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EUROPEAN
BUSINESS
JOURNAL

Scenario planning as a strategy

technique
Julie Verity
Scenario techniques have been available as strategy tools for 30 years. However,
despite their ability to help managers distinguish critical signals from general
environmental noise, they have failed to become widely adopted in companies
planning processes. This paper will consider some reasons for this failure and
will argue for greater use of what is a very relevant tool in business environments
that are increasingly complex, changing and global.

Julie Verity,
Cranfield School of
Management

Introduction
Scenarios were first developed and used as business
planning tools as long ago as the 1960s and 1970s.
Since then they have been adopted and
permanently embedded in planning cycles and
procedures by some long-term believers like Shell
(the Anglo/Dutch Global Oil Group), but have
not become a widely used technique in businesses
generally. Governments, NGOs, countries and
think-tanks publish their scenarios, whereas the
majority of companies usually do not, making it
difficult to judge how widespread their use truly is.
A survey in 1979 (Klein and Linneman, 1981)
estimated that between 8% and 22% of the
Fortune 1000 had made some use of scenarios.
Address for correspondence: Cranfield School of Management,
Cranfield, Bedford MK43 0AL, UK.
E-mail: [email protected]

Another survey in 1983 among European

companies (Malaska et al., 1983) showed a higher
percentage of users, when it was also noted that
the definition of scenarios varied widely as well as
the way that scenarios were used.
Consultants and futurists, however, report their
frustrations with managers who do not maximise
the return they might get from using scenarios
more widely in their organisations. Among MBA
students and executives, there is a general lack of
exposure to scenario thinking compared with the
generally well-known five forces model from
Michael Porter of Harvard and the ubiquitous
PEST framework (i.e. political, economic, social
and technological drivers of environmental
change). This apparent lack of use of the
technique is not due to poor support in books and
literature. In fact Michael Porter wrote positively
and in some detail about what he called Industry
Scenarios at the same time as he was publicising
his other strategy models (Porter, 1985), which
have become widely adopted and used by
management.
Scenario techniques are very flexible. They can
be applied to almost any business issue that
contains degrees of uncertainty. They are best
known for their corporate, high-level, global and
long-term use, but the techniques can be used to
answer very specific issues of competitive strategy,
marketing and organisational capability. The
paradox is that this very flexibility and widespread
European Business Journal 2003

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applicability seems to limit their general
acceptance in everyday organisational use. It is a
difficult technique to define and describe.
There are different schools of thought about
what scenarios are for, how scenarios should be
built and when they should be used. There are
reasons why managers will resist or reject using the
technique.
This paper explores the potential of scenario
planning as a strategy tool. It highlights the
obstacles to its use as well as the benefits of
adopting the practice. The aim is to help managers
make an informed decision about if and when to
include scenario thinking in their strategy process.

What is scenario planning?

It was Herman Khan and his associates at the US
company the Rand Corporation, in the 1950s and
1960s, who first started building scenarios. Their
objective was to explore how nuclear war might
erupt between the USA and the Soviet Union by
describing possible logical paths to different
outcomes in the future. Khan pioneered the
technique of future-now thinking, aiming through
the use of detailed analysis plus imagination, to be
able to write a report in the present as if it was
being written at some date in the future. The name
scenario was given to these stories by the writer
Leo Rosten, which he suggested on the basis of
Hollywood terminology. Khan was attracted to the
term because of its emphasis on creating stories
since he was trying to avoid his future reports
being seen as a series of forecasts (Ringland, 1998).
Into the 1970s the technique was extended, by
Khan at Rand Corporation and later at the
Hudson Institute (an American think-tank, which
Khan set up) for corporate use and for application
to thinking about societies in general.
General Electric (the US conglomerate) was
one of the first companies to use the technique in
the 1960s and 1970s, but it was Pierre Wack at
Shell and Peter Schwartz at SRI International
(Stanford Research Institute at Stanford
University) during the 1970s and 1980s who really
introduced scenario planning to management as a
strategy tool. Pierre Wacks classic Harvard Business
Review articles describing Shells work during this
period were published in 1985.
Intuitive style
The approach taken by Shell and SRI mirrored
Khans philosophy that scenarios were not forecasts
or predictions about the future, in fact quite the

