Planning in a Changing
Environment
Dale D. McConkey
64
Dale D. McConkey is a professor of man-
agement at the University of Wisconsin,
Madison, and the director of the executive
program in the Graduate School of Busi-
ness. Among his publication credits is
"Planning for Uncertainty," published in
the January-February 1987 Business Hori-
ZOIlS.
A fast-changing environment and an in-
creasing number of variables that cannot
be controlled make planning for different
possible outcomes more important n o w
than ever.
Effective planning in the future
will require that managers have
more discipline. It also will re-
quire planning for uncertainty, not
certainty, and the adoption of a dy-
namic rather than a static approach to
planning. While planning has never
been easy, in the future it will become
increasingly more difficult, for several
reasons:
• A dramatic increase in the envi-
ronment's complexity;
• The increasing difficulty of pre-
dicting the future with accuracy;
• The increasing number of vari-
ables;
• The rapid rate of obsolescence of
even the best plans;
• The increase in the number of
both domestic and world events af-
fecting organizations; and
• The decreasing time span for
which planning can be done with any
degree of certainty.
These difficulties are particularly
pertinent in those organizations that
continue to plan for certainty. Cer-
tainty in this context would include
believing that the approved plans will
come true without revisions; that as-
sumptions and forecasts are accurate;
that contingency planning is an un-
necessary exercise; and that the writ-
ten plan is more important than the
planning process itself.
UNCERTAINTY VS. CERTAINTY
ffective planning requires
E managers to plan for uncer-
tainty-not for certainty. In the
past planning for certainty m a d e
sense. Domestic and world econom-
ics were more stable. Change oc-
curred less rapidly. The future could
be predicted with a greater degree of
accuracy. There were fewer uncon-
trollable variables. Product life cycles
were longer; product development
cycles were shorter. Planning was
easier.
But it is now more and more diffi-
cult to predict the future with any de-
gree of accuracy. Thus, planning must
concentrate on uncertainty--in fact,
on multiple uncertainties.
Dynamic Planning to Cope
with Change
Planning for uncertainty requires that
managers subscribe to several prac-
tices that may represent dramatic de-
partures from the way they previously

"The planning approach
must make it as e a s y a s possible for
managers to revise their plans and reach quick
agreement on the changes."
planned. Several of these practices are
discussed below.
More emphasis on planning for
uncertainty. This includes the explo-
ration of alternative scenarios, more
use of selective contingency plan-
ning, and more and better monitoring
of the major assumptions that must
be the basis for all planning.
Better strategic planning. Strategic
planning as used here is synonymous
with major directions. As major
changes occur in the environment, the
organization must make major
changes to adjust to them. The result
of strategy must be to establish the
most favorable linkage between the
organization and its environment.
Better integration of all planning.
All three components of planning
(strategic, long-range, and short-
range) must be carefully integrated to
ensure that each is supporting the
other. Little is accomplished if the best
strategic plan cannot be implemented
because the long- and short-range
plans do not support it.
Resource deployment. Product de-
velopment cycles are becoming pro-
gressively longer, while product life
cycles are becoming shorter. This
contradiction forces management to
continuously review the resources it
has allocated to any particular prod-
uct or service and change them if nec-
essary. If a particular product is no
longer paying its way, management
must be willing to discontinue or
change it to free up resources for de-
ployment to another product or ser-
vice that will earn the desired return.
For example, one major corporation
has an announced policy that as-
sumes all products will have a useful
life of three years. At the end of that
time, the product's performance is
formally reviewed to determine
whether it should be continued in the
line or dumped. This policy recog-
nizes that resources are becoming in-
creasingly scarce and expensive.
Thus, the emphasis in planning is
placed on better resource utilization.
More and better information. The
planning approach must help the or-
ganization collect, process, and con-
solidate more kinds of information.
The increase in both the number of
publics an organization must serve
and its types of objectives make this
essential. If the organization fails to
gain more and better information, it
may not be responsive to the needs
and demands of the various publics.
