Plan for multiple futures with Scenario Planning: Lance Mortlock on how to be Disaster Proof

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Loop.Com hello, I'm Bob Gourley, the Chief Technology Officer of OODA llc. Today on the oodacast, Lance Mortlock. Lance is a senior strategy partner with Ernst and Young. Lance is the author of the book Disaster Scenario Planning for Post Pandemic Future Futures. Lance, welcome to the oodacast.

Thanks for having me, Bob.

Yes. What a great book. I want to talk in more detail about it shortly, but first I wanted to say one reason I really like it is you write from the perspective of a practitioner. You are a practitioner skilled in scenario planning and strategy support. And I really like that about the book.

Yeah, that's certainly the way I wrote it. I wanted it to be one of those books that anyone could pick up and, and really understand and apply. I think it's a book that CEOs, board members, strategists, consultants, planners, all kinds of people can pick this up and hopefully get something out of it. So that was certainly the intent.

Well, I think you hit the nail on the head. You really did. Well, I think it's a great read from a practitioner's perspective. Lance, before we get into that, can you give us a bit of your background? How did you get into this world of support to scenario planning for global corporations?

Yeah, sure. So my, my background is 20 years as a strategic advisor with big, medium and small organizations all over the world. As you can tell from my. My funny accent, I'm a, I'm a Brit originally, but been living in Canada for the last 10 years and as a strategic advisor now with EY. I've been with EY for the last 10 years. I spend my days working with clients on complex issues, complex strategic issues, strategic planning, future thinking, scenario planning, and then I guess the other part of my background. I'm also a visiting professor at the business school here in Calgary. And then I spend a lot of time writing and publishing thought leadership on topics like artificial intelligence and oil and gas. The DNA of the Chief Strategy Officer, Business resilience, Cost excellence. I love business and I love helping clients solve problems. So that's certainly where I'm coming from.

Great.

About the book, Lance, I notice right at the beginning, the first quote in the book is by a guy named Peter. I'm sorry, Pierre Wack. Who is Pierre Wack? And why did you choose to start your book by citing him?

Yeah, there's a, there's a couple of reasons for that. So Pierre Wack used to be an executive at Shell. And he was one of the, you know, founding fathers of scenario planning at Shell. You know, he has this sort of famous quote, there are the known knowns, the known unknowns, and the unknown unknowns. And sort of thinking about the future in that perspective is really interesting. The other reason that I chose to kind of start with Pierre was I actually started my consulting career working with Shell in Europe in their integrated planning team. And so I, very early on in my career, had kind of firsthand opportunity to see the power of this kind of thinking in a large corporation. And that stayed with me over the last 20 years.

You know, in digging into Pierre Wack, I noticed that in his early days, his early career of support to strategy and scenario planning, he met with a famous DoD security planner named Herman Kahn, who helped the US strategists figure out what to do in the nuclear age as it was transforming all military strategy and requirements. I thought that must have been such an interesting conversation between these two guys, because you have Herman Kahn at the Rand Corporation, who's thinking through how the nation has to change to move into an age of nuclear power, and Pierre Wack, who's in a major corporation, who wants to figure out how to prepare his corporation for an age of uncertainty. And it must have just been a fascinating series of conversations.

Oh, yeah. And, you know, I think that's the beauty of future thinking and the use of scenarios is it's just so transferable across multiple disciplines. And, you know, I talk about this in the book. You know, there's examples from British Airways, Rolls Royce, two great British companies. I have to say that, Bob, as a Brit, but also other companies like the Port of Vancouver, Shell themselves. It's one of those tools that crosses industries and sectors, albeit the uncertainties and the complexities are different in each sector. The types of management tools I think you can apply with success. There's a common thread there.

Yeah, I have to agree. You even. You mentioned a couple military organizations in your book, too, and I thought that's neat. I have a military background myself, and of course, we have our approach to strategic planning, and there's some analogies there. But it was good seeing that there are military and government organizations that are adopting your methods as well, because I think there's not enough of that, frankly.

