Scenario Planning -
Preparing for the future during uncertain times.
Master’s Thesis 30 credits
Master’s Programme in Accounting and Financial Management
Specialisation: Management and Control
Department of Business Studies Uppsala University
Spring Semester of 2021
Date of Submission: 2021-05-28
Edvin Akgul
Gabriel Wadsten
Supervisor: Jan Lindvall
Acknowledgement
We would like to thank our supervisor Jan Lindvall for the valuable insights, support, and guidance he has shared during the writing of this thesis. We would also like to thank the respondents for taking their time to share information and contribute to making this thesis possible.
Uppsala 2021-05-28
______________________ ______________________
Edvin Akgul Gabriel Wadsten
Abstract
Authors: Edvin Akgul, Gabriel Wadsten Tutor: Jan Lindvall
Title: Scenario planning, Preparing for the future during uncertain times
Background and past studies: The effects of uncertain times include fluctuating markets and demands rapid and agile means to cope with said fluctuations and occurring changes. Scenario planning is considered a great tool for coping with uncertainties and preparing means for future events.
Purpose: The purpose of this study is to study how businesses implement and use scenario planning as a tool to minimize uncertainty in a volatile environment.
Research question: How is Scenario planning utilized to minimize uncertainties in a volatile environment in large organizations within Sweden?
Method: The study implements a qualitative approach where semi-structured interviews were conducted with members within the top management of said seven companies. Complementary documents shared by the respondents have been utilized.
Results and Conclusions: The results indicate that the organizations mainly conduct three scenarios ranked by either impact or probability of occurrence. The main purpose of scenario planning is readiness for action in case of sudden deviations with less focus on prediction of future deviations. The process of conducting scenario planning is interactive and multi-leveled within the organizations with mainly a bottom-up approach.
Keywords: Scenario, scenario planning, uncertainties, driving forces, future, TAIDA.
Table of contents
1. Introduction 1
1.1 Background 1
1.2 Previous research 2
1.3 Problem statement 3
1.4 Research question 4
1.5 Delimitations 4
2. Literature Review 5
2.1 Uncertainty 5
2.2 Forecasts, scenarios, and visions 6
2.3 What is scenario planning? 8
2.4 Purpose of scenario planning 9
2.4 Scenario planning processes 10
2.4.1 TAIDA 11
2.5 Challenges with scenario planning 16
2.6 Theoretical framework 17
3. Methodology 18
3.1 Research design 18
3.2 Research strategy 18
3.3 Data collection 19
3.3.1 Selection of organizations 19
3.3.2 Introduction of the companies 20
3.3.3 Selection of respondents 22
3.3.4 Semi-structured interviews 22
3.3.4.1 Primary data 22
3.3.4.1 Secondary data 23
3.4 Processing of data and analysis 23
3.5 The quality of the research 24
3.5.1 Credibility 25
3.5.2 Transferability 25
3.5.3 Dependability 25
3.5.4 Confirmability 25
3.6 Critique 26
3.7 Ethical considerations 26
4. Empirical findings and analysis 28
4.1 Why is scenario planning conducted? 28
4.1.1 Complement or substitute to budgets 28
4.1.2 Different purposes of scenario planning 30
4.2 How is scenario planning conducted? 32
4.2.1 Worst-, base- and best-case 32
4.2.2 Financial focus 35
4.3 Where in the organization is scenario planning conducted? 39
4.3.1 Interactive and multi-level 39
4.3.2 Alignment of visions 42
4.3.3 Top down 44
4.4 What does scenario planning imply in practice? 44
4.4.1 Predicting the results of the Covid-19 pandemic 45
4.4.2 Readiness for action 45
4.4.3 Identifying unknowns 48
5. Conclusion 50
5.1 Addressing the research question 50
5.2 Limitations 51
5.3 Contributions 52
5.4 Future research 52
References 53
Appendix 59
List of figures
Figure 1. The relation between probable, possible, and desired future (Lindgren & Bandhold, 2014) . 7
Figure 2. Different purposes of scenario projects (Lindgren & Bandhold, 2014). ... 10
Figure 3. TAIDA-model (Lindgren & Bandhold, 2014) ... 11
Figure 4. Scenario planning’s outside-in perspective (Lindgren & Bandhold, 2014) ... 13
Figure 5. The scenario cross (Lindgren & Bandhold, 2014) ... 14
Figure 6. Organizational structure of the scenario planning process. ... 41
List of tables Table 1. Presentation of the studied organizations ... 20
Table 2. Chart of respondents ... 22
1
1. Introduction
___________________________________________________________________________
This introduction will present background information about the chosen topic. Further, the previous research, problem statement and research question will explain the importance of this subject. Lastly this chapter will end with the delimitations of this study.
