A prime example of the failure of an industry by reliance only on traditional instead of scenario planning is the US Oil Industry, particularly leading up to the 1973 oil crisis. During the 1960s and early 1970s, the US economy was still in a period of relative growth and stability (Kemp, 2014). As a result, the Oil Industry continued to use traditional forecasting to predict pricing, availability, and demand for oil products, namely gasoline, into the 1970s (Barsky & Kilian, 2004). However, this use of traditional forecasting failed to see the rise of numerous factors contributing to the 1973 oil crisis. First, a post-war environmentalist movement had begun in the US, resulting in significant opposition to the idea of fossil fuel use and the environmentally unfriendly automobile (Dunlap & Mertig, 2014). Secondly, since the post-war era, dependence on foreign oil increased significantly, with a shift from locally produced oil to oil produced in foreign countries, namely those part of OPEC (Barsky & Kilian, 2004). Finally, the factors leading up to the OPEC Embargo, namely the tumultuous environment in the Middle East and the US support of Israel, were largely missed (Gresham, 2014).
As a result, a predominant number of US oil companies were caught off guard by the 1973 oil crisis and ultimately suffered huge strategic and economic impacts. As a direct result of this, one oil company, Royal Dutch Shell, immediately implemented scenario planning to avoid future strategic mishaps (Schwartz, 2012). However, the effort was too little, too late, as failure to scenario plan had resulted in a situation where the Oil Industry was now operating in an environment which was not as supportive of its operations, the environmentalism movement, and which now placed a substantial amount of control of the industry in foreign hands, OPEC countries and nation-states.
Review of Scenario Planning
Scenario planning supports planning and innovation for change by providing consideration for uncertainties and complexities of strategic decision making (Schoemaker, 1991). Because the present era is characterized by high levels of uncertainty and change, it is key that a planning approach, particularly one which plans to innovate, address this level of uncertainty (Amer, Daim, & Jetter, 2013). Scenarios help for planning and innovation by being set in the future and allow consideration of hypothetical events to identify possible key innovative decision points (Hiltunent, 2009). Additionally, they are a description of future events and the course of events that lead to a certain future (Joseph, 2000). Finally, they represent a set of alternative futures which combine a multitude of trends and policies (Swart, Raskin, & Robinson, 2004). Unlike traditional forecasting, which relies solely on past trends to predict present data, scenario planning allows for the consideration of multiple trends and policies, including those possibly not seen in the past or currently developing, as well as the consideration of multiple paths and alternatives. Figure 1 shows an example of the process to develop these multiple futures and possibilities.
Figure 1. Scenario cone showing multiple possibilities. (Pillkahn, 2008)
This approach allows for the consideration of uncertainty and complexity which cannot be addressed by traditional forecasting. An innovation is not “doing the same as before”, but rather “doing something new”. Change and uncertainty are key parts which must, and can be addressed, by scenario planning.
Several forces, including historical, environmental, and organizational, are all involved in the scenario planning process and have specific impacts. Predetermined events are those historical or future events which have occurred or are likely to occur. They impact scenario planning because they inject key events that must be considered in all alternative futures and chains of events proposed by scenario planning as, due to their likeliness of certainty, must be addressed (Wack, 1985a; Wack, 1985b). Environmental forces include the demographics, characteristics, and norms of the environment or society in which change is planned to take place. They impact the scenario planning process, as the characteristics to the environment impact the social attitude towards change, creating a social force impacting scenario planning, futuring, and innovation (Burt, 2007). Because different environments will result is different sets of characteristics for change, they impact the resulting scenarios that are likely. Finally, organizational factors are involved. These forces include the attitudes, opinions, goals, and strategic direction of the organization. These impact scenario planning as they influence the decisions of analysts when crafting the alternative futures and courses of actions which lead to scenario planning (Chermack, Lynham, & van der Merwe, 2006; Inayatullah, 2009). Different organizations will have different strategic goals and attitudes of analysts creating scenarios, resulting in different scenarios from each organization. As a result, the culture of each organization impacts and determines the direction of proposed and predicted scenarios.
Reflections on Scenario Planning
I personally plan to use scenario planning for future innovation efforts as part of my current job, namely the information assurance process. Specifically, I plan to apply this process to assembling accreditation packages for our information systems. One part of this process is completion of a risk analysis and mitigation study, which includes identifying, analyzing, and mitigating potential risks to information systems deployed. Our current efforts for identifying and predicting risks for information systems predominantly come from the past experience of cryptologists and security professionals, or from past package data which predicted risk. This is in essence a traditional forecasting approach. I plan to incorporate scenario planning into this process to innovate future risk predictions by considering scenarios in which risk can be introduced into systems. A STEEP framework and PEST analysis will be very useful in ensuing my organization considers the wide number of factors that could cause risk, versus simple past risks that have been realized, to allow us to potentially innovate and identify future risks that had previously been missed or overlooked by our traditional forecasting approach. In doing so, I hope to innovate our risk management process to better secure, protect, and maintain our information systems.
Although scenario planning by organizations may be predominantly focused on the strategic, position, or industry outcome of the organization, the use of a scenario plan does account for the social impact of change. This accountability is evident in two of the key processes of scenario planning. First, a key step in scenario planning is identification of critical uncertainties in environmental variables. This particularly occurs in macro-environment and wide-scope analyses (Burt, 2010). Part of this process is a PEST analysis, which includes analysis of Political, Economic, Social, and Technological factors (O’Brien, 2004). Secondly, another key step is examining compelling influences and major drivers that effect the outcomes or scenarios proposed by scenario planning. This is commonly accomplished with the STEEP framework (Bradfield, Wright, Burt, Cairns, & Van Der Heijden, 2005), which involves analysis of the Social, Technical, Economic, Environmental, and Political factors of a scenario. While not necessarily an intentional part of the scenario planning process, as scenario planning considers social factors in multiple steps of the scenario generation process, the process inadvertently addresses and accounts for the social impact of the change and innovation it brings about.