Yeah. I mean, one of the examples I talk about is the U.S. coast Guard, you know, great organization. And they used future thinking and scenarios with a lot of success and lots of other examples as well. I think it's. I certainly tried to kind of tackle the book and the concepts in the book to say, look, this is something that applies not only to, you know, private sector organizations, but government and public sector. Both types of organizations need to be thinking about the future in new and different ways, and they need to be thinking about it now. I think as we come out of the pandemic and things begin to return to normal, now is a perfect time, Bob, to be thinking about the future and saying, yeah, the last year and a half was tough. Where to next? Where are we going? What are the uncertainties that are at play?

And.

And are we ready for what the future might uncover?

Yeah. And Lance, I think it would also be good if there is an executive anywhere who doesn't understand why this is important. What would you tell them? How do you convince them that scenario planning is important? For example? What do you say? Look, we've all just seen what can happen in a pandemic. The cynical executive may say, yeah, but now that's over. Is how do you convince someone that just because we all know about this crisis, there could be the unknown crisis coming in the future?

Yeah, great, Great question, Bob. There's a couple of things that I would say. One is talking about the pandemic, as you mentioned. There's two examples that I talk about in the book. The first example is the World Economic Forum. And just a bit of a plug for the book. Klaus Schwab, the founder and chairman of wef, has endorsed my book. In fact, he said that in his 30 years as being a strategy professor, there has never been a more important time than now to use scenario and scenario thinking in the world. And so to have that support is pretty important. It's a passionate topic for me that I think is critical. Let's talk about WEF specifically. So WEF teamed up with the Bill and Melinda Gates foundation as well as the John Hopkins University about a year before COVID hit, and they ran an event called event 201. And event 201 was all about using scenarios to figure out uncertainties that would play out in the future. One of the scenarios that they talked about was this idea of a novel coronavirus that emerged from bats to pigs, pigs to humans in Brazil, and that it would turn into a global pandemic. International systems would shut down, travel would shut down, the symptoms would be light to begin with, which will allow it to spread, but then it would kill people. On and on and on. High degree of accuracy in terms of what actually unfolded. There's another example. The center for Strategic and International Studies did the same thing A couple of years before COVID hit and with a high degree of accuracy predicted what was going to happen or what happened with COVID 19. I share these two examples with you, Bob, because I think it struck me when I was researching the book, we have to take this stuff more seriously. The thing that I would say to CEOs and leaders around the world that would say, yeah, that was tough, but we got through it and so we're good to go now is, well, are you sure? Because the OPEC crisis in the 70s, the Latin American sovereign debt crisis in the 80s, the Mexico crisis, or the Tequila crisis, it's not a cocktail, it's a real thing. Look it up. Like the dot com bubble, the financial crisis, this keeps happening and it keeps happening with regularity. So what I would say to a CEO or leader is, how do you know what's going to happen next? Like, we keep having these boom and bust cycles. Are you ready for the next bust cycle or are you in fact ready for the next boom cycle? Because there's upside when using scenarios and thinking about scenarios as well. And so that's how I would respond to that question.

Yeah, I think that's a very good point. History is pretty clear here. There's always the coming crisis that you didn't anticipate. Some did anticipate and prepared for it and others didn't. And there's so many different crises, potential crises, that we need to be planning for.

But one clarifying point that I think is an important one is there's a reality check as well, Bob. You can't prepare for everything, otherwise you'd be out of business, you wouldn't have any cash left. So there's a balance here that I talk about this concept of. While you might not be prepared for everything because that could be costly, at least you've gone through the thought process to say if that happened, it would be really bad or really good. And you know, we may not be able to respond to that, but we've at least had the dialogue and we're mentally prepared for how bad it could be. Do you know what I'm saying?

Yeah, I think so.

I do.

You know, you mentioned in the book Nassim Taleb's black swan concept these unpredictable things that can happen and have potentially severe consequences, potentially very good consequences, but really impossible to predict. Then you also talk about categories of events like the pandemic that actually people were talking about and were planning. I wanted to ask how scenario planning fits into that construct. Does scenario planning work? If it's going to be a. A black swan that comes out of nowhere. How does it help in that situation?

