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What Functional Leaders Should Know About Scenario Planning

July 8, 2022

Contributor: Jackie Wiles

Scenario planning is a must-use tool for functional leaders to drive immediate actions, decisions and longer-term plans. Know what it is, what it does and how to use it.

In short:

  • Planning for possible future scenarios has become more complex and more critical. Yet many functional leaders lack experience in this area.

  • First, gain an understanding of what scenarios are and what they achieve, as well as how to cascade enterprise planning down to a functional level.

  • Done right, scenario planning bolsters resilience by helping you specify which actions should take place in a wide range of different situations.

Scenarios are compelling descriptions of possible futures — not necessarily the most probable ones, but plausible, coherent and substantially different ones. The pandemic showed how critical it is to prepare for even the most unlikely scenarios, but functional leaders don’t always have first-hand experience with the scenario-planning process. Yet we all need it.

“Three-quarters of corporate strategy leaders say significant pivots to strategic plans now happen more frequently,” says Marc Kelly, Vice President of research at Gartner. “Functional leaders who understand how disruption affects enterprise strategic and operational decisions can make small but powerful changes to prepare their teams to act on the risk and opportunities that come from volatility.”

Download now: A Guide to Scenario Planning for Functional Leaders

Geopolitical risks, broken supply chains, inflation and the threat of recession are just a few of the newer disruptions prompting organizations to redefine how they will play and win. Functional leaders need to envisage and plan how to dynamically respond to a range of potential outcomes. 

What are scenarios? And what are their objectives?

Many functional leaders already serve as strategic advisors in corporate-level scenario-planning exercises, but far fewer have experience in scenario planning for their own function. Even those who work regularly with their CFOs on financial scenario planning — tied more directly to the operating plan — may need to expand their capabilities to apply the discipline of scenario planning to identify and develop their own strategic assumptions.

It’s important to understand what scenarios are and aren’t. Scenarios:

  • Are compelling descriptions of possible futures.

  • Are not intended to forecast the future. 

  • Are neither predictions nor contingency plans. 

  • Are not the same as strategic options.

  • Are external. They fall outside of the organization’s control (unlike the strategic plan itself).

Ultimately, the objectives of scenario planning for a given function are the same as at the corporate level:

  • Maintain focus on critical growth and transformation initiatives during disruption.

  • Identify “surefire” strategic decisions to pursue, regardless of which future unfolds.

  • Perform due diligence on critical short-term decisions, and make strategic course corrections as needed.

  • Prepare the team to mitigate potential risks, and provide timely risk-aligned guidance for different scenarios.

Functional leaders can’t, however, just apply the outputs of enterprisewide planning to departments like finance or assurance, primarily because the high altitude of organizations’ plans fails to consider the implications for function-specific strategies, risk exposure, demand and supply needs.

For example, at the corporate level, responding to a market turn might translate into efforts to attract new customers. But for a function, it might mean renegotiating with suppliers or increasing support for ad hoc workload surges.

What’s different about scenario planning at the functional level

For each scenario cascaded down from the enterprise level, functional leaders need to diagnose and articulate the implications on two fronts:

  1. Supply-demand. Review scenarios and understand how each might impact the organization’s demand for the function’s services. Consider how your function may need to increase or decrease its available resources in response.

  2. Strategy-risk exposure. Determine the risks and opportunities a specific scenario creates. Consider whether those risks and opportunities significantly change the work that your function will do to support the enterprise strategy. 

Once the implications, risks and opportunities are clear, adjust your function’s strategy, goals and projects or initiatives for a given scenario. Translate these into action plans by deciding which levers (e.g., people, processes, systems, budget) you should pull to meet business needs, manage risks and capitalize on opportunities. 

Action plans should match the severity of the implications and tie back to your function’s core strategy.

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Bring scenario planning down to earth

Scenario planning can often come across as a “blue-sky exercise”; make it pragmatic by: 

  • Leading functional teams to define actions they must either start or stop doing right now to prepare for the future scenario.

  • Assigning action items (e.g., running a cost optimization pilot project) to specific staff members.

Participant diversity is critical. Typically, managers’ perspectives are based on their experience, and they can provide input on resourcing. Frontline staff can contribute from operational and workload impact perspectives. The variety of viewpoints helps reveal interdependencies and uncovers a complete set of potential implications.

The outcome is a playbook of scenario-independent strategic actions (i.e., surefire moves) and a set of actions that are contingent on each scenario’s emergence (i.e., scenario-specific moves). This approach can make the execution of strategy more resilient because, in the event of scenario changes, it allows functional leaders to simply substitute the original actions with scenario-specific ones without the need for a full-blown strategy review.

Focusing on action items that will help your functional team get ahead of uncertainties is more motivating than leaving them to react to negative effects — and it is less stressful for those who must execute the action plan.

This article has been updated annually since it was originally published in 2020 to reflect new events, conditions and research.

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