The Essence of Scenarios: Learning from the Shell Experience 9789048522095

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The Essence of Scenarios

The Essence of Scenarios Learning from the Shell Experience

Angela Wilkinson and Roland Kupers

Amsterdam University Press

Editor: Betty Sue Flowers Cover design: Maedium, Utrecht Typesetting: Crius Group, Hulshout Amsterdam University Press English-language titles are distributed in the US and Canada by the University of Chicago Press. ISBN e-ISBN e-ISBN NUR

978 90 8964 594 4 978 90 4852 209 5 (pdf) 978 90 4852 210 1 (ePub) 800 / 805

© Angela Wilkinson and Roland Kupers / Amsterdam University Press, Amsterdam 2014 All rights reserved. Without limiting the rights under copyright reserved above, no part of this book may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the written permission of both the copyright owners and the authors of the book. Every effort has been made to obtain permission to use all copyrighted illustrations reproduced in this book. Nonetheless, whosoever believes to have rights to this material is advised to contact the publisher.



Table of Contents

Acknowledgements 7 Preface by Peter Ho Introduction: The “Gentle Art”

9 13

Sources 17 I A Unique Legacy

19

II Shell Scenarios – A History, 1965-2013 Experimentation and Emergence, 1965-1981 Moving Closer to the Business, 1982-1990 Culture Change, 1990-1999 Cheaper, Deeper Thinking, 1999-2006 New Pathways to ‘Challenging and Heard’, 2006-2013

25 25 44 51 58 67

III The Essence of the Shell Art 75 1 Improving Intuition 77 2 Plausible, Not Probable 80 3 Striking the Balance Between Relevant and Challenging 84 4 Pragmatic, Not Ideological 85 5 Realizing the Role of the Future in the Present 88 6 Focused and Targeted 89 7 Engaging the Client in the Process 91 8 Memorable, Yet Disposable 93 9 Storytelling – the Heart of Strategic Conversation 95 10 The Necessity of Numbers 97 11 The Creation of a Scenario Team 101 12 Serving as Door-Openers and Adding Value to External Relationships 104 13 Fostering a Culture of Openness and Curiosity 106 14 Managing Disagreement as an Asset 108 15 Providing Value within a Broader Management System 109

IV Looking Ahead From ‘Seeing’ to ‘Seeding’, Not Growing Better Futures Beyond Products to Value-Added Services The Future of Shell Scenarios Business Lens Reaching Out

113 114 115 117 121 122

V Conclusion The Evolution Continues – the Essence Remains

123 127

Epilogue: Scenario Team Leaders

131

Afterword 135 A Timeline 137 B Summary of Scenarios 139 Index 167

Acknowledgements This book would not have been possible without the generous contributions of others. We owe our thanks to the individuals who made themselves available to be interviewed, in some instances on multiple occasions. (The longest single interview lasted just over four hours.) We also thank our interviewees for their time and attention to detail in reviewing various drafts of this book. In particular, Henk Alkema, Ged Davis, and Napier Collyns deserve special mention for the numerous rounds of review we subjected them to. Special thanks should go to Jimmy Davidson, Henk Alkema, and Guy Jillings for providing us with written notes and materials that were never in the public domain and would otherwise have remained hidden from our view. In an impressive show of their trust we had access to original documents, including personal notes, memos, and hand-drawn charts, dating from the 1960s. Similarly, we thank Michael Jefferson and Napier Collyns for directing us to published materials that added to our literature reviews. We would also like to thank Laurel Steinfield, our research assistant in the first year of this four-year labor. Laurel diligently tracked down contacts, reviewed literature, organized the interview process, and took care of the online curation of archive materials. Betty Sue Flowers, our editor, supported us in our long and winding learning journey, re-crafting our varied prose to a flowing and insightful story. Whilst we did not receive any direct support or funding from Royal Dutch Shell, we would like to acknowledge the help the company extended to us as we checked facts, sought reports, and clarified current practices. In particular, we thank Jeremy Bentham for responding so promptly to our many emails. Our final thanks go to the University of Oxford and the encouragement and support we received from many colleagues over the past five years. A special mention to Professors Rafael Ramirez, Sir David King, and Steve Rayner. Rafael has taken on the task of integrating our archive materials, adding to the considerable volume of papers in the Pierre Wack Memorial Library and, more generally, the Oxford Futures Library. Steve and Sir David generously extended Visiting Fellow status to Roland. We hope this book continues to extend the considerable interest in futures scholarship and practice in Oxford.

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We fully acknowledge that any errors still remaining in this account of history are our responsibility alone. Picking through different historical accounts to get to the facts is not straightforward, even when direct accounts of those involved are harvested.



Preface by Peter Ho

There is a Darwinian process in the corporate world. Companies rise, and then fall, to be replaced by new ones with new business models and new offerings. In their seminal study of more than one thousand companies, “Creative Destruction,” Richard Foster and Sarah Kaplan wrote that more than 75% of the Standard & Poor’s 500 in thirty years’ time will be companies that we do not know today. Like companies, countries wax and wane. Like companies, countries face the challenges of discontinuity, volatility, and uncertainty. These challenges are increasing in intensity in the complex operating environment of today’s globalized world. Every government aims to find a way to navigate such challenges, and to put its country on a path to sustainable long-term growth and development. Compared to both companies and many countries, Royal Dutch Shell is an anomaly. More than a hundred years old, with antecedents going back even further, Shell’s longevity and resilience must stand as a valuable case study of how a company, in a highly competitive industry, has been able to survive and succeed over such a long period. There are many reasons for Shell’s success, including leadership, sound management and good luck. They undoubtedly offer important insights for companies as well as for governments. One particular element that arguably has had an impact on Shell’s fortunes is its use of scenarios, an approach to strategic planning that the company pioneered more than forty years ago. Leaders of companies, and leaders of countries, often have to make big decisions, and to develop long-term strategies and plans, without all the information they need, and without certainty that the desired outcomes will be achieved. It is not possible to prepare exhaustively for every conceivable contingency. Instead, the “search and discover” approach is an important way to deal with such uncertainty. Scenario planning is a form of “search and discover”. Scenarios project futures based on our understanding of today’s operating environment. They provide plausible descriptions of what might happen in the future. Scenarios make people aware of uncertainties, challenges as well as opportunities, in a future that is essentially unknowable. Scenarios awake the imagination and initiate learning. Used intelligently, scenarios can be an important tool for strategic planning.

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The Essence of Scenarios

There is much to be discovered by examining the history of scenario planning in Shell, where many of the pioneering ideas were developed on how to create and use scenarios. Many of today’s leading scenario practitioners are alumni of the Shell program. The history of scenario planning in Shell provides an insight into the debates over why we create scenarios, how to create them, and for whom. Above all, Shell’s experience in using scenarios in a wide variety of contexts provides a compelling narrative of why it is a useful and unique tool for any organization, company, or government that has to plan and make decisions in a complex and uncertain environment. Indeed, it is that rare method which combines analytical rigor with both intuition and imagination. More than twenty years ago, the Singapore government took a close look at why and how Shell used scenarios. It concluded that there was significant potential to deploy scenario planning as a tool of government to improve the quality of strategic planning, and to enhance its ability to think long-term. Singapore’s first experiments with scenario planning began in the 1980s, in the Ministry of Defense. The natural partner in those early years was Shell, which has a large presence in Singapore, including its largest refinery. Shell even attached two Singaporean officers to its office in London. These officers returned to form part of the team that launched scenario planning in the Singapore government. 1995 saw a Scenario Planning Office (now called the Strategic Policy Office) established in the Prime Minister’s Office, charged with developing national scenarios and coordinating the translation of those scenarios into policy responses. Today, scenarios are embedded in the government’s strategic planning and budget allocation cycles. In addition to national scenarios, focused scenarios are developed for specific topics – recently on climate change and the new media. These focused scenarios are opportunities for “deep dives” into issues of strategic significance. They have helped the government to formulate specific policies, plans and even to re-organize in response to emerging trends. The Singapore government does not only produce scenarios. The link between scenarios and strategies is an important part of the process. After scenarios are developed, cross-agency teams follow up on important insights that emerge from these scenarios. So for the past two decades, the Singapore government has been using scenario planning. Our experience is that scenario planning better informs policies, plans, and even budgets. Scenario planning has helped to create