Well, I mean, I think this is where you've got to challenge yourself. And one of the things that I talk about in the book is the great American psychologist Jill Guilford. She talks about this concept of, You know, divergent thinking and convergent thinking. So let me break this down for you. Divergent thinking is all about exploring the possibilities and convergent thinking is all about deciding what to do. I think too often leaders, and I've seen this firsthand. I was working with a team of a board of directors and a CEO in fact, last week, and too quickly they get to let's decide what to do. Action, converge. We have the answer. Solution orientated. It's human nature in some way. And what I'm saying, and build off the concepts of Joy Guilford is it's important to explore the possibilities, to expand your thinking, to kind of diverge in that conversation. Almost, as I say in the book, wallow in the ambiguity. It's uncomfortable. And if it's uncomfortable, that's good. And you might not be able to see around the corner that exact black swan event, because that's really hard. But if you challenge yourself to see maybe some of those other big uncertainties that we can talk about later, at least you've gone part of the way there. You've expanded the riverbank somewhat. I don't think you can possibly, because the whole point of a black swan is you never see it coming. It's totally unexpected. But at least you've challenged a bit further and a bit closer to that, which I think too often is easy to ignore.

Right. So maybe this is a good time for me to ask, really, what is scenario planning? How do you define scenario planning?

Yeah, I mean, it really is about exploring multiple possible, probable plausible futures that could play out. It is not forecasting. It's not predicting a future. It's saying, hey, there's a future A, there's a future B and a future C. What could those be? And it helps organizations manage uncertainty. Rolls Royce is a great example of luxury car manufacturer 2015. They use scenario thinking to help them understand a highly complex and competitive car market, understand that uncertainty. It's also about mental models. I think too often leaders get into a process of linear thinking around strategy is A to B. And there's one strategy that we're striving towards. And what I'm advocating for is strategy is more complex than that. You don't know what is going to Things can happen along the way and you need to be able to build strategic flexibility and nimbleness in your strategy to say, if that happens, here's what we'll do instead. What I'm advocating for is let's move away from linear strategic thinking to much more nimble strategic thinking.

So I think you mentioned.

Yeah, there's one. Yeah, go ahead, Bob.

Well, I just wanted to capture this because I think you just mentioned two key outcomes of this kind of scenario planning. One is this understanding of potential futures, not predicting the future, but it's understanding. And the other you were mentioning is then the mental models that your decision makers today are going to be using and scenario planning will inform those and help them pick the right mental models. Did I capture that?

Yeah, and I think it's the mental model piece is around stretching the thinking. I mean, you could have three scenarios that you play out that are all somewhat similar to each other. So let's sort of say that one scenario, electric vehicles, is a good one because it's something that I know a little bit about and I have done some future thinking on the adoption of electric vehicles. You could say, well, slow adoption for our company, if we're an EV company or an oil and gas company, is 5% over the next 20 years. Medium adoption is, I don't know, 10%. Fast adoption is 15%. Is that really stretching the thinking? Those percentages are pretty close to each other. What I'm saying is, well, maybe the stretch thinking is we're not even driving electric vehicles. Maybe there's hydrogen vehicles which completely disrupt not only internal combustion engines but EVs as well. We move to hydrogen vehicles and we skip a step. It's that kind of mental model that we need to apply when using scenarios to think about different futures that can play out. Does that make sense?

Yeah. Yeah, it does.

And then the other thing that I wanted to mention, just going back to your question about what is scenario planning, I think is the storytelling piece. And I talk about this a little bit in the book. One of my favorite professors at Stanford, Professor Arker, she writes a great book, book called the Power of Story. And it's just such a compelling way in business of engaging people. And the powerful scenarios that I've seen that I've developed with leadership teams are those that tell a good story. In fact, some companies will create videos around different scenarios and say, and have, featuring executives and employees saying, hey, here, if we're a power and utilities company, for example, here's a renewable focused future with a high portfolio mix of renewables and here's a traditional, say, hydrocarbon future and what that looks like. And they'll tell a very compelling narrative around that. And you want that because when you're using scenarios successfully in an organization, to me one of the panaceas is you engage the workforce, the employees in a journey to say, yeah, that's interesting. If that plays out, here's what it means. I understand it, I get it. I also understand how we'll adapt strategically. If that plays out, great.