___________________________________________________________________________
1.1 Background
Companies and individuals throughout the world suffer on a global scale during a crisis or pandemic due to the uncertainty it brings (Jones, Palumbo & Brown, 2020). Common effects of uncertain times are that the global markets start to fluctuate, and the political statements become more important (Hasell, 2020). The current pandemic (Covid-19) has made businesses require new means, strategies, and budgets to enable continued value-creation (LaBerge, 2020).
The rapid fluctuations in political regulations, such as forced lockdowns, requires decision makers to be as flexible and responsive as possible (Berwick, 2020). For example: sending employees home and having digital meetings may result in unexpected costs that were unaccounted for in the budget. Goretzki and Kraus (2020) has reflected upon the increased importance of interactive controls in a management control system during a crisis. The authors further emphasize the involvement of employees during the formulation of a strategy in order to get a more complete picture of the current situation (ibid).
“In times of great uncertainty, it is not enough to focus on “diagnostic” control such as traditional budget control. Instead, it is important to also perform “interactive” control in
order to learn, adapt, and adjust.”- (Goretzki & Kraus, 2020, para. 1).
The authors also reflect upon the increased need of planning and resource allocation through
budgeting, reducing the importance of performance evaluation. This is mainly due to the
increased difficulty to identify and predict a plausible future during a crisis (Goretzki & Kraus,
2020). They also argue that strict budgetary control might result in organizations failing to
sufficiently respond to the rapid change of circumstances. Therefore, it is crucial to
2 continuously plan ahead through various means to minimize uncertainties as much as possible (ibid).
Scenario Planning
Mankind cannot predict the future, although individuals have the possibility to think and reflect by the help of structured patterns which can be observed. These observed patterns can in turn help companies generate scenarios of potential future outcomes (Schwartz, 1991; Tetlock &
Gardner, 2015). Scenario planning is often used by multinational organizations to navigate through today's dynamic and uncertain environment (Börjesson, 2020). Creating future scenarios is not something that is solely done by organizations when planning for the future.
According to Lindgren and Bandhold (2014) healthy minds always think ahead and generate scenarios for the future. By simulating a high number of scenarios, the possibility of generating a scenario that will occur increases and thus “predicting a future”. It is impossible to know which scenario that will actually play out, but it gives organizations a chance to prepare to minimize uncertainty and spontaneous events (Börjesson, 2020). Strategic planning’s initial intention was to help managements cope with devastating circumstances and risks (Chermack, 2004a). Mintzberg (1994) claims that strategic planning is limited to only yielding insights in an already known circumstance, and fails to inform the management about emerging political, economic, or social change. Other researchers, such as Wack (1985a) claims that scenario planning, which is a tool to assist the strategic planning, helps management to challenge current paradigms. Schoemaker (1995), drew a parallel to the time in history before the first world war when generals denied the strong potential of airpower, where air superiority was considered obsolete but in modern times is considered crucial.
1.2 Previous research
Shell, together with Pierre Wack, developed the first organizational use of scenario planning
(Wack, 1985a). The oil price had been relatively stable since World War II and the initial
purpose of Wack’s scenario planning was to identify events that would affect oil’s price
movement (Schwartz, 1991). Wack started to reflect upon several factors such as the french
political environment and regulations regarding natural gases and the competition between
natural gases and oil. Due to Wack's revolutionary way of strategizing, Shell managed to cope,
and even arguably predict the 1973 oil crisis (Chermack, 2017; van Der Heijden, 2005). Shell
then continued to also predict the 1981 crisis (Wack, 1985b), resulting in Shell managing the
3 two crises far better than their competitors (Chermack, 2017). Pierre Wack (1985a) advocates for the usage of scenario planning with the purpose of trying to perceive future uncertain events.
Further, several papers regarding scenario planning’s efficiency during uncertain times have been published. Moats, Chermack and Dooley (2008) has presented a study to promote the usage of scenario planning and scenario-based training during disastrous events, such as hurricane Katrina that struck the USA in 2005. The authors emphasize the importance of efficient resource usage during said events and that scenario planning could be utilized as a supportive tool to assist in the decision-making process (ibid). Kunc and Bhandaris (2011) study the importance of having a standby action plan for the low risk - high impact scenarios, in order to be more flexible short-term if any of the imagined scenarios would occur. Tellmann (2009) mentions that one of the most important causes of the financial crisis in 2008 was the existing false sense of security, and that scenario planning is a tool for generating awareness in your surroundings in order to increase the capability of risk exposure and thus, proactive measures. Due to the world being dynamic, efforts should be put into analyzing the surroundings of your organization (ibid). Kash and Darling (1998) has studied a few organizations to identify the different characteristics and stages of the internal crises which they have had. The authors are confident that a good scenario analysis and scenario creation is a great way to counteract any crises.
