As 2020 has shown, simply saying that “scenario planning is important” is an understatement. Scenario planning is essential.
Since March, COVID-19 has changed the world, and in doing so has challenged every modern assumption about enterprise as we know it. Businesses in every sector can no longer take anything for granted. Not their customers, not their employees, not their supply chain. Nothing.
If there has been one silver lining in the corporate world to the global pandemic, it has reinforced just how important thoughtful scenario planning is to the corporate world. As we begin to see more partners and colleagues go out of business because of the effects of the pandemic, it is not too late to revamp how we think through crisis planning and how we can improve. We need to ensure that we are more prepared if something of this magnitude ever happens again.
Best practice tells us that at the core of scenario planning are three key questions companies must ask themselves, in order:
- How does our company fit into this crisis? What is our role?
- What are the specific, measured impacts this crisis will have on our company and its affiliates (employees, suppliers, distributors, etc.)?
- What steps do we need to take to mitigate those effects and survive?
At first glance, it is easy for leaders to think on these questions and offer easy answers, or even worse, to sit in a big meeting and become prey to groupthink. Companies need to be proactive about heading off both of those ruts, otherwise, they may as well not plan at all.
Think through each question and its ramifications to their conclusions. Is this business “essential”? Will my employees be able to continue operations, and at the same pace and quality? Will my product remain in demand given the circumstance? Beyond the “what if” questions, it is also important to know who exactly will address the consequences and how they would do so. Who is monitoring sales? How would we regain market share? The list goes on.
It seems daunting, but taking the time to answer these questions will allow an enterprise to build a complete picture of the future and visualize different responses that will keep the company afloat and hopefully profitable. It will also ensure the greatest degree of agility and flexibility possible in an environment that strains a traditional business model, and increases a company’s ability to respond and acclimate to new conditions.
A company’s best friend in scenario planning is data analytics. When leaders have the right metrics at their fingertips it makes sifting through variables easier for even the biggest corporation. Of course, leaders always value data, but the fast-paced conditions that leaders craft scenarios in often necessitate that the data be accessible and interpretable—time is valuable, and no time can be wasted gathering information. Clayton & McKervey knows just how valuable those data analytics are, and our team has spent decades helping mid-level companies make sense of those numbers for scenario planning and day-to-day operations alike.
What to do with the data is another critical piece of thoughtful planning. Each metric has a threshold that triggers another action, a cause and effect statement. If planned correctly, that planning can help guide a company’s chain reaction in a crisis and create an effective response. Think of it as a simple “if/then” statement: if our revenue reduces to X amount per week, we must either furlough X% of our staff or increase our marketing budget by X%. If we furlough those staff, who covers their responsibilities? The more answers a company has, the less time they will spend deciding in a crisis.
Good leaders also know that scenario planning is as top-down as it is fast-paced; leaders need to make decisions, and quickly. Community and cultural buy-in is important to corporate culture, but unlike traditional planning processes that rely on bottom-up budget templates and endless meetings, time is essential, and the company’s future is on the line.
Some stakeholders might say that the fast-paced, top-down model sacrifices detail for expediency. They are correct, but in fact, that is how scenario planning is supposed to be. Traditional budgeting is purposefully meticulous because an enterprise is planning based on somewhat perfect information with buy-in from every department. Scenario planning is a strategic summary of the direction of the whole enterprise, built using the best data accessible at that point in time.
In short, scenario planning might not be the reason why you joined your company, but doing it thoughtfully might be one of the best tools you have to save it.