Why the future of AI marks the end of scenario planning

 AI-based technologies will change our lives, our businesses, and our societies – but the fact is, nobody knows to what extent, or even what the specifics will look like. While some aspects of the current hype around ChatGPT might disappear, the recent developments are substantial, multidimensional, and exponential, and create positive feedback loops that accelerate themselves.

Our world changed forever in the moment that Ashish Vaswani at Google and his co-authors published their paper “Attention is all you need” in 2017, suggesting a new machine learning architecture. That was the paper that enabled the development of transformers, on which all GPTs (generative pre-trained transformers) are based.

Generative AI has already changed jobs and processes, led to strikes, enabled new customer interactions, and forced governments to work on new regulations. The results of a representative research study I conducted in October 2023 among Swiss non-executive board members show that artificial intelligence ranks as the most crucial topic that boards must pay attention to. There is a clear consensus that both the benefits and risks of generative AI are vast.

Because the development of AI is based on technologies that indicate exponential progress, forecasts are impossible. This is especially true as developing technologies are interacting with each other. My thought experiment went like this: I researched a list of technologies that interact with the development of AI, which resulted in 24 entries (see box). In other words, we need to follow the trends of 24 technologies. If we now calculate (using ChatGPT-4) how many interactions 24 technologies have, we learn that there are 16,777,239 combinations of cross-fertilization that we should follow. Clearly, this is not possible, which poses a problem for strategy development.  

Why scenario planning is not working 

Every strategy has three components. We must analyze and diagnose the external environment and our internal resources and capabilities. Once we can answer the question “What the heck is going on?” with a coherent narrative, we must identify choices involving significant strategic trade-offs. Finally, once we decide, we need to align the resources and actions within the organization.

Scenario planning is the established methodology to deal with uncertainty in the external environment. Scenario planning was developed within Shell about 50 years ago. The main unknown was the oil price development, which was affected by a set of other developments (see Figure 1).

Once the main scenarios are understood, strategic initiatives can be planned. These initiatives are proactive steps the organization can take to navigate or capitalize on the potential futures envisioned in the scenarios. Organizations often use the Three Horizons Framework by McKinsey to manage and prioritize these initiatives. This framework categorizes initiatives into three “horizons” based on their time frame and nature: 

• Horizon 1 focuses on core business activities that ensure current profitability and stability. 

• Horizon 2 involves emerging opportunities that may require substantial investment but promise future growth. 

• Horizon 3 envisions long-term transformative ideas or innovations that hold the potential to reshape the industry or organization’s future. In other words, Horizon 3 initiatives consider investments in resources and capabilities that will likely be the foundation for a competitive advantage in the future, even if the future business model is unknown.