Better environmental scanning.
Management's chief enemy in the fu-
ture will be its competitive environ-
ment. Because this environment is
becoming increasingly changeable,
complex, hostile, confusing, a n d - -
often---conflicting, all organizations
must become much more sophisti-
cated in environmental scanning.
They need to identify those major ex-
ternal events that can help or hinder
their future, locate the best sources
from which to collect this informa-
tion, and determine the best methods
of assembling the information for
planning and decision-making pur-
poses. This subject will be covered in
more detail later in this article.
Internal to external. Effective plan-
ningAparticularly strategic and long-
Planning in a C h a n g i n g E n v i r o n m e n t
I
65
range planning--requires the com-
pany to first look outside itself and
size up the world it must face. (For
example, a company does not deter-
mine its mission or purpose. This is
determined externally, by the market
and customers.) Only after it has sized
up external opportunities and threats
should a company look at its own
strengths and weaknesses, its ability
to face the outside world.
Marketing vs. selling. All planning
must be market-driven and begin with
the customer. Who is the real cus-
tomer, where is the customer located,
what does the customer want, and
how do we deliver to the customer?
The company exists only to satisfy
customer wants or needs.
More emphasis must be placed on
providing the customer with what he
or she wants. Less emphasis must be
given to trying to get the customer to
buy what the company wants to sell.
More frequent reviews. The rapid
rate of change now requires that each
component of integrated planning be
reviewed (and revised as necessary)
more often than in the past. Figure 1
illustrates one possible schedule.
More convenient revision of plans.
Just as they force plans to be reviewed
more frequently, the increased rate of
change and the increasing inability to
predict the future with accuracy will
force more frequent revisions to ap-
proved plans. For this reason the
planning approach must make it as
easy as possible for managers to re-
vise their plans and reach quick
agreement on the changes. If it be-
comes too cumbersome or compli-
 Business Horizons / September-October1988
I

"By isolating those future

occurrences that would have the most significant
impact on profits, and by making assumptions about them,
management has a base upon which
to begin its planning."

66

to be served). Strategic planning does

Figure 1
Frequency of F6rmal Reviews
Past
Strategic Plan Every Two Years
Long-Range Plan Annually
Short-Range Plan Semi-Annually
cated for managers to make revisions,
they will often fail to do so and the
plans will become obsolete.
Better staff support. Operating
management has the key role in plan-
ning, but organizations should not
expect, their operating managers to
become planning professionals or full-
time planners. Obviously, the major
role of operating managers is to man-
age departments, market and sell the
product or service, and turn out the
product.
Therefore, operating managers
must receive the staff support they
need to accomplish their primary roles
and also plan effectively. The needed
staff assistance includes support in
such areas as the latest planning tech-
niques, environmental information,
financial analysis, and feedback and
control mechanisms.
The remainder of this article will
concentrate on an in-depth discus-
sion of seven useful ways of planning
for uncertainty:
1. Strategic vs. tactical thinking;
2. Strategic management vs. stra-
tegic planning;
3. The use of major assumptior~s;
4. Probability estimates;
5. Selective contingency planning;
Future
Once per Year
Semi-Annually
Quarterly
6. Exploring of alternative scena-
rios;
7. Environmental analysis and
scanning.
STRATEGIC VS. TACTICAL
THINKING
T
he beginning point for dealing
with uncertainty is the mind: a
mind that de-emphasizes the
value of experience and details and
concentrates instead on major con-
cepts and the future. Experience tends
to become less valuable with in-
creases in the rate of change and com-
plexity. Thus, overreliance on
experience can become a costly im-
pediment to change. It must be re-
placed by creativity, innovation, and
totally new ways of looking at the or-
ganization and the world in which it
must exist. A rapidly changing envi-
ronment also requires that managers
make a clear distinction between stra-
tegic planning and long-range plans
and objectives.
