Table of Contents

Introduction ............................................................................................................................................... 2 What is a scenario? ............................................................................................................................... 2 When did it appear? .............................................................................................................................. 2 Scenarios vs. Forecast: .............................................................................................................................. 3 Criteria of using Scenario Planning .......................................................................................................... 4 Benefits of using scenario planning ...................................................................................................... 4 Drawbacks of using scenario planning ................................................................................................. 5 Scenario Planning at British Airways (BAA): .......................................................................................... 6 Background ........................................................................................................................................... 6 Adopting Scenario planning as a strategy tool...................................................................................... 6 Scenario Development .......................................................................................................................... 6 The Produced Scenarios ........................................................................................................................ 7 Successes achieved ............................................................................................................................... 9 Implement Scenario Planning in Saudi Airlines ....................................................................................... 9 Background ........................................................................................................................................... 9 Implementing Scenario Planning .......................................................................................................... 9 Conclusion ...............................................................................................................................................11 References ............................................................................................................................................... 12

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Introduction
What is a scenario?
Scenario can be thought of as a fairy tale or story. Van Heijden et al (2002) define scenarios as stories about how the future of the business environment could unfold. It could be, also, thought of as an internally consistent view of what the future might turn out to be not forecast, but one possible future outcome. (Porter, 2004). According to Lynch (2003), scenarios are informative and plausible views of how the business environment of an organization might develop in the future based on a collective environmental influences and factors of change about which there is a high level of uncertainty. Moreover, Miller et al (1998) argue that scenarios are splay scripts used as a learning and decision making tools in order to examine the various perception and predictions of the future. Both private and public organizations face the business environment diversity. Companies have to be prepared to cope with these changes and be able to see future plausible changes in the business environment. They may consider a question such as 'what will we do if it happen? By viewing the possible future scenarios, companies will be able to develop business strategies (Kippenberger, 1999).

When did it appear?

Scenario planning has been known in military for hundreds of years, but the first written script that could be regarded as a scenario appeared in the nineteenth century by von Clausewitz and von Moltke, two Prussian military strategists, who were also credited of constructing the first strategic planning principles (Van Heijden et al, 2002). The use of scenario planning in business field was first introduced in the 1950s. Most authors attribute the introduction of scenarios to Herman Kahn, who worked for the US military and Rand Corporation (Verity, 2003). He developed a technique of describing the future in stories and he adopted the term scenarios to address these stories. It was his book The Year 2000: A Framework for Speculation which was regarded as a landmark in the field of scenario planning and due to which Kahn was often referred to as the father of modern-day scenario planning (Van Heijden et al, 2002). Kahn had clearly impressed that these stories 'scenarios' must not be confused with forecasts because they do not predict values, rather 'they are only scenarios, intended to be used as thinking tools, nothing more' he said. Thus, scenarios tend to liberate planning from the traditional 'predict and control' to doing something else that is, thinking (Van Heijden et al, 2002). Although Kahn was the founder of the scenarios in business organization, it was Pierre Wack at Shell and Peter Schwarts at SRI (Stanford Research Institute) during the 1970s and 1980s who really introduced scenario planning to management as a strategy tool (Verity, 2003). Shell and SRI adopted Kahn's philosophy that scenarios were not forecasts or prediction about the future and that the future was uncertain and unknowable as Peter Schwartz (1991) stated in his book that 'the end result is not an accurate picture of tomorrow, but better decisions about the future' (Verity, 2003). 2|Page

Scenarios vs. Forecast:

After looking at origin and background of scenarios, a question might arise regarding how do scenarios distinguish itself from other future prediction methods, forecast for example? By looking at its nature, it could be seen that forecasts are usually built on the assumption that future's conditions would be the same as today (Cornelius et al, 2005). Thus, expectations of the future are built on the judgment of todays facts and elements, not taking into consideration the uncertainties. This would be true, and useful, in cases where no critical discontinuities occur. However, this is not the way the real world works! Sooner or later changes will happen and forecasting technique will prove wrong when it is most needed. Also, due to focusing on the one best way makes forecasting a uni-path planner, which could severely diversify when facing miscalculated road bumps.