Preface by Peter Ho

11

a culture in government that questions assumptions, and that embraces a systematic and strategic approach to planning for the future. But, as Shell practitioners well know, scenarios have their limitations. Scenarios alone cannot adequately reflect the complexity of the operating environment. They cannot uncover hidden connections and interactions caused by complexity. Scenarios can be unduly influenced by the biases of the scenario planners; they are also time- and resource-intensive. Singapore has therefore moved beyond scenario planning and developed a larger set of tools for strategic planning and futures thinking. Scenario planning remains the base, but employs a set of Scenario Planning Plus tools such as horizon scanning, backcasting, and causal-layered analysis. In 2004, the Singapore government developed a unique computer-based suite of tools called RAHS (Risk Assessment and Horizon Scanning) as an aid for horizon scanning, scenarios-to-strategies, and sentiment analysis. The government has also experimented with methods for large-scale participatory foresight, engaging the public in crafting normative futures. Scenario planning has been the foundation for the Singapore government’s systematic approach to strategic planning. It is almost an article of faith today that the long-term future of the country depends on the quality of its strategic plans and policies, and the ability to cope with uncertainty, change and complexity. Reflecting this trend, the government set up the Centre for Strategic Futures in 2009: a think tank that promotes a whole-ofgovernment approach to strategic planning and decision-making. It works on tools and concepts like Scenario Planning+. It encourages experiments with new computer-based tools and sense-making methods to improve horizon scanning. Although a small outfit, the CSF is a catalyst for strategic change in the Singapore government and its agencies. The existence of the CSF, and the embracing of scenarios as a vital tool of strategic planning in Singapore, owes as much to the influence of Shell’s scenarios, as it does to the underlying spirit – a never-ending search for better ways to cope with an uncertain and unpredictable future. This book is a welcome reminder of where we came from, as well as an inspiration for the possibilities in our collective futures. Peter Ho Former Head of the Civil Service, and Senior Advisor to the Centre for Strategic Futures, Singapore



Introduction: The “Gentle Art”1 Those who tell the future lie, even if they tell the truth. – Arab proverb derived from the Koran The search for discovery consists not in seeking new landscapes but in having new eyes. – Marcel Proust The most striking part of the story – that we could not predict – has no effect on our confidence in individual cases. – Daniel Kahneman

Our fascination with the future reaches back millennia through oracles, visionaries, and utopians. Yet the future remains elusive. For example, Arthur Brehmer’s The World in 100 Years, published in 1910, 2 gets every prediction wrong, with the exception of the pocket phone. Even if we can’t predict the future, a willingness and capacity to engage with new and different possibilities can help clarify the otherwise overwhelming messiness of continuous change. Modern foresight practices provide a rich choice of dealing with futures – the probable, the preferable, and the plausible. One of the most important of these practices is scenario building. Scenarios maintain the future as an open, but not an empty space, where facts, expectations, and perceptions intermingle, and a combination of critical, creative, and analytical thinking is essential. While the common corporate practice is to produce one-off scenarios, Shell has a nearly fifty-year tradition of creating long-term scenarios in the face of market-induced short-termism. Other books on Shell scenarios have been written by such notable Shell scenarists as Peter Schwartz, Kees van der Heijden, and Adam Kahane, each offering insights based on direct experiences at different points in the Shell scenario history. With this book, we trace the complete history from multiple perspectives of Shell executives, scenario team leaders, and others, and highlight an overlooked legacy. 1 “Scenarios: The Gentle Art of Re-Perceiving,” Strategic Planning in Shell Series No. 1 (1986). This Shell publication is a reprint joining two 1985 Harvard Business Review articles by Pierre Wack. 2 Die Wert in 100 Jahren, (Hildesheim: Georg Olms Verlag AG, 2012 [1910]).

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Shell has pioneered and sustained the use of scenarios in a commercial setting from 1965 until today. We look back on almost a half-century of scenario practice and ask: What has worked, what has changed, and what has been learned? The development of scenarios in Shell grew out of a realization that long-term forecasting in business is too unreliable. After a period of experimentation, scenarios emerged as part of an alternative planning approach. Initially, scenarios were created by a few individuals; eventually, however, scenarios began to be shaped by a broad cast of key players, many of whom were outside the scenario team. Shell scenario practices have changed pragmatically, evolving with leadership culture, business needs, organizational structures, and technology developments, and reflecting the particular leader and composition of the team. This flexibility has uncovered certain core principles and contributed to the longevity of the practice. The Shell scenario methodology – with its treasure trove of lessons from nearly a half-century of practice – has demonstrably played a major role in the development of the overall field of scenarios. It has impacted Shell’s business and through a reputation for quality and relevance has had considerable influence on wider partners and stakeholders, including governments, businesses, thought leaders, and international NGOs. While the value of scenarios to Shell has been considerable, global scenarios, in contrast to more focused scenarios, have seldom directly influenced decision-making, as has often been suggested, nor have they been constructed to reduce uncertainty. Their value has been more diffused and less tangible – providing the requisite context for business success, helping to train intuition, contributing to organizational learning and cultural engineering, supporting the quality of judgment and leadership, and serving as a collaborative platform. Shell scenarios have become a brand in their own right. After exploring how and why scenarios came about, we provide an overview in five chronological periods, from 1965 to 2013. We then focus on what has changed – key shifts in the scenario practice – and what has not – the essence of the Shell art. Finally, we look ahead at the future of the scenario practice through two contrasting stories of its plausible development. The epilogue contains a brief portrait of each leader: people matter, and the expertise and personality of the team head has colored each set of scenarios. For those wanting more detail, we have provided a timeline and a brief description of many of the global scenarios produced over the decades. Our focus on the origins and evolution of the Shell scenario practice was both pragmatic and strategic. Our previous experiences working in Shell

Introduc tion: The “Gentle Art”

15

enabled unprecedented access to archival materials, executives, and staff, and also gave us the ability to more accurately assess and compare the diverse perspectives we were offered. At the same time we have taken great care to avoid introducing biases arising from our direct involvement. We learned a lot along the way by eliciting comments on earlier drafts of this history from others who have been involved with Shell scenarios over the years. We also verified details by cross-checking with archival materials. This book offers a starting point for those interested in developing the mastery of scenarios as an essential element of the modern futures toolkit. The distinctions Shell maintains between forecasting, scenarios, and strategy offer insights for other groups and organizations learning to thrive in this messier, faster-paced, multipolar, and interdependent world. We tell a story of perseverance, tolerance, and trial-and-error, which was enabled by a curious community who moved away from the common business practice of learning about the future in order to learn with futures to rediscover the present.

Sources This work has benefited from interviews with a cast of players across five decades and from cross-checking these interviews with a large volume of published and unpublished materials, many of them from the Pierre Wack Memorial Library, University of Oxford. The selection of interviewees was designed to represent all periods as well as a diversity of backgrounds and roles in Shell. We reached out to a selection of people in each era, covering a range of key roles within and around the scenario work, such as senior executives (commissioning and using scenarios), heads of scenario teams (producing and communicating scenarios), team members, and external corporate advisors. We do not intend to imply that these were the most influential people in the evolution of the scenario practice – many others have played an important role. We were delighted that almost all of those whom we approached generously contributed their time and their insights. Interviewees were involved in several rounds of review of successive drafts of this Shell scenario history throughout mid-2011 to 2013. Inevitably, as in any history, there are sometimes contradictory perspectives, so we occasionally had to make some difficult choices. The number of interviews as well as the vast documentation available allowed cross-checking of many issues. The overall content of the book remains the responsibility of the authors. Unless otherwise stated, all quotations are taken from the following interview sources: First name

