It is halfway 2022, the time we normally start looking ahead, planning for next year, and being aware of what might happen in the next 5 years. The economist John Kenneth Galbraith said a few things about forecasting, and those were not too flattering:
“The only function of economic forecasting is to make astrology look respectable.”
“There are two kinds of forecasters: those who don’t know, and those who don’t know that they don’t know”.
Forecasting is wrong, most of the time at least, but we still have to prepare and plan in the context of future that is both unknown and uncertain. What to do? We of course have to make use of forecasting to a certain degree, in the form of assumptions. Assumptions about what the future will look like and assumptions that the plan we have made, in the form of our strategy, will be successful in that future.
2020 and 2021 have shown that things can change fast; COVID, political unrest, major policy changes, uncertainty about what will happen in the economy, geopolitical changes, and much more. Another description of the a world that is changing at ever faster pace uses the terms volatility, uncertainty, complexity, and ambiguity for the acronym VUCA.
Scenario planning does not try to predict the future, but looks at which plausible scenarios could develop. What happens is that two factors are chosen that are uncertain and will have a great impact on the organization. Based on these two factors, and if they occur in a small or a large degree (example is inflation), four different scenario stories are made. To stress it again, these are not predictions but plausible futures. Within the context of these scenario stories we can stretch our imagination and challenge our perception.
We can use these scenarios to test our strategy. If you look at our mission you will see that we focus on mass production and having a focus on competitive price and quality. That is great if the future allows for large orders and little to moderate variability in products, but how would we fare in a world where there are small order quantities of highly variable products, there is drive towards cheaper products, and economies of scale do not exist anymore?
When creating these scenarios we build memories of the future, as we live through different futures during the exercises, building a basis for recognizing when these plausible futures start to occur. We can also take measures for the things we would be unable to bare in case we do end up in a scenario that does not support the current strategy. This could mean that we have to look how we can develop our capabilities to be able to thrive in different circumstances, or for example build a system where more flexibility is present by becoming more agile (next to being lean – and yes there will be some tradeoffs).