We live in a volatile world. Things come unexpectedly out of left field — if we ever needed any reminders of that, the last year has provided them in spades. From floods and droughts to trade disputes and weird politics, we’ve seen it all. And we haven’t even mentioned the global pandemic yet.
In fact, it can feel like there’s been a headline for everything this year, except perhaps for the one thing that really deserves a headline. Hardly any ink has been spilled on strategic scenario analysis.
Anthony Taylor, managing partner and lead facilitator at SME Strategy in Vancouver, sees scenario planning as a foundational component of any sound business.
In today’s world, his advice is pointed. “You need to be comfortable with uncertainty,” Taylor says. “Scenario planning helps you manage through that uncertainty and to be proactive rather than reactive.”
Scenario planning starts with thinking about the future. “It goes outside of the day-to-day, and outside of time frames you would normally think of,” says Taylor. “If you are used to thinking a season or a year or two ahead, now you can use scenario planning to think five or 10 years down the road and hedge your bets.”
Scenario plans consider the possible outcomes from various scenarios, from worst-case to best-case. Then, by analyzing the impacts and assessing potential management options, farmers and other business owners can be better prepared for whatever comes their way.
“In a context of agriculture today, changes are happening faster and faster, so the ability to predict and react faster is going to help you be more resilient in the future,” says Taylor. “Scenario planning helps you plan things that you do not control by looking at external forces as well as the internal forces that most people only look at when they are planning.”
The challenge for farmers is that there are so many risks, and they can hit the farm in so many different ways. How can anyone possibly plan for them all?
It’s a valid concern, Taylor says, except it misses out on the first key step in today’s smarter scenario planning.
Identify the driving forces
Taylor and his team specialize in guiding businesses through the strategic planning process. They use a four-step approach that begins by identifying the driving forces, or the large shifts and trends that are currently occurring or are likely to occur in the future.
To identify driving forces, Taylor uses a system called PESTLE to look at six areas: political, economic, social, technological, legal and environmental.
Identifying driving forces can best be done by brainstorming, ideally with the whole farm team, and by making sure you take time to think specifically of local, regional, international and industry-specific trends. Also, rate your trends. Are they increasing or decreasing? Are they high-level drivers and shapers, or just a bit of static?
Then try to focus on trends that are likely to occur during the time frame you have chosen for your strategic plan, whether that’s one, two or five years. (There will be a lot of overlap in the trends, which usually cross more than one category.)
Be prepared to be comprehensive in your review at this stage. Consider a wide range of potential risks, including:
- Political trends that affect agriculture such as a government’s stance on immigration or migrant workers, support programs for farmers, federal regulatory changes, or proposed local by-laws.
- Economic issues on the horizon such as currency exchange rates, the possibility of a recession, and fluctuating interest rates and the cost and availability of capital.
- The social category — the propensity of people to do or purchase certain things, and Taylor sees it as an area that is increasingly affecting agriculture as changing consumer preferences ripple along the supply chain. More and more, consumers want food products produced or raised in a way that matches their values, such as non-GMO, hormone- or antibiotic-free, grass-fed or sustainably raised. Others are altering their diets to include more plant-based proteins, while huge numbers of people are purchasing food through online shopping and meal-kit delivery services.
- Technological trends, which can include, but are not limited to supply chain improvements, farming equipment with precision ag tools that collect and analyze production management data, food traceability systems, automated storage systems that control moisture and temperature, social media, and digital advancements including online shopping and direct-marketing opportunities for farmers and other business owners.
- Environmental trends — ones that farmers understand best, but how is climate change likely to have an impact on different agricultural areas in the future? Will there be more droughts, more disease and pest issues? Will global economic disruptions upset world trade patterns?
- Local, regional and global legal issues which can affect the farm business. These include things such as tariffs, market resistance to GMO crops or changes to the minimum wage.
“Identifying driving forces is basically trying to say: What are the most important ones?” says Taylor. “Do I care that teenagers are on TikTok, or am I more concerned with climate change and temperatures rising? We look at trends in terms of increase or decrease because we don’t know what’s going to happen, so if there’s an increase in technological advances, there’s a decrease in cost of production, and if there’s an increase in compensation, there’s a decrease in desire for meat, let’s say.”
What are the critical uncertainties?
By doing a PESTLE analysis, it’s possible to identify hundreds of trends, but the next step is to identify the handful that are your most critical uncertainties.
As an example, pick two issues in agriculture that are definitely trending, such as changing consumer demands and global trade wars. Whatever the critical uncertainty is, look at the extreme at each end of it.