186
opposite, they were built from the belief that the
future was uncertain and unknowable. As Peter
Schwartz (1991) emphasises in his book, The end
result is not an accurate picture of tomorrow, but
better decisions about the future. The idea was to
construct credible pictures of a point in the future
that could be used to test the robustness of longerterm strategies. The concept was predicated on the
experience these thinkers had of the poor accuracy
of forecasts. They argued that forecasts were
extensions of past experience and trends which were
only reliable in relatively stable environments and
that these were increasingly irrelevant in the
business world. Also, forecasting had no mechanism
for searching for discontinuities or major changes,
which were of significant interest to strategists.
Shell and SRI developed Khans original idea
and espoused a specific approach to building
scenarios, one that favoured storytelling, creative
thinking, imagination, informal methodology and
the use of qualitative, subjective information. This
school of scenario planning has been described as
intuitive (as compared with formal) (van Notten
et al., 2003). Practitioners and proponents of this
school acknowledge that at least part of their
scenario process is art, as can be witnessed in the
titles of their books and papers: The Art of the Long
View (Schwartz, 1991), The Art of Strategic
Conversation (van der Heijden, 1996) and The
gentle art of reperceiving (Wack, 1985).
Peter Schwartz defined scenarios as:
alternative, plausible stories of how the world may
develop. He emphasised that the outcome was not
an accurate forecast of future events, but a deep
understanding of the forces that might push the
future along different paths. As an example he
cited Shells Group Scenarios of 1983, called:
Incrementalism and the Greening of Russia. The
Greening of Russia scenario told about a virtually
unknown man coming to power followed by a
massive economic and political restructuring in
Russia. It was not that this man, as an individual,
would cause the changes. Rather, that his arrival in
power would be a symptom of a set of underlying
causes and circumstances.
The Greening of Russia story also provides a
good example of why Shell revise and renew their
scenarios every two to three years. Shells practice
is to share current scenarios with external bodies
and when the Greening of Russia was presented to
Soviet experts in government agencies, it was
almost universally rejected as implausible. The
problem that the Soviet experts had with Shells
story was one that is common to managers in

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By building alternative
scenarios different pictures
of the future and challenging
strategies for robustness in
these different possibilities,
managers would have a
superior context for developing
long-term strategies and for
developing shorter-term
contingency plans

organisations and people everywhere, which is that

views about the world are formed from the present,
from the reality of today. Managers make sense of
the world by looking at it through eyes which
reflect their own mental maps. The world looks
different according to the knowledge and
experience that they have, according to the
thoughts that influence them and the way other
people around them think. It is on the basis of this
selective reality (i.e. limited information) that
strategists derive strategies, marketers make plans
and managers allocate resources. Schwartz and
Shell proposed that building scenarios enabled
management to challenge the implicit assumptions
that were held commonly in the organisational
mindset and to broaden their views. By building
alternative scenarios different pictures of the
future and challenging strategies for robustness in
these different possibilities, managers would have a
superior context for developing long-term
strategies and for developing shorter-term contingency plans.
Formal style
Whilst Khans work evolved into the intuitive
approach adopted by Shell and SRI, another style
of scenario building was emerging. Two of Khans
colleagues from Rand Corporation developed tools,
expert judgement and cross-impact analysis, for use
in formal scenario building when they moved to
the University of Southern California. This
approach to scenario planning emphasised the use
of computers, models and processes grounded in
analytical rigour. In the 1980s this methodology
was adapted by Battelle, the US-based consulting

187

group. A new process was developed by Battelle

plus a software product (now called Interactive
Future Simulations) to support it. Analysis and
calculation form the basis of this style of scenario
methodology which was very different from the
more informal, creative, imaginative school
practised by Shell and SRI.
Meanwhile, during the 1970s, the Futures
Group (a US strategy and policy research firm)
developed another approach to scenario planning,
based on trend-impact analysis. This evolved
further when adapted by consultants Deloitte &
Touche, by adding aspects of the Shell/SRI process.
One of the reasons why scenarios are not
adopted more widely is this divergent set of
methodologies and the different emphases on
quantitative or qualitative input. It is difficult for
managers to sift through the different approaches
and know, with confidence, which one to adopt for
which business issue. Also, while the division into
intuitive and formal styles helps potential users
understand different methodologies, it is also
misleading. Shell, for example, while naturally
aligned with the intuitive school, would argue that
its stories are credible and built on formal analysis,
trend data and quantitative information as well as
subjective ideas, feelings and imagination. The
example presented in Ringlands (1998) book to
describe the Battelle process shows that managerial
judgement is a fundamental part of the input to
computed simulations.
Therefore, describing what scenario planning is
and choosing a scenario process is not
straightforward. To quote Schoemaker (1993):
The term scenario has many meanings, ranging
from movie scripts and loose projections to
statistical combinations of uncertainties.

