Editor's Note: Today we are starting something new at the Cafe. With more than six years of content archived here at our site, we thought it might be fun to start mining that trove and share the occasional blast from the past with readers ... many of whom may not yet have been acquainted with us in the old days.
Today's Classic post was first published on July 23, 2009, when we were trying to manage our compensation programs in the aftermath of the subprime mortgage crisis through the uncertain path of economic recovery. While nearly six years have come and gone since then, the reality of planning in the face of uncertainty is -- for all intents and purposes -- here to stay, and the "science" of scenario planning still has a lot to offer.
Enjoy this Cafe Classic!
Compensation planning - like life in general - got a lot tougher this past year or so. And as we move into what has traditionally been the pay budgeting and planning months, many of us are wrestling with where (the heck) to take our reward plans amidst today's economic uncertainty.
Perhaps we can borrow a technique from the business planner's toolkit.
Scenario planning, pioneered by the military in the 1950's and long used by some of the world's largest corporations, involves identifying a small number of "scenarios", predictions or possible paths the future might take, and defining how to potentially respond or adapt to each of them. It should come as no surprise that recent times have brought a new surge in popularity for this particular planning approach.
An article in this week's Knowledge@Wharton, Eyes Wide Open: Embracing Uncertainty Through Scenario Planning, talks about this resurgence and covers some of the challenges involved in doing scenario planning effectively.
From the article:
Trying to gain a better understanding of the trends shaping the competitive environment has always been critical for managers. In the 1970s, scenario thinking first became relatively popular as a structured way to look ahead -- to understand new growth areas, anticipate risks, spot opportunities and build a long-term vision. Perhaps most notably, Royal Dutch Shell used the approach to look more broadly at the trends and developments that could impact the price of oil and develop stories that could challenge management perceptions. Since then, however, companies of all sizes and in many industries have picked up the practice, particularly at times of crisis or dramatic change.
George S. Day, a professor of marketing at Wharton and co-director of the Mack Center, also has witnessed the recent rise in scenario thinking firsthand. "What has changed to make scenario planning so timely? Obviously uncertainty is way up. This is the main driver, because when conditions are stable it's easier to live with momentum and the projections we normally use," he points out. "The challenge is that when things are very uncertain we need to think differently, because what we project based on current momentum may be the least likely outcome. We need to start thinking about the unthinkable scenarios -- and what's new today is people are finally figuring out how to do it well, in an environment with a huge amount of uncertainty."
My point? Simply this question: Are there elements of scenario planning that we - as a profession - should be embracing as we try to position our reward plans to support success in a future that is difficult to predict?
Let's face it. The days of simply plugging a new budget number into our compensation program and rolling it forward with a few tweaks are behind us. Looking forward, we may need a dramatically different process that considers our reward structure against the possibilities the future may throw at us ... and asks questions like:
What are the boundaries of possibility for our organization in the coming year ... and beyond?
What might the possible scenarios mean for how we manage and reward our employees?
What direction should/would we move our reward plans to respond to these realities?
What, if anything, do we do today to ensure we would be appropriately positioned to make these moves, if circumstances demand them?
I'm betting that there are some forward-thinking practitioners out there who've already incorporated questions like these into their compensation planning efforts. The rest of us ... time to learn up and get on board.
Ann Baresis the Founder and Editor of the Compensation Café, Author of Compensation Force, and Managing Partner of Altura Consulting Group LLC. Ann also serves as past President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
Image: Creative Commons Photo "It's about rules and strategy" by pshutterbug