Making sense of future uncertainties using real options and scenario planning

Healthcare across the world is facing many uncertainties. In Dutch healthcare, a recent policy change is forcing health organizations to deal more efficiently with their real estate, and this increases the need for real estate strategies that are more flexible. In order to support managers in incorporating flexibility in their decision-making over the design of new healthcare facilities, we have developed a method that combines scenario planning and real options. Scenario planning enhances sensemaking over the consequences of future uncertainties, and real options should help in addressing flexibility in decision-making through weighing the pros and cons of flexibility measures. We illustrate the sensemaking process by applying the method to a hospital, to a forensic clinic and to a care organization for vulnerable citizens. Data collection took place through interviews and workshops. We found that the identity and characteristics of the workshop participants influenced the sensemaking process. The method proved a useful means of making sense of abstract uncertainties that influence an organization, aspects that are normally outside the scope of real estate managers. The real options approach offered a more structured way of balancing the costs and benefits of strategies in dealing with future uncertainties.     

Can internally generated futures accelerate organizational learning?

After many years of scenario planning, this paper takes a moment to reflect on its use within, and value to, organizations. The author states that ultimately the benefit of scenario planning must result from ‘changed and more skilful action by the organization within its business environment.’ Navigating through the business environment is discussed as taking on two forms, that of strategising and learning where the former is dominated by ‘knowing by gaining control’ and the latter by ‘knowing by participation’ and reflection. Taking this logic a step further, van der Heijden sees the purpose of scenario planning as being categorisable along two dimensions content/process and thinking/action producing a matrix of four categories of purpose. Although he sees these four reasons for using scenario planning as harbouring different degrees of difficulty and likelihood of success, he advocates above all that organizations think carefully about which category is appropriate for them and ensure that the process of scenario planning is designed to support this goal.     

Is your vision consistent?: A method for checking, based on scenario concepts

Common sense tells us that the future is an essential element in any strategy. In addition, there is a good deal of literature on scenario planning, which is an important tool in considering the future in terms of strategy. However, in many organizations there is serious resistance to the development of scenarios, and they are not broadly implemented by companies. But even organizations that do not rely heavily on the development of scenarios do, in fact, construct visions to guide their strategies. But it might be asked, what happens when this vision is not consistent with the future? To address this problem, the present article proposes a method for checking the content and consistency of an organization's vision of the future, no matter how it was conceived. The proposed method is grounded on theoretical concepts from the field of future studies, which are described in this article. This study was motivated by the search for developing new ways of improving and using scenario techniques as a method for making strategic decisions. The method was then tested on a company in the field of information technology in order to check its operational feasibility. The test showed that the proposed method is, in fact, operationally feasible and was capable of analyzing the vision of the company being studied, indicating both its shortcomings and points of inconsistency.     

Testing the rhetoric: An approach to assess scenario planning's role as a catalyst for urban policy integration

Policy integration has become a high-priority objective for urban planning and management. At the same time, the transportation and urban planning fields have increasingly employed scenario planning approaches, not only to develop long-term strategy, but also—potentially—to strengthen organizational networks and encourage collaborative action. Yet these latter supposed outcomes of scenario planning remain under-theorized and largely untested. In this study, we propose a methodology, based on established theories of collaboration, to test the ability of a particular type of scenario planning to encourage collaboration between participants. We demonstrate the approach using a scenario planning process undertaken within the transportation and urban planning community in Portugal. The pre-/post-test experimental design uses a survey designed to assess participants’ propensity for future collaboration by measuring change in individuals’ perceptions and understandings. The results suggest that the process likely modestly increased participants’ propensity to collaborate, primarily by strengthening inter-agency networks. The effects on participants’ views and understanding remain inconclusive. We suggest that specific challenges in applying this specific scenario planning approach to public sector contexts may limit the method's potential in achieving inter-organizational collaboration. Nonetheless, only more widespread efforts to formally test the scenario planning rhetoric will reveal the true impacts on organization change.     

Global gamesmanship

Competition among multinationals these days is likely to be a three-dimensional game of global chess: The moves an organization makes in one market are designed to achieve goals in another in ways that aren't immediately apparent to its rivals. The authors--all management professors-call this approach "competing under strategic interdependence," or CSI. And where this interdependence exists, the complexity of the situation can quickly overwhelm ordinary analysis. Indeed, most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using interdependency to their advantage. In this article, the authors offer a process for mapping the competitive landscape and anticipating how your company's moves in one market can influence its competitive interactions in others. They outline the six types of CSI campaigns--onslaughts, contests, guerrilla campaigns, feints, gambits, and harvesting--available to any multiproduct or multimarket corporation that wants to compete skillfully. They cite real-world examples such as the U.S. pricing battle Philip Morris waged with R.J. Reynolds--not to gain market share in the domestic cigarette market but to divert R.J. Reynolds's resources and attention from the opportunities Philip Morris was pursuing in Eastern Europe. And, using data they collected from their studies of consumer-products companies Procter & Gamble and Unilever, the authors describe how to create CSI tables and bubble charts that present a graphical look at the competitive landscape and that may uncover previously hidden opportunities. The CSI mapping process isn't just for global corporations, the authors explain. Smaller organizations that compete with a portfolio of products in just one national or regional market may find it just as useful for planning their next business moves.     