Scenario thinking and

scenario planning
In a review of 70 scenario studies, van Notten et
al. (2003) proposed a classification of scenarios
along several continuums. One of these was the
formal and intuitive classification discussed
above. Another addressed the purpose behind
starting on a scenario planning exercise. Their
research revealed a range of reasons why
organisations embraced scenario planning,
stretching from exploration to decision support.
At the exploration end of the continuum, the
key objective for organisations in engaging in a
scenario process is the potential to learn. Living

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through the process of: formulating the business
question or issue; data collection and gathering;
assimilating the information and crafting narratives
or generating modelled outcomes, is essentially a
learning process. Those involved broaden and
deepen their understanding of the forces driving
the business, of the trends which might influence
the future of the organisation, or gain a better
knowledge of some of the uncertainties that could
impact the business. When used for this purpose,
the process itself becomes very important, at least
as important as the scenario outcomes and the
implications for future strategies.
Adding probabilities to support decision-making
The opposite view is that building scenarios is not
the primary purpose, rather it is applying the
outcomes to strategy making that is important, i.e.
using the scenarios to support strategic decisions.
When this is the purpose of engaging with a
scenario exercise, it is common to find probabilities
attached to the various scenario outcomes. For
example, four scenarios were developed by Battelle
in 1988 for a US IT company which had successful
businesses in Europe (Millett, 1992). The CEO of
the IT company was interested in how the
convergence of the European Community toward a
single market after 1992 would affect the European
businesses. He was clear that the objective was to
develop different possible future market
environments within which he and his team could
formulate strategic directions and contingency
strategies. Of the four scenarios generated, one was
described as the most likely and was called EC
1992 Works. This painted a relatively optimistic
story of the EC attaining many of its market
cohesion goals by the end of 1992. In this scenario,
the level of IT market growth was estimated as
medium to high. A second scenario was titled EC
1992 Disappoints and painted a picture of a slower
evolution toward a single market. In this scenario,
moderate IT growth could be anticipated. The EC
Fails was the pessimistic story where no real
progress was made and consequently IT growth
would be poor. Finally, scenario four was called
The US of Europe and set the scene for better
than expected attainment of all the goals of the
Community and where IT market growth would be
very high.
As a result of this exercise, the company
implemented various strategic moves including:
expanding its presence in Europe, especially its
marketing and service networks with the aim of
maintaining close customer contact; committing to

188
an office in Brussels; and revising and extending
the scenario thinking to 1995.
Reasons to actively avoid adding probabilities
Purists from the scenarios as learning school argue
strongly against adding probabilities to scenarios.
The underpinning philosophy they adhere to is to
allow the mind to open and think the
unthinkable, i.e. think outside of the existing
organisational paradigm. This is why Shell makes a
distinction between Scenario Planning and
Scenario Thinking: Scenarios ... are stories that
are concerned more with strategic thinking than
with strategic planning, and more specifically with
the quality of the thinking. As we enter these
alternative stories, we are guided to practise a
flexible approach to the future and to alter our
mental maps. Scenarios attempt to look beyond
our more limited mind-sets, recognising that
possibilities are influenced by a wide range of
people and that many views of the world are
different from our own (Davis, 2000).
Proponents of this use of scenarios argue that
strategies should be tested for their robustness in all
the alternative futures that scenario thinking
generates. It is not about choosing which one is
more probable. Advocates of the learning style
argue that adding probabilities turns the scenarios
into forecasts. Therefore, when used for learning
and for challenging the prevailing organisational
mindset, the advice is to avoid probabilities or
calculations of likeliness, which are typical of the
decision support notion. To prevent any chance of
this happening, Shell only present two scenarios at
each strategy review. Experience has shown that if
three scenarios are produced, there is a tendency for
the optimistic, pessimistic and compromise most
likely stories to be the result. The compromise
story is then used as the basis for further strategic
planning and the original purpose of stretching
minds and challenging assumptions is lost as
managers take the easy middle-of-the-road option
which is probably very close to the ideas they held
the organisational paradigm before starting on
the scenario exercise. As Porter (1985) pointed out:
Every plan is based on an industry scenario in one
form or another, though the process is frequently an
implicit one. He was an advocate for practising
scenario techniques in strategy formulation. He
recognised that the assumptions managers used as
background to generating their strategies were
rarely made explicit or challenged. By
acknowledging the uncertainties, he foresaw much
improved strategy outcomes.

