That observation is probably the most succinct description there is of the practice of scenario planning. Scenario planning — the use of alternative stories about the future, many with improbable and dramatic twists, to develop strategy — is one of the few management innovations to have actually been created in a corporate setting, amid the real-life battle for profits. Pierre Wack, who died in 1997, was the leader of the Royal Dutch/Shell Group of Companies’ elite London-based scenario team. With his colleagues and successors at Shell’s Group Planning department, he designed and refined this important business tool, in effect serving as the chief analyst of Shell’s version of Her Majesty’s Secret Service. Scenario planning alerted Shell’s managing directors (its committee of CEO equivalents) in advance about some of the most confounding events of their times: the 1973 energy crisis, the more severe price shock of 1979, the collapse of the oil market in 1986, the fall of the Soviet Union, the rise of Muslim radicalism, and the increasing pressure on companies to address environmental and social problems. The method has since become widely popular outside Shell, not just in corporations but in some governments. In South Africa, for example, scenario planning played a major role in the peaceful transition from a system of apartheid to a stable multiracial government.
Yet for all of that, and despite its reputation for prescience and panache, scenario planning has not always been influential within the companies that use it, including Shell itself. To be sure, the “energy crisis” scenarios, in particular, helped Shell prosper more than its rivals. Called the “Ugly Sister” by Forbes for its relatively weak financial position in the late 1960s, Shell moved to become one of two breakout leaders (Exxon was the other) of the industry. Even so, the company often seemed to ignore many of the warnings from its own scenarios. For example, the scenarios might have helped it avoid some extremely costly failed investments in the 1970s and 1980s, as well as the public relations and legal damage associated with its 1995 plan to dispose of the Brent Spar storage facility by sinking it in the North Sea.
Shell is hardly unique; most companies that create scenarios of potential risks and opportunities find it difficult to actually make effective real-world decisions based on the stories they imagine.
Pierre Wack understood this paradox as well as anyone. Today, his legacy is more relevant than ever: The political and economic uncertainties that Mr. Wack foresaw (he christened the future “the rapids” back in 1975) have become a fundamental part of business life. A clear sense of the future’s obscure challenges and opportunities is the most valuable asset an executive can have. To Mr. Wack, the ability for which managers are most celebrated — the ability to get things done — was only one part of their necessary skills. Equally important, and much harder to come by, was the ability to see ahead. The more aware the wolf pack is of the terrain in which it runs, the more effectively it hunts. What does it take to engender that awareness in managers, particularly in these shocking and skittish times?
Early in October 2002, I visited Shell Centre in London for an answer. Officially, I was there to attend a commemorative celebration of 30 years of scenario planning at Shell. The first great scenario event at Shell had been a 1972 report to the managing directors anticipating the impending energy crisis. With host Ged Davis, Shell’s vice president of global business environment and the company’s genial and erudite leader of scenario planning today, we met in a corporate banquet room. On the walls were brightly colored murals with the names of futures from years gone by, some of which never came to pass and others of which were counterintuitive but did come true: “Oil Tightrope,” “Greening of
Russia,” “Liberalisation,” “Business Class.” The room was filled with Group Planning members and alumni ranging in age from 30 to 80, along with about 30 outsiders who had used or explored scenarios in some noteworthy way.