Davis says Shell already factors in such extreme actions because it does business in the Middle East, where terrorism has been an issue for decades. “We need to assess our strategies against [terrorist] scenarios. That’s what scenarios are about. They allow you to benchmark your visions against the assumptions.”
Whatever you assume could be a factor in your company’s future–from terrorism to the price of tea in China–scenario planning offers a structure with which to envision and prepare for new futures. “You can describe what a winning company looks like in various scenarios,” says Arthur D. Little’s Eno, “and with that information, almost every time, it will stretch your thinking about what your company can be.”
Sidebar: The Shell Method Today
The Shell method helped make that company an oil giant. Ged Davis, vice president of global business environment at Shell International in London, took over the division in 1999. One of Davis’s most recent efforts charts energy markets out to 2050, and features two distinct scenarios: one in which renewable energy sources gain popularity very slowly over time and another in which new fuel technologies, such as hydrogen fuel cells, quickly rise to acceptance.
“Scenario planning is our way of handling risk,” says Davis. “There are some things you can forecast and there are some things you can’t. You distinguish the things that you can’t, and that’s what you build the scenarios around.”
For the 20-year-scenario plans, which are updated every 3 years, Davis conducts a long process (up to nine months) to define the problematique, the question the company wants to focus on, and the factors that influence it. He and his team, which includes economists, sociologists, energy experts, and other specialists who add new perspectives, interview key executives to find out “what is on their minds and what they think the main challenges are.” The analysis phase includes workshops at Shell locations around the world. “You can’t get hung up on the focus of a specific discipline,” says Davis. “You have to get out, see things, talk to lots of people who have strong views.”
Once the analysis portion is complete, Davis determines the scope of the problematique and seeks approval from the board of directors. If the board agrees with the scope, the research phase proceeds. The process, which can take up to a year, goes into great detail on a variety of scenarios and involves 30 to 40 people. Once the scenarios have been crafted, Davis goes back to the board for approval on two of them. Once they have been approved, says Davis, the most crucial step begins: wind tunneling.
“This is when you test the company’s strategies against these focused scenarios,” he says. “We use the scenario as a global backdrop.” The real value is gained when the scenarios are tested against country and local strategies. “When you do this more-focused work, people can see much more clearly the sorts of risks they’re facing.”