Last name

Date of interview

Henk

16 June 2011; 2 May 2012

Jeremy

Alkema Bentham

Harry

Brekelmans

26 Nov 2010

26 Nov 2010

Malcolm

Brinded

26 Nov 2010

Arden

Brummell

21 Sep 2010

Napier

Collyns

30 Aug 2010

Ged

Davis

8 Dec 2010

Roxanne

Decyk

26 Oct 2010

Betty Sue

Flowers

20 Sep 2010

Arie de

Geus

16 Oct 2010

Charles

Hampden Turner

15 Oct 2010

Kees van der

Heijden

22 Oct 2010

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The Essence of Scenarios

First name

Last name

Date of interview

Simon

Henry

22 Oct 2010

Joseph

Jaworski

14 Oct 2010

Michael

Jefferson

12 Oct 2010

Guy

Jillings

14 Dec 2010

Adam

Kahane

28 Nov 2010

Renata

Karlin

27 Oct 2010

Anupam

Khanna

19 Oct 2010

Michael

Klein

19 Nov 2010

Cho

Khong

15 Sep 2010

Jan

Kopernicki

13 Oct 2010

Keith

Mackrell

5 Oct 2010

Doug

McKay

5 Oct 2010

Mark

Moody-Stuart

16 Oct 2010

Edmund (Ted)

Newland

2 Feb 2011

Eric

Nijdam

21 Oct 2010

Peter

Oppenheimer

27 Oct 2010

Roger

Rainbow

13 Oct 2010

Rafael

Ramirez

18 Feb 2013

John

Robinson

12 Oct 2010

Lee

Schipper

14 Oct 2010

Peter

Schwartz

1 Oct 2010

Keetie

Sluyterman

6 Dec 2010

Wim

Thomas

22 Sep 2010

Jeroen van der

Veer

22 Oct 2010

Peter

Voser

16 Feb 2011

Joop de

Vries

21 Oct 2010

Doug

Wade

16 Oct 2010

Philip

Watts

11 Jan 2011

We engaged in several rounds of correspondence and manuscript reviews with a number of our interviewees, most notably Henk Alkema, Ged Davis, Michael Jefferson, and Napier Collyns. In addition, we corresponded with Albert Bressand, Jimmy Davidson, Leslie Dighton, and Mia De Kuijper.

I

A Unique Legacy A bottom-up experiment that became culture. – Ted Newland, Manager, Long-Term Studies, 1965-71; Scenario Team Leader, 1980-81 In 1967 there was complete resistance among the then economists and planners to create something that they regarded as absolutely artificial.1 – Keith Mackrell, Shell Planning Coordinator, 1976-78

For the past hundred years, an increasingly more interconnected world has created a global business context of significant opportunity and faster and more turbulent change. Despite ever more sophisticated approaches to corporate foresight, including horizon scanning, probabilistic forecasting, and complex systems analysis, business leaders still experience a sense of widespread failure to engage effectively with uncertainty. More than forty-five years ago, Shell2 executives began to grapple with irreducible uncertainty by harnessing the longer-term perspective through the creation and use of alternative stories of the future – scenarios. Over time, Shell established an in-house team that produced a range of scenarios by engaging within and beyond the organization in a process that combined intuition with rigorous analysis. The Shell ‘narratives and numbers’ approach to scenarios focused variously on the long term, macro business environment, or ‘global’ context – developments in energy systems, specific regions (such as Russia), new challenges (such as sustainable development), and short-term crises (such as oil shocks, global economic recession, and pandemic flu). They also were occasionally designed to support specific investment decisions. In the process, Shell learned not only that oil prices were being shaped by a much wider set of factors and actors but also that organizational resilience requires a shared and systemic understanding of the wider business environment, not just speed of response. Adaptive 1 Gareth Price’s Symposium (Shell Group Planning: July 1994), p. 5. This Symposium convened 28 key participants in Shell Group Planning from 1965 to 1984. All were given the opportunity to speak on what they had learned about planning. A recording and transcript was made of this symposium and issued as an internal report. 2 Throughout we use “Shell” to refer to the Royal Dutch/Shell Group of companies or, later, Royal Dutch Shell plc. Until 1999 the U.S.-based Shell Oil Company was managed at arm’s length and often acted independently, even competing with other Group companies.

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capacity involves attention to culture, values, and relationships beyond the company, not just to tangible assets. One of the key insights of the early years of Shell scenarios was that in order to survive and even thrive in a more dynamic and complex business era, it was important to expose and question deeply held assumptions, to engage with uncertainty as more than a lack of knowledge, and to attend to the quality of ‘strategic conversation’. Shell learned that the necessity for numbers and the precision of strategic analysis must be balanced with attention to the quality of the interpretive frames that Shell executives instinctively deployed in making sense of their changing world. In effect, scenario creators learned how to harness and train the intuition of their highly experienced, senior executives by using a combination of narratives and numbers. By 1970, Shell had begun a remarkable journey, harnessing the power of scenarios to break its dependence on short-term, forecast-based planning, and engaging with uncertainty in its longer-term strategy. Whereas strategy often focuses on the long-term outlook in terms of shifts in the competitive landscape, industry structure, and regulatory context, scenarios encourage a deeper understanding of how changes in the business environment that lie beyond the influence of the organization might impact the success of decisions taken today. Engaging with challenging yet plausible futures has provided a safe space within the organization for managing disagreement as an asset, for overcoming ‘group think’, and for exposing the organization’s worldview. Scenario planning in Shell, in relation to but different from strategy, has emerged as a way to redirect attention, encourage organizational learning and more explicit and shared sense-making – prospection –in a manner that effectively bridges the long-term, bigger picture with the short-term horizons involved in decision-making and financial planning. Some observers of the Shell scenario practice have also suggested that scenarios not only provide a mechanism for adaptive planning but also offer a means of strategic renewal through encouraging collaborative inquiry to navigate turbulence.3 While fads and fashions have characterized the ever-changing approaches to strategic planning, scenarios themselves have become a persistent feature in the modern business strategy toolkit, albeit with some waxing and waning in emphasis over the decades since the 1960s. A range of anecdotal sources suggests that interest in scenarios has increased significantly 3 See R. Ramirez, J.W. Selsky, and K. van der Heijden, Business Planning for Turbulent Times: New Methods for Applying Scenarios, 2nd ed. (Earthscan/James & James, 2010 [2008]), pp. 283-95.

A Unique Legac y

21

since the events of 11 September 2001. 4 And many of these approaches to firm-level scenarios stem from the Shell scenario method, with its emphasis on plausible, rather than probable or preferable, futures. In 2000, the U.S. Commission on National Security / 21st Century (Hart–Rudman) report stated that 85 percent of scenario studies are based directly on the Royal Dutch Shell process or derived from it.5 The Shell approach to scenarios has clearly influenced the practice of others, including government foresight practices: In the 1980s, when I was deputy Secretary in the Ministry of Defense, I wrote a paper suggesting that scenario planning, as practiced by Royal Dutch Shell, could be a useful tool for planning and policy development. This eventually led to the introduction of scenario planning, first in the Ministry of Defense and then later in the rest of government. – Peter Ho, Former head of the Civil Service, Singapore6

Lim Siong Guan, one of the participants in the Singapore scenario process, said that one advantage of these scenarios is that they raised issues about the future that senior ministers were not considering – thus surfacing issues for strategic conversation from the bottom of the administrative hierarchy 4 Ramirez et al., p. 9. See also C.A. Varum and C. Melo, “Directions in Scenario Planning Literature – A Review of the Past Decades,” Futures 42 (2010), pp. 355-69, who note the growth of literature on scenarios in the last few decades – “scenario planning has enjoyed a revival, apparent in the ‘boom’ in published research” and that “70% of articles are published after 2000.” Two Bain researchers reported in 2007 that the firm’s regular survey of management tools showed “an abrupt and sustained surge” in the use of scenario planning after September 11, 2001 (“A Growing Focus on Preparedness,” HBR [July-August 2007]), and that although there have been ups and downs since, Bain’s most recent survey showed 65% of companies expecting to use scenario planning in 2011. [http://www.bain.com/publications/articles/Managementtools-trends-2011.aspx; 5 U.S. Commission on National Security/21st Century (USCNS/21), also known as the “HartRudman Commission” or “Hart-Rudman Task Force on Homeland Security.” Published as New World Coming: American Security in the 21st Century (Washington, DC: US Government Printing Office, September 1999). The Commission reviewed the methods of 20 studies drawn from 50 contemporary future surveys from the late 1980s. Of these 20, 17 followed the Shell method: five very closely, six with a variation, and six with a simplified version of the Shell method. The Study Addendum (15 September 1999) states that “most of these future world methodologies can be traced back to the scenario-based method of Pierre Wack at Royal Dutch Shell....” http://www. au.af.mil/au/awc/awcgate/nssg/addendum.pdf, p. 11. 6 Conversations for the Future, Volume 1 of Singapore’s Experience with Strategic Planning, 1988-2011 (Singapore: Public Service Division, Prime Minister’s Office, 2011), p. 4.

