The Trouble with Scenarios

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scenario planning dave snowdenA couple of years ago (Dec. 7, 2006), I wrote a review of Peter Schwartz’s 1989 book The Art of the Long View, which outlined an approach to scenario planning and then presented three scenarios looking forward to 2005 using that approach. Here’s my synopsis, from that review, of how those scenarios missed the mark, and why:

Back in 1989, when The Art of the Long View was written, Schwartz (with Stewart Brand, Howard Rheingold and others) produced three scenarios for the year 2005 that they called Global Incoherence, New Empires, and Market World. These make fascinating reading, coming as they did before the dot-com boom and bust, before social networking, and before 9/11. The scenarios greatly overestimated our willingness and ability to do anything about global warming and the environment in general. They also overestimated the impact of new technology on society, the amount of change that the ‘information economy’ would bring about, the impact of then-teenage Gen X’ers (and the trend to cultural homogeneity in general) and the degree of innovation in business and the media. It underestimated the degree of political upheaval, cultural clashes, genocide and war that have turned out to be the hallmarks of the 1990s and 2000s. It incorrectly foresaw the “replacement of political ideology with pragmatism” as a result of “a world weary of war”. The End of Oil is contemplated but discounted as highly improbable. And while interactive TV is contemplated, there is no mention of anything like what we now call the Internet.

The fault of these scenarios, and of most attempts at imagining alternative futures, is the human tendency to assume the future will be like the present, only more so. Those of us who say this will be the final century of human civilization produce raised eyebrows because the majority cannot conceive of a significant discontinuity between what has happened in the past, what is happening right now, and what is to come. When sudden discontinuous reversals occur (the fall of the Soviet Union, the dot com bust etc.), our tendency is to discount them entirely as unsustainable anomalies and do our political and economic prognosticating as if neither the rise nor the fall had ever happened. When other unexpected discontinuous events occur (9/11, Katrina), our tendency is to exaggerate their significance, to ignore our learnings from everything that happened before them, and to start predicting more of the same, mentally creating new continuities to replace the ones we have lost. That’s just the way we are.

More recently (Nov. 19, 2007), I reviewed Michael Raynor’s book The Strategy Paradox, which recommends using scenario planning to manage strategic uncertainty (keep doors open and be aware of and ready to commit to various alternatives as they emerge), to create strategic options (make small risk-conscious strategic investments, each of which will pay off big if that scenario plays out), and to get operating divisions to commit fully to certain short-term strategies (by giving them sufficient resources and indemnifying them from blame if the scenario their efforts are predicated upon does not play out). The idea is that competitive advantage will accrue not to the companies that assume the status quo will continue unchanged (because change is inevitable), but rather to those that take strategic risks across of a whole range of plausible future scenarios.

I’m working currently on a project with Michael to envision and think about a range of options for the 2010-2014 period, that businesses can use to anticipate and prepare for discontinuous risks and opportunities that they might otherwise not consider.

Last week my friend Dave Snowden chimed in with a post on scenario planning in complex environments. In an earlier article, he had proposed three important principles for managing organizations in these new environments:

  • Distributed Cognition: using the capacity of diverse networks to contribute to decision making
  • Granularity: small things (blogs, anecdotes, crews) are more adaptable and hence useful than large things (books, treatises, organizations)
  • Disintermediation: eliminating layers that separate unfiltered information from decision-makers, to improve context and opportunity for important pattern-recognition

As Euan Semple has pointed out, these are aspects of organizations that can be effectively managed — using and encouraging networks, increasing the granularity of information and organizational structures, and disintermediation, are all things that management can actually do, that will improve work effectiveness and enhance decision-making.

In his latest article, Dave says that scenario planning is designed for complicated environments (where one can reasonably anticipate all possible future outcomes) not complex environments (where prediction is substantially impossible). He summarizes the basic scenario planning approach (his diagram is shown above): brainstorm future possibilities; cluster them into a framework; produce a full narrative for a few plausible scenarios at the ‘corners’ of the framework; monitor to detect whether these scenarios are coming true. And, of course, decide what you would/will do if each scenario does appear to be coming true. In my work with Michael, our framework is based on the predominant economic outcomes (positive or negative) and the degree of economic volatility, to create four ‘extreme’ but plausible future economic scenarios; our assumption is that the actual economic future will be somewhere within the bounds of these four scenarios.

Some of the dangers with scenario planning that Dave identifies:

  • empirically, it has been shown to expand employee thinking about possible future events, but not to improve resultant decision-making
  • the risk of premature convergence on one intriguing idea or well-articulated framework, with most of the brainstormers not thinking critically or creatively about other possibilities
  • insufficient consideration of unlikely, discontinuous and unforeseen events (“black swans”) that, if they did occur, would have extraordinary consequences
  • failure to look at events outside the business environment (e.g. external political events, resource constraints, changes in suppliers) that could nevertheless significantly affect the business
  • lack of diversity in the brainstorming group (and commensurate tendency to groupthink)

Dave argues that instead of trying to anticipate (predict), organizations need to increase their level of “anticipatory awareness” (capacity to imagine, envision and assess how they might deal with, different futures, so that the organization is more resilient — not caught by surprise — and able to react quickly when occurrences that have at least been imagined occur).