1.3 Problem statement
As stated above, the number of studies regarding scenario planning’s theoretical efficiency during crises are abundant. However, there are few researchers that have studied how scenario planning is conducted in practice and what the actual impact the usage brings to an organization during uncertain times. Pierre Wack’s success within Royal Dutch/Shell during the 1980’s is well documented (Wack, 1985a), but similar studies regarding the financial crisis in 2008 or during the global Covid-19 pandemic, are absent. The existing methods of scenario planning are considered complex, and according to Bradfield, Wright, Burt, Cairns and Heijden (2005), even impractical and contradictory. The authors further argue that limited amounts of empirics regarding practical implementation of scenario planning exists (ibid).
In order to grasp the possible effects of scenario planning, we must first study how businesses
implement and use scenario planning. Therefore, in the light of the ongoing Covid-19
4 pandemic, this study will examine how businesses implement and utilize scenario planning as a tool to minimize uncertainty in a volatile environment.
1.4 Research question
How is scenario planning utilized to minimize uncertainties in a volatile environment in organizations within Sweden?
1.5 Delimitations
The timeframe limits the amount of data that is collected due to the time consumption task of collecting qualitative data. The study exclusively focuses on present time and events. Due to the time constraints, organizations, and businesses outside of Sweden have not been studied.
All the organizations and the representatives from each studied organization have been
presented as anonymous.
5
2. Literature Review
___________________________________________________________________________
This chapter presents a theoretical overview of the subject scenario planning. Firstly, there is a discussion regarding uncertainty and its implications on planning and prediction. Further, concepts such as vision and forecasts are presented. Thereafter scenario planning is explained and illustrated in the form of a model. Lastly this chapter will end with a summarization of the challenges, limitations of scenario planning and the studied literature in the shape of a theoretical framework.
___________________________________________________________________________
2.1 Uncertainty
In order to understand the functionalities and purpose of scenario planning, we must first define its key element, uncertainty. The Oxford dictionary defines uncertainty as the state of being uncertain, which further means feeling doubt (Uncertainty, 2021). Uncertainty is everywhere and the most obvious example is the local weather (Lindley, 2006). The local weather could be described as an uncertainty since it is unclear if it will rain tomorrow or not. The uncertainty could be quantified by implementing probabilities like weather forecasts with a 30% chance of rain. The degree of uncertainty between individuals regarding the same phenomenon can also vary depending on knowledge (ibid).
Some uncertainties are solvable through deeper research and increased insight such as questions on a questionnaire (King & Kay, 2020). Other uncertainties will remain uncertain due to the stationary probability distribution of an outcome, such as roulette where everyone knows the rules but due to its characteristics, it is impossible to predict. The mentioned examples of uncertainty are defined as “known-unknown”, a phenomenon that is perceived, but the outcome is not yet certain. True randomness without any possibility of foreseeing are the “unknown-unknowns”. Some events can be classified as truly random or “unknown- unknown”, but after its occurrence the phenomenon becomes a “known-known”, a certainty (ibid).
Uncertainty can affect organizations and their actors on two different levels and ways (Grote,
2009). For example, uncertainty can affect executives in their roles as a strategic decision-
6 maker trying to assess the current situation in an attempt to perceive future uncertainties.
Uncertainty can also be present amongst operational personnel during their day-to-day tasks (ibid). There are some examples of how the uncertainties can vary depending on different levels in the organization. Salancik and Pfeffer (1978), defines uncertainty in regard to critical organizational interdependence on a strategic level. Further, Wall, Cordery and Clegg (2002) defines operational uncertainty as a lack of knowledge about operational requirements and when and how problems will be met and ultimately how to deal with them. The specific area of uncertainty can vary depending on the level of the executive in question and what responsibility their role brings (Grote, 2009). A top manager is uncertain about what company to acquire, which markets to explore and expand their business within, while a product manager is uncertain about its development (ibid). Companies are sometimes faced with uncertainties that are a product of extraordinary events, such as US’s embargo against China that heavily affected Huawei and other businesses (Corera, 2021). Sometimes extraordinary events, such as Covid-19 or an economic recession can have a major impact on companies world-wide resulting in a multitude of uncertainties that affect individual companies differently (Finn, Mysore & Usher, 2020).
2.2 Forecasts, scenarios, and visions
The difference between scenarios, forecasts and visions is how the future is perceived. The different terms perceive the future in different ways. A forecast is defined by the Oxford dictionary as “a statement about what will happen in the future, based on information that is available now” (Forecasts, 2021). Forecasting can be further explained as the process of making predictions based on past and present quantitative data (Tetlock & Gardner, 2015).
Forecasts are often based on numerical, quantitative data in order to predict future events (ibid).
Lindgren and Bandhold (2014) claims that forecasting is a strong tool in short-term planning within a field of low uncertainty with its effectiveness reducing with longer time spans and complexity. This is since forecasts do not take unique events into consideration, it is more like a budget where you prepare for the future based on past and present numerical data and outcomes (ibid). The assumption with forecasts is that there are only one or few right answers to the question of how the future will unfold (Van der Heijden, 2005).
