George Wright is the co-author of Scenario Thinking: Practical Approaches to the Future. George is currently Professor of Management at Durham Business School, University of Durham, UK. He has consulted and provided management development programmes on scenario thinking and decision making with organizations such as Bayer, EADS, Petronas, Scottish Power, Thales, United Utilities, and national and local government in the UK.
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Transcription of the Podcast
Joe Dager: Welcome everyone. This is Joe Dager, the host of the Business901 podcast. With me, today is George Wright. He is a professor of management at the University of Durham Business School located in the UK. George has consulted and provided management development programs on scenario thinking with organizations and governments. His latest work is “Scenario Thinking: Practical Approaches to the Future,” George; I would like to welcome you and could you start out by updating me on what you’re doing and then going into what scenario thinking is? 
George Wright: Joe, I am an academic and, also, work as a consultant looking into the future. My current project is with the United Kingdom Department of Health; that’s a government health service in the UK. What we’re trying to do is to work out the number of doctors and dentists and their specialisms that will be needed in thirty years’ time. Actually, sixteen to thirty years, is the training period for doctors. About 16 years to train in a specialty and, therefore; if you think 30 years ahead, you have to think what the requirements will be. The UK people are getting older, becoming a bit more grey haired and they are also becoming internet savvy. You can imagine, perhaps that one of the things we can predetermine about the future is that is the older population, the bigger proportion is the older age men, we’ll know more about what’s available in treatments across the world. They’ll know more and want more. Potentially they add some risk to the health service and also uncertainties about the degree of specializations that will be needed to care for the health in the UK population in 30 years’ time.
Joe: How does this apply in scenario thinking? Maybe, start with what is scenario thinking?
George: Well, a description maybe just making best guesses on how things might be. There are all of these trends or things like the proportion of people in the older age will be larger in the UK, and that’s probably true in the US. With these futures, using people for instance will live longer. What we don’t know is a view of the health professionals in the UK where people will live longer. Will it be a longer period of old age with diseases of old age or where people will live longer and have a shorter period just before they die when they get ill? That is a major uncertainty. If people have, many years of ill health and those years of ill health become longer as people live longer that’s an uncertainty. Or, whether people will still live longer but have a shorter period of ill health. You have to provide a plan for health service for instance the range of futures that might be out there. We need to be ready for what the future holds and at the moment, of course; we’re not sure what’s going to happen as we approach 30 years. However, we need to know the of course the training for doctors that needs to take place now rather than later.
Joe: Scenario thinking is a method of handling uncertainty or way of forecasting?
George: Well, it is not a way of forecasting. It is more of a way of creating alternative futures each in which seems plausible. People will live longer and be ill longer, or people will live longer and be ill for a short period of time. Then try to work out a strategy for a health service that will work well, no matter which of these uncertain futures actually unfold. With scenario planning, what we’re trying to do is create a strategy that works well against a range of futures. One scenario that I was involved with looked at a way that the world trading patterns might emerge over the next 10 to 15 years. Over the next 10 to 15 years, certain countries will trade with other countries. Those will change and this organization was interested in the way, trying to think about scenarios about the way world trade would take place and that the trade that would be part of that. Once having considered the range of futures that might be out there, trying to work out where the hubs of these container business, that’s with containers on the back of ships on the back of barges across the world where these hubs are located such as they are robust against an arrange of futures. That’s the idea. You are trying to create a strategy that works well, no matter what.
Joe: When we are looking at different alternatives to the future, we paint a picture with scenarios.
George: Yes, the scenarios are descriptions of the future often constructed by management teams. They usually rough out about four scenarios of the future. They are all qualitative. Their absolutely, pictures of the way the future might be. They are casually linked components in the scenarios. For instance, we are not planning scenario for Martians landing from outer space with ray guns and shooting us. The scenario tends to be many more logical steps from now into the future may be 10, 15, 20, 30 years. Hence, the scenarios are portal pen pictures of the future that are plausible to the people who constructed them. People say, “I can see this series of events starting to happen.” You can go out in that way like dominos swarming in one direction or you can go out in a different way. If they are all plausible futures, than they are futures we need to be concerned with, without occurring major investments. Scenario thinking is an approach that first started out with capture intensive industries like the airlines, the oil industry where major investment has to be made now. It has to work well against a range of futures. That’s the scenario approach, getting these robust decisions that work well no matter what.
Joe: When done correctly you’re actually building a path, and you can see the path developing and heading towards maybe a certain scenario.
George: If you’ve done this scenario thinking and thought about a different range of futures that you say with a path leading to each of our futures. You become sensitive to the early indicators that a particular future is starting to unfold. So for instance if you, say just spotted a new car, say a BMW with three series might be, and you thought of about buying that car, you would be sensitive to different styles of that car on the road, different levels of kits and different wheels, different types of paint work etc. Let’s just say with that scenario you want to construct a scenario and thought about it. You’re sensitive to the early; I called, trigger event in the scenarios starting to happen. So if you thought about the scenario you become sort of ready early to anticipate a future that maybe favorable or unfavorable say to your business.
Joe: Is scenario thinking just for high-level strategic thinking or can these principles be scaled down for other types of decision making?
