Scenario Planning: Identifying Driving Trends

This is part 2 of our series on Scenario Planning, previous segments are available in our archives.

Before you can start constructing scenarios of the future, you need to identify the forces that will likely shape those futures. These forces depend greatly on your type of business, but can typically be grouped into social, technical, economic, environmental, and political trends which are known as STEEP. For example, if you are an electronics company your future is likely shaped by changes in import tariffs (political), shipping costs (economic), manufacturing costs (technical), recycling regulations (environmental) and customer perception (social). Let’s walk through a few simple steps for identifying all your driving trends.

Step 1. Brainstorm all of the possible driving trends that might exist for your business. This will likely be a very large list, so look for similarities and larger trends that might contain many different trends. Ideally, you want to assemble a reasonable list of the major trends without much duplication.

Step 2. Even after consolidation, you likely have a large number of potential driving trends for your business. The next step is to sort through those trends and identify the most important ones that are worthy of shaping your scenarios. To do so, we’ll evaluate each driver by scoring them in two different dimensions:

  • Impact: How large is the potential impact of this driver on the future?
  • Uncertainty: How well can you predict what is going to happen with this driver in the future?

Going back to our electronics company, the cost of your components to build your product has low uncertainty (unlikely to change without warning) but high impact (effects your margins). At the same time, competitive product launches have high uncertainty (you don’t know what your competition is planning) and high impact (may reduce sales). Impact and Uncertainty are qualitative measures, so you should decide on your own scoring scale. Whatever scale you use, be sure that you are consistent in your relative scoring for each driver.

Step 3. After scoring, you can now group your potential drivers into three categories based on their two scores:

Impact Uncertainty Matrix

  • Secondary Factors are drivers that are lower impact and less important for shaping your futures.
  • General Trends are important drivers but well understood and easier to predict.
  • Critical Uncertainties are important drivers where it is hard to predict their future.

Critical Uncertainties are, obviously, the most important and what you should use to construct your scenarios! Secondary Factors and General Trends will become context for the scenarios you build from your Critical Uncertainties. Tomorrow we’ll talk about how to do just that.

 

Quote of the Day: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.” Donald Rumsfeld