The very first oil-price scenarios prepared by this duo were sent to senior executives by mid-1971. Then, together with his new colleague Henk Alkema, he began to develop long-term outlooks in the form of alternative futures. Newland started by delivering a “Year 2000” study report. Under the leadership of Newland and Davidson, who became Shell’s first overall head of planning in 1967, the “futures” operation began to take shape. His appointment marked the start of a remarkable and still ongoing experiment in using scenario planning to engage with an uncertain future. “I was placed in a little cubicle on the 18th floor and told to think about the future, with no real indications of what was required of me,” Newland recalls. Jimmy Davidson, the head of economics and planning for Shell’s exploration and production division, tapped the company veteran Ted Newland to start an activity called Long-Term Studies at the London headquarters. Things have gone much better for another Shell initiative that was begun in 1965, albeit with far less fanfare. But before long, Shell’s top executives realized that many of the commitments they had to make extended well beyond UPM’s six-year time horizon-and that even within that horizon, UPM tended to get a lot wrong. This kind of rational, model-based financial forecasting was very much in vogue in the 1960s. In 1965 Royal Dutch Shell put into service what it called the Unified Planning Machinery (UPM), a computer-driven system meant to bring more discipline to the company’s cash flow planning. Otherwise, there’s always the danger that quantitative models will hide assumptions and constrain thinking rather than refine it.īecause scenarios follow a rhythm distinct from the annual strategy cycle, they allow an organization to see realities that would otherwise be overlooked. And they need some quantification to be credible-but the numbers must flow from the stories, rather than the other way around. They must also be relevant, not simply disruptive and challenging. They create a safe space for dialogue and for acknowledging uncertainty. They must above all be plausible, with a logical story line, in order to encourage intuition and judgment. They identify several principles that both define the process at Shell and help explain how it has survived and thrived for so long.įor instance, Shell scenarios are stories, not predictions, and are designed to help break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present. The authors interviewed almost every living veteran of the Shell scenario planning operation, along with top Shell executives through the years. Shell’s practice has now survived for almost half a century and has had a huge influence on how businesses, governments, and other organizations think about and plan for the future. Noting that the basis of strategic foresight aligns with the microfoundations of dynamic capabilities, this paper integrates research on individual decision-making with firm-level perspectives to suggest a new theoretical approach to managerial judgment under uncertainty.In 1965, a time when quantitative, computer-driven planning was very much in vogue, Royal Dutch Shell started experimenting with a different way of looking into the future: scenario planning. That is the premise of strategic foresight methods like scenario planning, yet such methods have struggled to find theoretical purchase in the general management literature. This paper argues that, just as we learn from the past by imagining counterfactuals, so too can we learn from the future by simulating experiences-a process that reduces bias and renders us more perceptive, flexible, and adaptable to environmental change. Nevertheless, analogical reasoning suggests how managers might better respond to uncertainty. Even if one relaxes this conclusion, acknowledging “degrees of uniqueness,” analogy remains an unreliable guide because it triggers biases that encourage the adoption of difficult-to-change hypotheses about the future. However, from a Knightian perspective, uncertainty precludes analogy because such situations are unique. Analogy is thought to help managers make sense of novel situations through comparison to past experience. Formulating strategy under uncertainty is a central challenge facing the modern firm. This paper proposes to treat strategic foresight as a dynamic capability, providing a new theoretical lens on managerial judgment.
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