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Use your imagination: A leader’s guide to scenario planning

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Picture this ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ 

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

The Titanic was deemed ‘unsinkable’ before it hit an iceberg. Technology and forecasting techniques have advanced considerably since that 1912 disaster. Yet leaders still struggle to cope in a world where catastrophes are increasingly more frequent, more severe, and more far-reaching in their impact. While no organization can anticipate all disruptions, the pandemic and its aftershocks have revived the value of scenario planning, a time-honored exercise that now requires a higher degree of senior-leadership involvement than has traditionally been the case. Here are some creative ways to scan the horizon for high-consequence, low-probability events that could seriously damage your organization.

“Scenario planning is squarely back,” assert McKinsey’s Andrew Grant, Ziad Haider, and Anke Raufuss in their article on how companies should prepare for the so-called black swans, gray rhinos, and other disruptions that characterize geopolitical events today. “The imperative to lift one’s gaze and look around the corner has become key to strategy and performance,” they say, advocating that leaders develop a deeper level of strategic foresight and creative thinking than was necessary in earlier, more stable times. This may involve “reperceiving” events through multiple lenses when scanning for scenarios, as well as looking for “silver linings”—openings amid turmoil that allow organizations to operate safely and potentially gain competitive advantage. “Leaders within multinational corporations also are reflecting on appropriate ways to inform policy in a more polarized geopolitical environment,” the authors add. “An organization should . . . consider how to employ its voice.”

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That’s McKinsey partner Bernardo Sichel and colleagues on how to get past the many cognitive biases that can undermine scenario planning. For example, people may base decisions on what they already know (availability bias) or assume that the future will look just like the past (stability bias). With their natural bias toward stability, leaders may tend to outsource scenario creation to junior team members or external vendors—a “problematic” situation, in the authors’ view, “because when senior leaders aren’t part of the process of developing scenarios, they are less likely to make sense of or act on them.” Rather than hanging back, leaders need to be at the forefront of scenario planning, instilling the idea of change, establishing processes to counter bias, and encouraging the habit of thinking the unthinkable.

As geopolitical risks increase, companies are challenged to plan in a continually shifting environment. In an interview with McKinsey, top executives from three global organizations discuss their most pressing concerns, which include discordant relationships among countries, the growing prominence of government affairs, widespread disinformation, and the difficulty of staying ahead of current events. One executive emphasizes “the need to make sure, both in terms of how we run our company and how we sell things, that we really do look to have resiliency and redundancy, whether that’s in manufacturing, whether that’s in supply chain, or whether that’s in R&D.” Another leader fears an inconsistently regulated internet: “One thinks about all the benefits that have been derived from an integrated, free, interoperable internet over the past 15 to 20 years, and now look at this future of one that is a ‘splinter net,’ not an internet,” he says.

Lead by creating effective scenarios.

— Edited by Rama Ramaswami, senior editor, New York

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 02:10 - 13 Mar 2023