As noted earlier, strategic planning
concerns itself with setting major di-
rections for the organization (the mis-
sion, major products/services to be
offered, and major market segments
not involve the setting of objectives,
even long-range ones. Once the strat-
egies have been established, then they
are translated into action through the
tong-range plan--which does involve
the setting of long-range objectives to
achieve the strategies. Until the major
directions have been set, it is fool-
hardy to establish objectives to get
there.
STRATEGIC MANAGEMENT VS.
STRATEGIC PLANNING
he strategic plan is the chief
T means of planning for the ma-
jor changes an organization
must make. Yet even the most tech-
nically perfect strategic plan will serve
little purpose if it is not implemented.
Many organizations tend to spend an
inordinate amount of time and effort
on d e v e l o p i n g the strategic plan,
treating the means and circumstances
under which it will be implemented
as afterthoughts. Change comes
through the implementation, not
through the plan. A technically im-
perfect plan that is implemented well
will often achieve more than the per-
fect plan that never gets off the paper
on which it is typed.
The best strategic plan is not linear:
it is circular, and is continuously eval-
uated and revised as it is carried out.
It concentrates on an ongoing, dy-
namic repetition of three major ac-
t i o n s - p l a n n i n g , measuring, and
adjusting. More than half of all stra-

Figure 2
Implementing Strategy--Making it Happen
Corporate
Culture
Inter-Departmental
Cooperation
Management
Processes
tegic plans do not work out as origi-
nally envisioned. This does not mean
that they fail. It simply means that
they must be modified as they are car-
fled out and experience is gained.
Although strategic planning must
be the beginning point for strategic
management, it is only the bottom
rung of the ladder. If strategic plan-
ning is to cause anything to happen,
it must be accompanied by other com-
ponents of strategic m a n a g e m e n t .
These other components are illus-
trated in Figure 2.
Corporate culture. Any strategic
plan must be consistent with the or-
ganization's culture. A strategic plan
for a bank had been prepared by a
group of external consultants. Al-
though the plan was excellent, its
probability of success was extremely
low. It would have required the bank's
officers to become extremely aggres-
sive and engage in cut-throat prac-
tices with the bank's competitors,
something the officers were neither
able nor willing to do.
Management processes. Manage-
ment processes (budgeting, plan-
ning, m a n a g e m e n t information
systems) must be lined up to make
the strategies happen.
Effective operations. Once again,
Rewards and
Recognition
even the best strategic plan will
achieve little unless the day-to-day
operations of the company are carried
out effectively.
Organization structure. A manage-
ment truism says that structure fol-
lows strategy. However, this truism
is often ignored. Too many organi-
zations attempt to carry out new strat-
egies with the old organization
structure.
Performance appraisal. Most per-
formance appraisal plans measure the
manager's accomplishments over one
year. But the strategic plan may cover
a period of six to eight years. The con-
flict is apparent. The strategic plan
emphasizes long-term performance,
while the appraisal plan concentrates
on short-run performance.
Rewards. The same conflict be-
tween the strategic plan and perform-
ance appraisal is prevalent in the
methods by which most organiza-
tions reward their managers. Most re-
wards are based on performance for
a one-year period.
Interdepartmental cooperation.
Strategies will be better supported in
those organizations that emphasize
total teamwork, with all departments
working closely together to achieve
synergistic results.
Planning in a Changing Environment
I
Organization
Structure
Effective
Operations
67
Performance
Appraisal
MAJOR ASSUMPTIONS
ssumptions are generally de-
A fined as best p r e s e n t esti-
mates of the impact of major
external factors, over which the man-
ager has little if any control but which
may exert a significant impact on per-
formance or the ability to achieve de-
sired results. A manager is faced with
many variables and imponderables
that he can neither control nor predict
with 100 percent accuracy. Because
these variables may influence results,
the manager must formulate an as-
sumption as to what they are and the
degree to which they will affect op-
erations.