One of the main issues with forecasting is the reluctance to change opinions based on new data
and events (Tetlock & Gardner 2015). However, scenario building focuses on trying to
7 anticipate several possible futures instead of one, by carefully identifying uncertainties and by both objectively and subjectively weighing different variables together (Lindgren & Bandhold, 2014). Creating scenarios by using a scenario planning process is more open minded because of the belief that there is not one perfect answer for future predictions, instead it considers that the future can unfold in many different ways (ibid). This mindset helps scenario planners to consider various strategic solutions that may have previously been ignored (Norrman, 2001).
A vision is a desired state of the future (Tetlock & Gardner, 2015; Lindgren & Bandhold, 2014).
A vision is not necessarily anchored in the state of today or the directions of the future but can be a good trigger to voluntary change. According to the mentioned authors, visions also conceal related risks. To distinguish the three different ways to perceive the future, the future itself could be divided into desired future (vision), a possible future (scenario) and lastly a probable future (forecast) (Lindgren & Bandhold, 2014).
Figure 1. The relation between probable, possible, and desired future (Lindgren & Bandhold, 2014)
To conclude, all three perceptions of the future are intertwined with scenarios generating a
range of possible and plausible futures where accurate forecasts usually fall within this area,
generating the most probable future. The visions may not always be aligned with possible
futures due to the desires not being realistic (Lindgren & Bandhold, 2014).
8
2.3 What is scenario planning?
Scenario planning is making various assumptions on what the future is going to be like and how the business environment will change overtime in the light of that future (Postma & Liebl, 2005). Schoemaker (1995) advocates scenario planning due to its “ability to capture a whole range of possibilities in detail”. The scenario planning models assists managers to compensate for the usual errors in decision making, such as overconfidence or tunnel vision by identifying trends and existing uncertainties (Schoemaker, 1995; Lindgren & Bandhold, 2014). Many authors advocate the use of scenario planning as a long-range strategic planning tool, however, Axon (2011), mentions the increased usage of scenario planning within operational planning and budgeting as a way of calibrating their efficiency.
The construction of scenario planning enables users to subjectively reflect regarding the future and thus variables that would otherwise remain static are considered (Lindgren & Bandhold, 2014; Van der Heijden, 2005). Further scenario planning considers how these variables interact with each other during different circumstances and through that capture major deviations that could result in a new state of operations (Van der Heijden, 2005). Schoemaker (1995) further claims that scenario planning is a tool to challenge the current mindset in order to perceive the future in a more accurate way.
“Scenario planning simplifies the avalanche of data into a limited number of possible states.” - (Schoemaker, 1995, p. 27).
Scenario planning can also enhance the decision-making process by enabling a higher level of
information sharing. Chermack (2004b) advocates the usage of scenario planning due to its
ability to reduce information stickiness (information not being shared between individuals and
functions) and increase knowledge friction. Scenario planning provides a common forum for
multiple individuals to share their expertise and together create a shared mentality and sense of
potential within the organization. This in combination with a need for frequent communication
and interaction reduces the stickiness of information. The intense interaction between
knowledgeable members of the process also contributed to identifying factors that a single
individual might have overlooked (ibid). Van der Heijden (2005) further argue about scenario
planning’s capabilities of enabling a strategic conversation.
9
‘‘An effective strategic conversation must incorporate a wide range of initially unstructured thoughts and views, and out of this create shared interpretations of the world in which the majority of the individual insights can find a logical place.’’ - (Van der Heijden, 2005, p. 43).
2.4 Purpose of scenario planning
Scenario planning aims to deepen the understanding of the directions that lead into different scenarios and through that align the businesses’ strategy (Postma & Liebl, 2005). The process of identifying uncertainties results in managers having to discuss relevant issues in a long-term perspective that otherwise possibly would have occurred unanticipated (ibid). The scenarios based upon identified uncertainties are constructed to illustrate a sequence of events, where each scenario or outcome should have a unique action plan to enable the management to predict success or failure of different strategic decisions made by the business (Schoemaker, 1995).
The ability to predict the impact of strategic decisions could be used as an opportunity to gain competitive advantages (ibid). Scenario planning may also function as a tool related to the traditional budget. Organizations present handbooks aimed towards decision-makers and practitioners within organizations on how scenario planning can function as either a substitute (Garlapati & Durga, 2011) or a complement (Groman, 2018) to budgets. Garlapati and Durga (2011), mentions that the most probable scenario conducted could replace the organization's budgets, while Groman (2018) presents a strategy to improve the accuracy of the already- existing budget.
Lindgren and Bandhold (2014) divides scenario planning’s purpose into four dimensions.
