As part of my work with Dan Rasmus at Microsoft, we're revisiting the scenario planning framework we developed in 2003 (as explained in our book, Listening to the Future) in light of current events. The following few posts will outline my own "unofficial" (e.g., not Microsoft-sanctioned) view of potential outcomes to the economic crisis. This post will explain the process and lay out my assumptions.

Scenario Planning 101

As former Defense Secretary Donald Rumsfeld once observed, "there are known unknowns and unknown unknowns." Both of these complicate the planning process, as Rumsfeld found out firsthand, but at least with "known unknowns," you can construct some contingency strategies in case you are not, you know, greeted as liberators, even if that was the plan going in. Scenario planning tries to identify critical uncertainties: factors where an unexpected outcome could lead to dramatically different future circumstances. The goal is then to construct a series of "what-if" questions to flesh out a finite set of plausible stories that describe the destinations at the end of each fork in the road.

Good scenarios should tell a story, and also answer questions that the scenario-builder(s) may not have considered at first. For example, a scenario built on good social/political/economic assumptions should be able to tell you whether you will be driving a flying car  or riding a donkey in that version of the future, even if transportation wasn't one of the initial conditions being investigated.

Critical Uncertainties

These are the two "known-unknowns" that define the poles of my scenario matrix. That is, I suspect the disposition of these questions will define the characteristics of the next 10 years, but I do not want to assume an outcome for either of them:

Economic circumstances - will the downturn continue for a long period, leading to slow and/or poorly distributed global growth, economic hardship, continued defensive investments, and disputes over who gets what resources... or, will a recovery happen relatively quickly, leading to a restoration of confidence, new opportunities and new innovation

Leadership mode - will large organizations such as big businesses, governments, central banks and powerful institutions dominate the decision-making process, or will control devolve to self-organized communities, insurgent groups, and other "outsiders" to the traditional process?

Driving Themes

Driving Themes are forecasts of trends or dominant events that we can reasonably expect to happen within the timeframe of the planning project, based on analysis of current data. They include things like demographics, technological innovation in particular areas, policies that governments or businesses may try to pursue, and changes to the culture. The themes themselves are the product of informed speculation, and may not be 100% accurate, but what's really important is how the character of the themes changes depending on the outcomes of the critical uncertainties. For example, the prospect of a large youth population looks very different in a world where economy recovery is rapid and robust, versus one where growth is sluggish.

Part of the process of generating the scenarios is running the driving themes through the wind-tunnel of the critical uncertainties to figure out the specifics of each possible future. That sounds abstract right now, but it will be clear in future posts how it actually works.

Here are the driving themes - e.g., my best guesses about stuff that might happen --  that I identified for my scenario-development process:

Industrial-age institutions face the moment of truth as economic circumstance make old models increasingly unsustainable. Do they exhaust their resources fighting against change, resist necessary reforms, and use their local political leverage to extract subsidies? Do they reinvent themselves? Do they accommodate change or get acquired by rising insurgents? Or do they simply collapse, leaving a yawning vacuum and enduring economic devastation?

More of the world gets connected - increases in broadband, wireless and mobile connectivity, plus the falling prices of powerful new devices, brings information within the reach of unprecedented numbers of the world's population. Does this lead to greater innovation, disruption of traditional social/economic power structures, political upheaval?

The demographic divide between Old World and Young World widens - aging populations in Europe, Japan and Russia place unbearable strains on health and pension systems, just as regions in South Asia, Africa and Latin America start reaping the "demographic dividend" of billions of working-age Millennials. Will young populations lead to prosperity or increased aggressive nationalism? Will aging countries wither away or open their borders?

Governments press strong regulations on businesses and consumers to promote environmental and energy imperatives, fair trade and labor practices, or subsidies for preferred industries. Is the effort coordinated and effective, or does it break down? Do better methods of regulation emerge from networks, via transparency and reputation systems?

The global creative class coheres, united across borders by technology and shared values. Is it a force for innovation, discredited by malfeasance and scandal (e.g., financial analysts) or bogged down in a culture war against nationalists, traditionalists, and competing economic interests?

The entire world of beliefs and cultures get maximum exposure as technology connects like-minded people, allows religious sects to proselytize, and opens formerly-cloistered communities to wider scrutiny. Do new ideas and beliefs create new sources of inspiration, or does increasing fundamentalism make compromise and pragmatic dialogue impossible?

Companies adapt to sophisticated consumers and invest heavily in technologies and practices to engage in dialogues, accept input via public networks, deliver customized products and new delivery models, and manipulate the information space using better marketing techniques. Do consumers embrace their new responsibilities, or was there hidden value in the mass market model after all?

Social networking and collaborative capabilities reach the saturation point - information and relationships are fluid and accessible everywhere, all the time, on every device. Old industries like print journalism and publishing die away. Does something better replace them, or do the old structures of linear knowledge simply disintegrate?

Technology penetrates the physical world (via sensors, GPS systems, RFID, etc) - will it provide greater transparency or greater centralization of control and information?

Next: The scenarios.