Assumptions make planning pos-
sible. Without assumptions it would
be all but impossible to undertake any
planning. One of the criticisms most
frequently made by the unskilled
about profit planning---or any type of
planning, for that matter--is that no
one can accurately anticipate the fu-
ture; therefore, planning must nec-
essarily be a lot of gobbledygook. They
reason that not even the most highly
qualified weather experts can really
know what the weather will be like a
year in the future; that no one can
predict with accuracy when a parfic-
 B u s i n e s s Horizons / September-October 1988
ular product or material will become
obsolete because of advances in tech-
nology; that only employees and their
union leaders can determine when a
strike will disrupt operations; and that
only a fortune teller would be willing
to go on record as to when customers
will switch from plain cigarettes to fil-
ter tips. To these persons any serious
planning belongs in the crystal ball
category.
Without the proper use of assump-
tions, these critics would have valid
arguments. Planning does deal with
the future, and it is not possible to
68 predict with unfailing accuracy when
or how future events will come to
pass. In fact, one of the assumptions
of most skilled profit planners is the
bold assertion that no assumptions
used in their profit plans will take
place exactly as formulated. One very
successful company actually incor-
porates in the introduction to its an-
nual profit plan the following
statement: "Implicit in the planning
process is the fact that events in Year
X will certainly be different from what
is predicted. Inevitably, circumstan-
ces will require changes in the plans,
and these changes must be orderly
and planned. Plans are less important
than planning."
The Pu.rposes of Assumptions
Essentially, assumptions serve three
useful purposes in good planning.
First, assumptions permit the plan-
ning process to begin and progress.
Without assumptions, there would be
so many uncertainties that one would
not know where to begin. By isolating
those future occurrences that would
have the most significant impact on
profits, and by making assumptions
about them, management has a base
upon which to begin its planning. For
example, an employee strike always
is a possibility when a contract is due
to expire. Unless management makes
a definite a s s u m p t i o n about the
chances of a strike, the situation would
be so nebulous that planning would
be impossible.
If, after evaluating all aspects of its
labor-relations picture to the best of
its ability, management is able to con-
clude that there will be no strike,, it
can begin the planning process. If
management concludes there will be
a strike, the planning process can still
begin because there is a definite as-
sumption on which to build plans.
Wishy-washy thinking and the re-
fusal of management to take a stand
hampers effective planning. In this
particular example, if the probability
of a strike occurring is approximately
the same as the probability of one not
taking place, m a n a g e m e n t should
structure alternative plans to cover
both possibilities.
Assumptions also serve as checks
on the validity of plans. Selecting ap-
plicable assumptions and undertak-
ing a critical analysis of the probability
that each assumption is as accurate as
possible takes a considerable amount
of guesswork out of the planning
process.
Most companies today are faced
with increasing labor and materials
costs that, unless offset in some way,
will decrease profitability. W h e n
making its plan, a company makes
certain assumptions about its ability
to offset these costs; a frequently-used
assumption is that increases in the cost
of materials and labor will be com-
pensated for by price increases. Be-
fore a c o m p a n y can make this
assumption, however, it must thor-
oughly evaluate such factors as its
present selling price, the possibility
of consumers switching to a lower-
cost product (for example, the classic
switch from metals to plastics), and
all other ramifications a price increase
might bring. In this way management
can add another check on the validity
of its planned profits.
Finally, once the goal-setting pro-
cess has been completed and the tar-
get year has begun, assumptions serve
as continuing checkpoints for possi-
ble required revisions to the plans. By
having these a s s u m p t i o n s clearly
spelled out, management always has
before it the basis on which the plans
were constructed. If during the year
actual events differ from the assump-
tions, management knows immedi-
ately that it must take action to keep
its strategies, objectives, and resource
allocations realistic and current.
Forming Assumptions
If management were required to make
assumptions about everything that
I
might happen in the future, it would
face an insurmountable task. Fortu-
nately, such detail is unnecessary.
