Verve! Management Consulting

Visions of the Future

By Ziv Navoth

"Companies shouldn't try to predict the future or ask what will happen, but rather what will we do if a certain future happens."

Futuristic babble or a winning strategy for corporate readiness? Read on to find out.

In 1971 a strategic planner by the name of Pierre Wack had a problem on his hands: Convince the executives running the oil giant Shell to do a better job of preparing the company for an uncertain future. Wack knew that strategic planning is built on clear assumptions regarding what the future will look like. In the case of Shell in the early 70s, these assumptions focused on oil prices and oil demand. The future according to Shell, saw an increase in demand for oil, but no similar increase in oil prices.

Wack knew that there was more than a high probability that oil prices would not, in fact, stay stable. While the US was consuming a third of the world's energy resources, its oil reserves were dwindling rapidly. In addition, OPEC, the cartel of 13 oil producing nations, was increasingly dissatisfied with American foreign policy in the Middle East.

Wack decided to develop two alternate futures: In one, oil prices would stay stable due to a surprise discovery of oil in non-Arab countries. In another, an oil crisis sparked by OPEC would cause oil prices to soar rapidly. When Wack presented his two futures to Shell's managers he received many approving nods. But when the time came for these executives to develop strategic plans to meet these futures, nothing happened. Wack's approach had failed.

Wack went back to the drawing board and came back to Shell's executive team with two detailed scenarios. No longer static snapshots of the future, Wack's scenarios painted, in vivid colors, what the future could look like: Shell would find itself at the center of a low-growth industry with Arab countries taking over its oil fields. When the full extent of this possible future became clear to Shell's executives, they took action, and developed a number of ready-made plans, to be used in case one of Wack's futures would become a reality.

And it did. In October 1973 the Yom Kippur war broke and the Middle East together with the rest of the world, was thrown into chaos. Oil prices, which until 1972 had been hovering at a stable $1.80 per barrel, rose tenfold to $10.80 per barrel. This spike in oil prices eventually led to a worldwide inflation and a recession that lasted for two years.

And what happened to Shell? The company went from being the smallest of the "Seven Sisters" (the term for the 7 largest oil companies at the time), to becoming the second largest and most profitable oil company. Why? Because when calamity struck, Shell's managers already had an action plan.

"When Wack presented his two futures to Shell's managers he received many approving nods, but no change in behavior. His experiment failed. "

But what's that got to do with you? After all, we're still very poor at predicting the future. If we couldn't predict the terrorist attacks of September 11, then what's the use of developing future scenarios?

The answer lies in the purpose of scenarios. Scenarios aren't concerned with making predictions regarding what the future will look like. Instead, scenarios simply ask us to paint a picture of what a number of alternate futures could look like and then ask ourselves what the implications of these futures could mean for us.

Take the fall of the Berlin wall, for example. Back in 1979, a good ten years before the wall came down, it was near impossible to predict that the unimaginable would happen. After all, the Cold War was in full force and the West was trying to figure out how best to react to the Soviet Union's invasion of Afghanistan. Still, the demise of the Eastern block was a possibility, and any company that would have had a ready-made plan for such a future would have been far better off than those who didn't.

So what are some of the future trends that your company could take into consideration when it tries to develop scenarios about the future? According to management theorist Peter Drucker, one of the key trends that's bound to play a dominant role in the years to come is the amazing decrease in birth rates.

This year, for the first time since the Black Plague wiped out half of Europe's population, the proportion of people aged over 60 will eclipse the proportion of those under the age of 5. The world isn't just getting older, it's also losing its long-standing base of young people. Though the ramifications of this trend are huge, no one knows for sure what they'll mean for companies and individuals. But at least three things are clear:

1. Retirement as we know it will disappear. In the future, a growing part of the population will need to be supported, for a longer period of time, by a shrinking group of working-age individuals. Pension systems around the world will buckle as more and more funds will need to be distributed to a growing amount of the population. At the same time, the contributions made to these funds will fall (since there will be fewer people of working age to make these contributions). The result? Think political upheaval, increased immigration (bringing in younger people into aging countries) and the delay, perhaps even the abolishment of the retirement age.

2. The mass market as we know it will disappear. The development of an increasingly growing older population will transform the mass market as we know it. Ever since the World War II, conglomerates such as Coca Cola, General Motors and Procter & Gamble have built their business by appealing to a mass market of young people. This market is slowly disappearing, and will force companies to re-evaluate who their customers are, and what they want out of life.

3. Organizations will have to employ people well into their 50s and 60s. The inability of pension systems to support people in their 60s and 70s means that these people will have to rely on other sources of income to secure their future. This in turn means that more and more people will have to continue working well into their 50s, 60s or even 70s. Today's organizations are ill-fitted to support this.

The mantra in almost every organization is that "younger is better". But unless corporations learn how to utilize the skills of the over 50s, they will fail to create the economic engine that is necessary for ensuring future prosperity.

While these challenges may sound threatening, each in its own way could spell an opportunity. And herein lies the promise of scenario planning: By building a set of alternate futures, each with its own rich descriptions and depictions, you can change your company's thinking from focusing on "what will happen?" to "if this will happen, then this is what we'll have to do".

The result is not a prediction of what the future will look like, but what it could look like, and what it would mean for you. And when that future, whether you envisioned it precisely or not, arrives, you'll be ready.

Ziv Navoth helps organizations improve their performance by creating a unique and valuable position in the marketplace. He is the Managing Director of Verve! (www.verve.nu) and can be reached at ziv@verve.nu.