Those dimensions depend on the organizations’ focus, new or old businesses, and their purpose
with the exercise, a prerequisite for change or action. The dimensions are defined as Risk
consciousness/need for renewal, which helps the business generate an insight into their needs
of renewal or to find a new direction that is challenging to foresee and New thinking/paradigm
shift with the purpose of generating ideas that would prosper in a new and unknown
environment. The third perspective Business development/concept development’s purpose is to
help develop alternative business concepts that would succeed in a future world, and lastly the
Strategy development/organizational development, which is meant to increase the readiness for
action and to also find an optimal strategy that aligns with the change and future.
10
Figure 2. Different purposes of scenario projects (Lindgren & Bandhold, 2014).
2.4 Scenario planning processes
There are several different scenario planning processes which have been used throughout the
years when building scenarios for the future (Bishop, Hines & Collins 2007). These processes
have major similarities and resemble each other. However, even though the models within
scenario planning possess similarities, some authors argue that they are not completely
interchangeable. Bradfield et al. (2005) consider the theoretical field of scenario planning a
methodological chaos due to the over-establishment of different scenario planning processes
that has emerged during the last 30 years. Also, the theoretical research regarding scenario
planning is according to Spaniol and Rowland (2018) not tethered to a common core, and
Bishop, Hines, and Collins (2007), argues that combining scenario planning methods may
create confusion. As earlier presented, Bradfield et al. (2005) claim that some models are
contradictory, and thus combining multiple methods is discouraged. Therefore, this study only
includes a single model of scenario planning to maintain a structure and avoid confusion
regarding definitions and the steps of scenario planning. The chosen process of scenario
planning is by Lindgren and Bandhold (2014) due to its ability to capture the complete picture
of scenario planning, including multiple interesting aspects of scenario planning that fit the
scope of this study.
11
2.4.1 TAIDA
TAIDA is an abbreviation for Tracking, Analyzing, Imaging, Deciding and Acting (Lindgren
& Bandhold, 2014). TAIDA is the applied process due to its ability to thoroughly illustrate every aspect and element of scenario planning.
Figure 3. TAIDA-model (Lindgren & Bandhold, 2014)
The starting phase of every project is crucial, and it sets the tone for what is to come. Since the main purpose of using TAIDA is to get a better understanding of the future and to prepare for it properly, it requires companies to think in a future state of mind. Thus, by doing this it is easy to neglect the present and past. Both the present and past must be analyzed in order to properly prepare for the future. When a clear purpose is identified, a distinct question is created, a specified time frame of the project and a good map of the present and past is defined, then proceeding to starting the process of TAIDA is possible (Lindgren & Bandhold, 2014).
1. Tracking
The main purpose of this step is to track and describe changes which are happening in the surrounding environment which have or could have an influence on the problem area which is in focus. It is done by identifying trends, forces, opportunities, and uncertainties which can improve or jeopardize the future of the company (Lindgren & Bandhold, 2014). Schwartz (1991) says that it is important to constantly pay attention to changes in technology, science and perception changing events due to these factors often being the driving factors of change.
Most organizations use the inside- out perspective, they start by reviewing their own entity and
then studying other organizations and their customers (Lindgren & Bandhold, 2014). This
however only works well if the organization operates in a stable environment with few
competitors and intends to look to plan market activities in a short-term perspective. The inside-
out perspective will not work in a complex environment since it is difficult to predict changes
12 that have not yet become evident. If the intention is to have a more long-term strategy in a rapidly changing complex environment, the inside-out method is not viable. Therefore, it is necessary to have an outside-in perspective as a starting point in order to track trends and forces in your surroundings (Lindgren & Bandhold, 2014). Tetlock and Gardner (2015) also emphasize the importance of having an outside-in perspective in order to generate the best possible anchor, in other words starting point and base of objective information.
Chermack (2017) recommends that the team-members within the scenario planning process are either cross-functional or multi-level within an organization to enable more and varied insights regarding uncertainties. Schoemaker (1991) concludes that the focus of different uncertainties varies depending on the multiple levels of scenario analysis if a multi-level structure of the scenario planning process is implemented. The levels presented are World, Business and Manager. The factors are translated into relevant topics depending on who it effects on each level. The world level reflects upon uncertainties regarding political, social, and environmental factors. The world-factors are translated into how it affects business units regarding substitutes, customers, and suppliers. The business factors are ultimately translated into uncertainties regarding demand, cost, and prices at the management level (ibid).
In order to identify external uncertainties, a handful of tools are presented. Media scanning, brainstorming, analysis of the political environment, focus groups and expert panels are a couple of examples on how you can start identifying trends (Lindgren & Bandhold, 2014).
Once the trends have been tracked, it would be preferred to prioritize and even disregard some
trends in order to prevent wasting resources while preparing for dozens of trends. A trend
represents a deeper change and not a shorter phase. To understand what a trend is an analogy
to meteorology can be made: weekly variations in the weather is not a trend, however climate
change can be viewed as one (Lindgren & Bandhold, 2014).