George: It can be useful in small, medium size enterprises. I would say the input for all of these came from a large organization with big capital intensive investments that were to be made or not made. So, they were more sensitive I’d say to think about the future early on maybe 10-20 years ago when these all started. It’s also like a big super tanker, once you start to have the supertanker in motion heading in a direction; it is very difficult to change directions. In the airline or the oil business it’s similar that once you make an investment, it’s very difficult to downscale it in the future. Most of the input comes from large scale organizations. That’s where the activity was, for instance, in the Shell organization, in the early seventies. It started there in a big way. The methods and techniques are applicable to small organizations. Of course, smaller organizations may be more agile and more able to change what they do. Whereas, larger organization, would get stuck, they get stuck in success formulas. They become more mechanized in what they do. It’s very, very difficult to change a large organization and once the organization. The fortune Global 500 companies, only 50% last longer than 15 years. Larger organizations once they are large, often fail because they can’t understand the way the world has changed and they haven’t.
Joe: In your book, you talk about two different types of ways to work with scenarios. Could you provide a brief overview of what the basic method is?
George: The basic method is a step-by-step method for what I’ve just said. If we look at what we think is uncertain about the future and the uncertainties that would have an impact on the issue of concerned. This is often the viability of the organization and also what’s more certain about the future say things like demographics are fairly sure what’s going to happen is the future. The scenario method uses a team of people to think about what’s uncertain about future or what’s more predetermined or in the pipeline about future. The method takes these uncertainties and predetermined elements and constructs these end pictures of casual unfolding futures. So, these are a step by step method for actually achieving the futures, these plausible futures and what this is being done. The next step is to evaluate current strategies of the organization or potential future strategies and see how well, they do, to see how robust they are against these ranges plausible futures. That’s the basic method; it’s called the intuitive logic method, that’s the technical term for it.
Joe: So the other type is the augmented method and how does that differ from the basic and maybe when would I use the one over the other.
George: The augmented method which is also called backwards logic. This is the technical term for a method of constructing extreme scenarios. The backwards logic method looks at what’s backwards from a range of more extreme futures. So, with that method, what we do is look at extreme but still plausible changes in the organization’s objectives. Say maybe profitability or market share or think about what would cause those changes. We’re working back from extreme changes, and we’re looking at potential causes of those changes. That’s called backward logic, working backwards from a range of futures at the extreme and working backwards to the current point in time. The backwards logic method tends to produce much more extreme scenarios, different scenarios and the basic in theology logic’s methods I described earlier and often, it’s a way of getting an organization to think of it more broadly than it normally would. An organization’s often with backwards logic method can, actually galvanized an organization to prepare against a range of extreme negative or extreme positive future.
Joe: Should I use both or will one dictate, depending upon what I am looking for in this planning? Is there a way to determine which one I should use?
George: The backwards logic method is a new method. People are arguing, in fact, it is a better method than the basic intuitive logic method that came from Shell. The basic method I talked about which is less extreme came from Shell Organization, I’d say in 1970s. The backwards logic methods with these more extreme scenarios is argues with more threatening ways that are confronting managers with a range of alternative future. It is plausible on changes on achievements or non-achievements as the organization’s objectives. Depending on what the organizations wants to take head on; a negative future and a positive future and start to think about them and think about the impact of the organization, or whether the organization perhaps doesn’t want to be, just take that sort of threat head on. The backwards logic method is more or a second step method for an organization that is already, worked with scenarios because they can be a lot more threatening than scenarios I mentioned.
Joe: When we’re doing this, we’re always developing on multiple scenarios. We are not ever saying this is the future; we are putting multiple paths out there so we can recognize what is happening as we move towards it?
George: If you look at the best guesses that people make for instance at the end of 2007 in Business Week. They did a survey of all the economist in the USA and their predictions to the plight of the economy in the USA in 2008. Thirty two professional forecasters, economists, were making this forecast only two predicted the recession. The best guesses about the future even from professionals who we’d expect to good at this can be wrong. The scenarios then except that people tend to be often over confident about the way the future might unfold, especially in the longer term. So that’s really what it’s about. It’s trying to overcome overconfidence and in managers to expect that the future will resemble the past, when, in fact, sometimes it doesn’t.
Joe: Why would I want to go through this whole process, if it’s so likely that I’m going to be right or wrong anyway.
George: Well, I think the key is, it’s a way of enhancing or facilitating a strategic conversation as it’s called within the top management team. So if you’re a top management team, you would bring in some of the work in scenario over a maybe a two or three day period, you start thinking about what the uncertainties and what you see is predetermined about the future, you create a range of futures and you evaluate current investments and potential investments against the futures and you get a conversation going about the future. Often in the organizations, there really isn’t a conversation. This is your best guess future and people don’t often talk about it being in a strategy meeting in organizations where there has been a coffee break. As soon as the coffee break happens even though the whole day is about strategic thinking maybe, people are in their mobile phones, checking if production lines are running. People are more concerned in the day to day, than, you know the future. Scenario thinking is a way of getting an organization, especially the top team to think more about the way the future might be. So trying to prepare for the future and evaluate the organizations preparedness for the future.
