Leadership in turbulent times: Better foresight, better choices has been saved
Leadership in turbulent times: Better foresight, better choices
On the board’s agenda, August 2020
- Scenario planning and the role of the board
- The world remade by COVID-19: Scenario planning in action
- Four visions of the future
- Big challenges, better choices
By Andrew Blau and Lauren Lubetsky
A global pandemic shuts down normal life around the world. Market volatility creates price swings not seen in nearly a century. Millions of people turn out to protest racism and social injustice and call for meaningful and lasting change. 1 To many, the world feels more turbulent and uncertain than it ever has. Many are left to wonder: How might business and society be remade as a result?
Although it is impossible to know precisely what the world will look like in the coming years, companies can ill afford to do nothing until the future becomes clear. As renowned management scholar Peter Drucker once said, “[t]he greatest danger in times of turbulence is not the turbulence itself, but to act with yesterday’s logic.” 2
Boards can play a key role in guarding against that danger, and it is critical that they collaborate with management to make use of time-tested tools to help them improve resilience in a rapidly changing landscape. Scenario planning—a technique specifically created to navigate uncertain futures—is one such tool that boards and leaders can rely on, to help their organizations do more than simply react to and recover from the recent turbulence. Effective scenario planning can help organizations adapt to a future no one can predict and position themselves to thrive in the long run.
Scenario planning and the role of the board
What are scenarios? Simply put, they are stories—developed through a systematic and rigorous method—that describe how the world might be meaningfully different in the future. Scenarios help leaders prepare for a world that is uncertain and allow them to develop and test strategic choices under a variety of plausible futures—not just the expected future. Scenarios, which include rich narratives about the business and societal conditions in different possible futures, are broader than typical economic forecasts, which may be useful in the short-run but can be limited in their ability to challenge conventional wisdom about how the future will play out.
Scenarios are built on three time-tested principles:
- Use outside-in thinking: Start with the broader contextual environment—what’s going on in society or technology, for example—and focus on what is going on in the world rather than just within a particular industry or organization
- Embrace diverse views: Seek out and learn from people who see things differently and can call upon a variety of different roles, backgrounds, and experiences
- Take the long view: Look out beyond current events to consider how today’s trends can turn into something surprising in the future
Importantly, these principles map to the roles board members can and do play in corporate governance. Independent directors bring outside perspectives and experience from other organizations or industries. Their range of backgrounds and professional history can be tapped to diversify the views and insights that inform leadership thinking. And the oversight role of boards enables them to take the long view, keeping an eye on the long-term interests of shareholders and other stakeholders.
In a recent Board Governance Dialogue webcast hosted by Deloitte and Salesforce, Deloitte Global CEO Punit Renjen discussed how boards can engage with scenarios and use them to drive towards action. Scenarios, he explained, are “a really powerful way to navigate through…a very uncertain, difficult situation. The most important aspect of scenario planning is to prepare and to come up with a playbook as to what would you do if a particular scenario came to pass.” 3
The world remade by COVID-19: Scenario planning in action
Given the uncertainty and market turbulence organizations around the world are facing, Deloitte and Salesforce collaborated to develop scenarios about how the pandemic might change the landscape of business and society over the next three to five years. The example can help explain how scenarios are developed and suggest how they can help organizations think through potential futures.
Scenario thinking starts by focusing on what’s uncertain—the things we don’t know, rather than what we feel sure of. There are a few fundamental uncertainties around the pandemic that we expect will have the most impact on how the world unfolds in the next few years, including:
- The overall severity of the pandemic and pattern of disease progression
- The level of collaboration within and among countries to address the pandemic and its aftermath
- The health care system response to the crisis
- The economic consequences of the crisis
- The level of social cohesion in response to the crisis
While we view these five uncertainties as the most critical, there are others, such as the speed or focus of technological innovation and the outcomes of the current social justice movement, that could significantly impact the future in which we end up. Scenario planning enables leaders to consider multiple uncertainties such as these and integrate them into logically consistent wholes.
Scenario planning should be dynamic, constantly adapting to changes in the broader landscape. It is a tool that can be used for learning and faster adaptation to changing circumstances. As new uncertainties surface—whatever they may be—we can use scenarios to help us interpret these changes and the broader patterns of which they may be a part.
