Prepared for the future with alternative scenario construction 

Alternative Scenario Construction is a simple and robust scenario technique for generating four consistent scenarios. It revolves around two key factors, each with two alternative, extreme future projections. The scenarios are visualised on a Cartesian coordinate system with four quadrants. This method distinguishes itself from explorative scenario construction and other scenario techniques as it is influenced less by formalised and more by creative techniques, intuition, and implicit knowledge. 

Alternative Scenario Construction in a Nutshell

• Meaning and Application: Alternative Scenario Construction is a simple and robust method to generate four consistent scenarios. The construction focuses on two key factors, each with two alternative, extreme future projections.

• Conducting the Analysis: The scenario process is intended to sharpen the understanding of possible future spaces. The constructed scenarios represent a consistent landscape that simultaneously opens strategic options for current actions.

• Strengths of the Method: Alternative Scenario Construction is a quick method for constructing four scenarios using a scenario framework, providing a solid basis for simulation. This makes ASC an efficient scenario technique for targeted scenario analyses.

• Weaknesses and Challenges: Challenges include the tendency to result in a highly simplified worldview and the fact that ASC only represents a small range of possible futures, as complexity is reduced to just two factors.

Introduction to alternative scenario construction: What is it and what can it do? 

With Alternative Scenario Construction, scenarios can be constructed based on two key factors, each with two projections. This generates four scenarios representing the extreme variations of the range of expectations. These scenarios can withstand subsequent scenario analysis and be used for developing suitable strategies, communication purposes, or scenario monitoring. 

Methods of scenario construction: Overview 

Besides Alternative Scenario Construction, there are other methods for scenario construction or scenario techniques, such as Exploratory Scenario Construction or Consistency Analysis. Depending on the questions and desired outcomes, a combination of the aforementioned tools might be necessary. There are also methods similar to scenario construction that can be used for Alternative Scenario Construction. Backcasting, for instance, starts from a future state (attractive futures) and analyses the steps required in that scenario to realise that specific future vision. Computers enable simulations and models that account for complex relationships and interactions between variables and factors in scenarios. This facilitates the simulation of scenarios with quantitative scenario analysis and their impacts. 

Steps for creating alternative scenarios 

The method of Alternative Scenario Construction requires a clear formulation of project goals, time horizon, and topic. Two key factors with two opposing projections need to be selected. The key factors and projections are placed on a cross-shaped axis. Methods such as trend analysis or the Delphi method can also be used as preparation. Subsequently scenarios are developed, individually or in a group, based on the key factors. The previously mentioned Delphi method can also be applied later to evaluate the scenarios for consistency and robustness. 

Questions to consider in alternative scenario construction 

• Which external influencing factors could significantly change in the coming years and how might they impact our business? 

• What technological advancements or innovations could develop in the near future and how might they affect our products, services, or business models? 

• What changes in customer preferences, consumer behaviour, or socio-demographic patterns could influence our market opportunities? 

• What political, legal, or regulatory developments could affect our company? 

• What potential scenarios could arise when considering different combinations or variations of identified trends and influencing factors? 

• What could be the effects of these scenarios on our business strategy, competitive position, resource allocation, or ability to achieve growth? 

• What adjustments or preparations could we make to flexibly respond to different scenarios? 

• What new opportunities could arise from the alternative scenarios, and how could we leverage them to gain a competitive advantage? 

• What risks could be associated with the different scenarios, and how could we proactively address or mitigate them? 

Scenario analysis and evaluating scenarios 

The scenario process sharpens the understanding of possible future spaces. The constructed scenarios form a coherent landscape that simultaneously opens up strategic action options for current decision-making. Compared to other scenario methods, this approach has the advantage of only creating a list of 4-5 scenarios instead of a multitude of scenarios. This allows for quick analysis and simplifies dealing with uncertainties within the company’s external environment. 

A good scenario demonstrates the following characteristics: 

• Plausibility 

• Comprehensibility/Traceability 

• Distinctiveness 

• Transparency 

Integrating scenarios into strategic planning 

For Alternative Scenario Construction, it’s essential that each scenario is grounded in reality. Scenarios should be thought-provoking, serve as inspiration for new courses of action, and contribute to a future-proof strategy. 

