Of Course Nobody Saw Brexit or Donald Trump Coming
Posted by | Fuld & Company
I recently ran a scenario-based strategic planning engagement with a European online entertainment company. In it, we created five future, plausible scenarios that described what the external operating environment could look like for our client in the next five to seven years.
In one scenario, the global entertainment industry underwent massive consolidation as technological advances enabled cheap, on-demand entertainment of all sorts that provided the largest entertainment companies an incredible opportunity. In another, trade wars broke out restricting the free flow of intellectual property, leading to a proliferation of “black market” entertainment operations in which shady operators offered products based on questionable access to content.
Of course, the purpose of scenario planning is not to predict the future, but to be ready for it no matter what it brings. We create a set of plausible future “worlds” as a precursor to strategic planning, enabling our client to take into consideration multiple future conditions – extreme consolidation, industry fragmentation, value-chain shifts, etc. – that it could encounter. Preparedness, not predictability, is the mantra of scenario planning.
What makes a scenario plausible?
As we were creating the scenarios with our client in the fall of 2015, two seemingly implausible developments were occupying our thoughts: a UK exit from the European Union and a Donald Trump presidency. The source of endless jokes between the Fuld & Company project team and our client, we nearly dismissed these two conditions as failing to reach the hurdle of plausibility that would qualify them for inclusion in at least one scenario description.
But, the more we thought about the underlying conditions that could increase the plausibility of these two occurrences, we reconsidered:
In Europe, questions about European unity, brought about by the rise of nationalist parties in several countries, the future stability of the euro, and UK skepticism about the benefits of EU membership made Brexit less of a joke and more of a real possibility, the effects of which our client needed to confront. Similarly, disenfranchisement among white working class voters in the US, upheavals in how candidates reach voters in US elections, and fears in the US about terrorism and immigration suddenly did the same for the possibility of a future President Trump.
We decided to include both developments in our scenarios.
Scenarios lead to plans, not predictions
Today, as our client considers the strategic options that are the main output of a scenario planning exercise, the firm is preparing to operate in a world in which the UK is no longer a member of the EU, and in which other member states consider, or actually pull the trigger, on an exit. It is planning for the political upheaval in the US that a Trump presidency might cause. And it is also at-the-ready, due to scenario conditions considered, for massive growth in consumer demand for its product, rapidly declining costs due to growth in technology access, and for both more and less favorable regulatory restrictions in its key markets.
Was our goal to predict the future – to say with a degree of certainty that the UK will vote to leave the EU?
Of course not. One of the tenets of scenario planning is that predicting the future is impossible. But, was our objective to consider the kinds of precursor events and developments that could lead to a marked change in the external operating conditions our client may encounter? Absolutely.
While obviously significant, in scenario planning, “predicting” that the UK will leave Europe is not the point; the point is what should a firm’s strategy say about an external environment in which a key regional trading bloc with more than 500 million consumers begins to dissolve? That’s the kind of future conditions strategic plans need to take into consideration.