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to the top.7 The Shell scenario practice was also instrumental in the Mont Fleur scenario exercise, which helped support the peaceful and sustainable transition to a post-apartheid era in South Africa.8 Later, this practice also helped inform the shift from the first generation of probabilistic, modelbased scenarios developed by the Intergovernmental Panel on Climate Change towards the stories and simulation approach that characterizes the current generation of socio-economic scenarios.9 Among the most frequently cited articles and best-selling books on scenarios are publications from four former Shell scenario team leaders or members, including Pierre Wack, the first official head of the Shell scenario team. While in residence in Harvard Business School, where he was ‘received’ by Michael Porter, the pioneering strategy guru, Wack gave a presentation on the process and achievements of scenario planning in his time in Shell, which were published in the form of two seminal articles in HBR in 1985.10 Yet these articles, together with numerous additions by other Shell scenario team leaders and members, contain only a small part of a remarkable story. By contrast, this history offers a fuller story of continuous evolution, which started in 1965 and has continued to the present. No company has opened its strategic decision-making process and outcomes to the full scrutiny of independent scholarship, but there is extensive 7 In conversation with the editor, 19 October 2012; confirmed via cs., 29 October 2012. 8 See A. Kahane, Solving Tough Problems: An Open Way of Talking, Listening, and Creating New Realities (Berrett-Koehler, 2004) and C. Sunter, The New Century: Quest for the High Road (Human & Rousseau, 1992). 9 Intergovernmental Panel on Climate Change (IPCC) in its Special Report on Emissions Scenarios, 2000. 10 His two HBR papers – “Scenarios: Unchartered Waters Ahead” (Issue No. 5, Sept./Oct. 1985) and “Scenarios: Shooting the Rapids” (Issue No. 6, Oct./Nov. 1985) – remain among the most frequently cited articles on the use of scenarios. These articles were based on an earlier working paper. Wack was dissatisfied with the way they had been edited. He was invited to prepare an edited version to his satisfaction, which was published as “The Gentle Art of Reperceiving,” No. 1 in Shell’s Strategic Planning in Shell Series (March 1986). Paul Schoemaker, now a Wharton scholar, was a member of the Shell scenario team in the 1980s and has linked Shell scenarios with theories in psychology to explore the value of scenario work in avoiding group think and enabling peripheral vision. He also notes that scenario planning is as much art as science, and prone to a variety of traps, both in process and content – see “Scenario Planning: a Tool for Strategic Thinking,” Sloan Management Review 36 (1995), pp. 25-40. Peter Schwartz, the second head of the Shell scenario team, was a co-founder of Global Business Network, a U.S. think tank specializing in scenario work, and the author of a book on scenarios, The Art of the Long View (Doubleday, 1991). Kees van der Heijden, the fourth head of the Shell scenario team, has published numerous articles and books, including Scenarios: The Art of Strategic Conversation (John Wiley & Sons, 2005 [1996]), which is the best-selling business book on scenarios, with over 30,000 copies in print as of 2009.

A Unique Legac y

23

anecdotal evidence to support the significant impact of scenarios in Shell and, despite only very limited empirical evidence on the practical impact of scenarios, on the business,11 claims of Shell’s success with scenarios are widely cited. The link between scenarios and decision-making in Shell is well established. Scenarios are often, but not always, focused on a specific situation involving decision-making – investment, divestment, acquisition, major project management, etc. However the link between scenarios and better decision outcomes is, of course, not straightforward. The emphasis in scenarios is not on the precision and accuracy of decision outcomes per se, but rather on the quality of the decision-making process and the value of revealing and testing assumptions in attending to the quality of judgment. The sheer fact that the organization has maintained the practice for over forty years provides further reassurance: would an organization be likely to sustain an ineffective practice for such a long time, especially in the context of the changing fashions of strategy and planning approaches? This longevity hints at a value beyond directly measurable business impact. Many of the earlier published materials on Shell scenarios support the claim that Shell has performed better because of its scenario work. For example, Michael Jefferson reports that the qualitative multiple scenario approach in Shell provides “the most useful framework for handling uncertainty and allowing the formulation of appropriate strategies.”12 In his influential book on scenarios, The Art of the Long View (1991),13 Peter Schwartz claims that Shell was consistently better in its oil price planning premises than other major oil companies and that it saw the overcapacity in the tanker business and Europe’s petrochemicals earlier than its competitors. In contrast, some observers within the company suggest that the approach may have had more impact outside Shell than within, with some suggesting that few if any signif icant long-term business advantages 11 The contribution of scenarios in new value creation is demonstrated in empirical terms in one paper which shows how strategic innovation domains changed following scenario work – see R. Ramirez, L. Roodhart and W. Manders. “How Shell’s Domains Link Innovation and Strategy,” Long Range Planning, 44 (4) (August 2011), pp. 250-70. A recent survey of 77 large companies by R. Rohrbeck of Aarhus University, and J. O. Schwarz, of Germany’s EBS Business School found that formal “strategic foresight” efforts add value through (1) an enhanced capacity to perceive change, (2) an enhanced capacity to interpret and respond to change, (3) influence on other actors, and (4) an enhanced capacity for organizational learning. R. Rohrbeck and J.O. Schwarz, “The Value Contribution of Strategic Foresight: Insights from an Empirical Study of Large European Companies, (12 February 2013). http://dx.doi.org/10.1016/j.techfore.2013.01.004 12 “Beyond Positive Economics?” in J. Wiseman (ed.), Economic Uncertainty and Business Decision Making (Macmillan, 1983), p. 133. 13 op. cit.

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accrued to Shell from the use of the scenario methodology. These seemingly polarized claims obscure the different types of scenarios that Shell practices – long-term and global, medium-term, crisis, regional, issue, and project-focused, among others. The value derived from the scenario practice is also obscured by the continued and pragmatic evolution of the Shell scenario philosophy and practice. Until 2008, Shell was governed by a joint board of two companies and did not have a formal corporate strategy process until the late 1990s. As a result, the link between the global scenarios and decision-making remained informal until the recent establishment of a formal corporate strategy process. So, in contrast to the direct links between focused scenarios and decisions – such as the entry into the coal business in response to the 1971 high oil price scenarios, which suggested that coal would become an alternative to expensive fuel oil – links between Shell global scenarios and strategic decision-making have been tenuous and sporadic, dependent on the approaches to corporate strategy, which has itself continued to evolve. At times, scenarios have been linked to risk management, real options, business models, and portfolio analysis, among others. The impact of scenarios on shifting the organizational worldview is evident throughout this history. For example, the “Humpty Dumpty” scenario in 1982 enabled Shell executives to think the unthinkable of oil becoming a commodity.14 Moreover the global scenarios clearly provided a useful framework for the development of customized scenarios more suited to business decision support. For example, in decisions such as the divestment of the coal business in the 1990’s or the investment decision to develop the $4bn Nanhai chemical project, specific scenarios were developed to provide context for the business decisions. Furthermore, several operating companies, such as Svenska Shell, developed more focused, medium-term scenarios to drive crude oil acquisition strategies in the 1980s. This key issue – how the Shell scenario methodology was used to create strategic advantage – is best addressed through first looking at the history of its development. To explore this history is to see how scenarios as alternative stories of the future have provided an often misunderstood and yet vital and safe space in the strategic conversation for decision-makers to engage constructively with uncertainty, to co-ordinate intuition with rigorous analysis, to make ignorance productive, and to manage disagreement as an asset. 14 The “Humpty-Dumpty” storyline was introduced by a Shell summer intern from Harvard, Mia de Kuijper, who was invited to work in the Hague for a year to develop the key analytics and charts for the storyline before returning to finish her degree.

