncertainty on a level that few of today’s business leaders have ever witnessed. With no sign that these deeply unsettling trends will subside, one question looms large in the boardrooms of companies the world over: how do we plan for the future in an uncertain environment (especially the current one)?
Peter Schwartz, the internationally renowned futurist, business strategist, and currently a senior vice president of Strategic Planning for Salesforce, has devoted his career to answering that question. Through works such as The Art of the Long View, he has helped to create and popularize scenario planning as a strategy and management tool – in the process, guiding generations of business leaders through complex times.
New approaches to dealing with challenges
Tackling a polycrisis
Geopolitical tensions, persistent inflation, economic weakness, climate change, and sustainability. Business leaders are dealing with an unprecedented range of challenges simultaneously, making it harder than ever to know how to prioritize, navigate, and communicate effectively with teams. Scenario planning, listening and leading in new ways are part of the answer. In Issue IX of I by IMD, we unpack new approaches to dealing with the polycrisis that's facing us.
Surveying the landscape, he admits that today’s leaders have their work cut out. “We’re in a really quite remarkable environment where, you know, usually, the kind of context is shaped by say, one or two forces, maybe economic change, or some political disruption, or a major technological change, like the birth of the internet,” he said. “But what we’re getting now is a remarkable confluence of crises … the current moment is about as great [in terms of] uncertainty as I’ve experienced in almost 50 years.”
The return of geopolitics as a force
He shuns the increasingly popular term “polycrisis” to describe that confluence. Yet, in the same breath, he rattles off a list of factors adding to the turbulence. One is the pace with which crises now unfold, accelerated by the internet and the speed of communication in the 21st century. “The speed of change is real, because of the level of communication,” he explained. “That pace has changed things quite fundamentally; it means that forces can play out more quickly and over a much wider area than they ever have before.”
A second characteristic of today’s challenges is the return of geopolitics as a force and its increasing weight compared with economics. “The forces that worked in the world are now shifting the balance away from the market and toward the public sector,” he said. “That is a big shift from the [former US president Ronald] Reagan era when we were saying that it was all about the markets.”
Every time I've been wrong about the future, 100% of the time it was because of the lack of diversity in the room – we were just talking to ourselves, wanting to challenge our thinking- Peter Schwartz
All of that makes scenario planning more valuable than ever, he insists. But what is scenario planning – and how should today’s executives execute it effectively?
In practice, Schwartz says that it has changed little since the publication of his seminal book in 1991. “It’s really very simple. It’s a way of making better decisions in the face of uncertainty, right? We live in a world of great uncertainty, so it’s a way of trying to understand where the world might be headed and testing your choices against the different possibilities to see how they might turn out to enable you to make better choices today.”
A good first step in good scenario planning centers on deep research and analysis, being well informed through media outlets such as the New York Times, Financial Times and The Economist, and having data to hand that can help make sense of trends and forces for change.
But he also says that good scenario planning requires “creative imagination to see how these forces might interact in ways that surprises. It’s deep research, and creative imagination coming together to create unique stories about the future, each of which provides different kinds of contexts for taste, testing, and decision”.
Schwartz believes that this “storytelling” is essential because the ideation it requires helps reveal the threads that link today’s multiple challenges, bringing to the fore not only the fact that many of them are connected but also throwing light on what connects them.
Low-probability, high-consequences scenarios
One of storytelling’s strengths is that, just like a good drama, it leads to the possibility of suspending disbelief – the point at which scenarios that hitherto seemed impossible suddenly become plausible and even realistic.
“A lot of people ask me to put probabilities on a short-list of five scenarios, and I say: that’s the wrong question because if you ask that question and answer it, you tend to discard what you believe to be low-probability scenarios,” Schwartz said.
That approach would have overlooked what he calls “low-probability, high-consequences scenarios” such as a global pandemic threatening the world economy in 2020 or of war returning to the European continent in 2022.