13
Figure 4. Scenario planning’s outside-in perspective (Lindgren & Bandhold, 2014)
2. Analyzing
Usually after the first step (tracking) there are a number of trends which have been identified which covers many different areas. Initially, it seems as if the trends are disconnected from each other, but when taking a deeper look, it becomes apparent that some trends recur as consequences to other trends (Lindgren & Bandhold, 2014). These are called driving forces and are found within categories such as: environmental, political, social, economic, and technological areas (Schwartz, 1991). The driving forces and trends are mapped out and analyzed in this step (Lindgren & Bandhold, 2014). Each driving force will later come to affect the scenario and will change its direction (Schwartz, 1991). The longer time range that is being observed, the more questions arise. This step of the TAIDA is about identifying the driving forces and the consequences of those in order to see how the identified trends interact with each other (Lindgren & Bandhold, 2014).
In order to get a deeper understanding, it is ideal to analyze multiple trends together. When
looking at trends separately, an incomplete picture of the surroundings will arise. When looking
deeper and getting a better understanding of how the trends impact each other, then it is possible
to visualize the future. Interrelationships between trends can be analyzed through a method
called cross-impact analysis (Lindgren & Bandhold, 2014). The cross-impact analysis starts
out by picking two uncertainties and crossing them in order to identify four different outcomes
(scenarios) depending on the individual impact of each uncertainty (see figure 5). Easiest way
14 to analyze scenarios with this model is to combine two uncertainties and then systematically add additional scenarios to the model to further increase the complexity (Lindgren & Bandhold, 2014).
Figure 5. The scenario cross (Lindgren & Bandhold, 2014)
After analyzing the different trends and managing to identify the driving forces it is time to start deciding upon the final scenarios. The detected trends during the tracking step are likely to have a great impact on the chosen distinct question (Lindgren & Bandhold, 2014). They are however difficult to predict since the direction of each trend is uncertain. At the same time there are some trends which are in the extremely uncertain category that Lindgren and Bandhold (2014) prefer to call wild cards. These wild cards could have a great impact on the distinct question, but since the predictability and probability is extremely low, it is not ideal to spend time trying to use them as the base for your scenarios.
Worst-case scenario and best-case scenario are commonly heard of in organizational circles.
The problem with few scenarios is that it is proven that humans often choose to focus on the
positive instead of the negative when given the opportunity to choose (Lindgren & Bandhold,
2014). This creates a one-dimensional view of the future since only one uncertainty is taken
into consideration. The world is full of uncertainties and it is complex to handle all aspects of
all uncertainties (ibid). However, Duncan and Wack (1994) claims that the number of scenarios
15 should be two, and the resources would be skewed towards the middle ground if three would be conducted.
3. Imaging
Now that information about the surroundings is gathered and analyzed, it is time to imagine a future state: a vision. It is possible to build a vision before the above-mentioned steps, but the awareness acquired through these steps can liberate the user from the present and enable planning as if said user were in the future. Therefore, it is possible to shape a more plausible vision. A vision is a desired future which can be created by having a “positivistic lens”. A vision's most important components are to give the people in the organization an identity and inspire them to do more. The vision set for the organization must be realistic but yet challenging, otherwise it will be dismissed by the employees (Lindgren & Bandhold, 2014).
4. Deciding
Trends and driving forces have now been tracked and the vision is set. During this step, the vision and constructed scenarios are linked together in order to create alternative strategies for the future. There are several ways to generate strategies. It can be done by having the identified trends, developed scenarios, core competences within the organization and related visions as a starting point when creating strategies. It is easy to feel overwhelmed by the hundreds of different ways on how to go about. But it is important to remember that the purpose of the outside-in perspective is to use the generated ideas as building blocks in order to create patterns which would otherwise be unthinkable (Lindgren & Bandhold, 2014).
5. Acting
It is proven that the strategy itself does not give any results, it is when acting and carrying out
a strategy in which results can be expected. In this last step the organization implements the
strategies that have been decided upon. This final step of TAIDA is about transforming the
theoretical strategy into action (Lindgren & Bandhold, 2014).
16
2.5 Challenges with scenario planning
The biggest challenge with scenario planning is how to transform an unknown into a known- unknown. The solutions to manage the transformation are rather abstract, but the goal is to reflect and search for something that does not yet exist (Postma & Liebl, 2005). There are furthermore concrete challenges that users of scenario planning must take into consideration.
Scenario planning requires the practitioners to think both logically and creatively, which is one of the reasons why the process requires a whole team in order to create scenarios (Lindgren &
Bandhold, 2014). Due to the complexity and the need of customization within every case of scenario planning, the process is highly costly and time consuming (Van der Merwe, 2008).
