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Future 'shock' scenario planning and strategic resilience

I closed my recent post, Eye of the Beholder, with this reflection:



I spent a few days recently with
several dozen CEOs, VPs environment, and risk management executives
from a variety of companies, exploring the challenges of "environmental
health and safety" implementation and results. The wide-ranging and
universally high quality presentations included a brilliant and
sweeping "futures scan" by a very senior executive of a very large
energy company.




It was captivating. It touched on
everything from oil prices to geopolitics to China. And it didn't
include a single word about greenhouse gases or climate change.




Natural Logic associate (and scenario-meister) Hardin Tibbs offered this response:

This denial is typical! And for all the talk about the power of
scenarios to alert people to future issues, these undiscussables often
remain off the map. My observation is that if an industry does
something inherently problematic -- like burning hydrocarbons -- and it
fundamentally believes there is no alternative, denial will operate
very powerfully. The trick is therefore somehow to reframe the business
concept so that it is not centrally dependent on the problematic
activity. But if the thinking process is seen simply as a "future scan"
it will not contain anything that generates or forces this reframing.
If it is a "scenario process" then business reframing can in principle
be included as part of the exercise -- but only if the "scenarists"
recognize this problem!

And are willing to engage people's assumptions about risk, consequences, options and costs.



If oil goes to 60 dollars a barrel -- wait a minute, it has! If (when?) oil goes to 100,
what would be the impact on your business -- your own cost structure,
the cost structure of your supply chain and the reliability of critical
inputs (from raw materials to commuting employees).



At issue is not only the projected likelihood of such events, but the
potential impact -- and the costs of preparing for or attempting to
prevent those impacts.



With futures uncertain, a prudent company, executive, investor or
person will make some investment in being prepared for contingent
futures that have large potential impact, even if their perceived
likelihood is relatively low.



Views differ on that likelihood, of course, which is what makes horse
races -- and futures markets. But they also differ dramatically on the
cost of change, and the cost of design for resilience. People still
commonly assume that there are inevitable tradeoffs -- quality, speed,
price; pick two' or 'environmental or economy - pick one'. But what if
those tradeoffs weren't inevitable?



The cost of change and resilience don't come off a rate card; they're highly sensitive
to innovation, and to strategies that 'design in' the synergies of
multiple benefits -- that tunnel through the cost barrier and produce
unexpected return on investment (ROI). Or, in scenario terms, that prepare an organization to
respond effectively to any of several potential future scenarios, not
just the most likely ones.



There's still opportunity cost, of course; finite management bandwidth
as well as finite capital means you can't do everything. But what's the
cost of being caught by surprise, when you didn't have to be?
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This page contains a single entry from the blog posted on July 13, 2005 6:55 AM.

The previous post in this blog was 'Eye of the Beholder' - full text.

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