Scenario Analysis in Practice - An interview with Annina Lux
Policy Shift has had the opportunity to interview Annina Lux, Manager and Senior Future Foresight Analyst at Deloitte Deutschland on her vision of scenario analysis as a promising business tool and her experience from advising a broad range of companies on scenario-planning exercises.
In your experience, what are the main benefits of scenario analysis for a company in any type of transition to be considered (ecological, digital, demographic...)?
Today's world confronts companies with turbulence at an unprecedented speed, and scenario analysis enables them to successfully deal with the necessary transitions. Scenario thinking has a large variety of benefits on different levels. On the highest level, it helps companies embrace volatility, uncertainty, complexity and ambiguity – the so called VUCA forces. Unlike many traditional methodologies operating mainly on the “known knowns”, scenario analysis actively pulls these VUCA forces into focus, allowing companies to future-proof their strategies as far as possible.
Working with future scenarios also enables companies to go beyond the traditional linear case considerations with calculated small deviations to either side of a defined predicted pathway. With scenario thinking, companies engage with multiple radically different alternative futures with different characteristics and sets of differing outcomes. Preparing for these future worlds not only permits flexible, yet robust strategic planning, but also empowers companies to sit in the driver's seat and proactively build the future they want to see.
Additionally, scenario analysis lets companies take a rare but valuable outside-in perspective. Rather than using their own business as a starting point and moving outwards to their business context and the world beyond that, scenario thinking makes decision makers look at how the world and their surroundings are changing first, before moving on to elaborate on what this means for the company’s particular sector and the company itself. With this, companies gain a completely new point of view. They also step out of their comfort zone in a safe way, making the constructive consideration of typical “no-go” topics possible.
" Companies step out of their comfort zone in a safe way, making the constructive consideration of typical "no-go" topics possible"
In doing so, scenario analysis forces companies to think holistically in all dimensions, such as social, technological, economic, environmental and political spheres. This puts crucial new topics on the table that are often forgotten or de-prioritized.
Because of this, scenario analysis by default brings together diverse groups of people that rarely interact with each other on a strategic level in typical company set-ups. Co-creating scenarios and resulting strategic options with an interdisciplinary expert group of different genders, ages, experience levels, personal viewpoints and personalities multiplies the strategic potential and helps future-proof strategies.
Often neglected is also one important feature of scenario thinking: it makes future developments much more tangible and relatable than traditional methods such as quantitative forecasting. With the storytelling of the scenarios, the methodology really engages all stakeholders of a company and beyond – it serves as a wake-up call, rallies for action and at the same times cements a foundation to move ahead.
What are the most drawn conclusions of a company's scenario analysis exercise when dealing with low-carbon issues? How do they most often materialize?
In my experience, there are always two types of conclusions drawn in such projects.
On a general level, companies often have a moment of “revelation”. Scenario narratives build a future world on low-carbon issues around the academic quantitative calculations, retelling the story in a way that is much more accessible and personal to stakeholders in companies. Very often and independent of the focal topic, our scenario project participants tell us they had not considered these issues in this particular way, and that they have realized how crucial they are by looking at how different the world could look in 10, 15, 20 years and actively contemplating what it would mean for them and their company. For me, this is always the most powerful conclusion, because it triggers people to act.
On a more contextual level, conclusions vary significantly with different clients and different scoping of the focal questions. Perhaps the most interesting conclusions are those that participants rate as unexpected. Often, these come to play through the holistic dimensions of scenario analysis. The necessity of environmental skill building, for example, is a frequent conclusion that is not usually at the center of attention for companies, in addition to cybersecurity solutions to enable new work set-ups to reduce travelling. I find these much more interesting than the known conclusions that already existed before a scenario project. With these new conclusions, companies get to steer their individual path on low-carbon issues, usually resulting in much higher acceptance and more successful implementation. Of course, the typical conclusions are usually also on the table.
" It triggers people to act. Scenario narratives build a future world on low-carbon issues around the academic quantitative calculations, retelling the story in a way that is much more accessible and personal to stakeholders in companies"
In what way do you consider scenario analysis to be an innovative tool for businesses? How would you consider promoting even further such innovation?
Because we cannot predict the future, futurists constantly have to reflect on the forces at play and how to best capture them, making scenario analysis itself inherently innovative. Scenario analysis gives a solid framework for analysis that allows the adaptive adjustment of individual parts within it. This ensures the methodology remains valid, while also enabling flexibility to respond to change.
For instance, we use an A.I.-based natural language processing tool for our research into driving forces, i.e. those factors that could impact the future. In combination with expert interviews and traditional research, this builds the research pillar that is part of the first phase of all our projects. We constantly question and creatively adapt the way we research, for example with new technological possibilities or different modes of expert cooperation. While the frame remains the same, the details of scenario analysis are constantly reinvented, and new ideas are tested and introduced.
I think the first and most crucial step in promoting scenario analysis as an innovative business tool would be to create more awareness and understanding of what it is (and what it is not!) and what it tries to achieve. Too often, scenario thinking is misunderstood. Crucially, this also involves positioning the methodology as a tool, not a solution – in essence, it is a clever, thought-through and creative way of dealing with the fact that no one can predict the future.
Creating this understanding will clear the path for a much needed more prominent role of scenario analysis as an innovative tool for strategic planning and resilience building.