The complex character of scenario planning results in the user being prone to making mistakes (ibid). Lindgren and Bandhold (2014) reflects around complexity bias, and how managers are prone to place every negative uncertainty within one scenario, putting every positive uncertainty within another resulting in skewed scenarios. Also, Tetlock and Gardner (2015) presents a challenge related to conducting forecasts, but the challenge is also present when conducting scenario planning. The challenge is the reluctance to change opinion based on new data and events.
Some additional common mistakes that might occur during usage of scenario planning are presented by Van der Merwe (2008) and Lindgren and Bandhold (2014):
● Failure to identify the correct number of trends.
○ Either too few or many.
● The trends are not supported by historical or present data.
● Inability to identify relevant uncertainties.
● Being biased while building strategies.
○ Only generating strategies for one scenario, excluding multiple plausible outcomes.
● Developing strategies that conflict with the vision of the company.
17
2.6 Theoretical framework
The presented literature review is deemed fit to answer four questions, derived from the research question, which are: “Why is scenario planning conducted?”, “How is scenario planning conducted?”, “Where in the organization is scenario planning conducted?” and lastly, “What does scenario planning imply in practice?” The four questions presented will together illustrate and answer how organizations implement and utilize scenario planning to minimize uncertainties in a volatile environment, which is the aim of the study.
The study will not examine and compare the respondent’s scenario planning process with TAIDA. Instead, the TAIDA process with related models (cross-impact analysis and the outside-in perspective) enables a comprehensive description of scenario planning and the philosophy regarding the subject. This further contributes to increasing the possibility to study multiple aspects of scenario planning.
The literature presented regarding scenario planning functioning as a substitute (Garlapati &
Durga, 2011) or complement (Groman, 2018) to budgets will contribute to the question “why”.
The consolidation of uncertainties by Van der Heijden (2005) and Chermack’s (2017) claims
that the scenario planning processes consisting of multi-level or cross-function will contribute
to answering the questions “how” and “where”. Further, literature such as Tellmann’s claim
of generating awareness in your surroundings will contribute to illustrating “what”. The
literature will function as tools to deeper understand and analyze how the organizations manage
uncertainties within the environment they operate within. The presented theories and related
questions ultimately contribute to illustrating multiple aspects of how scenario planning is
utilized in practice.
18
3. Methodology
___________________________________________________________________________
This chapter aims to describe the process, terms and theories which are the foundations for the analysis of the collected empirical data. The first paragraph shall explain the chosen research design. The second paragraph defines the chosen research strategy. The rest of the chapter seeks to describe the process of data collection and analysis. Lastly critique regarding the methodological approaches and ethical considerations are discussed.
___________________________________________________________________________
3.1 Research design
This study aims to investigate what scenario planning is and how businesses implement and use scenario planning during uncertain events. Sentences and interpretations are of high importance in this study to fully capture the studied phenomenon (Johannes & Smilde, 2009), hence the choice of a qualitative approach was made. The main purpose of the study is to gain deeper insights in a fewer number of observations, which is the purpose of a qualitative study according to Collis and Hussey (2009). Further, since the purpose of the study is to enter a new field of study, and to lay a foundation for future research, a qualitative approach is considered optimal according to Bell, Bryman, and Harley, (2019). Since the research question of this study is “How is scenario planning utilized to minimize uncertainties in a volatile environment in large organizations within Sweden?” it was concluded that interviews would be conducted due to its ability to consider the respondents' experiences, perceptions, and opinions (Denscombe, 2009). Also, the information which is needed to conduct this study can rarely be found in secondary data such as companies official pages, press releases and annual reports.
3.2 Research strategy
The literature review was done by reading journal articles and books regarding the relevant
topic, to gain a deeper understanding of the chosen subject. The need for interactive controls,
discussed by Goretzki and Kraus (2020) sparked the idea of conducting a study about scenario
planning. Thereafter books that laid the foundation of scenario planning, such as Chermack
(2004a), Schwartz (1991) and Wack (1985a). The thesis’s theoretical framework has been
based on the concept scenario planning and a recognized model of scenario planning by
Lindgren and Bandhold (2014). The framework was also expanded with reflections regarding
19 topics such as forecasting by Tetlock and Gardner (2015) and uncertainty by King and Kay (2020). After gaining a deeper understanding of the subject scenario planning, combined with the lack of information available a qualitative research design was chosen.
The lack of information regarding practical implementations of scenario planning increases the suitability of an abductive approach. Also, the scarce amount of research within this field could result in unsustainable research if an inductive approach would have been applied (Alvehus, 2013). An abductive research strategy is a combination of a deductive and inductive approach.
An abductive approach implies that the focus shifts between the theory and empirics, where the researcher initially works with the theory, then turns to the empirics and reflects upon what the result means in the light of the theory. When using an abductive approach, a new aspect of the studied subject can appear (Alvehus, 2013). With the help of the switch made between empirical data and theory, the researchers have been able to make a well-founded analysis that has led to a conclusion that answers this study's questions.