Thanks for that. Thanks for mentioning the book the Power of the Story. I'm going to look that up and download that myself. We'll put a link to that in the show notes. Sounds like a really good one. But I did notice you mentioned several stories yourself in the book. I like that because you can see yourself in other organizations when you read a good story, the way you capture a use case, for example. So we talked about what scenario planning is and we talked a bit about its expected outcomes. Your book describes in detail processes for that and methodologies. And I think what I would recommend to any company out there that wants to kick off a scenario planning kind of effort is buy the book and get it to people and use that as kind of the blueprint. But can you give us an insight, an overall description of your preferred process for scenario planning?

Yeah, like, and as you said, there's.

A very accessible chapter in the book that outlines this in quite a bit of detail. And I think the other thing, before I get into the kind of the.

At a high level, the six steps is you can scale this. Like I've worked with mega corporations on future scenarios with businesses in multiple countries, Fortune 500 companies, and I've worked with non for profits with less than 10 people. And the point is you scale it up and down the level of detail, the level of rigor changes. So that's the beauty of it. In terms of the process, there's six steps. And so let me walk you through those at a high level to give your listeners a sense. So step one is define the scope and identify the stakeholders that are going to be involved in the process. What problem are you trying to solve? Are you talking about macro scenarios like disease, climate change, hurricanes, those kind of things? Or are you talking about a very specific investment decision that you're trying to make?

So that's step one.

Step two is explore the environment. So this is where you do some research and that can be Bob, like a lengthy process of primary and secondary research to a very cursory look. And you May even already have a lot of the data. So you're doing the research to uncover what's going on in your world for your business. Step three, analyze the trends, the risks and the uncertainties. So this is where you're trying to boil those environmental research items that you've gathered to say what does it mean? What are the risks, what are the uncertainties? What are the key trends that we're seeing? Make sense of what you've gathered. Step four, this is where the rubber hits the road. You build the scenarios and the signposts. I would recommend 2 to 4. That's typical. In my experience that's worked more than that's too much to kind of conceive less than that if you've got one scenario that's forecasting, frankly.

Lance, who builds those scenarios? Let's say a large organization.

Yeah, I mean in a large organization it would be, you would have planners, strategic planners, strategists, that would be part of your traditional corporate strategy group. They would do it. In a small organization you would tap, you know, maybe someone on the shoulder to multi hat and do this and easily done. I think if you're a smart, curious, analytical person, you can do it. Step five, confirm the scenarios and stress test them. So this is where you say, okay, we've got scenario A. Call it this highly renewable future which is carbon neutral, sustainable ESG performance is great to this we are going to continue to use hydrocarbons for the next 50 years and then maybe a scenario in between. And so now you've got these three scenarios. Step five is stress testing that to say, okay, well here's our company strategy. What would we do in A, B and C? What stays the same across and what differs in each of those scenarios? And that's the stress testing, which often executive and leadership teams don't do. They're like, yeah, we got the strategy, let's go, we're ready to go. But this is the flexibility component that I'm talking about. Then the final step is monitoring. Now you're monitoring the signals to say, well if a renewable process plays out the signals that that is going to play out. That renewable scenario would be, let's see, carbon tax, might be policy direction, might be consumer behaviors. So you start to build KPIs and metrics to monitor what's going on to tell you that hey, we're going down that path. So strategically we better start using some of these levers that we planned. And that's the final step. So it's a six step process. It's iterative and it's outlined very simply in my book with key questions, examples, activities, and so on.

And Lance, another point. You made this scalability point. Small to large organizations can leverage this. I'm also thinking there's variance of that for the individual who wants to think about major career choices. Maybe. I wish I'd been thinking this way in my youth. Which college do I pursue and what gives me options there, and what are my personal scenarios for the future and where do I go? Do I join the military or not? And what are the scenarios there? And so there's definitely a personal career piece of this, right?

Absolutely, yeah. I think you can apply it from macro issues down to the individual. And in fact, there's a chapter in the book that talks about that.

So a couple other questions. You know, I do have a background in military and intelligence and we do a lot of planning there. And one of the things, a phrase I hear often and early in my military career was it's not the plan, it's the planning. It is the, you know, getting everybody together to create the plan is more important than having the document itself. Because when, you know, no plan survives first contact with the enemy and it's always just something you can deviate from, is that consistent with your view to scenario planning?

Oh, yeah. Like, it's funny you should say that. I mean, I would agree with you that plan is so important, at some.

