As South Africa transitioned from apartheid to a multiracial government in the 1990s, uncertainty increased. Looking back nearly three decades later, we can see how scenario planning played a positive role in bringing stakeholders together to address the unknown.
Today, in many parts of the world, we once again find ourselves facing a great degree of uncertainty. For example, the current wars in Ukraine and Gaza have revealed the urgent need to factor uncertainty into our strategic planning – something scenario planning is well equipped to do. I urge us to return to it.
Why do we avoid discussing future uncertainty in the strategy room?
Doubts are certainly being raised in organizations' strategy rooms. However, a common pitfall is that we only do one exercise and then put everything we learned from it on the shelf.
Ignoring uncertainties leaves organizations and society as a whole vulnerable to upcoming threats. At the same time, we can miss opportunities that are not obvious – leaving us to miss out on their potentially valuable benefits.
How do we usually face the future?
In late 2019, before the onset of the 2020 pandemic, year-end Executive Committee and Board meetings certainly discussed their updated strategic plans for 2020 and beyond. By mapping out the next two or three years, strategy teams worked hard to feed their planning processes with sophisticated analyzes of the previous year's facts and figures. Expected prices, market conditions, customers and competitors were certainly discussed.
However, even if the looming uncertainty was addressed, it was often on the last page of the strategy report as a brief mention. Shouldn't we be better prepared now than we were then?
More than 100 years ago, in 1921, Frank H. Knight, the distinguished economist at the University of Chicago, wrote a great book called Risk, Uncertainty, and Profits. In it, Knight distinguished between two types of uncertainty:
- Uncertainty risk, where we know the possible outcomes in advance and perhaps know the probabilities of these outcomes. Think of rolling a pair of dice, because we know the odds before we roll the game.
- Real uncertainty, where we do not know the possible outcomes in advance, let alone their probabilities. This is often the case in complex systems, where many actors and forces interact over time, as in geopolitics, economies, societal transformations, environmental forces, and undoubtedly technological changes.
Knight's crucial point is that real uncertainty creates profit opportunities that cannot be eliminated by perfect competition. In other words, if we want to successfully innovate in business, we must not only deal with uncertainty, we must seek it.
Twenty-first century thinking
In their 2001 bestseller The Mind of the Fox, South African-based authors Chantelle Elbury and Clem Sunter look at how we, as humans, think about events and uncertainty. It provides a useful matrix with two continuums: (1) certainty/uncertainty and (2) control/lack of control.
How we think about events and uncertainty
