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Sowing the seeds of strategic success
Four decades of forward thinking
The future matters. It is hardly surprising, therefore, that individuals and organisations spend time contemplating what future events or opportunities will be most significant in shaping the decades ahead.
Shell has been using scenario planning as one technique for trying to make sense of the road ahead for the past 40 years.
During that period, this discipline has helped the organisation to make better strategic choices.
So, is Shell in the business of predicting the future?
Not quite, as Jeremy Bentham, Vice President, Global Business Environment, Royal Dutch Shell plc, explains, “Scenarios provide lenses that help us to see future prospects more clearly, make richer judgments and be more sensitive to uncertainties.
The goal of the scenarios is not to predict the future but to enable policymakers to make wellinformed and better decisions involving the future as a result of having a deeper grasp of key drivers and uncertainties.”
The initial steps towards the scenario planning approach were taken in Shell in the 1960s when a team of economists, engineers and scientists started work on the first scenarios.
They looked at how the future might unfold and the impact this could have on the organisation.
Their first report, issued in 1972, detailed six scenarios, one of which looked at the possibility
and consequences of an energy crisis, something unheard of at the time.
In October 1973, the Yom Kippur War broke out and the West’s support for Israel angered oil-rich Arab states and triggered an oil embargo.
Fuel shortages sparked a global recession and a massive stock market crash. The world was shocked and the global economy reeled.
But Shell’s decision makers had mentally prepared the business for the worst, having already imagined it.
The energy crisis scenario helped Shell to weather the storm favourably and brought financial gains, thanks to the sale of refineries and installations, or decisions not to replace them.
Four decades on from that first energy crisis breakthrough, a new generation of scenario planners is looking to the future and identifying new uncertainties, challenges and opportunities.
“Shell scenarios work because they are neither rigid predictions nor wishful fantasies,” Bentham says.
“They are a way of understanding how the world looks, what forces are at work and how we can deal with them.
The trick is to think in terms of trend breaks.
You have to think: what radical changes could there be?
That is also the most difficult part; it is not something people feel comfortable with.”
Success during the 1973 oil crisis raised the profile of scenario planning within Shell and made it an established tool for identifying and thinking around subsequent global shifts.
Scenarios helped the organisation to anticipate, adapt and respond to another oil shock in 1979 and to the decline and eventual collapse of the Soviet Union in the 1980s.
In the 1990s, growing social and environmental stresses were highlighted that helped Shell to develop a constructive, proactive attitude to the threat of climate change.
“For anyone interested in anticipating future trends and coping with the sudden changes that arise,” continues Bentham, “there are two sides to scenario planning: painting pictures of the future and imagining our reactions to them.
Having the capability for looking at trends and predicting events is important, but perhaps the most vital aspect of Shell scenarios is the analytical power that goes into developing effective strategies for each contingency.
The ability to do this in an informed and rigorous way is what sets Shell scenarios apart from most
The process of developing scenarios encourages Shell’s leaders to think about the possible wider and longer-reaching implications of unfolding trends and potential discontinuities, of which there may only be faint signals today.
They can help to deliver better long-term prospects for Shell, the industry and society.
Their value is underlined by Peter Voser, Chief Executive Officer, Royal Dutch Shell plc, who states, “Scenarios help us to make crucial choices in uncertain times as we grapple with tough energy and environmental issues.”
The role of the scenario process in informing business development is an inexact science but the fingerprints of the team and their work can be seen on numerous decisions.
In 2005, the scenarios raised the probability of an alarming gap between global energy demand and global supplies.
For Shell, this reinforced the significance of natural gas in the company’s energy mix.
Later, the scenarios highlighted circumstances that made sustainable biofuels look like an attractive business opportunity.
Consequently, in 2011, Shell responded by moving into the production of lowcarbon bioethanol from Brazilian sugar cane and secured commercial benefit from this development.
Shell’s “Signals & Signposts scenarios”, which were published in 2011, predicted an era of “volatile transitions” and identified one of the key factors as heightened political tension in certain parts of world.
In early 2011, these tensions found expression in the Arab Spring, when popular revolts toppled rulers in Egypt and Tunisia, and paved the way for political reform and further conflict that continues today.
The scenarios did not predict the timings of the uprisings, but they highlighted the conditions that would make them more likely and would fuel resentment: young populations with huge aspirations and low employment opportunities; economic volatility; rising prices for essential goods; and increasing unemployment.
Shell has shared some of its far-reaching scenario views with the wider world since the 1990s and examined the impact of momentous developments such as the fall of the Iron Curtain and the war in Iraq.
The scenarios have also helped the wider world to investigate the evolution of alternative energy resources such as biofuels, shale gas and renewable energy resources, including wind and solar power.
The future of scenario planning is bright and the demand for future insights is greater than ever.
As Bentham explains, “Four decades on from that first energy crisis breakthrough, a new generation of scenario planners is looking to the future and identifying new uncertainties, challenges and opportunities.
Like their predecessors, they are working to ensure that Shell is not surprised by events as the future unfolds.
Their regular engagement with leading decision makers enables business leaders to review vital intelligence and gain insights that will help the organisation to survive and thrive, whatever the future may bring.”
The “New Lens Scenarios”, the latest report from the scenario planning team, will be reviewed in a forthcoming issue of Impact.
Download the full issue now.