Scenarios differ fundamentally in that they consider uncertainties as part of their way of planning the future. They help prepare many alternatives and ways to tackle future challenges. Thus, they are neither predictions nor projections rather stories describing various roots that lead to alternative futures. By nature, scenarios are mint to plan far in future strategies. On average, scenarios life cycle last between 3 and 5 years, but could span for 10 years in future (Schoemaker, 1993). Whereas forecasting tend to be on annual or every two years basis due to the way of building predictions on the current situations, longer than that could result in far inaccurate predictions.

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Criteria of using Scenario Planning

Despite the fact that scenario planning carries huge potentials in its ability of predicting the future, still there are some who argues against its ability to success. Julie Verity (2003) argued that despite their ability to help managers distinguish critical signals from general environmental noise, scenarios have failed to become widely adopted in companies' planning processes. In order to justify and try to hit a balance between these diverse viewpoints, lists of both pros and cons will be addressed.

Benefits of using scenario planning

Enhanced Perception: Scenarios help develop both individual and corporate perceptions, because they provide a framework for personals to understand and evaluate different trends and events as they happen, which cannot be given elsewhere. Managers expand their mental model and think beyond the borders of their conventional knowledge. Moreover, participating in scenario exercises helps managers become more insightful regarding the business environment and its affect on the organization (Van Heijden et al, 2002).

Making people think: Scenarios provides a team learning environment where members can increase their creativity skills. Mangers participating in scenario exercises tend to understand and modify their way of thinking and, also, get to know the way how their college usually thinks. Because scenario planning requires a deep understanding of environmental forces effects, participants need to think beyond their believes and mindset and be more creative and imaginative, which will eventually result in an overconfidence decision-making (Busenitz and Barney, 1997). 4|Page

 A management tool: In Shell where scenarios emerged as a powerful management tool, it became the context of every key strategy decision proposed to managers. Benefits unfolded gradually over time as scenarios evolved with changing needs (Cornelius et al, 2005).

Drawbacks of using scenario planning

Costly: There is a common view that scenarios are expensive in terms of employing huge amount of resources in an organization (Verity, 2003). Millett (2003) suggests that a scenario team might consist of 5 to 10 participants who meet regularly and conduct interviews and do researches. This could consume up to 100% of some managers time over a period of up to six months. Millett argues that costs might rise up to 600,000 US dollars for a six months exercise. That is way small and medium sized firms choose not to use scenario planning process at all, and major corporations tends to do it once every three or five years at best. Confidence and uncertainty: It is often difficult for managers to accept the philosophy of scenario thinking that the future is uncertain and cannot be predicted (Verity, 2003). Managers tend to have confident in forecasts believing that better models and tools could be improved over time. Due to this mind-set, it is hard for managers to accept the fact that uncertainty and risk cannot be planned as scenario planning suggests. Cosmides and Tooby (1997) argue that accepting uncertainty, recognizing it as inevitable and living with it, goes against the grain of human nature. Due to the human beings natural instinct of being overconfident makes adopting the exploration style of scenario thinking difficult to accept. Organizational culture and diversity: According to a study carried out by Graetz (2002), different styles dominating each group, participating in the study, resulted in different emphases in the scenario produced by each team. Groups dominated by rational thinkers perform poorly, while teams with no rational, analytic and systematic approaches have actually produced creative, to some extent, and plausible scenarios. Another finding was the difficulty of achieving diversity of thinking. When put under pressure, individual who were naturally creative and imaginative changed radically to match the dominant cultural style.

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Scenario Planning at British Airways (BAA):

Background
British Airways is one of the world's biggest airlines, carrying 36 million people to more than 89 countries around the world with an annual profit of 452 million pounds. Although it has been very successful in the past, nevertheless it is dangerous to say that current strategies will remain valuable in such changing environment. Unfortunately, managers tend to assume that the future will not vary much from the present, and tend to focus mainly on operational development, and strategies are not testing regarding to future uncertainty.