Perceptions of the relationship between scenario planning and firm performance: A qualitative study

This paper presents research findings from the application of scenario planning in multinational firms that operate in competitive industries. We use exclusive and not publicly available data to investigate the link between scenario planning and firm performance from a qualitative perspective. The focus was primarily on firms that had real-life experiences with this strategic tool. Our research suggests that scenario planning is interwoven in how strategy is formulated and that it has a major influence on decisions taken by management. We also found that none of the firms reported formal efforts of assessing the success rate of scenario planning. Participants report that this is due to difficulties in measuring qualitative and quantitative outcomes and because standardized assessment tools are not readily available for this kind of strategic intervention. Overall, participants generally regarded scenario planning as an effective intervention with a positive contribution to the firms’ performance. When pressed for more detail, participants revealed that scenario planning techniques were useful in exploring the business environment and future risks, isolating trends, understanding interdependent forces, and considering the implications of strategic decision-making.     

Structuring an Enterprise Risk Assessment Protocol: Traditional Practice and New Methods

In a world that has become increasingly complex, enterprise risk management (ERM) has emerged as a practice for identifying reasonably foreseeable hazards that pose risks to an organization, both its physical and human assets. Due to the breadth and depth of factors that can impact an organization's risk portfolio, it is incumbent that the underlying risk assessment process that supports ERM embodies a holistic and systematic approach. This is easier said than done, however, as much of the effort in self‐acclaimed ERM programs remain entrenched in compartmentalized parts of the organization or ignore threats that are “outside of the box” of the operating environment to which management is accustomed. This environment therefore creates opportunities for key risks to go unnoticed. The authors propose a comprehensive, yet flexible framework for overcoming this challenge, an approach that can be utilized by both the public and private sector. A sample application is provided, using a free, web‐based tool developed as part of the initiative.     

Integration managers: special leaders for special times

Although the integration of an acquired company with the parent organization is a delicate and complicated process, traditionally no one has ever been responsible for that process--for charting how the two companies will combine their operations, for seeing to it that the integration project meets its deadlines and performance targets, and for educating the new people about the parent company and vice versa. Some enlightened companies have recognized this gap and have appointed a guide--the integration manager--to shepherd everyone through the rocky territory that two organizations must cross before they can function effectively together. The authors have interviewed a number of these leaders in depth, as well as some of the people with whom they've worked. They've determined that integration managers help the merger process in four principal ways: they speed it up, create a structure for it, forge social connections between the two organizations, and help engineer short-term successes. In this article, the authors detail five acquisitions--at TI, General Cable, Meritor Automotive, Lucent, and Johnson & Johnson--and discuss the role that integration managers played in each. They describe exactly what sort of person should do this job. The integration manager must be able to jump into complex situations quickly, relate to many levels of authority smoothly, and bridge gaps in culture and perception. The ever-changing organizations of the Internet age will need leaders with similar skills. In fact, the authors contend, the integration manager should be considered a prototype for the leader of the future.     

Scenarios to challenge strategic paradigms: Lessons from 2025

As a process looking for alternative visions of environment and corporate futures, scenario planning challenges strategic paradigms. In that way, scenario planning is dealing with the different beliefs of the many actors who make the organization and its global and business environments. Among these beliefs, emerging ideologies are one of the main shaping factors for the construction of new visions of corporate environment and corporate futures. To analyse the interaction between scenario planning and emerging ideologies, this paper will first propose a conceptual framework based on the dynamics of strategic paradigms. Second, it will discuss Electricité de France 2025 scenarios longitudinal case study in the context of the diffusion process of the French so called prospective approach to show interests and traps of scenario planning to manage paradigm shifts.     

The critical role of history in scenario thinking: Augmenting causal analysis within the intuitive logics scenario development methodology

The historian Eric Hobsbawm stated that ‘The safest empirical generalization about history is still that nobody heeds its obvious lessons much’. Whether at a macroeconomic level or within individual organisations there are numerous examples of this, such as the economic crash of 2008, the causes of which had many parallels with those that caused the great depression 80 years previously. On the other hand however, overly-relying on the past as a guide to the future has its own obvious dangers—not least that important future events may have no past precedent. As such, the present paper firstly provides a discussion of the advantages and disadvantages of using the past as a guide to the future. It then examines the role of history in scenario work, arguing that history should receive greater emphasis as part of the scenario planning process. We suggest changes to the standard Intuitive Logics (IL) approach to scenario planning which would render learning from history a more central component of the scenario process, in contrast to its current peripheral role. Rather than diminishing scenario planning’s ability to facilitate a consideration of how the future may differ from the past, we show how a greater emphasis on history can enhance consideration of the causality of future change. An adapted IL that has more emphasis on historical analysis can augment scenario planning’s effectiveness as a tool for consideration of the future.     

