A perceptive and persistent pioneer

Citation

(2001), "A perceptive and persistent pioneer", Journal of Management Development, Vol. 20 No. 9. https://doi.org/10.1108/jmd.2001.02620iae.001

A perceptive and persistent pioneer

For 12 years, Pierre Wack wrestled to create scenarios that were both relevant and meaningful enough to change Shell management's mindsets

Pierre Wack, an economist by training, is credited, alongside Ted Newland, with the development of scenario planning at Royal Dutch/Shell. Described by his successor, Peter Schwartz, as a "mysterious, elusive Frenchman, almost oriental in appearance", Pierre Wack learnt through a process of trial and error what it takes to make the use of scenarios effective. The story of how Shell developed and then used scenarios to good effect, told in his own words, can be found in two seminal articles in the Harvard Business Review (see Wack, 1985a, b).

Here, we look specifically at some of the scenario concepts that Pierre Wack developed and the lessons he drew from his experience. Since many organisations have tried using scenarios, with very different degrees of success, it is instructive to reflect on Wack's own findings.

Forecasts

Wack accepts that straightforward forecasts can be reasonably accurate on many occasions. But he believes that, paradoxically, this is their greatest danger, because sooner or later they fail to predict some major shift. And this occurs at precisely the moment that organisations most need to know, or at least sense, what the future may hold and, more particularly, what elements of it may quickly make their strategies obsolete.

It is the ability to predict stormy change that would make forecasting useful, and that is precisely the area where it is weakest. Too many different forces are now at work for it to be possible to get the right forecast, "no single 'right' projection can be deduced from past behaviour".

The alternative

Instead of looking for better forecasts – by perfecting techniques or finding better forecasters – Wack argues that managers must "accept uncertainty, try to understand it, and make it part of their reasoning". Uncertainty is not just a short-term deviation from a predictable world, it is now an integral part of business life. And, he argues, one of the best ways of managing this uncertainty is the proper use of scenarios.

Scenarios –"pathways into the future" – acknowledge uncertainty and set out to structure and understand it. This, he suggests, is very different from simply crisscrossing multiple variables and then looking at scores of possible outcomes. Good "decision" scenarios, as he calls them, "are not a group of quasi-forecasts, one of which may be right". Critically, they describe "different worlds, not different outcomes in the same world" (our emphasis). The aim is not to "get it right" but to "illuminate" the major forces at work within the system, to illustrate their interrelationship and to highlight the key uncertainties. This he calls "the gentle art of reperceiving".

Some problems

For those who have tried scenario planning and been disappointed, Wack offers some thoughts. Many so-called scenarios "merely quantify alternative outcomes of obvious uncertainties"; for instance projecting a possible range of oil prices ten years hence. These, he suggests, do not help decision makers, because they present "raw uncertainties" but provide no basis on which managers can exercise their judgement. As a result, no strategic action or thinking takes place.

Scenarios need to be structured in such a way that executives come to understand the nature of the uncertainties and thus come to grips with them. But even good scenarios are insufficient. They can only help managers when they change the decision makers' assumptions about how the world works and then compel them to rearrange their mental models. To do this they must create a bridge between the new realities of the outside world and the "microcosm" of the manager's mind.

The need to observe

Wack also highlights the need to separate what is uncertain from what is predetermined. By "predetermined", Pierre Wack means events that either have occurred, or are almost certain to occur, but whose consequences are not yet clear. He likens it to monsoon storms hitting the Ganges river basin – the fact that the consequences will be felt in Rishikesh in the Himalayan foothills within two days, in Allahabad three or four days later and at Benares two days later still, is predetermined.

By simply recognising the future implications of something that has already occurred, effort can be directed at what those consequences might be. In Wack's view, identifying what is predetermined is fundamental. But it is also an area of great danger. He quotes Paul Valéry, the French philosopher: "A fact poorly observed is more treacherous than faulty reasoning". Errors in scenarios, Wack suggests, are more often the result of poor observation than weak reasoning.

Looking at the edges

Wack sought out what he called "remarkable people". These were "acute observers with keen, unending curiosity"; people who paid attention to the way the world worked and, in the process had their finger on the pulse of change. For example, on one occasion Wack got into a stimulating conversation with an Iranian physician. They became close friends and each year Wack would visit him to see how his perceptions of the world were changing.

Peter Schwartz (1998), Wack's successor at Shell, explains why this was so important: "Pierre had come to believe that if you wanted to see the future you could not go to conventional sources of information. Everyone else would know them as well and thus you would have no unique advantage". Scenario builders need peripheral, not tunnel vision.

Number and nature

The number and nature of the scenarios also matters. For instance, three scenarios along a single dimension will tempt managers to pick the middle scenario as the most likely. Two scenarios – one optimistic and one pessimistic – will tempt managers to "split the difference". Wack's personal suggestion is that there should never be more than four and that the ideal is three, two different worlds and one based on existing thinking (the "surprise-free scenario"). The latter is included specifically to show how fragile current assumptions are!

In terms of their nature, Wack argues that scenarios must address management's deepest concerns – what keeps them awake at night. That way, they have immediate relevance. According to Peter Schwartz, Pierre Wack also believed that scenario creation was not a reductionist process, it was an art full of subtleties – like good story-telling. Anecdotal evidence certainly suggests that Wack himself was an excellent story-teller.

Two tests

Wack suggests two tests for evaluating scenarios. First, what do they leave out? Managers must not be able to look back and see that important events were missed. Second, do they lead to action? If they do not push managers to act differently then they are little more than "interesting speculation".

In times of change

In a rapidly changing business environment, the inability to see a newly emerging reality because of obsolete assumptions is a common cause of strategic failure, "particularly", Wack says, "in large, well-run companies." Management mindsets, shaped by past experience and sustained by standard forecasts and projections, frequently prove inadequate.

Because of the sheer quantity and complexity of information available, managers' mental models never match reality – they are always constructs. These constructs tend to be nearer to reality when times are stable. When change accelerates, however, they "become a dangerously mixed bag: rich detail and understanding can coexist with dubious assumptions, selective inattention to alternative ways of interpreting evidence, and illusory projections". This is when scenarios are of most value.

And success…

Scenarios are intended to gather and transform strategically important information into fresh perceptions. However: "This transformation process is not trivial – more often than not it does not happen. When it works, it is a creative experience that generates a heartfelt 'Aha!' from your managers and leads to strategic insights beyond the mind's previous reach". In times of change and uncertainty, scenarios in this context can provide real opportunities for companies to achieve competitive advantage.

References and further reading

de Geus, A. (1997), The Living Company, Nicholas Brealey, London.Schwartz, P. (1998), The Art of the Long View, John Wiley & Sons, New York, NY.Wack, P. (1985a), "Scenarios: uncharted waters ahead", Harvard Business Review, September-October.Wack, P. (1985b), "Scenarios: shooting the rapids", Harvard Business Review, November-December.