To achieve this “anticipatory awareness” Dave suggests increasing the number of people canvassed for their ideas on future possibilities, and the number of future possibilities (“micro-scenarios”) considered, and then using techniques to assess (“signify”), index, and search for patterns in these micro-scenarios. You can see the use of his Distributed Cognition and Granularity principles in this approach. When “monitors” are put in place to early-detect symptoms of any of these micro-scenarios, managers will have a basis to continuously assess the likelihood of each of these micro-scenarios occurring, and the consequences if they were to occur, and make decisions on how to mitigate or adapt to the risks each micro-scenario presents accordingly. So, as Dave explains, even a maverick can proffer micro-scenarios that will capture management attention when the “monitors” suggest those micro-scenarios are becoming more likely — in most organizations, the mavericks with the boldest ideas and predictions tend to be filtered out by middle managers before senior executives hear of them.

After reading Dave’s article, Vera B, one of my readers, commented:

Heh. Looking at [Dave’s article], it occurs to me there are two kinds of complex systems: Those that manage themselves, as a forest, and those that must be managed by humans, just a few steps away from falling apart. Human management brings into existence systems that must keep on being managed. Rarely well. Nature brings into existence systems that arise within self management, and therefore never need a manager.

Vera’s comments resonate with my own: That because of our imaginative poverty, and our inability to really understand and follow nature’s model of self-management, we are unable to conceive of, let alone develop “anticipatory awareness” of, discontinuous future events. We can recognize patterns, we can do environmental scanning and constantly watch for ‘weak signals’ that forebode changes ahead, we can extrapolate and project, and we can even (though too rarely) recognize the recurrence of patterns from our past history. But we, and our man-made systems, don’t have the resilience, the sheer numbers of data-providers and of data to draw on, or the billions of years of experience at mitigation and adaptation that nature does, and we can’t hope to. Just look at most science fiction, which presumes that all sentient creatures everywhere in the universe, throughout all time, have and always will look, feel, communicate and act astonishingly like humans today, and will deal with problems depressingly like we do today.

As John Gray tells us in Straw Dogs, our species is preoccupied with the needs of the moment, and despite our fascination with stories about the future, it is just not in our nature to do nature’s job of managing complexity. I read about the inevitability of us using geophysical engineering to “solve” the climate change that our ignorance of complexity has caused, by seeding the upper atmosphere with millions of tons of heat-reflecting metal particles, and I shake my head and sigh. The apes have been left in charge of the laboratory for far too long.

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7 Responses to The Trouble with Scenarios

  1. vera says:

    “I read about the inevitability of us using geophysical engineering to “solve” the climate change that our ignorance of complexity has caused, by seeding the upper atmosphere with millions of tons of heat-reflecting metal particles, and I shake my head and sigh.”But hey, the heat-reflecting metal makers will make gazillions. That’s what it’s about, Dave, get with the program! :-)

  2. Brutus says:

    Interesting post. I read in your analysis a tendency to reify nature. Rather, self-managed natural systems (long-term equilibria, really) are examples of blind, purposeless process. The fact that certain of them are beneficial to human wellbeing focuses our attention on the good aspects, when in truth, the natural world is largely disconcerned with us. Isn’t that the metaphor behind Dawkin’s The Blind Watchmaker? Further, the tendency to find agency behind the patterns and flow of natural processes is a fundamental flaw we can’t seem to get past, even if we don’t quite resort to intellegent design or Gaia Theory. As Montaigne said, “Man cannot make a worm, yet he will make gods by the dozen.”

  3. Dave Pollard says:

    Self-managed natural systems are, almost tautologically, engaged in the purpose of self-perpetuation. While they may be unconcerned about humans specifically, they are concerned with the balance of all-life-on-Earth, which they’ve discovered, by trial and error, to be best achieved by maximizing diversity and complexity. The struggle of man against nature is essentially one of a single, simple species trying to impose homogeneity and simplicity, against a collective of all species striving for diversity and complexity.

  4. andrew says:

    Why can’t you extend the maximizing diversity and complexity concept to human choice? Do you see any similarity between the process of evolution and the idea of free markets?

  5. Chaitanya says:

    I presume a lot of environmentalists would support “clean energy technology” rather than geo-engineering. But are they really different solutions philosophically ? I think not. They are both engineering solutions to solve a problem. Humans have been engineering the planet since thousands of years. Its what we do. Its what “intellect” does. Just look around .. everything from growing our own food (instead of simply gathering food), to genetic engineering , is engineering of nature around us to fit our needs.I think the essential question of environmental problem is — to what extent do humans have a moral right to muck with nature. and to what extent will we succeed if we proceed recklessly. The first is moral aspect. The second is “technical ability” aspect.On the two extreme sides of the spectrum, we have deep ecologists saying (a) we have no right to muck with nature. (b) we do not have ability to deal with so much complexity. On the other side of the spectrum, we have current civilization which answers exactly in opposite terms. So, is the sweet spot somewhere in between ? Where is that sweet spot ? Is there an objective way to determine that sweet spot, rather than subjective sentimental opinions ?

  6. Paris says:

    Engineering is another word for what Dave’s called “struggle of man against nature”, so in order to stop this, there is none of both your choices right. No more engineering is the key. Live and let live, letting go…Sweet spot? anything sweet is deceptive and dangerous when consumed on a regular basis.

  7. philip says:

    We are forced by events to do what we need to do next. If we are consumed by idealogy by default at least we have the likes of David trying to create and share ideas for us to respond to complexity. But collectively we cope with simple ideas best. All our ideas are double edged swords. We have all read this post for the desire to see. Even if you disagree.

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