II Shell Scenarios – A History, 1965-2013 Experimentation and Emergence, 1965-1981 1 In retrospect the 1950s should probably be seen as the ‘golden era’ of oil, the time of rapid expansion but without really damaging competition. – History and Strategy in Shell, Internal Report 1985 Clearly something had to be done to replace the ‘God-given’ view of the future in use at that time. – Jimmy Davidson, Head of Group Planning, 1967-76 On arrival in London in 1965, I was placed in a little cubicle on the 18th floor and told to think about the future with no real indications of what was required of me. This was the typical Shell laissez-faire approach. Afterwards, I found out what was really happening, and this is where the story really begins. – Ted Newland, Manager, Long-Term Studies, 1965-71; Scenario Team Leader, 1980-81 Details cannot be seen from 33 years away. Even the real prophets of our times, the science fiction writers, have blundered when attempting such long sighted view.2 – James Lovelock, Author It was only perhaps after six years or more that the concrete linking of scenarios and strategy took place, so that you could at least use scenarios to start a strategy process.3 – Gareth Price, Energy Team Leader, 1981-83

1 The decade 1971-1981 has been eloquently chronicled by A. Kleiner, The Age of Heretics: Heroes, Outlaws and the Forerunners of Corporate Change (Doubleday, 1996), Van der Heijden, op. cit., and Schwartz op. cit. We refer to these sources, but in the history that follows, we want to emphasize the importance of the pre-Wack period and the pioneering contributions of Jimmy Davidson, Ted Newland, and Henk Alkema. 2 J. Lovelock, “Outlook 2000” (November 1966). This unpublished paper was prepared for Shell as an alternative to conventional long-term forecasting. The main conclusion is stated as “in the next 33 years we enter a phase where human activity becomes a significant portion of the total biological activity of the planet.” It suggests that a major ecological or climatic disaster due to human activity will have the greatest probability (0.5) of affecting population growth and energy consumption between 1966-2000. 3 Gareth Price’s Symposium, op. cit., p. 6.

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The official Shell scenario history begins in 1965 with the appointment of Ted Newland to start up a new activity called Long Term Studies within the Strategic Studies Division. Two years later, he was joined by Jimmy Davidson, who was appointed as the head of Group Planning, with responsibility for several divisions, including Strategic Studies. Newland and Davidson had arrived at Shell in the middle of the twenty-five golden years of the oil industry that followed World War II. Global demand for oil was booming both in the OECD countries and in many developing economies. Oil was not only fueling the motorization of world transportation, but it was also gaining market share from coal in power generation and industrial markets. The great enabler of this prosperity was the abundance of cheap oil, particularly from the Middle East. The seven big oil companies – ‘the Seven Sisters’ – had developed the entire supply chain, from the massive production facilities through the refineries (typically built in consuming countries) to the marketing facilities of depots and filling stations. These ‘downstream’ facilities were not seen as profit centers in their own right because the strategic imperative was simply to sell as much oil as possible through the integrated system. In those days, the U.S. was still a major producer. But between 1973 and 1976 the oil world was fundamentally changed by three developments: the coming of age of OPEC (formed in 1960) after the oil price shock of 1973; the nationalization of private oil interests; and the increased ‘lightening of the barrel’, as value moved from refining crude oil to producing base chemicals, lubricants, and natural gas. (Traditionally, natural gas had been seen as a by-product of oil production and flared for operational safety reasons, but increasingly it became valuable in its own right.) The 1970s were a particularly uncertain time for Shell. With the rise of OPEC and supplier power, and the reduction through nationalization of its oil market share from 9% to 2%, Shell began to shift from being an asset owner to becoming a ‘privileged buyer’ from OPEC. The decade was book-ended with upheavals in the oil provinces, from the conclusion of the gruesome Biafran secession war in Nigeria to the ejection of the Shah in Iran. In 1972 the World Council of Churches targeted Shell’s presence in South Africa. In the same year, the Club of Rome published its “Limits to Growth” forecasts. Shell diversified considerably in this period, entering into the mining and metals business by purchasing Billiton in 1970, venturing into ‘new build’ nuclear in 1973, and setting up a coal division in 1974 – activities that other major oil companies were not even looking at. (All these businesses were later jettisoned as the Shell view of the wider business context, informed by

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subsequent sets of scenarios, shifted. 4) In the core business, the new North Sea resources provided a long-term stream of profits, and further finds established Shell as a major deep-water technology player, bearing fruit over many decades. After the second oil shock in 1979, when the oil majors increasingly became arms-length buyers, a new Shell International Trading Company Limited was established to fill the role of buyer, complementing Shell’s traditional role of resource owner. Since 1907 the operating and service companies of the ‘Shell Group’ had been owned by two holding companies, which were, in turn, owned by two parent companies – Royal Dutch Petroleum and the Shell Transport and Trading Company. This joint venture was organized as a matrix comprising: 1 Sectors – E&P (Exploration & Production), Chemicals, Metals, etc. 2 Regions – Europe, Asia, etc. 3 Functions – Finance, Legal, Personnel, Manufacturing, Marketing, etc. Sitting on top of this structure was the Committee of Managing Directors, or CMD, made up of the executive directors of both companies, and the ‘Conference’, a joint meeting of the CMD and the external directors. While each CMD member had a sector, function, and regional role, the members were not executives but board members of the actual holding companies, SPCO and SPNV,5 as well as of the Parent Companies. Business management was held in various national companies, each headed by a general manager, with Shell Oil, the U.S. operating company, being kept at arm’s length from others. In reality, the power was largely held among the regions and the functions rather than being centralized at the top. This organizational structure was very susceptible to gaming. Individual CMD members pushed through their own projects, country chairs operated like barons, kept in check by regional coordinators, and power struggles among the business sectors, regions, and functions were common. In this era, the Shell Group organization operated somewhat like a gentleman’s club in that influence was exerted through consensus building and subtle negotiations between members rather than autocracy and legalism. The elites in this club were well connected to the highest levels of societies and 4 J.L. Van Zanden, J. Jonker, S. Howarth, and K. Sluyterman, A History of Royal Dutch Shell (Oxford UP and Boom Uitgeverij, 2007). 5 The Group holding companies, Shell Petroleum N.V. of the Netherlands and The Shell Petroleum Company Ltd of the UK, held shares in both the service companies and the operating companies of the Group. In addition, Shell Petroleum N.V. also owned the shares of Shell Petroleum, Inc. of the U.S., the parent of the U.S. operating company, Shell Oil Company.

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governments across the world. Shell’s upper echelons were WASP-ish, drawn mainly from the Oxbridge elite in the UK and the Delft elite in the Netherlands. Shell people were performance-driven rather than profit-focused, with a sense of higher purpose that operated across the organization. Operating companies maintained a paternalistic attitude to the less economically developed countries while keeping their distance from any country’s special problems. A strong sense of loyalty, combined with common-sense operation, created Shell’s image as a responsible and respectable company that was concerned about its reputation.6 * * * In 1965, at a lunch with Exxon Executives, Shell was startled to learn that its competitor had a team looking at the year 2000 study done by Herman Kahn of the Hudson Institute in the U.S. Kahn had coined the phrase “thinking the unthinkable” to encourage U.S. leaders to think through the consequences of thermonuclear war and was developing his own scenario approach based on the insight that long-term forecasts were problematic in that they ignored futures that couldn’t be anticipated without taking into account non-linear and disruptive changes. Kahn’s work suggested a very different way of planning for the future from the one Shell was using at the time – the Unified Planning Machinery (UPM), which was a state-of-the-art, computerized business planning system. The purpose of the UPM was to iron out the nefarious impact of the business cycle on investment planning. Before the introduction of the UPM, dealing with money had been delegated to specialists. One planner said that the UPM was introduced to avoid “cold winds from the Scottish accountants every five years,” when investments needed to be curtailed in order to meet dividends.7 Others saw the emergence of the UPM as an attempt to get an early warning that cash was short in order to pull back 6 “Shell men prefer not to talk about anything as squalid as prof its. The ‘Group’ as Shell calls itself, has a hundred different faces.” Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Made (Hodder and Stoughton, 1975), p. 14. In an internal report circulated among Shell executives in the 1980s, the book is summarized as follows: “Sampson describes Shell as a responsible and respectable company, that is concerned about its image. Shell is far more tolerant and open-minded than its American sisters, with little sympathy for dictatorial management styles. Yet in spite of its forward-looking attitude, Shell is generally slow in catching up with new realities.” 7 This comment reflects the Shell folklore that the Group consisted of Dutch engineers, English traders, and Scottish accountants.