When implementing a scenario process, several important considerations should be kept in mind to ensure the process is effective and meaningful. Here are the key points: 

• Define Clear Objectives: Define clear objectives for the scenario process from the outset. What questions do you want to answer? What decisions need preparation? This helps to maintain focus and align the process toward desired outcomes. 

• Incorporate Diverse Perspectives: Ensure a variety of perspectives and fields of expertise are included in the process. Involve experts from different areas, stakeholders, and employees with diverse backgrounds to ensure holistic and diverse viewpoints. 

• Systematic Approach: Proceed systematically and use a clear methodology or structured approach for a scenario construction. This helps to organise the process, ensure no important aspects are overlooked in the simulation, and improves reproducibility. 

• Consider Uncertainties: Scenarios are based on assumptions and uncertainties about the future. It’s important to explicitly acknowledge these uncertainties and incorporate them into the scenarios. Work with probabilities, plausible ranges, and variable parameters to capture the range of possible future developments. 

• Realistic and Consistent Scenarios: The developed scenarios should be realistic and consistent, based on identified trends and influencing factors. Ensure that the scenarios tell logical stories and exhibit internal coherence. The scenarios should also align with observable realities. 

• Encourage Creativity and Flexibility: While a structured approach is important, leave room for creativity and flexible thinking. Encourage participants to think beyond conventional patterns and generate innovative ideas. This can help to develop unconventional scenarios and gain new perspectives. 

• Communication and Discussion: Scenarios are not static end products but serve to stimulate thought and discussions. Ensure that the developed scenarios are actively communicated and discussed with relevant stakeholders. This promotes understanding, allows for a broader perspective, and contributes to the acceptance and implementation of the scenarios. 

• Continuous Monitoring and Updating: The future is dynamic, and therefore scenarios should be regularly reviewed, revised, and updated. Track the development of trends and influencing factors, evaluate the accuracy of previous scenarios, and adapt the scenarios accordingly. 

Scenario construction and sustainability in corporate planning 

A similar approach applies to the selection of two future projections for each main dimension. These variations should mark extremes while staying within the realm of what is possible and plausible within the given time frame, defined by existing conditions. If the key factors are chosen appropriately, the scenarios can be integrated into corporate planning and lead to robust and solid strategies. 

Scenario construction plays a crucial role in sustainable corporate planning for various reasons: 

• Consideration of uncertainties: Sustainable corporate planning requires considering uncertainties and developing strategies prepared for various potential future developments. Scenario construction allows for the development of alternative future images that consider different risks, opportunities, and challenges. 

• Identification of Risks and Opportunities: Through scenario creation, potential risks and opportunities related to sustainability aspects such as climate change, resource scarcity, regulatory changes, or shifting consumer preferences can be analysed. This helps companies to better prepare for potential impacts and take timely actions. 

• Long-Term Perspective: Sustainable corporate planning requires a long-term perspective to understand the impacts of today’s decisions on future sustainability criteria. Scenarios allow companies to think about an extended timeframe and adjust their strategies accordingly to promote sustainable development. 

• Promotion of Innovation: Sustainability often requires innovative approaches and solutions. Scenario construction encourages companies to think creatively and develop alternative future scenarios that can open up new opportunities for sustainable growth and competitive advantages. This enhances the company’s innovation capacity. 

• Stakeholder Engagement: Sustainable corporate planning involves engaging various stakeholders, including customers, employees, suppliers, investors, and the community. Scenario construction enables companies to include various perspectives and engage in an open dialogue with stakeholders to understand their needs, expectations, and concerns and incorporate them into planning. 

• Adaptability and Resilience: Sustainable companies need to be flexible and adaptable to respond to changing environmental and market conditions. Scenarios allow companies to analyse different future scenarios and develop strategies that are robust and resilient to uncertainties and changes. 

By incorporating scenario construction into corporate planning, companies can better define their sustainability goals, improve their strategic decisions, and create long-term value for both the company and society. 