Develop plausible scenarios
In terms of consumers wanting to know where their food comes from or more about production practices or animal welfare etc., one extreme end in that trend is full transparency and the other is no transparency. In terms of global trade wars and tariffs, possible extremes could be a move to a 100 per cent domestic market or a 100 per cent international market.
In the workbook that Taylor provides to clients, these scenarios are expressed as a grid divided into four quadrants that represent four alternate universes for the two critical uncertainties. In the example these would be: one universe with full transparency and domestic only market, full transparency and international only market, no transparency and domestic only market, and no transparency and international only market.
Now that these four possible scenarios have been identified, the team can discuss and record what each of those worlds would look like in broader terms, not yet focusing on the possible impact on the farm itself. They should envision what would happen in society as a whole under those conditions, what sectors or businesses would thrive and do well, and which would struggle.
“One of the other things we have to think about is timeline,” says Taylor. “Let’s say that we picked 2025 and took a time machine to that time, and we were living in a world of full transparency with only domestic sales or a protectionist marketplace; we would want to describe what that looks like for agriculture. We also want to assume that many of the other trends we have identified are going to fall in there somewhere. Just because we’re domestic and transparent is not going to change climate change or worker’s rights or cost of labour.”
Discuss impacts and paths
The final step in the process is to discuss the implications for the farm or business, its people and its stakeholders and figure out how to react to the changes.
“A simple example is if it’s raining that’s an external thing and I can either bring an umbrella or not, but whether I bring an umbrella or not does not change the rain, it’s how I react to it,” says Taylor. “So, we’re not arbitrarily bringing an umbrella, we’re bringing an umbrella because it might rain. First we look at what we don’t control and then we look at what we do control.”
In relation to the example, if it looks like the world is moving towards full transparency and only domestic markets, a business will take different actions today, tomorrow and next year than it would if it was moving towards no transparency and only international markets. With domestic and full transparency, factors like quality, single sourcing, tracking, marketing and storytelling would be important.
If it was full transparency and international, every country’s standards would be under scrutiny and there could potentially be the development of an international standard. “In that environment, there would be so much more competition, so you might compete on, say, quality,” says Taylor. “You might be able to charge premium prices, or you might commoditize, but your market entry status, distribution status and business model would be way different in either scenario.”
The whole point of the exercise, adds Taylor, is to say this is where the world could be in 2025, so, as the business moves through the next five years, the path it needs to take becomes clearer depending on which scenario is emerging to be true.
A few pitfalls to avoid
There are a few pitfalls to scenario planning, and one is thinking that you have to choose one of the possible scenarios and build a strategic plan around it, but in fact, says Taylor, scenario planning is about building awareness of possible situations and outcomes that you could encounter in the future.
In other words, the goal is a strategic plan that is flexible enough to accommodate changes as they happen.
People can also become uncomfortable with the concept of ambiguity and discussing uncertain or improbable situations, but it’s important to remember that scenario planning is a process, not a set-in-stone plan.
The strength of the exercise is dependent upon the people who are brought into it, because the more members of the farm family, employees and the extended team or even supply chain that are involved, the more perspectives they bring and the easier it will be to plan for rapid or unexpected changes.
There’s a parallel process in strategic planning that looks at risks and roadblocks, adds Taylor. Let’s say you want to grow the farm continuously. That’s where Taylor’s questions come in.
“What is going to get in the way of us doing that?” he asks. “Perhaps we don’t have enough customers, markets, supply, space or staff? Perhaps not having enough facilities is not the biggest concern, but not having enough market share is. So, we focus on the market share versus focusing on something else. That’s the strategic prioritization piece, we’re just getting into the ‘how’ part of it. But for the sake of scenario planning, all we’re looking at is outside first and then how we react to it.”
Staying on course
Scenario planning provides the foresight to make the overall strategic plan more flexible and less likely to be derailed because of something unexpected, because it has allowed for those things to potentially happen.
Scenario planning still isn’t a guarantee of anything, Taylor says, but it can help people not get knocked off course when something unexpected does happen.
“Let’s take the example of COVID-19,” he says. “No-one predicted a global pandemic but having the ability to deploy this process and say, here’s the scenarios, either in two years from now COVID will still be around or it will be gone. Half of our suppliers have stayed in business and half are out of business. I am going to use the planning tool for short-term because of the uncertainty, but it doesn’t actually again change anything, it just changes your ability to react to things, so that you can stay in the game, keep your people working and mitigate the uncertainty.” CG
Changes are happening faster and faster,” Taylor says. “The ability to predict and react faster is going to help you be more resilient.”