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Level of analysis

Global, complex, long-term scenarios

The World Business Councils scenarios have a fiftyyear time horizon and were produced in order to:
explore sustainability at this juncture in human
history and to raise fundamental questions of how
humanity defines itself and how each one of us
comes to terms with the challenges of the 21st
century. From this objective, three scenarios were
built as a result of extensive interviews with opinion
leaders and companies from around the world. Each
of the three stories described possible worlds in 2050
and were called, FROG!, GEOpolity and Jazz. They
are summarised in Table 1.
From these different global, long-term pictures
of the world, the researchers concluded different
challenges for businesses and prescribed very
different strategies. The predominant theme of
FROG! is that people, institutions, governments,
do not engage with the sustainable environment
debate. There is a trust in the power of new
technology to deliver solutions and a propensity to
leave the problems for others to solve. As a result,
the environment gradually deteriorates. In this
FROG! world, a strategy of preparedness is
prescribed, so that if/when there is a shock,
companies are ready to deal with it. Taking
precautions is another part of the strategic advice
and being vigilant, attentive and alert for when
companies might have to take action. Whereas in
Jazz, a world in which economic growth has
embodied environmental values, businesses need
to get involved early in working with stakeholders
on environmental matters. And in GEOpolity, a
world where the environment gains significant
importance, business strategies need to focus on
contributing to and, where possible, shaping the
debate about new institutions. In this world,
businesses will do best if they are in a position of
influence.

Scenarios have been developed for countries, for

regions, for issues (the future of crime, the future of
women) and for institutions. Among those
examples developed for organisations, there can be
many levels of analysis, from global, external,
environmental to focused, internal issues. The
length of the time period considered tends to
correlate with the scale and scope of the exercise.
For example, compare the World Business Council
for Sustainable Development scenarios 20002050
(Davis, 2000) with Porters (1985) theoretical
example using scenario analysis to develop a
competitive strategy for the US chain saw industry
in 1973.

Focused, narrow scenarios

A completely different example is to be found in
Competitive
Porters
classic
textbook
Advantage(1985). He provided a theoretical
example of how to use scenario techniques to
formulate a competitive strategy for the chain saw
industry in the USA in 1973. Whilst he advocated
broad thinking about the external environment,
he focused on his industry structure model as a
framework within which to construct different
competitive scenarios. He tested each of the five
forces specific to the US chain saw industry at
that time for unknown elements and found four of
the forces harboured degrees of uncertainty. (See

Experience has shown that

if three scenarios are
produced, there is a
tendency for the optimistic,
pessimistic and compromise
most likely stories to be the
result. The compromise story
is then used as the basis for
further strategic planning and
the original purpose of
stretching minds and
challenging assumptions is
lost as managers take the
easy middle-of-the-road
option

Shells aim in restricting their global strategies

to two is to tell alternative stories which will strike
a balance between provoking thinking while not
being rejected as fanciful escapes from reality (see
below for the importance of attaining this
balance). The two scenarios they produce are both
plausible and credible stories about the future.
Managers are asked to construct strategies that will
be robust in either world.

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TABLE 1: World Business Council scenarios for 2050

FROG!

Many people live perfectly fine lives in this world, but at the global level,
environmental health is deteriorating. Although population growth has been
slowing, the worlds population exceeds 11 billion people and this growth
together with the growth in economies around the world results in the
environmental burden increasing dramatically over what it was in the 1990s.
Natural resources are stretched especially water.
There is a rise in health problems and concern about the potential
for plagues. Passing notice is given to the disappearance of particular
species. The slow deterioration of the environment happens over time,
against a background of economic growth, so that whatever signals might
have raised the level of public concern tend to be misread. In most cases,
these signals are not even observed.