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from planned investments before they became too costly. Davidson said that the UPM “represented a significant advance for the Group in providing some structure to a previously rather disorganized system; nevertheless it has some serious disadvantages, both by way of being over-mechanical and by way of presuming to foretell the future as if the Deity himself were sitting on our shoulder.”8 As he later wrote, the UPM system “provided an overview of the Group’s activities over a forward 5-year period; its failings lay in trying to predict the future with relative certainty.”9 In 1967, the CMD created a new Group Planning Division to work the UPM system and appointed Davidson as its head. Davidson brought to the role what later became a key building block of the Shell scenario methodology: treating uncertain situations in terms of “a game which is the result of an interplay of a multitude of players or forces.”10 Davidson had begun to develop this new approach in his previous role of Chair, of the E&P Study Group and Head of Economics Planning in E&P Coordination by introducing the concept of different types of risk. ‘Technical risks’ were associated with definable events – for example, drilling a dry hole or the loss of a plant by fire or accidental explosion. In contrast, new forms of more troublesome risks required a different approach. These ‘political and general business risks’ represented conflict situations and involved interference in business as a result of deliberate human actions – for example, political factors or price wars. On the assumption that none of these forces behaves capriciously, Davidson began to pay attention to the combined effects of the environment, the external pressures on governments in producing and consuming countries, international politics, energy supply and demand, inflation, national debt, the power of trade unions, the pressures of nationalism, and many other factors.11 Between 1967 and 1969, Shell undertook two separate studies of the year 2000. One was produced by Newland and his colleague in Strategic Studies, Neville Beale, in an exercise conducted separately from the UPM straitjacket, and another was produced by the Finance Department. Newland’s narrative approach provided the first convincing analysis of the long-term future, exposing the shortcomings of UPM for long-term analysis – it “put the final nail in the coffin for the UPM process.”12 8 J. Davidson, note to G.A. Wagner, 1976. 9 J. Davidson, “Group Planning 1967-1976” (personal memoir), 1993, p. 2. 10 J. Davidson, note to G.A. Wagner, 1976. 11 J. Davidson, “EP Study Group Memorandum – Political and General Business Risk” (14 June 1967), p. 1-2. 12 J. Davidson, memoir, op. cit., p. 4.

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A key aim of Newland’s study was to see what business opportunities might lie ahead for the Group. One such opportunity was the re-emergence of coal towards the end of the century as an important energy source. Davidson later credited the work of Newland and Beale in this study as having played a significant role in the Group’s decision to invest in nuclear and coal. On a visit to Stanford University in 1968, Newland learned about the human brain’s tendency to reject new information that didn’t fit preconceived ideas, leading people to see only what they expect to see until something important but puzzling – a disastrous incident, for example – forces them to rethink the situation. As an alternative to dealing with the irreducible uncertainty of the future, Newland, having met Kahn, started working with his own interpretation of the ‘a fortiori’ argument: that ‘businessas-usual projections’ often hid big assumptions that carried the seeds of self-destruction. For example, despite periods of sustained growth, growth cannot go on forever. Newland extrapolated projections of oil demand and oil price to extreme and ridiculous conclusions in order to reveal hidden assumptions and to shift the obsession with ‘business as usual’ to a consideration of alternative possibilities. Newland notes: It remained off limits, culturally, to tackle the main center of where uncertainty lay – that is, the exploration and production side of the company. Exploration and Production built a cocoon of power around itself, which was unbreachable. I did send a report in the late 60s saying that all things being equal, the power in terms of oil would shift in favor, dramatically, to the Middle East producing countries. I got a reply back saying, “This is very interesting. We are convinced (heavily underlined) that the producing Arab states will never get together, and, therefore, thank you very much.” It was like receiving a veto from the UN.”13

Working with Henk Alkema, an experienced Shell R&D technologist, Newland developed the concept of multiple futures that cannot be assigned a probability of coming about. In 1971, when CMD member Sir David Barran requested information about the possible evolution of the government take per barrel of oil in the Middle East and elsewhere, the scenario team responded with three futures, drawing paths14 from the 1970 level of under 13 E. Newland, interview, 19 March 2009. 14 The three oil price scenarios developed in 1971 were calculated in money of the day and were not adjusted for inflation as the timeline moved from 1971-80. Later, the CMD required

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$1/barrel to $2.74 in a “Minimum” future, $3.50 in a “Low” future, and $6 in a “High” future, with a time horizon of 1980.15 “Government take higher of $6 and lower than $3.50 were examined as possibilities, but considered less plausible,” said Alkema.16 These oil price ‘scenarios’ (the term was coined later by Pierre Wack) were the very first to be presented to the Shell Executives in July 1971. They opened up thinking about whether the Tehran Agreement would hold for the remainder of its five-year term and explored oil price implications, based on a new appreciation of the capacity of Middle Eastern governments to usefully absorb revenue. In effect, these early 1971 scenarios highlighted the prospect of a major discontinuity and heralded a departure from businessas-usual projections that assumed growth forever. In line with normal practices of the day, the scenarios were presented without any real discussion to the Shell executives, but the reception was not universally warm. Wack built on these scenarios in the next few years, addressing the challenge of engaging with the ‘mental model’ of the decision maker by locating plausibility not in the outcome or in the story logic, but in the quality of conversation that enables implausible outcomes (for example, government take higher than $6) to be turned into a conceivable challenge by telling a logical story of how it might happen. The uncomfortable realizations derived from the scenarios are evident in a statement by one of the members of the first team, Napier Collyns: The original slide from the 1972 presentation showed the price of $10 oil, which is how our scenario team became famous. It gave us very unpleasant tummies for weeks as we tried to struggle with it and understand it. The real key to it wasn’t so much imagining the future price of oil, but finding a way to talk to each other and get people to say things they otherwise would never have said in a room together.17 a revision of the three into four scenarios and requested an adjustment for inflation when oil price timelines included a long horizon – 1971-85. 15 These assumptions were described in the report “Individual Producer Government Take/ Producer Strategies,” (Group Planning: May 1972) and were reflected in the first official set of scenarios, “Scenarios Planning Review 1972” (Group Planning: December 1971) – both authored by Newland and Alkema. 16 As the 1970s were a time of dollar fluctuation and inflation, the analysis was done in constant 1971 dollars, taking the Tehran Agreement as the base year. The Tehran Agreement of 15 February 1971 gave OPEC countries the first opportunity to raise the issue of indexation in connection with oil prices. See A. Al-Janabi, “Indexation Revisited,” OPEC Review Vol. 1, Issue 5 (June 1977). 17 Gareth Price’s Symposium, op. cit., p. 2.