Creating narrative scenarios: Science fiction prototyping at Emerge

Scenarios are stories. In the diverse field of scenario planning, this is perhaps the single point of universal agreement. Yet if scenarios are stories, their literary qualities are often underdeveloped. Scenarios used in business and government frequently do not contain a relatable protagonist, move a plot toward resolution, or compellingly use metaphor, imagery, or other emotionally persuasive techniques of literature. In these cases, narrative is relegated to an adjunct role of summarizing the final results of the workshop. While this neglect of narrative may be reasonable in some contexts, the power of narrative should not be underestimated. Scenario planning methodologies can benefit from using diverse narrative techniques to craft compelling and infectious visions of the future. This article explores the relationship between science fiction and scenarios as story genres and investigates a creative story-telling technique, “Science Fiction Prototyping” (Johnson, 2011). While the method is promising, it is an ultimately problematic means to incorporating narrative into scenario planning.     

Perceived Environmental Uncertainty in scenario planning

Scenario planning is a strategy tool with growing popularity in both academia and practical situations. Current practices of scenario planning are largely based on existing literature which utilises scenario planning to develop strategies for the future, primarily considering the assessment of perceived macro-external environmental uncertainties. However there is a body of literature hitherto ignored by scenario planning researchers, which suggests that Perceived Environmental Uncertainty (PEU) influences the micro-external as well as the internal environment of the organisation. This paper reviews the most dominant theories on scenario planning process and PEU, developing three propositions for the practice of scenario planning process. Furthermore, it shows how these propositions can be integrated in the scenario planning process in order to improve the development of strategy.     

An examination of future scenarios using historical analogy

The quality of scenario planning activities can be difficult to assess, as one cannot know how likely any projected future scenario is. Here, we introduce one approach for gaining greater confidence. Historical analogy provides the means for achieving this, whereby the model upon which scenarios are constructed is analysed in terms of how well it predicts and establishes links with recent historical environments. We apply this approach to a previously developed scenario tree, constructed using the field anomaly relaxation method, as a case study to indicate how historical analogy can be used to assess and enhance the model from which the scenarios are constructed.     

Nonprofits: check your attention to customers

Nonprofit organizations chronically face financial difficulties. Now the situation has worsened because they are being squeezed between the uncertain economic climate and cutbacks in government support. While the managers of these institutions may think that they have already tried everything possible, more than ever they must be innovative in developing additional funding sources. As Mr. Andreasen argues, most nonprofits have failed to exploit marketing techniques which can build support from users or customers that leads to improved cash flow. The author contends that managers of nonprofit organizations focus too closely on their products or services; he admonishes them to give more attention to the needs and wants of their consumers.     

Scenarios and the art of worldmaking

In this exploratory paper we propose ‘worldmaking’ as a framework for pluralistic, imaginative scenario development. Our points of departure are the need in scenario practice to embrace uncertainty, discomfort and knowledge gaps, and the connected need to capture and make productive fundamental plurality among understandings of the future. To help respond to these needs, we introduce what Nelson Goodman calls worldmaking. It holds that there is no singular, objective world (or “real reality”), and instead that worlds are multiple, constructed through creative processes instead of given, and always in the process of becoming. We then explore how worldmaking can operationalise discordant pluralism in scenario practice by allowing participants to approach not only the future but also the present in a constructivist and pluralistic fashion; and by extending pluralism to ontological domains. Building on this, we investigate how scenario worldmaking could lead to more imaginative scenarios: worldmaking is framed as a fully creative process which gives participants ontological agency, and it helps make contrasts, tensions and complementarities between worlds productive. We go on to propose questions that can be used to operationalize scenario worldmaking, and conclude with the expected potential and limitations the approach, as well as suggestions for practical experimentation.     

How do investors react under uncertainty?