GEOpolity

This is a world of highly coordinated environmental and social initiatives in

which the resources and persuasive powers of a number of groups are
harnessed for specific actions on a global scale. In response to perceived
crises, consensus emerges surprisingly rapidly through highly interactive
informal means especially internet conferences, grassroots interactive
cable conferences, and TV-ad broadsides from powerful NGOs. It is a world
of big projects and of innovative institution-building.

Jazz

In the world of Jazz, diverse players join in ad hoc alliances to solve social
and environmental problems in the most pragmatic way possible. The key
note of this scenario is dynamic reciprocity a give and take that is keenly
attuned to the opportunities of the moment and, at the same time, alert to
the ways of incorporating long-term values into strategies for commercial
success. This is a world of social and technological innovations,
experimentation, and a powerful ever-changing global market.

Figure 1 for a summary of the uncertain elements

Porter identified.) From the long list this
generated, uncertainties were categorised into
dependent and independent uncertainties, and
dependent ones (e.g. future levels of TV
advertising, which was dependent upon the future
demand of casual users) were discarded for the
purpose of constructing scenarios. As with all
scenario methodology, the fundamental forces
which are likely to influence and change the
structure of the industry are the key building
blocks for the scenarios.
Four important, independent uncertainties were
identified from this analysis (casual user demand
would it be low, medium or high; how quickly this
demand would grow; which distribution channels
would be favoured dealers or non-dealers; and
the mix of sales of private label compared with
branded chain saws) which when tested for
consistency and interaction with each other,
generated ten plausible scenario outcomes. From
these, highly specific competitor moves could be

played out. For example, one of the scenarios

highlighted the possibility that the casual user
market for chain saws would not become
significant. In this outcome, the question of how
key competitors would react was explored. Would
they invest in this market anyway? What strategy
should near competitors plan to take if they did?
Another scenario played out events that led to
private label dominance in the casual user market.
In this situation, questions were raised about how
branded suppliers might react would they retreat
to traditional segments? In another scenario, the
casual user market is a fad and competitive
advantage can be won if branded suppliers who
have served the professional market maintain their
strength in this traditional segment and are not
tempted into the casual user segment. (For a
detailed account of this scenario analysis, see
Porter, 1985, Chapter 13.)
The level at which scenarios are constructed,
the degree of uncertainty and the scope they set
out to embrace are further criteria for dividing

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FIGURE 1: Uncertain elements in the US chain saw industry (adapted from Porter, 1985, p. 454).
Entry barriers
Uncertainties include:

How high any future scale

economies might be, in both
manufacturing and marketing.

How easy/difficult it might be to

gain access to distribution
channels.

Will safety legislation change or

be introduced?

Suppliers

Rivalry

Buyer power

This force harboured few

What will existing competitors do

What level of fixed costs?

in response to new entrants?

The future level of casual user

uncertainties.

Will incumbent manufacturers

demand is unknown and timing

exit?

of it.

How fast will the casual market

segment grow, peak and reach

Which segments will develop

relative to others and at which

maturity?

speed?

Will private label take-off?

Price sensitivity of buyers is

unknown.

Which channel to market will be

favoured?

Substitutes

The extent to which electric

powered saws will replace petroldriven chain saws.

scenarios into finer taxonomies. Are they global,

broad scope and long term as in the World
Business Councils scenarios, or are they focused,
narrow and short term, more akin to the example
Porter provides? Narrow or focused does not mean
they exclude uncertainty and does not necessarily
imply a reduced number of scenarios as a result as
Porters worked example demonstrates with ten
plausible scenarios generated.
Scenarios are adaptable and flexible in use
Scenarios at different levels of analysis are often
complementary. A first exploratory, broad exercise
which looks globally can be supplemented with
decision support scenarios focused on investigating a
specific issue, industry, business or topic. Porter

extols the virtues of this approach: In some

industries scenarios are best constructed by starting
inside the industry and looking outward for
additional sources of uncertainty. In other
industries, it is more appropriate to begin with
macroscenarios and then narrow the focus to the
industry. Macroscenarios can provide important
insights into possible industry changes. They can
expose possible shifts in macroeconomic, political,
or social variables that are not foreseen in a more
industry-centred view of the external environment.
By macroscenario, Porter is referring to changes that
might occur outside of his industry structure forces,
i.e. those that are covered by the PEST model.
Similarly, the World Business Council global
scenarios are designed to stimulate broad

