Contributed by our associate Grant Tate.
Leaders today are facing unprecedented uncertainty. Developing long-range plans in this environment can seem like a futile exercise. But this is the ideal time to consider scenario planning.
The current situation with the Covid Delta variant provides a good example where scenario planning could help. If we rewind only six months, planning leaders could have defined at least these three scenarios for what we are facing right now:
- The pandemic is declared over, and we are back to somewhat where we were pre-pandemic.
- Vaccination rates are such that the crisis is dragging out, but there are no new case spikes.
- A new variant is driving another massive spike in COVID cases.
Scenario planning identifies different scenarios, looks at the risk involved in each, and determines how to prepare for each case. The wise planner then identifies the variables that help predict when to jump from one path to another.
Scenario planning is valuable for day-to-day operations as well. The semiconductor shortage is another byproduct of the Covid crisis, but that market has normal fluctuations. Users of semiconductors shouldn’t be surprised that there are shortages. From my experience working at IBM, I can tell you that the supply chain for semiconductors is over a year long. A semiconductor put into production today isn’t inside a computer until a year from now. This time differential prevents gearing up or gearing down the supply chain quickly. So, what do you do?
Many factors such as fluctuations in product demand, supply chain hiccups, widespread disease, etc., drive the complexity of scenario planning. The goal is the cut the lag in the curve by using leading indicators to plan.
A leading indicator is any measure or observable variable that helps forecast a future change. Leading indicators provide insight into likely future outcomes and give organizations the ability to act accordingly in the present. As Drucker said, “strategic planning is about the futurity of today’s decisions.”
Scenario planning is a way for leaders to consolidate their team’s best thinking about possible futures. Prepare the process to monitor those leading indicators now and guide your organizations’ path to success.