Using Scenarios to develop successful Future Strategies
Do you have a plan for the future – a strategy which will keep your company still relevant 5 years from now? Admittedly, it is difficult, if not impossible, to make plans in a turbulent environment. Short-term survival is the first priority. But managing a business without a strategy is like flying blind without instruments: Upcoming dangers are not recognized in time and the imminent crash is pre-programmed!
To set the right strategic course, alternative futures can be systematically simulated by developing different scenarios. In doing so, decision makers make various assumptions which are critical to business success. These assumptions may, e.g., concern market and price developments or the entry of new competitors. On that basis, the expected consequences can be identified and appropriate strategies and actions developed.
The advantage of developing scenarios lies in the fact that the future remains more or less ´open´ and that planning remains flexible. By contrast, the traditional planning approach is based on the false assumption that the future is ´known´, that it is a linear extrapolation of the past and that, therefore, detailed plans can be made.
Strategic decisions always involve risks. Especially in highly dynamic environments, wrong decisions concerning major investments can have serious consequences. To minimize risk, companies can work with 'real options'. Here, strategic initiatives are subdivided into several sub-projects with specific budgets. Sub-projects which do not reach their objectives will be stopped – with limited financial losses. Successful projects will receive further financing and will be continued.
How are you planning your company´s future?