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discussion on the challenges of sustainable
development for business. The recommended next
step is for businesses to use these as a platform for
more focused industry scenarios which incorporate
local business issues. In their turn, the focused
scenarios could stimulate the review of existing
strategies and creation of new ones.
Scenario techniques are very flexible. They can
be applied to almost any business issue that
involves degrees of uncertainty. They are best
known for their corporate, high-level, global and
long-term use, but the technique can be used to
answer very specific issues of competitive strategy
(illustrated above), marketing problems or
problems of organisational capability. Market
research for new product development, for
example, is cited by Millett (2003) as an area
where the use of scenario thinking led to a
successful new product launch. He described how,
in the mid-1990s, Battelle worked with a
household products company to think about
cleaning products for the future by exploring
consumer trends such as an ageing population,
more households with two wage-earners, growing
concerns about health and welfare. From these
trends emerged future consumer values of
convenience, speed and thoroughness that led, at
the turn of the millennium, to the successful
launch of a new hygienic, disposable wipe for
cleaning surfaces effectively and quickly.
A focused scenario technique was similarly used
to investigate the next ten years of the UK autogas
(liquefied natural gas (LNG) as an
environmentally friendly replacement for petrol)
market in the light of the development of cleaner
petrol, inner-city pollution problems and the
prospect of hydrogen-fuelled automobile engines.
The scenario outcomes were used to test how
effectively the assets, capabilities and culture of the
company doing the research could deliver autogas
in the different worlds the scenarios described. The
same approach was used to highlight significant
gaps in the organisational capabilities of a UK
insurance company operating in the commercial
market segment. Risks for the near-term future if
contingencies were not resourced with some degree
of urgency were clear in both instances. For
example, in the autogas exercise, the flexibility of
the logistics capability serving the fuels network
could not cope with consumer expectations in two
of the three scenarios developed. Given the length
of time required to build this capability, it was seen
as urgent to make some plans for strategic
investments in distribution. This was especially

192
important since it was clear that the closest
competitor was in a stronger position with a more
flexible system already in place.

Why scenario techniques

are not used
Cost
The very flexibility and applicability of scenario
techniques appear to mitigate against their use.
There are different methodologies to adopt, which
to the infrequent user appear confusing. Matching
the methodology and the level of analysis to the
business issue and the purpose underpinning the
exercise is not straightforward. Added to this,
there is the commonly held view that a scenario
process will be expensive in terms of employing
large amounts of resources in the organisation. It
often requires multiple inputs and quality is
definitely improved if a team is involved. While
proponents argue that this broad engagement is
beneficial in that more people own the outcome
and teams are built in the process, the cost
argument is rational and hard to overcome. Millett
(2003) suggests that a scenario team might consist
of 510 people who meet regularly and broaden
participation by running workshops. They conduct
interviews and have to do research. This could
take 50% or 100% of a few managers time over a
period of anything up to six months. Often
facilitators or consultants are used. Millett suggests
that costs could easily reach US$600 000 for a sixmonth exercise, a real reason why SMEs (small
and medium-sized enterprises) would choose not to
engage in the scenario planning process and why
major corporations only use the technique once
every three to five years at best.
While there is a significant investment in the
broad, large-scale and long-term scenario exercises
similar to that completed by the World Business
Council, scenarios focused on making shorter-term
business decisions more akin to that suggested by
Porter are much less resource-intensive. The study
for the UK autogas market, for example, was
completed by one person, part-time over a period
of three months. Ten one-to-one interviews and
two workshops were conducted over the period,
complemented by desk research. From this work
significant insights into the future strategy of the
organisation were made. Recommendations
included actions that could be implemented
immediately plus ones that should be made over
the next five years.

