The Big Five for Global Scenarios

According to Pierre Wack, the founding father of scenario planning at Shell, the essence of scenario development is to identify the (uncertain) underlying fundamental driving forces that will shape the future business environment of an organization. In his thinking it would be wrong to immediately zoom in on different possible outcomes of trends such as global economic growth, interest rates or some commodity price. Instead, he looked for the factors that will directly or indirectly determine those trends. This is aligned with his view that the primary purpose of scenario planning is to understand the system, i.e. the complexity of the relevant business environment of an organization.

For internationally oriented companies this usually means the world at large. Hence, if they would be contemplating to use global scenarios as a framework for their strategy development, they should be looking for the fundamental driving forces that will shape the future geopolitical, economic and general regulatory dimensions of the business environment. In addition, of course, they will need to consider all other relevant sector/domain/region specific factors that may be in play. In the remainder of this blog I will outline the (in my opinion) five most important (uncertain) fundamental driving forces that will shape the future of our world and that will in the end affect all businesses, one way or the other.

I interpret a fundamental driving force to be an impactful phenomenon having its own momentum, in the process of evolving to a new state. Of course, in reality there are always some linkages to other developments but in the core the development in question will progress by itself, with significant global impact over the time span of say 20-30 years. It is uncertain, however, how exactly this evolution will pan out, how this will affect other developments and which counter reactions it may trigger.

So which are the Big Five driving forces that in my view will have a significant impact on the world in the next 20-30 years and that should find a place in any global scenario exercise? And in what sense are they uncertain?

Firstly, there is the globalization trend. This driving force indeed features in a number of the Shell scenarios in the past. The most remarkable discussion can be found in the Shell scenarios of 1992 (1992-2020), in which the Barricades scenario in fact foresaw the reaction to the globalization that we are seeing around us today in a great variety of forms (nationalistic reactions, populism, political fragmentation, the forgotten groups issue, etc.). The way globalization will continue in the future is a big question. Will the nationalistically oriented reflexes continue or will they die out, and will we return to the optimistic, global mindset that governed the nineties and a good part of the first decade of this century?

Secondly, there is the rise of the emerging economies. In particular the development of China as an economic powerhouse has been spectacular. Also other countries have made significant advances but some have subsequently struggled again. A lot has to do with the quality of governance. There is for example a strong negative correlation between level of corruption and economic growth. Nevertheless, a profound shift has been ongoing ‘from West to East’. This has been recognized by many earlier published global scenario exercises. There is no doubt that this trend will continue, but there is uncertainty with regard to the pace, indeed depending on the degree countries can further improve their quality of governance.

Thirdly, climate change has come to the fore as a major factor, as already argued by scientists for a number of years. The first time climate change has significantly featured in global scenarios is in Shell’s Scramble and Blueprints in 2007. As things look now in 2019, we seem to be seeing first indications of climate change through weather phenomena, sea level rise and changes in the polar regions. There is still major uncertainty regarding how in the end greenhouse gas emissions will affect the global climate. But there is also still uncertainty how the world will react. Will this be coordinated and determined as in Blueprints, or everybody for themselves as in Scramble? In this regard, we still do not know in which scenario we are living. If the answer will indeed be a rapid and massive energy transition, then this will have geopolitical implications with the oil and gas exporting countries losing out.

Fourthly, a significant issue is the governance around the global monetary system. Especially since the abolishment of the Bretton Woods agreements and the departure from the gold standard in 1971, the system boils down to this: the more money is created (by licensed banks), the more economic activity can take place but the more debt is incurred (by individuals, enterprises and governments). In the short term money creation fuels economic growth and all benefit (banks, business, governments, society). In the long run this fly-wheel of money creation leads to unsustainable debt levels and hence financial crises, unless curtailed by strict regulation. In 2018 the total global debt level reached another high, despite the lessons of 2008. What’s next?

Fifthly, we need to consider the implications of technological developments. Of course, technological advances are made in a wide range of areas, having an impact on markets, quality of life and productivity. When considering global scenarios the crux is to look for the developments that can have a transformative influence on the entire world order. In the middle of the previous century this was for example the development of the nuclear warfare capability. In the last two decades the most important development was the internet and the rise of the big tech companies. Due to the nature of the technology there is a strong ‘the winner takes all’ element and together with the globalization trend this is the driver for rising inequality, along with many other implications the reader will be aware of. How will this development continue and are there other, similarly impactful, technologies on the horizon?

These are in my view the Big Five driving forces that will shape the world in the next 20-30 years, although there are more angles to them than I can pack in a blog like this. Of course it does not mean there are no other issues to consider, but to take these as a starting point for global scenario development seems to make sense. For each of them one needs to establish what the possible outcomes are and how these could logically be aligned. Other elements can be added and in particular one will be looking at the implications for key descriptors such as economic growth, political stability and societal trends.

If you are unfamiliar with scenario thinking, consider to have a go at our Virtual Learning Bite ‘Scenario planning primer’ for an introduction into this methodology.