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Earlier in 1971, Davidson proposed a revised system of planning that comprised two components: a short-term cash flow planning function, focused on a two-year period, for which commitments were already made and unalterable, which was best handled by Finance; and a second function that attempted to deal with the growing uncertainty of the future forward from the present, and that formulated strategies for Group activity and investment against the background of the scenarios. This latter activity was to be the remit of Group Planning. The main divisions of Group Planning were to be a Business Environment Division, responsible for looking at the future and developing the scenarios; a Strategic Analysis Division, to formulate strategies for Group investment and activity; and a Technical Research Division, dealing with methodology and techniques. When the CMD approved this proposal, Davidson began recruiting the types of people he needed to support these changes. Grasping the power of stories and imagery, Davidson adopted the dodo, symbol of the need for continuous learning and adaptation in the face of extinction, as a cautionary mascot for the newly formed scenario team. An image of a dodo is still ceremoniously handed down from one leader of the scenario team to the next. With Newland and others already in place, the most significant new recruit for the future of the scenario unit was Pierre Wack, who officially joined the team in January 1971, but spent the first part of the year traveling extensively, especially in Japan. By late 1971, Wack had become head of the scenario team. Davidson had met the “very imaginative” Wack during a trip to Paris, where Wack, as head of planning for Shell Française, had been using a scenario approach. Like Newland, Wack had met Kahn. But Wack disagreed with Kahn’s emphasis on uncertainty. Wack was not concerned with getting the future right. He did not engage with uncertainty as objectively ‘out there’ but focused on affecting the quality of judgment by attending to the mindsets of management and the organization. Wack harnessed alternative futures to reveal and challenge subconscious conventional wisdom and engrained patterns of thinking that affected the interpretation of reality. He engaged the certainty of ‘in here’ that stems from cognitive limits or mental models, and challenged the tendency towards group think in the consensus culture of the Shell Group. For Wack, scenarios were not so much a matter of forecasting the future as making (un)imaginable futures relevant to the present – seeing. Because Wack had ‘guru’ status in the French operating company, negotiating his release and attracting him to London was not straightforward. For one thing, there was the issue of the dog. Wack had a very strong attachment

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to his dog Indra, named after the Hindu king of the gods, and refused to leave France so as to avoid the mandatory quarantine of the dog by British authorities. But fortuitously, the dog died by running into a tree and cracking his skull. As Wack said later, “It is thanks to the death of Indra that I accepted to go to the UK to Group Planning; if he had lived, I would have stayed in France.”18 Those familiar with Wack point to this anecdote as an illustration of Wack’s sensitivity to the way a small event can modify the future in a significant way. While the Shell scenario methodology has many parents, Newland is primarily responsible for introducing the idea of alternative futures thinking and analysis. Wack certainly helped him develop the idea further – but because it was Wack, according to Newland, who introduced the term “scenarios,” outsiders often confuse the introduction of the term with the introduction of the idea. In addition to Newland and Wack, another key founder was Davidson. From the mid-1960s onward, Davidson’s concerns about Shell in the long term had led him to look for alternative ways of thinking about the future. An internal memorandum dated August 14, 1967 and authored by the EP Study Group, of which Davidson was at the time chairman, suggests that a new approach to political and general business risk required looking at how external factors, such as inflation, and outside actors, such as individual governments, interacted to reshape the environment in which Shell would operate in the future. This outside-in strategic thinking was fully operational in Shell E&P as early as 1969.19 In the context of the widespread frustration over the shortcomings of the UPM, Wack was interested in scenarios as a way to ‘see’ the present situation more clearly, rather than as a basis for knowing about the future. In a way, the failure of the UPM made room for the emergence of scenario planning: Instead of econometric calculations from global statistics, seeing required first identifying the actors and uncovering the causal chain (or chains) that are behind the evolution of a market, and then 18 E. Wack, unpublished biography of Pierre Wack, 1997, Pierre Wack Memorial Library. 19 In correspondence with the authors, (9 September 2011), Davidson confirms that Wack “did not introduce alternative futures thinking into Shell. In 1969 Ted Newland was already au fait with developing alternative futures as a contrast to long-term forecasting, and promoting it, and the concept was much in tune with the earlier thinking of the EP Study Group. Thus in 1969 Ted and Cor Kuiken and I were already thinking about how we could introduce the scenario technique into a new planning system. Ted was familiar with the work of Herman Kahn on scenarios, and we had a meeting with him around that time.”

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gathering information at a much more refined scale than global statistics, a scale at which the significant differences appear. Seeing was a much more demanding and strenuous discipline than ordinary forecasting, and the executives who needed to use the forecasts soon saw the difference, so that my activities, always involving forecasting in planning, widened first to all of France and then to the group at the international level.20

This emphasis on seeing – or, as some might consider it, intuition – was to become a hallmark of the Shell scenario practice. Davidson was initially unsure who should lead the team, Wack or Harry Beckers, a rising star in the Shell R&D facility in the Netherlands. After Davidson chose Wack, Becker, along with others, was given the equally challenging task of how to actually use the scenarios in strategic planning. Cor Kuiken, a mathematician and systems thinker, was appointed to head up the Technical Research Division, which would provide support in techniques and methodology. Napier Collyns, a Cambridge-educated historian, was also added to the team because of his experience with Shell new business ventures, where he had developed scenarios based on what would happen if Shell or some other company purchased the Billiton metals company. Collyns headed a team of half a dozen analysts. Even though Wack did not see quantification as relevant, Collyns supported the quantification of scenarios under Hans de Moulin. As Collyns saw it, numbers made up the language of business, so quantification would help make the scenarios more credible. Throughout 1971, the experimental development of scenarios was essentially confined to headquarters and got off to a sputtering start. In July, accompanied by Newland and Wack, Davidson took a note to the CMD on the three alternative oil price futures developed by Newland and Alkema.21 A week later, Davidson returned to the CMD along with Beckers to show the 20 Translation by Ged Davis, May 2008, in R. Ramirez, J.W. Selsky, K. van der Heijden, Business Planning for Turbulent Times: New Methods for Applying Scenarios (Earthscan/James & James, 2010 [2008]), p. xviii. Pierre Wack original text in D. Roumanoff, Svâmi Prajnânpad Biographie (Table Ronde 1993): “Au lieu de calculs économétriques à partir de statistiques globales, “voir” demande d’abord d’identifier les acteurs et de mettre à nu la (ou les) chaînes de causes à éffets qui sont derrière l’évolution d’un marché, puis des informations à une échelle beaucoup plus fine que des statistiques globales, une échelle où les différences significatives apparaissent. “Voir” était une discipline beaucoup plus exigeante et astreignante que les prévisions ordinaires et les dirigeants qui devaient se servir des prévisions virent bientôt la différence, si bien que mon champ d’activités, toujours dans des prévisions, s’élargit d’abord à l’ensemble de la France puis, pour l’ensemble du groupe sur le plan international.” 21 J. Davidson, memoir, op. cit., p. 8.

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Group how its activities might change in the long term – but this attempt to engage the CMD in a strategic conversation was unsuccessful. Four months later, Wack made a presentation to the CMD. This time the scenarios included some of Newland’s work on how surplus finances by Middle East producers and OPEC might affect prices and the consuming world over the next two years as well as to the end of the century. In effect, Newland and Alkema had revised their three “government take22 and oil price” storylines into a set of four scenarios in order to clarify the implications of different combinations resulting from potential slippage of the existing Tehran Agreement and new contract terms in a next agreement. Yet again, Davidson reports, the scenarios were poorly received. One CMD member – who had previously had responsibility for Group Planning – remarked that he could do as well on the back of an envelope. Although the CMD had endorsed the concept of scenarios in previous meetings with Davidson, these early attempts in July through December 1971 to win acceptance of the first scenario set were failures. Even so, the learning process continued for both the CMD and Group Planning, in no small part because of the ongoing support given to Davidson by an increasing number of CMD members, in particular, Jan Brouwer, the Chairman.23 As early as 1968, Brouwer had sent a note of encouragement to Davidson, including a copy of a page from Bacon’s Novum Organum that contained a comment on resistance to change: “The human understanding when it has once adopted an opinion … draws all things else to support and agree with it.” Meanwhile Newland and Alkema continued with their strategic studies work on government take increases by looking at the implication for, and motivations of, different oil producer countries. There was an ongoing debate on the limits of the absorptive capacity of a large increase in capital flow to the oil producing countries. Newland and Alkema also looked at the new opportunities for coal and nuclear in a higher oil price world. The impact of that work is suggested by a note CMD member David Barran sent to Davidson later in 1971, indicating that agreement to exploratory discussions on a new coal division had resulted from the oil price scenario. Karel Swart, the CMD member with responsibilities for New Enterprise in Shell, commissioned an 22 ‘Government take’ is the term used to describe what percentage of an oil barrel’s value is retained by the host government. This can take the form of a tax or an increase in the royalty through ownership of a joint venture company. See “Individual Producer Government Take/ Producer Strategies,” op. cit. 23 Other CMD supporters included Andre Benard, Karel Swart, and David Barran.