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Whilst it is clearly important to consider the
potential investment and commit to the resources
required before engaging in a scenario exercise, the
costs need not always be high. One size does not fit
all, scenario processes are flexible and can be cut to
fit the size of the business issue being addressed.
Confidence and uncertainty
The underpinning philosophy of scenario thinking,
that the future is uncertain and cannot be
predicted, is often difficult for managers to accept.
While it is a common experience that plans go
unrealised or need to be changed because of
changing external events, confidence in forecasting
persists often with the belief that with better models
and tools it will even improve over time. Because it
is difficult for managers to accept that uncertainty
and risk cannot be planned out of the future, they
display a preference (a greater acceptance and
understanding) for scenario approaches that include
adding probabilities. From his experience, Millett
(2003) argued that the stubborn avoidance of
forecasting and prediction by purist scenario
practitioners in their prescribed methodologies was
one reason why the technique lacked popularity.
The research literature provides explanations of this
managerial bias of overconfidence in their ability to
predict and control.
Evolutionary psychology theory provides the
most fundamental explanation (Cosmides and
Tooby, 1997). It asserts that accepting uncertainty,
recognising it as inevitable and living with it, goes
against the grain of human nature. It is human
instinct to downplay risk. Confidence in leaders is
a virtue that is appealing and naturally attracts
followers. Even before business existed, in preindustrial and tribal societies, it was beneficial for
individuals to display confidence. Gradually, over
time, this trait has been selected-for in our
population. Evolutionary psychologists explain
that as a consequence, the human mind has
evolved to be overly confident, which in the
highly risky days of our ancient past helped ensure
our survival.
Today, in the business world, this characteristic
still confers advantage on managers who are often
selected as leaders for their confident attitude. The
downside, however, is that there is a tendency to
believe and act as if no problem is outside
managements control. Experience and complexity
theory informs us that the world is not controllable
and that random events occur frequently, but it is
hard-wired into human nature to ignore the
evidence that supports this. Organisational life and

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strategy itself tend to reinforce these human

instincts that everything can be planned and
organised. Reality is hard to see and if left
unchallenged, our minds will instinctively accept
the optimistic view that everything can be
controlled (Nicholson, 2000).
Evolutionary psychology also provides an
explanation for managers natural preference for
analytical frameworks such as PEST and SWOT
(Strengths, Weaknesses, Opportunities and
Threats). Survival chances in the ancient past
were enhanced if we made swift judgements that
could be acted upon quickly. The learning
mechanism we evolved to enable us to do this was
categorisation or stereotyping. We are therefore,
naturally inclined to sort phenomena that are
alike, but different, into labelled boxes or onto lists
under headings. It is simple, quick and helps make
decisions. These are all essential characteristics for
survival, but will not give any depth of
understanding, thus potentially trapping the
individual into a lifetime of reactive strategies.
Schoemaker (1993) investigated the psychological basis of scenario planning. He took as one
of his starting points managerial overconfidence:
Numerous behavioural studies have demonstrated
how poorly calibrated peoples subjective
probability judgements tend to be. The reasons for
such overconfidence can be several, ranging from
general optimism to corporate or individual blind
spots. From this point he conducted a range of
experiments to test how, if people were asked to
consider different scenarios, their confidence about
their own decisions for the future were affected. He
found that when people engaged in scenario
thinking their confidence in their own judgements
about the future decreased. He also found that
people were more open to consider the possibility
of events that they had not experienced, could not
imagine or could not recall from memory. This
meant they became more open to other ideas and
views than those they held personally. However, if
the scenarios they were presented with were
extreme, because they could not be believed,
peoples beliefs remained unchanged with a
tendency to be more anchored to their own ideas.
Therefore, the natural instinct of human beings
to be overconfident makes adopting the
exploration style of scenario thinking difficult to
accept. But, taking this approach does appear to
bring the benefits of opening minds to other ideas
as well as increasing the doubt management might
have in the one future they have anticipated in the
corporate plan.

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Wack (1985) also observed managerial
resistance to ambiguity and uncertainty during his
working experience with managers practising
scenario thinking. He noted that this resistance
increased with management seniority. He
explained that this was due to senior managers
training and the expectations put on them by the
organisation that they should exercise judgement
and provide definitive answers, not appear weak
with answers of, it might be like this, then again, it
might be like that. However, he did consider this
to be, at least in part, an outcome of history, senior
managers having spent the majority of their careers
to that time (he talked about the 1950s and 1960s)
within one company and in highly predictable and
stable economic environments. He foresaw that
the world was changing and that this would
influence the experience of future managers, who
he anticipated as a result, would become more
open to the challenges of complex, turbulent
environments.
While most thinkers and managers would agree
that the corporate world has become more chaotic,
there has also been a trend toward celebrating
strong, individual corporate leaders who appear
almost single-handedly accountable for corporate
direction and strategy, communicated to
shareholders and investors with conviction and
certainty. These leaders are required to know what
value the organisation will deliver to shareholders
and investors next quarter, next year and further
into the future with clarity. Scenario techniques
might not meet the needs of these leadership
pressures or fit comfortably with this leadership
style, since the scenario building process is
powerful because it draws on numerous players and
viewpoints and, ideally, it is a consensus building
and legitimising device that should not be
entrusted entirely to the corporate elite.
Organisational culture and diversity
In a study by Graetz (2002), different groups of
managers from the same telecommunications
company were asked to build scenarios around a
common issue, following a prescribed process. Prior
to the exercise, each individual completed a
psychometric assessment designed to analyse
preferred style and behaviour in terms of right- and
left-brain thinking (rational versus imaginative)
and for team working. Comparing the outcomes
showed how different styles dominating each group
resulted in different emphases in the scenarios
produced. The group that performed very poorly at
delivering creative, plausible and consistent