Scenario construction for identifying business opportunities 

The participatory execution within a workshop framework involving stakeholders, actors, or experts who haven’t already worked on the key factors is beneficial. This increases creativity and intersubjective comprehensibility. It’s essential that each scenario is anchored in reality. Scenarios should provoke thought and serve as inspiration for new courses of action, allowing individuals to immerse themselves in them. Scenarios are intentionally inaccurate, but they can offer new perspectives and lead to the development of new services and products. 

Alternative scenarios broaden a company’s strategic horizon and enable it to think outside the box. By considering various future scenarios, companies can adjust their strategies to be flexible in responding to different potential developments. This aids in recognising opportunities and gaining competitive advantages. 

Scenario construction plays a pivotal role in identifying business opportunities for various reasons: 

• Recognition of Market Trends: Scenario creation allows companies to identify various market trends that might develop in the future. This can facilitate the identification of business opportunities by recognising emerging needs, changes in consumer behaviour, or new technologies early on. 

• Early Detection of Changes: Scenarios enable companies to anticipate potential changes in their business environment. This could include changes in the competitive landscape, regulatory environment, or socio-economic conditions. Identifying such changes allows companies to take proactive actions and seize new business opportunities before their competitors do. 

• Promotion of Innovation: Scenarios foster creative thinking and the generation of innovative ideas. By considering alternative future scenarios, companies can develop new approaches, products, services, or business models that stand out from conventional solutions. This allows companies to differentiate themselves from competitors and tap into new markets. 

• Adaptation to Changing Needs: Scenarios help companies to adapt to changing customer needs and preferences. By identifying trends and potential future scenarios, companies can tailor their offerings to meet customer needs and attract new target audiences. 

• Exploitation of Market Gaps: Scenarios can help companies to identify gaps or unmet needs in the market. By analysing alternative future scenarios, companies can identify opportunities to enter niche markets or fill existing gaps in markets where there is insufficient competition. 

• Risk Mitigation: Scenarios enable companies to identify potential risks and challenges across different future scenarios. By preparing for alternative scenarios, companies can mitigate risks while seizing opportunities that arise within these scenarios. 

Scenario construction provides companies with the opportunity to look beyond their current state and align their strategic direction with possible future developments. By identifying business opportunities, companies can unlock growth potential, strengthen their competitive position, and achieve sustainable business success. 

Scenario Construction and Risk Management 

Scenarios can also enhance risk analysis, especially when considering resources such as personnel or technical systems. Using the scenario technique, the impact of risks and threats on business processes can be analysed and assessed to develop contingency plans. The relevant risks depend on the specific conditions within the company, including competitors or external factors like the climate. 

To further enrich the scenario framework, so-called scenario archetypes can be assigned to each of the four quadrants. Commonly used archetypes include those by Dator: 

• Growth: Current assumptions continue, “continued economic growth” 

• Collapse: The collapse of the current world as it exists, e.g., economic instability, environmental catastrophes, war 

• Discipline: Strong restrictive barriers, e.g., resource scarcity, new economic hurdles and boundaries, import stops 

• Transformation: End of the current world through achieving a new maturity level, change in values, and technological progress 

Developing alternative scenarios allows companies to identify early warning signals and react promptly to changes. By considering different future scenarios, companies can better recognise trends and signs of change, taking actions to adapt or seize opportunities before it’s too late. 

Conclusion and Outlook: Future-Proof Decisions 

The scenario process sharpens the understanding of possible future spaces. The insights derived from the constructed scenarios form a coherent landscape that simultaneously opens strategic action options for present decision-making. In a subsequent process, robust strategies can be developed to ensure agile and resilient decision-making for the company’s future. 

Alternative scenarios provide companies with a broader foundation for well-informed decisions. Instead of relying on a single forecast or assumption, companies can analyse different scenarios and make decisions based on a wider range of potential outcomes. This contributes to a robust and flexible decision-making culture. 

Overall, alternative scenario construction empowers companies with a proactive and future-oriented approach. It supports better preparedness for changes, the identification of new opportunities, and the enhancement of resilience to uncertainties and risks. 

Sources

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