A s s u m p t i o n s must be m a d e only
about those major factors that will ex-
ert significant influence on the oper-
ation during the period covered by
the plan. Thus, the first task facing
management is to determine the spe-
cific factors that might significantly
influence its particular business.
Managers face a tremendous task
when they try to isolate the factors
affecting their operations so applica-
ble assumptions may be made. This
soul-searching results in a definitive
statement of the significant factors on
which the success of the operation is
or will be based.
The formulation of a s s u m p t i o n s
should proceed in orderly steps, such
as these:
1. Isolate those future events that
are most likely to have a significant
effect on the Company's business;
2. Evaluate as accurately as possi-
ble the probable effect of these events;
3. Determine whether an assump-
tion is necessary; if so, formulate the
assumption;
4. Record all assumptions;
5. Continuously track the validity
of all assumptions;
6. Revise the a s s u m p t i o n s and
plans and take corrective action when
assumptions prove to be incorrect.
A necessary adjunct to contingency
planning is the use of assumptions as
monitoring and control devices.
Monitoring Assumptions
As noted earlier, it would be danger-
ous to regard assumptions as accu-
rate; they are only best p r e s e n t
estimates. Many of them will prove
invalid. For this reason, it is necessary
to continuously monitor their validity
during their target period.
For example, assume a company
used as the basis for its Plan A an
assumption that during the next tar-
get period no process or p r o d u c t
would be developed that makes ob-
solete the company's present prod-
ucts and services.
The a s s u m p t i o n was formulated
utilizing all data available at the time.
But while the company is carrying out
Plan A, a competitor develops a new

"Although one alternative
must be selected as the most realistic and
worthwhile one (Plan A), the other major alternatives cannot
be rejected. They may well serve as contingency
plans if Plan A proves to be unrealistic
or not worthwhile."
process that makes the assumption
invalid. This alerts the company that
its Plan A may be unrealistic and that
the implementation of its contingency
plan may be in order.
Another example is provided by an
oil company, which assumed that the
per barrel price of oil during 1986
would average $20 to $24. But 1986
saw the per barrel price of oil plum-
met below the $15 mark. Again, the
fastest possible implementation of the
contingency plan was necessary if the
company was to retain any semblance
of its original profit goal.
PROBABILITY ESTIMATES
n increasingly useful tech-
A nique, adopted by the man-
a g e m e n t s of m a n y com-
panies, is to make probability esti-
mates in conjunction with assump-
tions.
Reduced to the barest essentials,
probability estimates are manage-
rnent's best judgments, expressed in
either quantitative or relative terms,
of the degree to which assumptions
are likely to come true. They aid in
the decision-making process by pro-
viding management with a more def-
inite evaluation of events that may
occur, so the pros and cons of one
event may be weighed against those
of another. Probability estimates can
be expressed in two ways. In the
highly quantified version, the prob-
ability is expressed in terms of per-
centages; for example, there is a 10
percent or a 90 percent probability of
a strike. Relative terms are used in the
second version; for example, there is
a high or low probability of a strike.
The value of probability estimates
can be shown by an example. Assume
that a merchandise manager can save
$1 million by signing a contract now
to buy a large quantity of high-fash-
ion dresses. As these dresses are sea-
sonal items, any work stoppage in the
manager's company could cause con-
siderable loss. In view of the possi-
bility of a strike next year, the manager
is faced with a decision that hinges to
a large extent on the probability that
the strike will take place. If the prob-
ability of the strike is 90 percent, the
decision will be quite different than if
the probability is 25 percent.
Contrast the situation with the use
of probability estimates with one the
decision maker would face if they
were not used. Under the latter con-
ditions he would have two pieces of
information to guide his decisions: a
large a m o u n t of m o n e y could be
saved, but there could be a strike,
which would force a loss. Given only
this information, the decision maker
does not know whether to take the
risk and sign the contract. Probability
estimates can help minimize the risk.
It is often beneficial to assign a con-
fidence factor to the probability,
particularly with highly critical as-
sumptions upon which major invest-
m e n t decisions may be made.
