Scenarios are the alternative views of the future, primarily based on some events or changes which have occurred or likely to occur. From the organizational point of view, it helps in identifying the strategic-fit, pending some future developments. Essentially, it is reflections on future situations with some frame of references.
In other way, we can define scenarios as tools to prioritize our perceptions about future alternatives. Using some set of stories, scenarios are plotted and used as the basis for framing plans and strategies. Using scenarios, mangers forecast their proposed change initiatives, reflecting on future situations.
For scenario planning, managers or decision makes are required to question the broadest assumptions on the way the world in general and the organization in particular work, so that decisions can be taken beforehand to meet the gap, if any. Thus to explore the scenarios, managers essentially think about uncertain aspects to unfold any eventual happenings that might cause harm to the organizations.
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For economic globalization, understanding global business environment has now become an important imperative for the organizations. Among others, global business environment gets affected by the political changes and new emerging technologies.
Such changes create discontinuity in the business, and to sustain, an organization needs to prepare them in advance, chasing those events. Scenario plans help in exploring the eventualities and develop a shared understanding or commitment to the strategic interventions to change the organization, before some unforeseen changes affect the organization’s prosperity in the wrong way.
In a turbulent market environment, organizations need to quickly adapt themselves to changes. Such quick response to change is possible only when organizations are capable of preconceiving different scenarios of the environment and accordingly are capable to respond to the changes with adequate contingency plans and pre-structured strategies. G. Ringland (1998) and Peter Schwartz (1991) have identified that organizations worldwide are developing scenario plans to respond to the unforeseen change situation. According to Schwartz, scenarios are future contingencies, considering which, organizations are able to determine their future directions with contingency plans.
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Literally, a scenario is a script for a play. It is a tool to consolidate one’s perception to track the alternative future environments and to take decisions at the right time. According to Pierre Wack (1985), scenario planning involves development of three or four different plots along with the associated narratives to illustrate the major driving forces for change and critical uncertainties in the environment.
Thus, scenario planning is a creative foresight of managers and decision makers to keep pace with the changing environmental uncertainty. It is also considered as a strategic planning method. The key driving forcers for the scenario plans are changing social, technical, economic, environmental, educational, political and aesthetic (STEEEPA) trends. Globally, we find Shell and Siemens AG have made extensive use of scenario plans.
Shell as an organization has made the most extensive use of scenario planning since 1973 primarily to cope with the oil crisis sparked by the Organization of Petroleum Exporting Countries (OPEC). Shell’s strategy was to cope with the environmental turbulence often sparked by the non-compromising OPEC members, who never use to reach to agreement on collective price rising or production strategy.
This often caused operational discontinuities in petroleum oil and lubricants POL companies worldwide. Peter Drucker more appropriately said that ‘the greatest danger in times of turbulence is not the turbulence—it is to act with yesterday’s logic.’ Drucker’s argument also emphasize the need for strategic forecasting making use of scenario plans to cope with the organizational change.