The below content was originally published on the Insperity blog, a great source of information for business and HR best practices.
Fact: Uncertainties and changes are givens in the workplace.
It’s not a question of if your business will encounter a significant disruption, but when and how often.
Are any of these issues sounding familiar lately?
- Potential tariff impacts
- Potential recession or inflation
- Risk of funding losses (particularly for non-profits reliant on government contracts)
- Evolving legal landscape
- Broader changes in the cultural and political landscape
- Shifting market conditions (changes in customer needs and behaviors or entry of new competitors)
- Rise of technologies that render some products, services and skills obsolete or redundant
- Geopolitical instability that can affect everything from supply chains to energy costs and overseas operations
- Ever-present threat of major crises (examples: natural disaster, pandemic or safety incident)
What most of these issues plaguing business share in common is that they aren’t single, short-term episodes with a clear beginning and end. They’re more like rolling obstacles that can flare up and recede – or, at least, become better managed – over time, with the potential to evolve and cause further complications at some undetermined point.
Now is the time to prepare – before your business is in the throes of a disruption. After all, you can’t just hit the pause button and take your time to figure things out when the going gets tough. The world is fast paced. Customers move on, employees move on. In extreme cases, exposure to risk, liability or financial devastation can end your business.
Engaging in business continuity planning and ensuring business readiness are part of any responsible risk-mitigation practice. That is, how will your business overcome challenges, adapt to new circumstances and maintain operations despite volatility?
A critical element of this is thinking through how to respond to multiple business scenarios.
This is your guide for building a business readiness strategy that holds up no matter what.
What is scenario planning?
When a disruption impacts your business, there may not be a single, clear-cut result. Often, many things could conceivably happen. And situations can fluctuate.
Scenario planning is simply examining what the future may look like and preparing your business to thrive in the midst of it and, ultimately, outlast it. You’re anticipating what could happen and developing plans of action so your business can navigate these different paths effectively.
In this exercise, you’ll ask yourself questions like:
- What outcome is most likely and least likely to happen, versus which outcomes are merely possible and exist somewhere in between these two extremes?
- Which factors are in my control and out of my control?
- Which aspects of my business are most vulnerable, and what are the solutions for reducing risk?
- Do any gaps exist in my workforce? How can I prepare my people?
Advantages of scenario planning
1. Scenario planning is an opportunity to shift from a reactive to proactive approach while promoting flexibility and resiliency.
Engaging in this exercise can help you to adopt a mindset of resilience in which your tolerance for uncertainty and ambiguity increases along with your confidence. Having a plan – and a few back-ups – automatically makes you feel more in control and increases the likelihood that your business will successfully respond to disruptions.
- You can challenge your assumptions about what business as usual will look like going forward.
- You can avoid being caught unprepared for a situation you didn’t foresee.
- Your thinking can shift from a pessimistic, fearful state toward considering what’s possible, embracing new opportunities and fostering creativity and innovation.
- You can become less rigid about how things were done previously and more flexible about how things can be done in the future.
2. Scenario planning encourages more informed, strategic decision-making.
This activity nudges you to look farther into the future – perhaps 12 to 18 months out – and take a strategic, visionary approach. You’re not engaging in a knee-jerk or shot-in-the-dark reaction to a disruption – you’ve anticipated a variety of scenarios, studied their potential outcomes, readied your organization and can execute efficiently based on the information you’ve gleaned. With this level of preparation, the odds that your organization will make a misstep are greatly reduced.
3. Scenario planning minimizes risk exposure.
The worst impacts of a disruption – for example, higher costs, increased turnover, loss of funding, fewer customers or government investigations and penalties – won’t be felt at your organization as deeply if you’ve prepared in advance.
4. Scenario planning widens your company’s competitive advantage.
This activity can help you stay ahead of your competitors and become more nimble and innovative. It can also help you respond and adapt to changes even sooner.