Point you have to execute.

Right. And it reminds me, Bob, and you'll like this one.

So years ago, almost 20 years ago, I was a consultant for another consulting firm in London, England. And there was an event put on and a company came in called Mission Excellence. And if you've never heard of Mission Excellence, it's basically a bunch of ex Air Force pilots and what they talk about. And they've written a book, it's called Mission Excellence. And I carry this card around with.

Me in my wallet and I've carried.

It for 20 years. And on this card it talks about plan, brief, execute, debrief.

And that stuck with me throughout my career, like that simple concept. And they also talk about the power of debriefing and this learn model and you can look it up online. And you know, you reminded me of that because I think while it's so important to plan and use scenarios, as I point out in my book, the briefing process is equally as important. Execution is clearly important, otherwise you're not going to get anywhere. And then debriefing and this cycle of thinking through in that way at a corporate level, at a team level and at an individual level. Very important.

Right. Makes total sense to me. You know, we named our company as a homage to a decision model that has a similar approach. OODA stands for Observe, Orient, Decide and Act. And those actions cause changes to the world, which means you have to keep that observe, Orient, decide, act loop going.

Yeah. And you would know from your military background, and I certainly took this away when these Air Force pilots, they were pilots from the US Air Force, the uk, Canadian, all over and they form this company is when you're in those split second decisions, when you're flying an F16 at unbelievable speeds, the importance of planning and briefing is taken to a different level. And I think we can learn a lot from military in certainly in business. And that's kind of stuck with me. So anyway, I thought you would like that one, Bob.

Yeah, I absolutely do. And I want to ask a couple other questions. One, we're in this age of COVID unfortunately, and it's having such an impact on us. You mentioned it in the title of your book. This is, it's not over yet. And there's going to be many second order effects that we haven't planned for. And I just, I wanted to ask your thoughts on Covid. What should companies be thinking about when it comes to the pandemic?

Yeah, I think a couple of things. One, using scenarios to say, okay, if, let's say a variant that we haven't even conceived yet that is more deadly than say the delta variant variant plays out, what would we do? That's one scenario. Another scenario is, hey, you look at what's going on in Israel, in the US things are returning to normal pretty quickly. And so that if you're a company, either in those countries or in other countries, that could be a sign of the future and we need to be preparing for that. So what does that mean like in terms of return to work, flexible work arrangements. So I think you can apply these concepts that I talk about in disaster proof to play out these different scenarios, to say, well, what would we do if we go into a fourth wave here and things shut down the way they have done before and it potentially is more deadly, what does that mean for our company and vice versa? The upside, because there's always upside. What would we do in that situation? I think now, Bob, is the right time to be having that dialogue as leadership teams in all kinds of corporations.

Right. And I see your point. And also, since every corporation is different, those leadership teams need to ask those questions for their particular product and Service and the geographies of their markets.

Exactly. You know, it doesn't matter whether you're an airline, you know, a non for profit, a port, a utility company, the concepts still apply. Whatever business you're in, you have internal complexity that you're dealing with and you have external forces that you're dealing with as well. And those forces, by the way, and I also talk about this in the book, are economic, political, technological, environmental, social, legal. And I think if you think about those six force categories, pestle is the common term that's used. That's a good frame to sort of approach to say, okay, of the six, which. And specifically, what types of forces are we exposed to that are important to our company? Because if I'm an Internet company, I care about certain things, and if I'm a, an automotive company, different things.

All right, Lance, every potential crisis situation I could think of fits into the categories of that framework that you laid out. But one you spent a good bit of time on is a technological one, artificial intelligence. It seems to me, just looking at your book, you think this is really a big one that companies ought to pay attention to.