Peter Schwartz is currently a senior vice president of Strategic Planning for SalesforceAnother essential ingredient to good scenario planning is to talk to different people to ensure that they harvest as wide a spectrum of views as possible. “Every time I’ve been wrong about the future, 100% of the time it was because of the lack of diversity in the room – we were just talking to ourselves, wanting to challenge our thinking,” Schwartz said.
To avoid this potential myopia, business leaders need to reach out and speak to what Schwartz calls “remarkable people … people who have their fingers on the pulse of change”. To illustrate the idea, he recalls the time when British musician and singer Peter Gabriel was asked how he would respond to the advent of compact discs and the technological possibility of people being able to make perfect copies of his music. Gabriel’s response was simple: he would consider the copying as free advertising and piggyback off it through lucrative live concerts. “Peter saw that six, seven years before everybody else,” said Schwartz.
We now live in a world with multiple sources of power. These new power centers are going to reshape global geopolitics, including global trade, which means that we're now going to see a much more complex trading system- Peter Schwartz
Does the need for scenario planning necessarily mean taking your eye off the near term? Not a bit, Schwartz argues. “It’s not an ‘either, or’ – you have to be profitable today, and you’ve got to make decisions that are short-run operational decisions,” he said. “But if you ignore the long run, then you’re likely to find yourself in places you don’t want to be, you’re going to find new kinds of competitors emerging, you’re going to find technologies emerging you’re not prepared for or, worse, you’ll find conditions that undermine your business that you’re not prepared for.”
Increased chance of conflict
So, what are the big factors on the horizon that scenario planning should factor in today? According to Schwartz, at least two big themes are emerging beyond the obvious issues of global warming and the rapid rise of artificial intelligence, as well as the potential for fusion and other energy related technology.
One is the shifting tectonics of geopolitics and, in particular, the emergence of a world no longer dominated by Europe and the US but one in which multiple power centers compete for control. “We now live in a world with multiple sources of power,” he said. “These new power centers are going to reshape global geopolitics, including global trade, which means that we’re now going to see a much more complex trading system.”
Singer Peter Gabriel remained ahead of the curve in a rapidly changing music industry.They could also spell increased chances of conflict. “What happens if a war between the US and China breaks out? That is a real possibility today, in a way that it wasn’t, say, a decade ago,” he said.
At the same time, global demographics are changing rapidly, with potentially huge implications for this generation and the ones to come. One theme is the little-discussed fact that the human population aged 65 and over is now greater than those aged five and under. “We’re going to see a big shift in the nature of the workforce, in education, in the military,” he said. “And we’re already seeing its effects in the dramatic problems around the world with birth rates and growth rates in many, many countries.”
A second demographic theme is the rise of China and, in particular, the rapid emergence of an aspirational middle class – “the interests of literally several billion people trying to get rich work towards keeping things peaceful and prosperous”.
Could that help to defuse some of the potential tension between these increasingly rancorous power centers, offering humanity a common goal in the form of shared prosperity? “I tend to be somewhat more optimistic,” Schwartz said.
“But if you look at the long trajectory of human history, we are so much better off today than we’ve ever been in human history; that leads me to say the odds are in favor of a better route.”
Times change but the principles remain the same
Scenario planning is a valuable tool for strategy development and strategy testing. Peter Schwartz’s groundbreaking book The Art of the Long View remains the go-to guide on how to do it. The classic text, filled with practical advice and piercing insight, remains as relevant today as it was when first published in 1991.
Scenario planning is not about predicting the future but rather challenging yourself and your organization to develop a point of view about which external factors truly matter and how they could impact you.
In these turbulent times, it can feel like we need entirely new approaches; that everything is new. Yet, The Art of the Long View reminds us that companies and their leaders have always had to contend with uncertainty, and that the amount of uncertainty in the environment ebbs and flows. However, being better than others at anticipating and future-proofing your business has always been a critical source of competitive advantage.
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