How to plan for multiple business scenarios
Step 1: Assess the nature and extent of uncertainties.
Get leadership and all relevant parties together to assess the situation.
Examine the externalities that are out of your control:
- What’s going on in the industry?
- What are the political, social, economic, legal, technological and environmental considerations?
- Discuss the opportunities and threats your company faces. This is a great time to conduct an updated strength, weaknesses, opportunities and threats (SWOT) analysis.
Talk to suppliers, customers and competitors to solicit their opinions and recommendations.
Review what you learned about your company during the disruption and discuss its internal state. This analysis could center on:
- Capabilities
- Challenges
- Staff level and skills
- Workplace culture
- Mission, vision and values
- Organizational structure
- Leadership (especially their performance during the disruption)
Consider what may not be the same going forward. This could include your:
- Business model
- Business processes
- Workflows
What are the cost impacts of making these changes?
In general, what are you most optimistic about?
With all this in mind, consider the likely future direction of your business.
- Will your business continue, for the most part, as it was pre-change?
- Will your business branch out in a new direction?
- Will you start a completely new business?
Each of these options requires varying levels of organizational- and change-management skill, time and resources across people, processes and systems.
Everything discussed at this stage – an analysis of internal and external conditions, as well as the potential future direction of your business – is a jumping-off point in brainstorming scenarios.
Step 2: Identify the most likely scenarios and develop strategic postures for each.
As you build your portfolio of scenarios, solidify how you can best implement the scenarios given the assets you have. Consider which assets you need to focus on and develop further.
The ideal number of scenarios is three. The maximum number is about five. Too few scenarios put you at risk of being insufficiently prepared and results in mere stopgap solutions that have to be constantly revisited. On the other hand, too many scenarios could mean you’re bogged down in the planning stage and are becoming slow to execute.
This shouldn’t be a lengthy, overly complicated process that hinders your business’ forward momentum. Identify the factors that are most relevant to your business, make plans that address these issues [SC1] and take action.
Step 3: Actively manage the strategic direction while maintaining the flexibility to shift.
Remember, your business may go through several cycles of disruption. This is why you need to be open to reconsidering and adapting your approach as needed. A flexible and agile mindset can increase your odds of success.
Continue to practice robust management:
- Communicate with your team about all changes.
- Engage your team and help them to develop a mindset of resilience.
As long as your business remains in a disruptive, fast-moving environment, you may need to reevaluate your planned scenarios every 21 to 30 days.
As the situation evolves, expect to review these planned scenarios every 90 days to six months.
Common scenario-planning mistakes
- Not staying true to your customer promise
- Not creating a culture that allows people to share ideas freely
- Having leaders and employees who are too focused on today’s work
- Thinking too narrowly about your opportunities
- Reflexively prioritizing budget and staff reductions first, as opposed to considering pathways to growth and how your people can be part of that growth
Remember: New markets and opportunities are most often created on the fringes.
How a PEO can help
A multifaceted professional employer organization (PEO) won’t tell you what to do. However, it can help to facilitate and guide the conversations and processes within your company and can help to stretch perspectives on what the future of your business could look like.
The scenario-planning process is a bit like visiting a buffet. You have a lot of different options before you, along with many factors to consider. Everything’s right in front of you – a PEO can help you make sense of it.
Nobody has all the answers for overcoming a major business disruption. You don’t have to figure it out all by yourselves. Leverage the resources at your disposal.
Summing it all up – from recovery to readiness
Ensuring business readiness for a variety of disruptions and maintaining business continuity despite volatility are vital components of risk management. Developing such a strategy requires multi-scenario planning. Among the advantages are:
- Cultivating a flexible, proactive, opportunities-centric mindset
- Promoting a comprehensive, long-term vision for the organization
- Reducing risk exposure
- Widening your competitive advantage
Ready for what’s next? For more information on how to build resilience into your business plan, download our free magazine: The Insperity guide to leading through change.