Confidence in this context refers to
the amount of confidence the man-
ager has in the data on which the
Planning in a ChangingEnvironment
I
69
probability estimate is made. For ex-
ample, assume a manager assigns an
assumption a high probability but can
find little data to justify the high prob-
ability. He would have a low confi-
dence factor. Usually, the lower the
confidence factor, the more important
it becomes to continuously monitor
the assumption and be prepared to
implement a contingency plan.
SELECTIVE CONTINGENCY
PLANNING 1
' a n y organizations spend
M weeks exploring alternative
.courses of action. They may
explore six or eight major approaches
to the future. Then, following all of
these explorations, the company may
select one plan as the best. The other
five to seven plans are all but forgot-
ten, as the company concentrates its
remaining effort on putting the final
touches on the best plan. The best-
plan approach might work if we could
plan for certainty, but we cannot.
Although one alternative must be
selected as the most realistic and
worthwhile one (Plan A), the other
major alternatives cannot be rejected.
They may well serve as contingency
plans if Plan A proves to be unrealistic
or not worthwhile. Planning must de-
velop alternative approaches, not just
one, for dealing with major uncer-
tainties. Thus, contingency planning
must assume a greater role if plan-
ning is to achieve the most desirable
results.
 Business Horizons / September-October1988
I
The Essence of Contingency
Planning
The basic premise of contingency
planning is that the organization plans
ways to deal with unfavorable and fa-
vorable events before they occur. For
example, let's a s s u m e a c o m p a n y
wants to earn $30 million before taxes
during a certain period of time, and
that achieving this pretax profit de-
pends on the firm's generating $300
million in revenue. Both the profit and
sales revenue are incorporated in Plan
A.
70 Next, let's assume it becomes ap-
parent that the long-term sales fore-
cast will be 10 percent to.o high. If the
company doesn't have a contingency
plan, the usual result is a flurry of
knee-jerk decision~, frequently based
on expediency, to cope with the rev-
enue shortfall. Probably the worst
time to make an effective decision is
during the pressure of an immediate
emergency. Well-thought-out, long-
range plans can be seriously weak-
ened when short-range, expedient
decisions are implemented.
Contingency planning, in contrast,
would identify in advance the unfa-
vorable sales forecast as a critical sub-
ject and establish specific action plans
to cope with it. And management
would be able to implement the con-
tingency "plan immediately, thus fa-
cilitating faster corrective action.
Examples of Contingency Subjects
Although most contingency planning
tends to emphasize unfavorable
events, care should be taken not to
exclude favorable events upon which
the company can capitalize. Manage-
ment's purpose is to improve the
company's future, both by minimiz-
ing threats and by optimizing bene-
fits. Below are several examples of
positive and negative subjects for
contingency planning.
Replacing a competitor. A com-
pany's market intelligence reveals that
there is a high probability that a com-
petitor may drop out of a particular
market. In this case, the company
should prepare a contingency plan
detailing how much of the market it
wants to capture; how it can be first"
to market; its backup manufacturing
Figure 3
Coping with Unfavorable Sales Forecasts
Trigger Point
Cumulative revenue forecast
falls more than 6% below
plan
Revenue forecasts for
total year fall below 90%
of plan
Revenue forecasts for
total year fall below 85%
of plan
capability; its advertising approach;
its sales and marketing organization;
and the amount and sources of money
required.
Negative sales forecast. This is
probably the most popular type of
contingency planning. The reason is
obvious. The company will suffer a
profit loss from low sales, but it
doesn't want to incur additional losses
by carrying expenses that could be cut.
Figure 3 shows common methods of
coping with unfavorable sales fore-
casts.
Sales of new products. Even with
the most sophisticated market re-
search, the ultimate sales of n e w
products are often extremely difficult
to predict. The worst thing that could
happen would be to have a sizable
increase in sales demand that had not
been planned for and could not be
filled. Therefore, it is usually desira-
ble to have an approved contingency
plan that predicts sales will be one or
two levels above that provided for in
Plan A.