Adopting Scenario planning as a strategy tool

It is due to the Chief Economist, DeAnne Julius, who proposed the idea of using scenarios in February 1994 and because the benefits expected were intangible at that stage, the implementation was considered as an experiment to see if the process would eventually proven to be useful to the company or not.

Scenario Development
Julius led the scenario development team in the planning phase. The team included 8 employees from the Government Affairs, Corporate Strategy and Marketing departments, in addition to an external consultant. A group of 14 directors and senior managers from major departments in the company was established. Their advice was seeked at the completion of each major stage in the project. The first step was to agree upon the external problems facing the organization. Individual interviews throughout the company were conducted. In addition, interviews were also made with government officials, academics people, and aircraft manufacturers. After a full day debate, the development team selected about eleven critical issues for further investigation. The next step was to develop plausible outcomes for each of the issues. This had to be done by thoroughly considering each issue. Later on, the team spent some time sharing their findings and exploring the inter-connections between the issues. An agreement was made to spotlight the relationship between growth and governance as the main issue and tries to come up with two stories, each lasting a 10-year time.

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The Produced Scenarios

The scenarios took into consideration the fact that huge changes have occurred in technology, education, and finance in the last 50 years, and that the speed of change has increased as these four elements support each other (Figure BA.1). The new generation of leaders who have not experienced World Wars and their search for news models of external growth was taken as the main aspect within the two scenarios (see Figure BA.2) Figure BA.1: Driving Forces

Figure BA.2: Governance and Growth - The Two-Headed Snake

In Wild Gardens scenario, global integration goes so rapid that it is impossible to build new structures of governance to replace the old structures where it is the Darwinian Battle of winners and losers which shapes the future (Moyer K., 1996) (See figure BA.3). In the New Structures scenario, shared values and new ways of organizing are found which would enable growth to continue in a manageable manner (Moyer K., 1996) (see Figure BA.4).

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Figure BA.3: A Summary of Wild Gardens

Figure BA.4: A Summary of New Structures

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Successes achieved
According to Moyer K. (1996), implementing scenarios at BAA has resulted in the following successful outcomes: 1. The stories were so striking that they captured the attention of even the more cynical audiences, and there was enough depth of analysis to draw upon when questions were asked. 2. The team members worked well together. They all volunteered for the project and by getting together as a group to agree on the key decisions, they became a highly motivated and enthusiastic team. 3. The scenarios proved to be more relevant even for areas at lower levels than the expected. For example, Customer Relations used the scenarios to develop new ways of connecting to their customers. 4. Scenario workshops were also successfully used as a tool to inform groups such as the Trade Unions and the management at Qantas Airlines about the external issues relevant to the British Airways business plan and to stimulate a dialogue between British Airways managers and these groups (Moyer K., 1996).

Implement Scenario Planning in Saudi Airlines

Background
50 years since Franklin Roosevelt gifted a DC-3 Dakota airplane to King Abdul-Aziz, allowing the country a leap into modernity, national carrier Saudi Airlines fleet has grown to 139, making it the regions leading Aviation Company (official website, 2010). But as the Gulfs spending power grew via habitual oil booms, so did the transport-expansion capacity of neighboring countries. Competition in the region has become brutal, with billions of investment pouring into modernization and fleet expansion by countries such as Qatar and the Emirates. Add to that the entry of low-cost carriers such as National Air Services and SAMA Airlines which looks into a whole new field.