Yeah. I would tackle that question from two perspectives. One, I think AI will transform how we do strategic processes in the future. Traditional operational processes have been using AI technologies in some way or format for some time. But now the emergence, and I talk through a few examples in the book, the emergence of AI for highly strategic processes is really taking hold. And so if I think about the famous saying from IBM is we've created more data in the last two years than the rest of history combined. The challenge is how do we process all this data? How do we make sense of it? How do we understand the risks, the uncertainties, the trends? AI can play a role using algorithms that you well know that can uncover some of those risks and those uncertainties from all that data that exists in the world. It's going to be very powerful. And I think it's going to be able to take strategic thinking and future thinking to another level, augmenting the power of humans in a collective intelligence way. So that's sort of the first part of how I would answer that question. The second part that I would say is AI in itself is a disruptor. What I think about a lot is what will happen in the next 10 years as we march forward to potentially getting general intelligence and eventually super intelligence, and how quickly will that occur and what impact will that have on society and business. So in a way, AI helps with strategic thinking, but in itself, it's a disruptor as well that I think we need to be taking more seriously.

Right.

Another comment. We recently we have a monthly meeting that we run of our OODA Loop members and we talk about anything of interest to the group. And this last meeting we talked about risk and multiple potential scenarios of things that could happen. And we kept coming back to the need for resilience overall, no matter what scenario, you're talking about a need for resilience in business processes and technology. So we kept hitting on the topic of cybersecurity. If we're all vulnerable to cyber attacks and ransomware and losing our intellectual property, then we're not going to be optimized for any scenario. So I just felt like cybersecurity is becoming fundamental even without scenario planning. You have to do that or you don't have a chance at being competitive in the future business environment. Your thoughts on that?

Yeah, No, I mean, cyber is a huge area.

I mean, I think about how much time treasury and talent we spend at EY on cyber. It's huge. That's huge for any big professional services company and any corporation that is digitized in some significant way.

And as we I think about the.

Energy industry, I spend a lot of time in power and utilities and mining and oil and gas. The amount of technology that's been invested in autonomous trucks in the mine, digital grids, you know, robotics, process Automation, advanced analytics, IoT, augmented virtual reality technology, digital twins, on and on and on and on. It's great. It drives efficiency, effectiveness, but it drives the risk profile from a cyber perspective way up. And these companies are trying to tackle that. I mean, we saw in the US recently, one of the pipeline companies shut down because of a cyber attack.

I mean, it would have been crazy.

To think about that 10 years ago, and it's happening right now and have to take that more seriously. It's a big issue. Right.

And Lance, I wanted to say I think that is one of the biggest issues. It could be the next big, big disruption event. But I want to ask you that question. In your opinion, what's the next major disruption event that corporations will face?

Well, it would be boring if I said cyber now.

There's three things that I think about a lot. One would be China 2028. China's economy overtakes the US.

From certain perspectives. They already have a bigger military, but very quickly they will have a bigger military, a bigger Air force, a bigger Navy. So suddenly world order that I think has been successfully managed by the US for several decades could change. And that's not to say it's bad or good, it's just going to be different. So if you believe that that is going to play out, I think business systems, trade flows, business norms, political norms will change. And it's not that far away. We're talking about this decade. China would be number one. Number two would be energy transition. As a guy that spent a lot of time in the energy sector, I think there's a lot of momentum building around ESGs, sustainability, net zero decarbonization, whatever you want to call it. If we're really going to tackle that. Like, you know, if you read Bill Gates's book the Climate Crisis, he talks about how you thought Covid was hard, like the climate is really hard to tackle. And if we're really going to tackle that, we have to fundamentally change human behaviors. What food we eat, cement, how much cement we use, the steel we use, where we get it from, how we consume energy. A fundamental change in society and it's picking up momentum. I think COP 26 later this year in Glasgow will be a key signal for where we go in the future. The third we've already mentioned, not cyber but AI. I think that we are marching towards fundamental change with autonomous vehicles as an example. You know, close to home for you, Bob, in the U.S. 30% of the male population in the U.S. is a driving population. They make their living driving trucks, taxis, Ubers, what have you. When you automate that and you, you take that workforce out, what they going to do instead? You know, some talk about the gutting of the middle class. I think that is a source, depending on how quickly we get to, you know, fully autonomous cars, general intelligence, super intelligence, a source of big, big disruption that I don't think we quite conceive yet what it will mean. So those would be my top three.

Great. Thanks Lance. That is awesome. And you've got my brain full and thinking about this stuff already. I also want to end by saying thank you very much for writing Disaster Proof. It's a great book that'll come in handy for any corporation anywhere to help them do scenario planning. So thanks.

Yeah, it's been a pleasure. Thank you for having me.

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