Disasters. Contingency planning of
this type has increased dramatically
in recent years. Subjects include loss
of several key executives in a common
disaster; destruction of manufactur-
ing facilities; seizures of food or drug
products by the Food and Drug
Administration; kidnapping of key
officials; loss of key computer capa-
bility; expropriation of properties;
natural disasters; takeover attempts
Action
Freeze hiring
Lay off indirect factory workers
Hold departmental spending to
95% of budget
Cut advertising spending
Lay off direct factory workers
Lay off clerical employees
Defer nonessential travel
Deeper cuts in advertising and
departmental spending
Deeper cuts in all categories of
employees
Lay off supervisors
Freeze wage and salary increases
Defer all management development
activities
by unfriendly rivals; unfavorable
publicity; attacks by special-interest
groups; and the loss of patent pro-
tection.
Technological/product obsoles-
cence. A company can never overlook
the possibility that in a rapidly chang-
ing world its products or technology
may become obsolete. Thus, contin-
gency plans should be considered for
both possibilities.
Major assumptions. As noted ear-
lier, any major assumptions used in
the company's plan should be ex-
amined. Enlightened planners rec-
ognize that assumptions are only best
present estimates at the moment and
that a s s u m p t i o n s are not accurate
(many will prove to be invalid). Yet,
we must use them as the foundation
of the endeavor to manage the future.
Thus, the organization must be pre-
pared to respond as quickly as pos-
sible when a key assumption proves
to be incorrect. One of these re-
s p o n s e s is through w e l l - p r e p a r e d
contingency plans.
Best, Worst, and Most Likely Cases
This approach to contingency plan-
ning recognizes the difficulty of ac-
curate predictions and the resulting
need for developing alternative fu-
tures.
Under this approach the organiza-
tion defines and lists all major vari-
ables that may affect its planning.

"Management must know what
major changes are occurring and when to be
able to deal with them. An external data base is a must
when planning for uncertainty."
These major variables are then used
to construct plans at the following
three levels of performance:
1. Best--the most optimistic plan,
assuming that the major variables af-
fected the organization favorably;
2. Most likely--the plan manage-
ment believes is most likely in light
of the major variables;
3. Worst--the least optimistic plan,
assuming the key variables affected
the company unfavorably.
ALTERNATIVE SCENARIOS
nother approach to planning
A for uncertainty is to explore
alternative pictures of what
the future may hold for the organi-
zation. Once completed, these scen-
arios are used as the basis for
planning.
Alternative scenarios are illustrated
by the following example from one of
the states. It endeavored to picture its
situation from 1995 to 2000:
S c e n a r i o l m n o major change. State
government will continue much the
same as at present in programs and
services provided. Growth or decline
will be based on population.
Scenario 2---county dominant. State
government will decline, with many
of its p r e s e n t functions being per-
formed by the county. The state's em-
phasis will be on providing services
requiring extensive intercounty co-
ordination (infrastructure, natural re-
sources, law enforcement).
Scenario 3--state dominant. The
state will emerge as the dominant
force, with many federal functions re-
turned to the state. Funding will flow
from the federal level to the state level
but will lag in relationship to the ser-
d
vices returned.
Seenario 4 n o d o m i n a n c e . There
will be no clear pattern of dominance
among federal, state, and county gov-
ernment. The taxpayer will become a
more rational allocator of funds, and
a nontraditional approach will deter-
mine which of the three provides what
services.
Scenario 5--globalization. Inter-
national events and economics will
have the major impacts on economic
and political development. The state
will become a member of the world
rather than one of 50 states. The in-
fluence of the federal government will
take a back seat to that of the world.
Scenario 6--cafeteria approach.
Enterprise funds will become the
dominant form of funding. Users will
receive services on a per-use basis
(airport landing and departure fees,
garbage collection, transit). Revenues
from taxes will be used primarily for
social welfare.