Implementing Scenario Planning

For Saudi Airlines to use scenario planning as a strategy tool, they need to carry out these four major steps (Schoemaker, 1993). Step 1: Set the time, scope and identify major stakeholders: Define the issues needed to be understand by taking into consideration how rapid changes have happened in the past and try to predict common trends in product life cycle, its demographics, technologies, drivers...etc where an average time frame last between 3, 5 and 10 years. 9|Page

And identify the major Stakeholders or actors who will be affected or have an interest in the possible outcome, such as aircraft manufacturers (suppliers), catering and ground services; identify their current roles, interests and power positions. Step 2: The current trends, driving forces and key uncertainties: Brainstorm & produce a list of current trends (this include industry, economic, political, technological, legal and societal trends) and assess to what degree will they impact the Airline's performance in the future. It might be helpful to construct a diagram to inter-linkages and causal relationship. Identify the key uncertainties, which might affect the variables of interest. Mapping forces against uncertain/predictable and important/unimportant scale would help defining what should and should not be considered while building the scenario. It will be also helpful to examine how these uncertainties are interrelated. Step 3: Identify the two extreme scenarios: The two extreme scenarios (best and worst) need to be identified and checked for consistency and plausibility, where all positive outcomes of key uncertainties are placed in one scenario and all the negative outcomes in the other. In this context, four main points must be assessed: a) Time frame: are the trends compatible with the time frame settled. b) Internal consistency: forces describing uncertainties that can construct probable scenarios. c) Stakeholders: are they currently asymmetric comparing to their favored state and is it possible to create probable scenario taking them in consideration. d) Inconstancy: any internal inconsistency need to be removed. Step 4: Finalize the scenarios: Combinations that are impossible or non-credible need to be canceled and new plausible scenarios would be created until internal consistency is fully achieved. Revised scenarios must be assessed in terms of realism and acceptance by key stakeholders. Reassess the uncertainty of interested variables again to finalize the decision scenarios and give them a meaningful label. By adopting these steps, Saudi Airlines would, certainly, end up having a better understanding of the externalities that affect their core business, thus resulting in a brighter future and readiness in case the worst happens.

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Conclusion
Although scenario planning is an important tool for understanding the future uncertainties, nevertheless it is not built to choose a particular approach or allocate resources in the best manner. This technique could be further useful when combined with real options approach, as the value of the project might change over time due to feeding of new information. In order for companies to gain maximum benefits using scenario planning, they should be very realistic when listing down the various aspects (trends, drivers, and expectations) during scenario building mode. Irrational, overestimate, and enthusiasm predictions could only result in drifted scenarios that would cost a lot of resources and manpower without producing any benefits in return.

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References
Busenitz, L.W., and Barney, J.B. 1997. Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision making. Journal of Business Venturing, 12(1): 9-30. Cornelius P. et al, (2005), Three decades of scenario planning in Shell, California Management Review. Vol. 4, no. 1, fall 2005. Cosmides L, Tooby J (1997) Evolutionary Psychology: A Primer. Centre for EP at ECSB website. www.psych.ucsb.edu/research/cep/primer.html. Graetz F (2002) Strategic thinking versus strategic planning: towards understanding the complementarities. Management Decision 40(5/6): 45663. Kippenberger, T (1999), 'Pitfalls in scenario planning', The Antidote, vol. 4, no. 4, pp. 32-33 Lynch, R (2003), Corporate Strategy, Prentice Hall, London Millett S (2003) The future of scenarios: challenges and opportunities. Strategy and Leadership 31(2): 1625. Moyer K. (1996), Scenario Planning at British Airways A Case Study, Long Range Planning, Vol. 29, No. 2, pp. 172 181. Porter ME (1985) Competitive Advantage. New York: Free Press. Saudi Arabian Airlines, (2010). ABOUT US. Available at http://www.saudiairlines.com.sa/portal/site/saudiairlines/. Accessed on 28th May 2010 Schoemaker PJH (1993) Developing Strategic Vision: A Core Capabilities Approach Applied to Apple Computer Sloan Management Review. Forthcoming. pp. 191 223. Schoemaker PJH (1993) Multiple scenario development: its conceptual and behavioural foundation. Strategic Management Journal 14: 193213. Schwartz P (1991) The Art of the Long View. New York: Doubleday. van der Heijden K, et al,(2002). The Sixth Sense, Chichester: Wiley. Verity J. (2003), Scenario planning as a strategy technique, European Business Jornal pp. 185195.

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