Scenario planning’s origins and evolution
The 1970s were a tumultuous decade on many fronts, not least the economy, notably the 1973 Oil Crisis. When Arab countries turned off their U.S. oil tap, it rippled through the economy, causing a rush at the pumps and nearly quadrupling barrel prices in just a couple of years.
For many, it was an unthinkable turn of events. Not so at Royal Dutch/Shell, which had been experimenting with a dynamic and multifaceted planning approach to be ready for just this sort of upheaval. They’d used scenarios to predict the possibility of this disruption.
What’s a scenario, you ask?
“Scenarios are not projections, predictions, or preferences; rather, they are coherent and credible alternative stories about the future,” Peter Cornelius, Alexander Van de Putte, and Mattia Romani wrote in Three Decades of Scenario Planning in Shell in California Management Review. “They are designed to help companies challenge their assumptions, develop their strategies, and test their plans.”
Shell wanted a more sophisticated and multilayered approach to future readiness than traditional forecasting, which tends to predict a future that is similar to the present. Forecasts aren’t simply inadequate; they might even be dangerous, the authors write, “as they are typically wrong when they are needed most.” The oil crisis and its unimaginable-to-some scenario of Middle Eastern oil supplies abruptly ceasing illustrates this point.
Once Upon a Time in Hollywood
While Shell is widely recognized for its early adoption and ongoing refinement of this approach, the roots of scenario planning run deeper, all the way to Southern California in the late 1940s. That’s when the futurist Herman Kahn, a defense analyst at the Rand Corporation, used stories to illustrate how nuclear weapons might be used by hostile nations. Scientific American dubbed it “thinking the unthinkable.”
By 1961, Kahn had founded the Hudson Institute to expand his scenario planning work to social forecasting and public policy. In the mid-1960s, he was approached by Royal Dutch/Shell executives Pierre Wack and Ted Newland, who shared two key insights. First, they thought changes in the Arab world would soon end the decades-long stability of the oil regime.
“Second, everybody in the oil industry knew it, but nobody was prepared to do anything,” Kleiner writes.
Wack and Newland set out to bring that awareness to the entire organization through scenario planning. It was the first application of a tool subsequent generations of Shell planners and strategists would continue to use and refine.
Over the years, scenario planning has helped Shell anticipate major industry disruptions, from oil price shocks to geopolitical shifts. But its usefulness extends far beyond the energy sector.
Why This Matters for You: A Mid-Sized Business Case Study
While scenario planning has shaped the strategies of global corporations and governments, its principles apply to businesses of all sizes—especially those navigating uncertain market conditions.
If you’re leading a mid-sized company, you may not be dealing with global oil crises, but uncertainty still looms large. Supply chain disruptions, shifting regulations, and economic downturns can all threaten business-as-usual. That’s where scenario planning comes in.
Consider the recent U.S. tariffs on Canadian goods. Policy changes like these can shift costs and market dynamics overnight.
Take, for example, a fast-growing mid-sized manufacturer. Over the last five years, they’ve expanded rapidly, growing revenue by 25% annually. But now, shifting policies and rising costs are creating uncertainty about their next move.
By mapping out different scenarios—ranging from continued growth to potential setbacks—they identify key factors that could impact their business, from legislation changes to supply chain costs. Instead of reacting in panic, they’re proactively preparing for multiple futures.
The world remains unpredictable, but one thing is certain: leaders who embrace scenario planning can turn uncertainty into an opportunity rather than a threat.
In our next post, we’ll take a closer look at how this company puts its scenarios into action—and what lessons you can apply to your own business. Stay tuned.
The Plot Thickens - How Scenario Planning Shapes the Future
In the decades since Wack met Kahn, a number of organizations and schools have further developed scenario planning. The Oxford approach, for instance, explores the interplay between your immediate business environment and the broader context during “TUNA conditions”: times of turbulence, unpredictable uncertainty, novelty, and ambiguity.
Its application has spread across the corporate world and beyond, including to governments. In South Africa, Kleiner writes, scenario planning played a significant role in the peaceful transition from a system of apartheid to a stable multiracial government.
In the business world, scenario planning continues to evolve and stay relevant.
A Harvard Business School newsletter, Scenario Planning Reconsidered, quotes Chris Ertel, cohead of practice at Global Business Network, saying scenario planning is becoming “much more entrepreneurial.”
“There’s definitely been a shift in recent years away from using it as a contingency-planning device and more as an idea-generation and innovation device,” he says. “For some fast-growth firms, the problem is too many options, so they use scenario planning as an opportunity-management tool.”
Takeaway
Uncertainty is inevitable, but leaders who embrace scenario planning turn it into an advantage. The real question is: Is your business prepared for what’s ahead?
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