In today’s era of significant disruptions, the future is increasingly uncertain. Scenario planning emerges as a crucial methodology designed for such times. Unlike traditional forecasting, which relies on historical data to predict probable futures, scenario planning utilizes imagination to identify plausible futures.
As the world becomes more complex, strategic foresight methodologies encompass a broader spectrum of futures. Scenario planning shifts the focus from prediction to preparedness, enabling us to envision multiple outcomes and build resilience against uncertainties.
Systemic disruptions force us to acknowledge the inherent unpredictability of the future, underscoring the importance of scenario planning and foresight, both of which prioritize imagination. However, most individuals resist change, as John Maynard Keynes aptly expressed in 1937, “The idea of the future being different from the present is so repugnant to our conventional modes of thought and behaviour that we, most of us, offer a great resistance to acting on it in practice.”
The concept of “metaruptions,” introduced by the Disruptive Futures Institute, describes multidimensional systemic disruptions that go beyond initial impacts. Understanding these disruptions calls for a creative approach, as traditional data analysis falls short. Scenario planning, initially developed in the 1950s and refined in the 1970s, provides a framework for exploring diverse futures and their implications.
In 1982, John Naisbitt defined “megatrends” as large, transformative processes with global reach and significant impact. Nevertheless, trends are reflections of the past, and extrapolating them can be precarious. Disruption signals the end of trends, demanding that we confront unpredictability. In this context, imagination emerges as a superior tool.
Foresight vs. Forecasting
Foresight is a critical discipline that explores plausible futures to identify emerging challenges and opportunities, setting it apart from forecasting, which relies on past data to predict risks and returns. Foresight manages complexity by framing problems, considering multiple pathways, surfacing current assumptions, scanning for weak signals, mapping the system, selecting change drivers, developing scenarios, and testing assumptions to identify potential challenges and opportunities. It is important that practitioners understand that foresight includes both scenario planning and forecasting.
This approach allows investors, policymakers, and strategists to anticipate future developments and ensure proposed actions are resilient across various plausible futures. Sharing mental models and developing robust policy assumptions helps decision-makers rehearse for future challenges.
Scenario Planning: A Safe Space
Scenario planning is crucial in investment management. By crafting plausible narratives about future developments, it assists investors in exploring options and informing decision-making. This methodology encourages practitioners to challenge assumptions, adjust strategies based on emerging information, and avoid tunnel vision. The TUNA framework (Turbulence, Uncertainty, Novelty, Ambiguity) from the University of Oxford further aids investors in managing challenges by promoting imaginative thinking and questioning established assumptions.
Navigating a TUNA world requires reassessing assumptions. Scenario planning offers a safe space to acknowledge uncertainty and fosters the contemplation of previously inconceivable developments. Strategic foresight and scenario planning are indispensable tools for maneuvering future uncertainties in investment management, providing structured approaches to anticipate and prepare for disruptive changes, thus enabling investors to make informed decisions and formulate strategies that are resilient across various futures.
Practical Implementation
In most organizations, scenario planning typically falls under the purview of the Strategy division. It is rare to find roles such as Chief of Foresight or Scenario Officer within the investment industry. Instead, scenario planning is generally a collaborative effort among various strategists, leveraging the collective imagination and expertise of diverse team members to explore multiple plausible futures.
By cultivating resilience through considering various outcomes, strategists can better anticipate and manage the complexities and disruptions characteristic of today’s dynamic environment. Collaborative efforts are essential in developing robust strategies that are resilient across a range of plausible futures, enhancing decision-making in an unpredictable world.
