Scenario-based Strategic Planning

In an increasingly uncertain world characterized by complexity and volatility, managers must be more flexible in their strategy processes. Traditional strategic management frameworks fail to provide adequate answers in this context. Our solution is "scenario-based strategic planning", a framework for strategic management in an uncertain world. In this chapter, we introduce this approach and outline the structure of the book.

Markets around the globe are set to experience increasing turbulence in the coming years. That means greater uncertainty for companies' strategic planning – more volatility, more complexity and more ambiguity. The tools managers use for strategic planning and forecasting have changed considerably in the past few decades. But they are inadequate when faced with today's fast-changing environments. Scenario-based planning can be the answer to cope with the challenges of today's business.

In today's increasingly dynamic, volatile and complex business world, companies in many industries face new challenges when it comes to strategic planning. Scenario planning is a popular approach used by companies to meet these challenges. However, traditional approaches to scenario planning are complex and focus on the long term. Our solution is an enhanced, scenario-based strategic planning approach that integrates scenario planning into strategic planning. The approach is tool-based and therefore easy for firms to apply. We illustrate our approach with examples from different industries.

Scenario planning has often been criticized for the complexity that arises when it is grafted into a company's overall strategic planning process. To overcome this deficiency, we introduced the scenario-based approach to strategic planning in the previous chapter. This chapter explains each tool in detail, evaluates its practicability and demonstrates how executives can immediately apply the entire toolkit within their overall strategic planning process. To facilitate the application of the tools, each step is explained using a practical example from the European airline industry. Taken together, the detailed explanations that follow present a scenariobased strategic planning framework that can help companies cope with an uncertain, complex and volatile business environment.

In 2011, Roland Berger Strategy Consultants conducted a scenario planning project for one of the world's largest companies. The company in question has significant market positions in several sectors and is known for its innovative technology, diverse product range and high service standards. As a part of an ongoing initiative to define future business concepts, the company hired Roland Berger to provide an outside-in, out-of-the-box perspective of trends and to develop 2020 scenarios applicable to a range of customer sectors within the manufacturing industry. This also included identifying business opportunities through innovative "ideation workshops" with cross-functional company representatives and external experts in Europe, North America and Asia. Roland Berger also supported the development of detailed business cases for selected opportunities and ensured an effective hand-over in order to promote the build-up of organisational capabilities for long-term innovation.

Scenario-based strategic planning provides a strategy framework that enables managers to better manage the uncertain environmental conditions that many industries face today. The method's greatest potential lies in the fact that it provides flexible rather than unidimensional strategies and thus potentially improves the quality of decisions in companies. However, previous research has only analyzed the impact of scenario planning implicitly. We therefore present a concept that describes how scenario-based strategic planning can be used to increase decision quality. To this end, we focus on the three key drivers of decision quality as identified and described in previous research: decisions should be comprehensive, fast and unbiased. In this chapter, we analyze these factors in depth and suggest what is necessary to achieve them in a strategic decision-making process. Furthermore, we show that scenario-based strategic planning provides a methodological foundation for implementing such a process in corporate practice as it combines quick application, which increases the speed of decision making, with open strategic thinking, which reduces bias and increases the comprehensiveness of decisions.

In the last chapter we saw how scenario-based planning can improve decision processes. We will now turn our attention to decisions at an aggregated or corporate level. We will examine how entire strategies can change and – ideally – be optimized. The key question is how scenario-based planning can help make strategies more flexible. This chapter therefore begins by explaining what exactly is meant by "flexible strategies" and where they belong in the conceptual scheme of things. We will look at factors that impair the flexibility of a company's strategies and suggest ways to overcome these hindrances. Examples drawn from various industries illustrate why and in what areas today's businesses depend more heavily than ever on flexible strategies.

This book introduces the HHL-Roland Berger approach to scenario-based strategic planning – an approach that helps planners manage complexity, volatility and uncertainty in the strategy process. This final chapter summarizes the challenges to good management and shows how scenario planning can help managers overcome them.