Once these alternative scenarios
have been developed, they serve a
threefold purpose:
• They permit the ranking of each
to determine which are the most
probable scenarios (of the six listed
above, it may, be decided that Num-
bers 1, 3, and 5 are the most realistic
ones, in that order);
• They serve as the basis of the or-
ganization's detailed planning for each
scenario. In the above example, the
organization would probably plan
Planning in a ChangingEnvironment
I
71
specifics for implementing Numbers
1, 3, and 5;
• Each of the most probable sce-
narios serves as a contingency plan if
the other scenarios prove to be un-
realistic or not worthwhile (Numbers
3 and 5 will be ready to implement if
Number 1 proves to be impractical).
ENVIRONMENTAL SCANNING
AND ANALYSIS
' a n a g e m e n t must k n o w
M what major changes are oc-
.curring and when to be able
to deal with them. An external data
base is a must when planning for un-
certainty.
The external e n v i r o n m e n t has
changed significantly in the past few
years for all organizations. Formerly,
a company had to track changes in
only a few areas:
• Competition;
• Customers;
• Society;
• Politics;
• Economics (regional and na-
tional).
Now the same company must also
monitor the impact of the following:
• Employee needs and values;
• World economics;
• World events (nationalistic in-
dustrial policies, competition, terror-
ism, and cartels and consortiums);
• Special-interest groups;
• Regulatory bodies;
• Technology;
• Suppliers.
For example, what U.S.-owned in-
ternational airline would have pre-
 Business Horizons / September-October1988
m
dicted, even recently, that one key,
indirect competitive effect would have
been spawned by international ter-
rorism, which encourages U.S. citi-
zens to fly on foreign carriers and to
vacation in Eastern bloc countries to
which U.S. carriers don't fly? What
domestic air carrier predicted that the
strong dollar would have caused U.S.
citizens to vacation overseas? H o w
many manufacturing and sales com-
panies foresaw the need to transfer
production offshore to remain com-
petitive? H o w many companies with
interests in South Africa predicted the
72 groundswell of adverse public opin-
ion they would encounter in the U.S.?
Who could have anticipated that Ja-
pan's relaxed approach to corporate
combinations and cooperation would
result in tougher competition for U.S.
companies more constrained by U.S.
antitrust laws?
What to Monitor
Naturally, no organization can mon-
itor everything that may occur in the
environment. Such monitoring would
result in a tremendous expenditure of
effort and the collection of volumes
of useless data. Thus, each organi-
zation must do the following:
• Identify the kinds of events that
would exert significant influence on
the organization;
• Determine where the necessary
information is located and the best
method of collecting it;
• Continuously collect and evalu-
ate the pertinent information and
provide it to the appropriate man-
agers for use in establishing plans and
revising as necessary.
p flanning effectively for change
requires the collection and
analysis of the information
(particularly on the external environ-
ment) required to determine when
changes are occurring; the formula-
tion of major assumptions to make
the future more manageable; the de-
velopment of alternatives to help en-
sure that all major future possibilities
have been considered; the selection
of the most probable courses of action
for the future; and the planning of
contingency actions that will be im-
plemented if the most probable plan
proves to be unrealistic or not worth-
while. The real key to planning for
uncertainty and change must be to
accept the premise that the planning
process is more important than the
written plan, that the manager is con-
tinuously planning and does not stop
planning when the written plan is fin-
ished. The written plan is only a snap-
shot as of the moment it is approved.
If the manager is not planning on a
continuous basis--planning, meas-
uring, and revising--the written plan
can become obsolete the day it is fin-
ished. This obsolescence b e c o m e s
more of a certainty as the increasingly
rapid rate of change makes the busi-
ness e n v i r o n m e n t more uncer-
tain. []
1. Certain parts of the section on contin-
gency planning were adapted from the au-
thor's article, "Planning for Uncertainty,"
Business Horizons, January-February 1987, pp.
4045.