Today’s operating environment calls for a different approach to preparing for the future.

Chance favors the prepared mind,” wrote Louis Pasteur, the French biologist and one of the world’s greatest benefactors of humanity.

Prepared minds are essential to deal with the myriad of uncertainties inherent in our future operating environments. However, today’s credit union operating environment makes preparation difficult as it is characterized by economic volatility, diverse consumer demands, intense competition, unprecedented technological acceleration and pervasive regulatory change.

Many credit unions continue to address these rapidly changing and uncertain futures with traditional strategic planning approaches and methodologies. They use trend analysis and forecasting techniques to identify point estimates of what the future will look like in the next three to five years and build the best set of strategies for addressing that future. But the strategic planning approaches that have worked well in the past are of limited relevance in our world today. What’s needed is a planning approach that addresses the environmental dynamic associated with phenomena of “new day, new uncertainty and new challenge.”

Credit union leaders must prepare for the future by considering a broad array of possible scenarios related to how the future may unfold, developing a set of appropriate responses and monitoring real-time events against the future scenarios.

What ifs
Scenario planning results in the creation of three or four different stories, or alternative futures, about your credit union. These scenarios are developed as stories based upon a careful review of significant trends in the current environment and the driving forces of change associated with those trends.

Scenario planning can be a powerful and positive integration of left- and right-brain thinking and can bring your entire team closer together. Empirical data and information, analysis and sequential solutions are still very important in scenario planning. At the same time, the comparative freedom within the creation of the scenario stories tap the muse and connect the planning team and their audience in an emotional engagement. This feeling enhances the bottom-line thinking and balance upon which most people in credit unions find their professional common ground.

The wide-angle nature of the process opens up a much broader and more focused view of possible futures. Scenario planning complements and enhances the more classical models of strategic thinking that the majority of credit unions attempt every few years and invigorates the annual business planning/budgeting approach.

Understanding the uncertainties in the future environment is the foundation of scenario planning. Planning team members should tap their own research ability as well as that of experts to arrive at consensus on risks, uncertainties, challenges and opportunities facing the credit union. Boldly forecasting the impact of powerful and driving environmental forces (such as rising interest rates, field-of-membership changes, cost of operations, delivery choices or competition) will enable your credit union to understand those forces of change as they unfold rather than after the fact. Action plans designed to ensure the credit union’s ability to cope with these changes need to be developed as a result of the scenarios.

Scenario planning gained respect as a planning methodology in the 1970s when it helped Royal Dutch/Shell anticipate a future in which oil producers held the power in the oil industry. As a result of scenario planning, the company was better able to respond to the OPEC embargo than its competitors.

Scenario planning brings together knowledgeable individuals from both inside and outside the organization to discuss information on the external forces of change and trends, identify critical issues, drivers of the trends, key success factors in addressing those trends and the relative likelihood of their occurrence. Using this process, a credit union can identify a set of scenarios that could possibly emerge over the next five to 10 years.

These scenarios serve as the basis for creative preparatory thinking and solutions. Scenario planning and analysis should include scenarios that would have a significant impact on the organization if they materialized—no matter how unlikely.

What if Enron went away
In Paul J.H. Shoemaker’s book, “Profiting From Uncertainty: Strategies For Succeeding No Matter What The Future Brings,” a scenario planning process is described that was conducted for Enron FCU (now called StarTrust FCU) in 1999 by Decision Strategies International.

Jack McAdoo, the credit union’s president, and his senior management team were asked by the DSI consultants to envision the demise of the sponsoring company, Enron. They entertained an unlikely scenario, titled “Starting Over,” in which the then-seventh largest U.S. corporation in the Fortune 500 literally went away. Astonishingly, as it turned out, Enron filed for bankruptcy in December 2001. And although the credit union was deeply impacted by significant withdrawals, it was better prepared for the crisis than it would have been if it had never considered “starting over.”

So, scenario planning can help credit unions prepare for the future in the following ways:

1. Engaging in a thorough environmental scanning process: Member surveys, demographic data, competitive intelligence, cultural trends, the view of experts and more need to be brought together by the planning team to enhance the gut view that so many people bring to planning.
   
2. Helping to identify opportunities: Scenario planning has traditionally been used to help identify threats to the credit union. But it can also be used in a much more entrepreneurial fashion as a methodology for uncovering opportunities and innovation; e.g., for identifying cooperative opportunities and ventures with other credit unions.
   
3. Using stories to describe uncertainties: Scenario planning uses an intuitive process to describe the uncertainties a credit union may be confronted with. The scenarios are described in narrative form as stories that paint a vivid picture of alternative futures. This narrative format facilitates not only a rational understanding of the future, but also provides an emotional connection with possible future outcomes. Scenarios also drive the imagination beyond what is possible with purely intellectual exercises and allow the participants to see a wider range of possible futures.
   
4. Promoting creativity and flexibility: There is a cybernetics principle which states: The part of the system that has the greatest flexibility will govern the system. Scenario planning provides a way to unleash the participants’ creativity and imagination in identifying the full range of uncertainties that the credit union may face. This process can lead to flexibility in the formulation of a variety of outcomes that might result from a precipitating event.
   
5. Enhancing implementation: Your credit union will be ready for even the toughest of times. Too often we plan for the best and are immediately confronted with the need to make course corrections and implement contingency plans that can put the organization into an operational and emotional tailspin. By having action plans developed for many possibilities, you are prepared—with slighter refinement of tactics and resources—to act.

Be prepared
Uncertainty is the word that characterizes our operating environment today. We find our safe havens in our families, in our faith, in our communities and in our work. It is the latter in which we in credit unions find some certainty of purpose. While each of us receives different levels of reward in our work, it is safe to say that we want to make the lives of our credit union’s members and our colleagues better.

In that spirit of leaving a legacy, our credit unions deserve to thrive during our careers and long after we’ve moved on to another place in our lives.

Scenario planning is not a panacea, but by carefully studying the environment, forecasting the driving forces of change, writing the scenario story and developing action plans to address the change, we will be better prepared to deal with the future.

Thomas C. Davis heads Davis & Co. (www.daviscompany.net), a management consulting firm. John Parsons is EVP at Mission FCU in San Diego, Calif.