194
Organisations that try hard to
maintain and respect diversity
of views among their
managers will find using
scenario techniques easier as
well as being more likely to
deliver quality outcomes

scenarios (the studys criteria for successful scenario

outcomes) was one that was dominated by rational
thinkers and individuals with no strong
predisposition for team work. Where rational,
analytic and systematic approaches to problemsolving were not dominant in a group, the
scenarios were creative and to some extent,
plausible, but lacked consistency.
While this is not surprising, building the team
to participate in a scenario exercise appears to be
more crucial to the outcome than is the case using
other planning tools. It is a methodology that
requires multiple inputs in order to generate
thought-stimulating outcomes. By its very nature,
it will deliver better results if the people gathering
and interpreting information for model building or
crafting into stories are not limited by a narrow
view or single way of thinking. Therefore,
organisations that try hard to maintain and respect
diversity of views among their managers will find
using scenario techniques easier as well as being
more likely to deliver quality outcomes. Similarly,
employing the technique in these organisations
will be particularly useful as a means of engaging
the multiple perspectives that exist and embracing
them in a framework for thinking about strategy.
A second finding of the same research,
however, indicated how difficult diversity of
thinking was to achieve. Despite a critical mass of
creative thinkers, the dominant culture of this
telecommunications company was analytic,
rational and systematic. So that when put under
pressure, groups that were naturally creative and
imaginative changed radically to match the
dominant cultural style. The resultant scenarios
lacked insight, impact and imagination. Context,
culture and capability are, therefore, very
important in determining the outcome of a
scenario exercise. Existing organisational culture is
a particularly powerful influence.

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Leaders need to work with balanced teams if
scenario outcomes are to embrace both
quantitative and qualitative information to deliver
valuable insights and open managers minds to
other possibilities. If consultants are introduced
into the process, they need to be sympathetic to
the needs and the culture of the organisation in
tailoring their advice and style. Regardless of
whether consultants or internal managers are
leading the exercise, the choice about how to
proceed might not be straightforward, since a
predominately rational, analytical culture would
show greater ownership of a formal scenario
process. This, however, might not deliver
alternatives with significant impact to move
management from their current view of reality, and
could avoid aspects of reality that are too difficult
to measure or incorporate into a very quantitative
approach. In other words, what might be good for
the organisation might be the most difficult
process to put in place and gain acceptance with
incumbent managers.

Conclusion
Strategy is largely formulated for the future and is
concerned with the world outside the organisation
at least as much as with what is going on within its
boundaries. Scenario techniques are one of the few
tools strategists have to help them formulate their
ideas about both. Environments and futures are
increasingly turbulent, uncertain and complex.
More than any other strategy tool, scenarios
engage with these characteristics rather than
ignore them. There is, however, a significant
challenge for the leader who chooses to implement
a scenario process in harnessing maximum return.
Many things mitigate against success, including
fundamental human psychology. But the benefits
could be significant. No one summarises this better
than Schoemaker (1993):
A concerted, collective scenario building effort
will give the firms managers a head start, as
well as a conceptual framework within which to
scan, encode, update and understand the future
as it unfolds. In our age of information

195

overload, the ability to distinguish signal from

noise is a critical skill. But, incisive pattern
recognition can only occur if the right mental
maps exist in a managers mind. Scenarios can
develop, align and focus such maps.
In a world where competitive advantage is hard to
gain and sustain, any process that increases the
chances of anticipating and winning this strategic
prize must be worth serious consideration.

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