Strategy Making: What have we learned about forecasting the future?

Firms face uncertain environments characterized by shifting demographics, disruptive technologies, new industries and competitors and other challenges. To survive the tumultuous landscape, firm managers "make strategy" by assessing the organization’s internal and external environments, questioning assumptions about how the world works and deciding how the firm should operate. We refer to this activity as "forecasting the future" and provide insights from our recent study of 394 senior managers. We review the history of scenario planning, from military strategies to Royal Dutch/Shell’s analysis of the oil crisis in 1974 and the scenario planning process. From our survey of managers, we identify the major perceived benefits and weaknesses of scenario planning, and how managers forecast the future. We identify two dimensions of forecasting, formality and breadth, and review three modes of forecasting: formal, focused and intuitive, and compare to complexity and costs of formal scenario planning. We conclude with key learnings from our survey, including the need to examine the validity of current market assumptions used to guide forecasting efforts, involve key stakeholders in a debate and assessment of these assumptions, update strategic plans with forecasting process outcomes, and regularly review key hypotheses about market events and their performance impacts.