MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 48)

Scenario Planing forms an important facet of strategy. It’s an attempt to answer the question of whether planning is necessary knowing that the future will change, the answer being yes, while acknowledging that unpredictable events will occur. The approach here is to develop contingency plans for several what-if scenarios.

Scenario planning also follows the Top-Down approach to strategy as the Analyze-Formulate-Implement framework. It aims to help understand how changes will affect a firm and how to respond to them. It is generally applied at the Corporate and Business levels of strategy. Several optimistic and pessimistic futures are envisioned by placing the Analyze-Formulate-Implement framework in a feedback loop. This makes Scenario Planning a dynamic and iterative strategy tool. A number of detailed and executable strategic plans can be formed allowing the firm to be more flexible and more effective versus the approach of having just one static master plan.

In the Analysis portion of the Scenario Planning process, a firm would brainstorm several possible future scenarios. Here it is important to consider negative scenarios carefully, including black swan events (high impact of a highly improbable event).

In the Formulation portion of the Scenario Planning process, a firm would develop detailed plans for the above scenarios. Here the firm would enumerate what resources and capabilities are needed, what initiatives need to be put into place and how else could the firm shape the future environment. This step thus outputs a portfolio of future options, more information is integrated over time, and viable options are transformed into full fledged plans. This gives strategic flexibility to the firm.

In the Implementation portion of the Scenario Planning process, a firm would execute the dominant strategic plan, the one that closely matches current reality.