Since the start of the pandemic I’ve had the strange feeling that time has speeded up. This is surprising because at the beginning of lockdown, I imagined time slowing to a standstill, the weeks stretching out endlessly.
Apparently this is a consequence of spending more time at home. Because we’re exposing our minds to fewer experiences, we create fewer memories. This creates the illusion that our lives have slipped into the fast-lane.
In the business world, times of uncertainty can produce a similar sense of unreality. Problems seem to pile up much faster than usual. The time left to deal with them seems to shrink. In these circumstances, even a highly successful business can find itself in difficulty. So how do businesses plan for an uncertain future? Three techniques that are commonly used are visioning, forecasting, and scenario planning.
Visioning: Setting a target
Every business has a plan for where they want to get to in the future. That future vision may stretch to next quarter, next year or even into the next decade. This is a leadership choice that guides a company’s decisions toward a set of goals. Typically, a CEO, director, or the board of a company might decide what these goals and visions look like, with a vast array of input. They must then successfully communicate them to the wider company.
Generally, these aspirations are laid out through stable, more prosperous periods. This is understandable because stability gives a company more time to plan ahead. With their bottom line secure, companies also have more time to focus on innovation and improving business processes. This might mean hiring new staff or launching new products. Actively seeking out a better future.
A company vision is like knowing a desired destination. You know where you are today and where you want to get to in the future of your vision. A well-articulated vision is a statement of what you want the company to be in the future. You can then begin to put plans and actions in place to move towards this vision.
Forecasting: Path forward
If visioning is setting a destination, forecasting in developing a route to go from where you are now to where you want to be in the future. Forecasting considered where the organisation has been before and how it has developed to where it is now and then extrapolates where it might and should go in the future.
Managers and leaders regularly develop annual budgets, sales targets, and staffing plans around past and current performance to include anticipated variance (for good or bad) going forward. These forecasts are predictions of how the current momentum of an organisation will play out over the next time period.
Predictions for tomorrow are going to be pretty accurate as the conditions in the next twenty-four hours are unlikely to be very different from the conditions today. However, as forecasts extend further from the present, accuracy declines and predictions are best made with upper and lower bounds. ‘If everything goes well, we should see a 20% rise in sales over the next year. If things don’t go our way, we might at worst see a 15% drop.’ This is what we call a confidence interval. We are fairly sure the future answer to sales growth will be somewhere between 15% down and 20% up. A manager who gives me a single number for a forecast a year out, is usually in for a long session.
Companies often forecast regularly but managers and leaders often simplify the end results with single numbers that obscure the potential uncertainty that is uncovered in proper planning. Do not added additional uncertainty in trying to understand your future by ignoring the information confidence intervals can give you about how uncertain the future is for your organisation’s leadership.
Scenario Planning: Developing agility for crisis management
In an interview in 2002 the US Secretary of Defense, Donald Rumsfeld famously spoke of “known unknowns” and “unknown unknowns” when asked about the lack of evidence linking Iraq with weapons of mass destruction. At the time Rumsfeld’s answer was ridiculed, but it has since been reappraised as a good, if initially confusing, explanation of the problem of uncertainty.
The issue of “known unknowns” and “unknown unknowns” could just as easily be applied to the problem of scenario planning within companies. How, for instance, can a company hope to plan for a scenario they’re not even aware is on the horizon? Scenario planning has it roots in the military but became a formal technique as global companies sought to deal with the economic instability of the Oil Embargo of 1973 and looked for a solution to avoid being caught unprepared for the next crisis.
The answer is to begin by asking a series of ‘what if’ questions with scenario planning. What ifs or scenarios that might dramatically shift a market or change society, are often described as crises when they rapidly develop. Considering a range of potential shifts and then developing outlines of plans to deal with them is what we mean by scenario planning. These crises may arise both internally or externally.
Organisations first need to identify single points of failure – areas of particularly high risk that could lead to a domino effect. Companies should be looking for things like key personnel dependencies or supply chain risks around essential component parts to at least have a strategy for how they would proceed if disruption is experienced.
A second selection of ‘what ifs’ should focus on factors outside the organisation. These could be a radical fluctuation in exchange rates, a No Deal Brexit, or a global pandemic. These scenarios, or others like them, could have a dramatic impact on a company and need to be properly considered. In some instances, the outcome could be a positive – disruption is not always necessarily a negative but can uncover opportunities for growth.
These ‘what ifs’ shouldn’t just come from a CEO or senior people within the company. Good leaders should draw on the ideas and imagination of staff members throughout the business. They ought to ask: ‘what foreseeable problems keep you awake at night’. This is an opportunity to be open and honest about how the business runs and what plans are for the future; one that has the additional benefit of helping employees feel like they have more of a stake in the overall success of the company. My own research shows that engaging employees in future planning, encourages them to take ownership of their work decisions and more proactively engage in efforts to innovate for the organisation.
This is a crucial point. Scenario planning helps leaders develop plans to respond to possible market disruptions enabling leaders make better decisions under crisis situations – we thought of this or something similar before. By engaging employees in this process, leaders get to know there employees more and employees build a more resilient relationship with the organisation. Both being more adaptable if a crisis hits.
Three key questions to leave you with:
1. Most businesses have a vision. Is it up to date and clear to the entire organisation?
2. Most businesses use forecasts. Do those forecasts include estimates of the uncertainty they might predict?
3. Most business have not utilised scenario planning. How might scenario planning have helped your organisation weather the global pandemic? What scenarios should be planning for next?