It has long been accepted that risk plays an important role in determining valuation where risk reflects that investors are unsure of future returns but are able to express their prior expectations by a probability distribution of these returns. Knight (1921) introduced the concept of uncertainty where investors possess incomplete knowledge about this distribution and so are unable to formulate priors over all possible outcomes. One common approach for making uncertainty tractable is to assume that investors faced with uncertainty will base their decisions on the worst case scenario (i.e. follow maxmin expected utility). As a consequence it is postulated that investors will become more pessimistic as uncertainty increases, upgrading bad news and downgrading good news. Using Australian data, we find evidence that investors react to bad news at times of high market uncertainty but largely ignore good news which is consistent with them taking on a pessimistic bias. However, we also find evidence of the reverse when market uncertainty is low with investors taking on an optimistic stance by ignoring bad news but reacting to good news. We also find that the impact that market uncertainty has on the reaction of investors to new information is modified by the prevailing market sentiment at the time of the announcement. Besides throwing light on the question of how uncertainty impacts on investor behaviour, our findings seriously challenge the common assumption made that investors consistently deal with uncertainty by applying maxmin expected utility.     

Exploring client scenarios associated with scenario planning

All scenario planning projects have a ‘client’ and one of the most challenging tasks facing a scenario planner is the client's role or position in the way projects are conceptualized, delivered and received. The scenario planner has to establish and manage a ‘successful client relationship’—but what actually constitutes that for a scenario planning project?The client acts as the conduit between the scenario planner and the organization for which the scenario planning project is being undertaken.The ‘client as conduit’ implies several challenges for the scenario planner including:

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The client's awareness and understanding of scenario planning as a method for their organization to learn from the future [1].

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The client's level of commitment to learning from the future.

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The size and context of the scenario planning project.

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The position of the client within a network of people and/or resources required to run a scenario planning project.

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The client's involvement or position within the scenario building team created in the project.

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The benefits and risks accruing to the client through the execution of the scenario planning project.

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The client organization's capacity to act strategically; its power to perform.

This paper will explore, through storytelling, different pictures of client relationships associated with scenario planning. The stories are developed from a deep and extensive well of scenario practitioner and consulting experience over the last 15 years to explore and discuss these client issues, and how clients for scenario planning projects have evolved, and how they may enhance or restrict scenario planning projects in the future.     

Strategy as revolution

How often does the strategic-planning process start with senior executives asking what the rest of the organization can teach them about the future? Not often enough, argues Gary Hamel. In many companies, strategy making is an elitist procedure and ?strategy? consists of nothing more than following the industry's rules. But more and more companies, intent on overturning the industrial order, are rewriting those rules. What can industry incumbents do? Either surrender the future to revolutionary challengers or revolutionize the way their companies create strategy. What is needed is not a tweak to the traditional strategic-planning process, Hamel says, but a new philosophical foundation: strategy is revolution. Hamel offers ten principles to help a company think about the challenge of creating truly revolutionary strategies. Perhaps the most fundamental principle is that so-called strategic planning doesn't produce true strategic innovation. The traditional planning process is little more than a rote procedure in which deeply held assumptions and industry conventions are reinforced rather than challenged. Such a process harnesses only a tiny proportion of an organization's creative potential. If there is to be any hope of industry revolution, senior managers must give up their monopoly on the creation of strategy. They must embrace a truly democratic process that can give voice to the revolutionaries that exist in every company. If senior managers are unwilling to do this, employees must become strategy activists. The opportunities for industry revolution are mostly unexplored. One thing is certain: if you don't let the revolutionaries challenge you from within, they will eventually challenge you from without--in the marketplace.     

What's wrong with strategy?

Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with the way most companies go about developing strategy? Andrew Campbell and Marcus Alexander take a common sense look at why the planning frameworks managers use so often yield disappointing results. Companies often fail to distinguish between purpose (what an organization exists to do) and constraints (what an organization must do in order to survive), the authors say. Many executives mistakenly believe, for example, that satisfying stakeholders is an objective that drives thinking about strategy. In fact, it's a constraint, not an objective. Companies that don't win the loyalty of stakeholders will go out of business. Strategy is not about plans but about insights, the authors add. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. Furthermore, because executives develop most of their insights while actually doing the real work of running a business, it is important for companies not to separate strategy development from implementation. Is there a better way? The answer is not new planning processes or more effort. Instead, managers must understand two fundamental points: the benefit of having a well-articulated, stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.     

Futures studies as a civilizational catalyst

By the early 21st century, Futures Studies (FS) had developed into a globe-spanning meta-discipline with a range of methodologies, a rich literature and a substantial knowledge base. A small, but growing, number of universities around the world provided advanced degrees in FS. Yet, in spite of the wide use of futures methods such as the Delphi technique, trend analysis and scenario planning in pursuit of corporate strategies, substantive futures perspectives focused on long-range civilizational concerns remained underdeveloped or absent within most organizations and environments. This paper considers the rise of FS during the 20th century, some implications for FS of what I have called the ‘civilizational challenge’ and a number of strategies that may be used to increase the take-up and effectiveness of futures work over coming decades. The paper takes the view that the ultimate goal of FS at this time is to help create the foundations of a new civilization.