Shell has used scenario planning for decades to define alternative views of the future, and hopefully strategic advantage. So what does the future hold, ask Helen Millicer and Richard Collins.

Knowing the future is the desire of many – not only to satisfy curiosity but because of the desire to survive and win. Thankfully, historical methods of reading the entrails of goats are giving way to the more stimulating method of engaging with stakeholders in scenario planning.

Scenario planning is a comparatively recent approach and is increasingly used. It is not the only method of injecting new insights into risks and long-term plans, but it has a number of advantages.

Royal Dutch Shell is recognised as being the first corporation to use scenario planning (having adopted it from the military) and has published scenarios for years. But has it made any difference to its success? Why do they use scenarios? And who else is looking into the crystal ball?

Shell has been developing scenarios since the 1970s to provide alternative views of the future in the belief it provides a strategic advantage.

With its most recent scenario, completed in 2008, it has boldly extended its viewing range beyond Shell’s customary 20-year timeframe to 40 years, stretching out to 2050. And it’s fronting up to life in a world with peak oil and carbon constraints.

In its earlier published scenarios, Shell explored the key cultural, political and economic megatrends of the times. In the 1990s, it delved into the changing balance between capitalism and centralist economies and globalisation, and in the 2000s into people and power. This time, Shell has focused upon resource shifts and pollution, with two different scenarios ‘Scramble’ and ‘Blueprints’.

In Scramble, policy-makers pay little attention to more efficient energy use until supplies are tight. Likewise, greenhouse emissions are not seriously addressed until there are major climate shocks. In Blueprints, growing local actions begin to address the challenges of economic development, energy security and environmental pollution. A price is applied to a critical mass of emissions, giving a huge stimulus to the development of clean energy technologies and energy efficiency measures.

As Shell states on its website, “we use scenarios to explore possible developments in the future and to test our strategies against those potential developments”. Significantly, this is the first time Shell both states its preference for a particular scenario and directs readers to “understand better the choices you make”. The scenarios are compelling reading. (http://tinyurl.com/38kg8u5)

Doing scenario plans
Some people mistakenly worry scenario planning is about predicting the right future. It is not. Scenario planning is a disciplined brainstorming exercise in combining known facts with external potential milestone events and shifts in politics, society, economy and environment. Most scenario planning exercises formulate at least two scenarios, sometimes more, with various common and divergent factors – for example, climate change impacts upon water supplies as either severe or mild.

Scenario planning is not often used, but when it is, it is generally used as a preliminary step in forming long-term strategic plans to ensure they can accommodate external challenges and minimise risk. It is a good way for people to open up to many possibilities, to consider wild card events, threats and opportunities before they sit down to methodical Strength, Weakness, Opportunities and Threats (SWOT) analyses or action plans.

As Elaine Carbines, CEO of G21, says: “scenario planning works best when people are enabled and not afraid to brainstorm issues. Good scenario planning involves long-term perspectives and diverse stakeholder input, for no one has all the wisdom. It is far better to use scenario planning so people can identify threats that may not eventuate − than to have failed to identify the threats and not prepared for them at all.’

In Australia, scenario planning has been used in recent years by government agencies, corporations, industry associations and regional groups.

Geelong Region Strategic Plan
The Geelong region southwest of Melbourne takes in beautiful seaside hamlets along the Great Ocean Road and the industrial heartland of Geelong, Victoria’s second biggest city. However, persistent trends in employment, residential development and severe drought focused the minds of people on the need to change some paradigms to have a sustainable region.

The concern to develop a shared plan for a sustainable future – economically, socially and environmentally – was at the heart of this ambitious project started in 2002. It now involves five local councils, many local businesses, education institutions, community groups, key state government departments and at any one time some 300 people contributing to projects falling within eight priority pillars.

This could have been a traditional strategic planning exercise, but they chose to include scenario planning.

Buy-in was essential for the regional plan to succeed, as was a shared understanding of the threats and opportunities out to 2050. An ideal way to engage so many diverse people of varying interests in a bottom up process was to develop scenarios of potential future threats and opportunities in employment, transport, development, community and climate change.

Scenario planning was not necessary, but the two widely divergent future scenarios have become word pictures that stimulate discussion and energise. The short scenarios (published on its website) continue to be important tools in maintaining commitment and agreement on the purpose and value of the G21 program and the ensuing action plans, indeed in generating resource contributions from government, industry and community.

Having developed the scenarios, the G21 group proceeded with a SWOT analysis of the region. It now openly shares its action plans around the eight pillars on its website. As Carbines says, “with this plan, we are better able to work cooperatively together, to row in the same direction, to multiply the impact of our efforts and be prepared for the risks and challenges that the future holds”. (www.g21.com.au/index.php)

Planning for peak oil
Scenario planning as part of strategic planning also works when only people within a single organisation are involved.

The City of Maribrynong in Melbourne’s north-west identified through its internal risk assessment that peak oil was a major risk to the budget and capacity of the council to operate and carry out its services. Like all councils, Maribrynong delivers essential services such as rubbish collection and meals on wheels, it relies upon staff being able to travel to work, and its communities rely upon transported food, goods and services.

In 2008/09, it undertook a scenario planning exercise involving all departments of the council, assessing their risk profile to the impacts of peak oil, including both increased prices and increased scarcity. As Mayor Sen Sanil says matter of factly, “the price of petrol will not go down. And whether it is 10 years or 20, we need a plan to move away from our heavy reliance upon cheap petrol for council and our community. Peak oil is not the biggest risk to council, but it will have a profound impact”.

As a result of this broad-thinking, open approach possible through its scenario planning exercise, the council created a Peak Oil Policy and Action Plans of priorities. (www.maribyrnong.vic.gov.au)

Shell goes well
So has Shell gained a competitive advantage through scenario planning? It is impossible to answer that question even after comparing their share price or financial data with competitors. The answer is in the long run. Suffice to say, the company has chosen to continue using scenarios for decades.

Shell CEO Peter Voser, quoting Charles Darwin, explained it best: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”