Scenario Planning is Back: Preparing for the Unexpected

Tough situations build strong people. Necessity is the mother of invention. Pick your cliché. Both apply as organizations worldwide grapple with the fallout from COVID-19 and the uncertainty it's triggering at virtually every point in their value chains.
Of course, the Coronavirus isn't the first unanticipated disruptor we've faced, and it won't be the last. Every manmade and natural crisis over the decades, from political unrest, trade wars, tight labor markets and cyber-attacks to earthquakes, tsunamis and pandemics, should stand as a stark reminder for business leadership: the plans being made today must be informed by what could happen in the future. Scenario planning should be front-and-center.

A multi-level, multi-disciplinary challenge
I recently participated in a 10-day scenario planning conference at Oxford University. Leaders of global firms worked through various globally disruptive scenarios, brainstorming everything from the headlines that might appear in the media to the impact on supply chains and business continuity planning.
We learned a successful business continuity plan facilitates organization-wide communication and transparency at the business-unit level, the division-level and the corporate-level and across all business functions, from HR to Operations. It comes down to managing emotions and reactions to rapidly changing conditions and having visibility into all the moving parts of the organization. Organizations have to know where their people are and how to contact them. Additionally, it’s important to map all facilities and assets, know where each link in the supply chain resides and plan for a range of contingencies.
When it comes to organizational focus, the multi-level/multi-disciplinary involvement required for scenario and business continuity planning typically takes a back-seat to core issues, like revenue and production. The only effective time for planning, though, is ahead of needing the plan. At the Oxford University conference, executives from oil and gas companies credited their scenario planning and training efforts with equipping them to weather the constant turmoil in the energy market and their own adversities.
Facilities, asset and people-mapping
For years, the allure of China as the world's factory and its number-2 economy has tempted companies to continue placing eggs in the China basket. Even 2019's trade war didn't dissuade companies from tying their fortunes to China. As many companies took tactical actions to mitigate the impacts of the trade war and others stood pat, hoping the U.S.-China Phase-1 trade agreement would trigger a rebound, they postponed significant strategic business decisions. COVID-19, however, could very well erode supply chains and severely impact China's economy.
Though not much can be done to alleviate the short-term damage to those supply chains, part of scenario planning is considering whether or not one is too invested, geographically speaking, in China or any single region. Consider whether the supply chain, real estate footprint and employee locations are as geographically distributed as they could be. Some forward-thinking companies have applied the 'too many eggs in one basket' lesson to their facilities and location strategies, splitting their headquarters operations - and risk - among different locations.
Now is the time to analyze supply chains and establish redundancies - smaller suppliers in less risky or less affected regions that could step-up temporarily if primary suppliers are affected by an unanticipated disruption. It's also an excellent time to evaluate real estate footprints and other capital investments. Decide if the company is flexible and nimble enough to react to marketplace shifts and let that guide location strategy decisions moving forward.
A lesson from Y2K
It's a testament to scenario planning and preparedness that Y2K is a footnote - if it's remembered at all. Granted, nobody took it lightly at the time, but this potent would-be disruptor was reduced to a relatively benign historical blip precisely because nobody took it lightly. Business and government partnered, anticipated and planned.
Strong public and private sector partnerships aren't necessarily the rule across the U.S. and around the world, but there is tremendous power when industry and government share responsibility and coalesce around investment, research and planning. With that in mind, an important aspect of any organization's scenario and business continuity planning is gauging the strength of the public/private partnership in the countries, regions, cities and neighborhoods they're considering for their capital investments and in their facility location strategy.
Warren Buffett once said, "In the business world, the rearview mirror is always clearer than the windshield." He didn't follow that up by urging businesses to stop the car and get out. Organizations have no choice but to continue moving forward into an uncertain future. The question is, have we taken the time to prepare for uncertainties?
The Coronavirus, the 2011 Thailand floods and Fukushima Daiichi nuclear disaster, and even the China-United States trade-war didn't grant businesses and governments the luxury of planning for a date several years in advance as did Y2K, but that is precisely why scenario planning is so critical. It may be impossible to have a plan covering every scenario. Still, a company can develop contingency plans and frameworks for mobilizing its organization in the face of any unforeseen, globally disruptive event.

Bob-Hess-Headshot-2.jpgRobert Hess
Vice Chairman, Global Corporate Services
Newmark Knight Frank

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