Joe: I think about the black swan theory. That is something that you can never plan for or, is it?
George: Well, in the anti-fragile approach, and this is an approach we are now also developing as a compliment really to scenarios, anything could happen. Everything is sort of in deterministic. Of course, that’s a contradiction in some ways to a scenario thinking which is thinking focus on cause. The anti-fragile approach is interesting. We are just starting to think about it in my group for the moment. The idea is that you can position an organization such that the downside is nil. There is not very much down side. But, the upside is potentially very large. Use the analogy of someone that has 100% funds invested. You could invest 90% in safe funds and 10% in funds that could do really well. If things go badly, you’re only losing the 10%. The idea is that you position the organization such that the downside is nil, and the upside is unbounded no matter what the future might hold.
Let me give you an academic example for instance then. Just imagine an academic, who is a young academic, whose, been working in the university. That academic has a chance for a year to go work somewhere else, a much better university. Where there are very prestigious professors and very strong search going on. Potentially, there are sort of networks that could be very useful for that junior professor. In terms of the positioning then, the downside is a year of inconvenience, a year away maybe from the hometown. But the upside is potentially very enormous, in terms of working with these more senior types. These people are more imminent on the academics field. So, by making that decision, the downside is clear. It is a year of inconvenience, but the upside is tremendously high.
Without trying to predict what may happen in the future years, this sabbatical of a year away from the base university, you can see that the position is a good one. That’s the essence of the anti-fragile approach. You can put yourself in positions that if things go bad, then it goes that bad. But if things go well, they could go really well.
Joe: I can bring my executive team in and we can have this big strategic thinking session. We can bring a facilitator in and take us through all this. It seems to me it would be very difficult to bring customers into this fold to think about 5, 10, 20 years in the future with me to help me out. Is it really plausible to include them in this type of thinking?
George: Yes. The key about of getting a team together to think about the future, it doesn’t have to be from a single organization. It can be from you know multiple organizations or as it’s called multiagency. We evolve a range of different people with very different perspectives on the way the future might be. Customers can be perhaps useful but maybe not when we are thinking 40 years. Let me just give you an example. Say if you’re in the lawn mower business, you’ve got machines that cut grass and that’s the thing we do, that’s your industry. We can make them more efficient and develop new models of grass cutting machinery. We can imagine talking with customers about that business, and they would have various views about what they like; machines that are easy to maintain, machines that could withstand the rainy weather that don’t rust and don’t degrade, etcetera.
That will give you one perspective. But for scenario thinking, you tend to think about what will happen? What will the current customers, what will they be doing? What would they desire, what would they probably use be in 30 years’ time? Maybe that all people living in condominium or flats. People putting more decking outside their homes. Maybe technology has changed such as grass doesn’t grow. It just stays green and stays short for instance. Let’s say the more you think about you know the technological drivers of the future, the social drivers, the more you can understand whether it’s good at this point. It’s still in the lawn mower or the grass cutting business. Customers provide one perspective, but there are many other perspectives when you’re thinking more long term about the future.
Joe: You have some great resources on the web and where can people find the book and those resources?
George: The best management book I think is the book “Scenario Thinking” by myself, George Wright, and my co-author in Australia, George Cairns and that’s published by publisher called Palgrave. It’s available on Amazon etcetera and also in Kindle and this book came out in 2011. There is another book called The “Sixth Sense” which is published by Wiley, and I’m a co-author on it, and another co-author is Kees van der Heijden, a Dutchman that used to be the head of internal planning and/or consultancy at Shell organization. So, these are I think, two, quite good books that are written for managers on what scenarios thinking is and also how to do it.
Joe: What’s the difference between the two books?
George: The Sixth Sense book is from 2002; that’s much more of the Shell method. 2011 book that’s the Scenario Thinking is 2011, and it’s got this backwards logic approach to it. It’s got a more up-to-date, and the augmenting methods of building scenarios.
Joe: I do want to mention that it’s not this theory 20,000 foot level book. It’s a practical step by step guide. I thought you did an excellent job.
George: Well, thank you. That was the intention to communicate the academic and consultancy type knowledge in a form that’s accessible and more people could do this.
Joe: What is the alternative to scenario thinking? Are there other methods out there that can be used?
George: Well, a major method, I think in making decisions in the face of uncertainties are decision analyses where people make judgments and probabilities of future events and look at the pay offs and the roll back based on expected value for instance. So in US, especially decision analysis is quite a big thing. Decision Analysis sets goals, numerical probabilities and net present value etcetera. It is acceptable to some, but senior managers, especially in Europe they are more qualitative, and scenario thinking is a different way. It’s more than trying to maximize decisions or manage decisions. You’re trying to alternatively create a robust decision. That works well across a range of different plausible futures.
Joe: What is the best way for someone to contact you?
George: The easiest way is just to email me. The email address is in the back cover of the book, “Scenario Thinking.” I’m available on [email protected]
Joe: I would like to thank you very much George. I would like to thank you, and this podcast will be available on the Business901 blog site and also the Business901 ITunes store. So, thanks again.
George: Thank you Joe.
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