Four visions of the future
As we considered what the post-crisis world could look like through the lens of the fundamental uncertainties listed above, we developed four different scenarios describing what the business environment of the early-to-mid 2020s might be like. Each scenario brings varying degrees of disruption, challenges, and opportunities and should ultimately spark a number of questions around implications and next steps for organizations.
The first and best-case scenario, called The passing storm, imagines a world in which the pandemic is managed due to effective responses from governments to contain the virus, but is not without lasting repercussions which disproportionately affect small and medium-sized businesses (SMBs) and lower-and middle-income individuals and communities.
The second scenario, Good company, is a result of a more prolonged pandemic, with governments around the world struggling to handle the crisis alone. Large companies step up as a key part of the solution, and we see an acceleration of trends toward “stakeholder capitalism.”
In the third scenario, called Sunrise in the East, China and other East Asian nations are more effective in managing the virus and take the reins as primary powers on the world stage.
And finally, there is a scenario called Lone wolves, which envisions a prolonged pandemic period spurring governments to adopt isolationist policies, shorten supply chains, and increase surveillance.
At Deloitte, we’ve seen these scenarios engage leaders in many ways and at various levels, from business units, to boards and executive teams, and even governments that are using them to consider the future of their own economies. Business leaders across sectors have been using them to drive a variety of applications, including reconsidering business development and investment opportunities, managing strategic risk, redesigning workforces, and adapting their long-term strategies.
Big challenges, better choices
Another benefit of good scenarios is how they can illuminate critical choices that may lie ahead and allow leaders to think through the implications of today’s action over time. In the recent Board Governance Dialogue, Punit Renjen emphasized the importance of identifying both offensive and defensive strategies. Effective scenario planning can help spot the choices essential to doing both well.
As he observed, “We do need to play defense. We need to have adequate liquidity. We need to pull the levers around reducing discretionary spending and making sure that we can navigate [in] whatever scenario we find ourselves.” Using scenarios to plan for a range of divergent future outcomes can help organizations generate a more comprehensive view of risks and can help protect the business against whatever is to come.
But Renjen also reminds us of the importance of a strong offensive strategy, which scenarios can help develop even in the face of great uncertainty. “The board should work with management to consider whether management is playing great offense . . . and [making] the contrarian moves that are available today.”
At the same Board Governance event, Salesforce CEO Marc Benioff reinforced the importance of identifying strong options, noting “this a very critical moment for the transformation of organizations.” The organizations that will likely thrive are the ones that see not only the challenges but also the opportunities that may be available to them. In a recent survey of CEOs, 77 percent said the crisis created significant new opportunity for their company.4 Scenario planning can help leaders increase their confidence and ability to see new opportunities that may emerge in different futures, as well as make choices that position the organization for success regardless of scenario. And, scenario planning can help one think broadly and sambitiously about the implications of these choices for customers, employees, shareholders, and society. As Benioff said, “What will you stand on to say this is who we were when the world needed us most?”
By leveraging scenario planning and engaging in bold, expansive thinking about the future, boards, and leaders can do more than react to events or be trapped by what Drucker warned us of, acting with “yesterday’s logic.” Scenarios can help leadership discover tomorrow’s logic and adapt to a world that seems likely to be remade by current events and trends.
Leaders know that their strategies need to be dynamic and adaptable to changes in the marketplace. In a May 2020 survey, board members put “shaping a realistic post-crisis strategy” as the top governance challenge facing their board over the coming months, even above overseeing financial health.5 A majority of surveyed CEOs (58 percent) agree that the crisis will bring about significant changes in their strategy.6 The organizations that can leverage scenario thinking to pressure-test these newfound strategies against a range of possible futures—and not just the future they expect—will likely be the ones that are best positioned to thrive in whatever future ultimately comes to pass.
1 Black Lives Matter May Be the Largest Movement in U.S. History, The New York Times, July 2020.
2 Managing in Turbulent Times by Peter Drucker (1980).
3 Board Governance Dialogue, The world remade by COVID-19 | The boardroom perspective, June 2020.
4 Fortune/Deloitte CEO Survey, June 2020.
5 NACD COVID-19 Pulse Survey, May 2020.
6 Fortune/Deloitte CEO Survey, June 2020.