3.3 Data collection
The data collection for this report comes from both primary- and secondary sources. This is done in order to get more of a multifaceted result which creates a picture closer to reality.
During this part (chapter 3.3) a comprehensive description of the data collection process is presented.
3.3.1 Selection of organizations
Seven out of the 100 largest companies measured by market capitalization within Sweden were
chosen due to their claims that their scenario planning could be considered interesting in the
light of this thesis. Due to scenario planning being considered costly and complex by (Van der
Merwe, 2008), and Börjesson’s (2020), claims that mainly large and multinational
organizations implement scenario planning, results in larger companies being the optimal
subjects. The businesses all have their base of operations in Sweden and the chosen
organizations all use scenario planning (or a similar tool) to various extents.
20 Company Industry Number of
Business Units
Employees (approx.)
Market Cap in SEK 2020
(approx.)
Company A Industry 3 10.000+ 50+ Billion
Company B Industry 4 35.000+ 250+ Billion
Company C Healthcare 3 10.000+ 50+ Billion
Company D Industry 3 15.000+ 100+ Billion
Company E Raw Materials 3 10.000+ 25+ Billion
Company F Real Estate 3 300+ 10+ Billion
Company G Food retail 4 10 000+ 200+ Billion
Table 1. Presentation of the studied organizations
The motivation behind the choice of organizations was to have homogeneous traits, such as size and geographical location. The variation of environments and industries generated differences regarding how organizations reflect and apply scenario planning and thus, increased the depth of the study. The homogenous traits also enabled a better comparison between the organizations. The majority of organizations operate within capital intensive industries. In order to achieve the criterion of purposeful sampling mentioned by Palinkas, Horwitz, Green, Wisdom, Duan and Hoagwood (2016), the authors of this study identified individuals within the businesses that have great knowledge about the studied phenomenon, in this case scenario planning. It was also ensured that the respondents were willing to cooperate to the extent that the research required. Given the anonymity offered, all of the organizations have allowed the shorter presentation below of their business and related divisions.
3.3.2 Introduction of the companies
Company A
Company A is the world leader in manufacturing of products for horticulture, park- and forest care, irrigation products as well as surface treatment equipment and cutting equipment for the construction industry. The company's three divisions are all considered market leaders within Europe.
Company B
Company B´s business is based upon unique expertise in materials technology, extensive
knowledge in industrial processes and close collaboration with customers. Continuous R&D
21 and investments has given them a world leading position in the following areas: Tools and tool systems for metal cutting methods. The company is also prominent regarding machines, service and technical solutions for the mining and construction industry. In addition to that they create advanced stainless steel and special alloys and products for industrial heating.
Company C
Company C provides hospitals and Life Science institutions with products and solutions aimed at enhancing clinical results and optimizing workflows. They are the biggest supplier of intensive care respirators and offer various solutions for intensive care, operating rooms, sterile reconditioning, and cardiovascular care.
Company D
Company D is a world leading global supplier of quality products in heat transfer, separation, and flow management. Company D defines the industry's challenges and delivers sustainable solutions that meet their needs- mainly in environment, energy, food, and the marine industry.
They produce various pumps and valves and offer world-leading services within heat transfer, fluid handling and separation.
Company E
Company E is amongst the global leading producers of highly specialized steel with a new project regarding renewable steel. They develop high strength steels and also provide services for better performance and durability properties. One of their current goals is to offer the market fossil free steel in 2026.
Company F
Company F operates within real estate and was founded in 2006 after a merger between two large organizations with a long history within the same industry, the real estates are positioned and concentrated within the largest cities of Sweden: Stockholm, Göteborg, Malmö and Uppsala.
Company G
Company G is a market leading group within the field of food retail with logistic solutions with
a major market share in Sweden. The company maintains a multitude of brands that can be
found within Swedish households.
22
3.3.3 Selection of respondents
The selection of respondents was executed by the method named purposive sampling (Bryman
& Bell, 2011). When approaching the chosen organizations, the authors of this study asked to get directly in contact with people that had relevant positions and sufficient experience within the organizations in relation to the scope of this study in order to enable a discussion that fits the needs of this report. Respondents within the organizations which were considered to be good study objects were reached out to three to four weeks prior to the estimated date of the interviews. This was done in order to give the respondents a good margin for preparation. The individual respondents within the studied organizations all possess a managerial role to enable a more detailed description of the organizational process of scenario planning.
Companies Respondents Roles in the Company Date Duration Company A VP Group Business Control & Strategic Financial
Planning
29th March 42 min
Company B CFO 30th March 58 min
Company C Senior Director Strategic Initiatives 6th April 53 min Company D Head of Group finance Planning & Analysis 8th April 46 min
Company E CEO 12th April 50 min
Company F CFO 21st April 54 min
Company G Head of Business Control 22nd April 46 min
Table 2. Chart of respondents