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analysis of the new long-term outlook for coal and nuclear and used this analysis to justify the establishment of a new Coal Division in Shell. On the basis of the Newland and Alkema analysis of a likely increase in oil prices following from or even pre-empted by the renegotiation of the Tehran Agreement,24 Davidson took Newland to tell the Shell Group Energy Panel about the real risk of an energy crisis in May, 1972.25 “As the writers of the first set,” Alkema said, “we were asked [by the CMD] to tone down the [higher oil price] scenarios, but of course, they were still dynamite. Whether the price increases would happen in 1973, ‘76 or ‘80 didn’t matter. Given the long lead times in energy, the sheer possibility of what that level of oil price could lead to justified the effort.”26 Alkema underlines that there had been no tradition of long-term thinking in the oil industry, which simply assumed that moderate prices and the status quo would carry on: “Where the Club of Rome ‘cried wolf’, the industry ‘played ostrich’.”27 As Wack and Beckers continued to add staff to their respective teams, the quality of the scenario storylines improved, and better ways were conceived to encourage the CMD to use the scenarios to discuss investment priorities and new business development. Gradually, the scenarios started to change the culture at the very top of the organization.28 They provided a safe way for more ‘junior’ members of the CMD to challenge the pet projects being pushed through by more senior CMD members. The scenarios made it normal, for example, for an executive to provide an explanation of how the decision might turn out in different scenarios. In September 1972, Wack gave what those present remembered as a three-hour, enthralling performance that was based on an image of the six scenarios as a river forking into two streams, each of which divided into three tributaries.29 The insights about higher oil prices and possible 24 In 1971, six Gulf producing countries and 22 oil companies signed an agreement to raise the government take to a 55% tax on profits. The Agreement secured oil supplies to Western consumers in return for a new basis of fairness between oil producer governments and foreign oil companies. It was for an initial period of five years (to be renegotiated) and replaced the 20-year tradition of a 50:50 profit share. It also provided for a rise in price upward (on an annual basis) to reflect the impact of world inflation, together with a fixed annual increase. 25 The Group Energy Panel, which included the regional coordinators, acted as a kind of alternative to test ideas before going to CMD. 26 H. Alkema, interview, 11 June 2011. 27 H. Alkema, “Memories and Lessons from 30 years in Strategic Planning (1971-1991),” Notes for the Second Oxford Futures Forum, 2008, p. 1. 28 E. Newland, interview, 2 February 2011. 29 According to Collyns, Beckers was the creator of this image, often attributed to Wack. Alkema remembers it as typically Wackian.

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energy crisis developed by Newland and Alkema were integrated into one of these scenarios.30 The scenarios included an analysis of the growth of OPEC as well as Newland and Wack’s insights into the development of the gas sector in France. In their written form, they were the first to be published (internally, dated 1973). Collyns, with the help of Guy Jillings and Joe Roeber, wrote the book of supporting analysis (the ‘Pink Book’) that accompanied the 1973 Shell Scenario ‘White Book’ written by Newland and Alkema.31 As Daniel Yergin described it in The Prize: Royal Dutch/Shell had been distributing to government leaders a confidential ‘Pink Book’, warning that the supply situation was dangerously out of whack and that an ‘oil scramble’ might ensue. Unlike the American companies, Shell had been campaigning for an intergovernmental agreement to share supplies in a crisis and, indeed, had already begun outlining, in its planning group, how such a system might work.32

The “1973 scenarios,” as they became known, suggested a possible shift in the attitude of producer governments and the formation of an oil cartel in the Middle East. Flying in the face of established expert opinions that “cartels sow the seeds of their own doom,” and “prices would never go above $2/ barrel,”33 the team had persisted in enhancing the plausibility of an uncomfortable scenario that foresaw the possibility of a Middle East oil crisis and price hike. In response, the CMD insisted that the scenario storylines be tested against conventional economic wisdom. Of the dozens of external economists consulted, only two thought the price rise story feasible. In 1972 Newland had conducted a survey of the highest management, on what the price of oil would be in 1980. It was at that time, and had been for 20 years, $1.80. The result of the survey was that 38 out of 40 said it would be $2.00.34 (It was, in fact, $35 in 1980.) 30 Scenarios Planning Review, 1972 (Group Planning, December 1971). (This is an internal Shell report in the Pierre Wack Memorial Library.) Unlike Newland and Alkema, Wack wrote very little. Other team members wrote up Wack’s stories, and Peggy Evans played an important role as the first editor of the scenarios in the 1970s and early 1980s. 31 The macro scenarios that became known as the “1973 scenarios” were actually developed in the second half of 1972. 32 The Prize: The Epic Quest for Oil, Money, and Power (Simon and Schuster, 2009), pp. 601-02. 33 M. Jefferson, “How Quickly do Cartels Collapse?” (internal Shell paper, 29 October 1975). See also M. Jefferson, “Shell Scenarios: What Really Happened in the 1970s and What May Be Learned for Current World Prospects,” Technological Progress and Social Change 79, (2012), pp. 186-97. 34 Gareth Price’s Symposium, op. cit.

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In October 1973, the first oil crisis began to unfold, and the entire organization became aware of the possibilities that scenarios offered. The 1973 scenarios report had provided a new frame of reference – the mindset of the oil producer countries. This new frame was significantly different from the usual analytical frame – the mindset of an oil company. The scenarios had enabled Shell executives to rehearse the future as a thought experiment rather than a crisis exercise. When the crisis actually occurred, Shell was able to collectively re-interpret the turbulent situation and to respond much faster than its competitors. By the end of 1973, the Group planning division and process were much better established, helped in no small part by the salience of Newland’s analysis of the very real probability of an energy crisis stemming from a growth in OPEC finances and power. These ‘macro’ scenarios, which focused on the bigger picture over a ten-tofifteen-year horizon, countered the tendency for CMD members and others to push forward their own isolated projects. As Newland later reflected, “The scenarios shifted the emphasis of the CMD so that it was not longer a question of ‘what’ you are proposing but ‘why’ this is being proposed.”35 This persistence in getting executives comfortable with uncertainty over time, as well as the importance of skillful engagement, became mainstays of the process. Other developments in scenario building had also occurred. For example, Wack concluded that if probabilities became assigned to scenarios, creating scenarios would become a mechanical exercise, and the sense of what the issues really were would be lost.36 The criterion for judging scenarios became plausibility. Probability had been rejected from the start in Shell, despite providing a foundation for contemporary scenario practices emerging in the U.S. The focus on plausibility rather than probability was the result of an extended low-intensity debate that raged during the early years. On the one hand, the probabilistic approach was defended by Beckers and Kuiken, who believed that ultimately, the number of key variables that determined the future was small enough that given advances in statistics, it would become possible to assign probabilities to scenarios. Kuiken, in particular, came from the econometric planning institute in the Netherlands (CPB37), which had a long-standing forecasting tradition. Others, like Wack, Newland, and Alkema, realized that with the dense interconnections among the myriad of 35 E. Newland, interview, 2 February 2011. 36 G. Davis, interview, 8 December 2010. 37 Centraal Plan Bureau (Netherlands Bureau for Economic Policy Analysis).

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variables that determined the future, probabilistic scenarios were hopeless. This view ultimately prevailed, and the concept of plausibility became firmly established in the Shell scenario practice. Wack and Newland also resisted the normative scenario tradition, which had emerged in France after the Second World War. In these early years, the macro scenarios were generated to reflect the deepest concerns of the Shell executives in a way that also challenged their convictions and assumptions about how the world works. The connection to concerns that were already present contributed to the sense of plausibility. Plausibility was also critical to the clarity and robustness of logic in the scenarios. The opportunity to sustain focus on the first set of macro scenarios through several engagements with the CMD was pivotal in helping Wack enhance the plausibility and relevance of the scenarios without sacrificing the uncomfortable challenges they raised. The simple river imagery and clear story logics of these scenarios, combined with Wack’s mastery in presentation, made the scenarios hard to forget. Another development concerned the number of macro scenarios, which by 1974 had been reduced to two, but remained at three for short-term scenarios. These were to remain the optimum number for memorability and effective engagement. But there was still much to do to discover how to use the scenarios to best advantage. Beckers persisted in a struggle to coordinate investment strategy with Finance, and different financial situations of the Group under the different scenarios were developed in 1973. Throughout 1973, the macro scenarios were presented to various operating companies in Europe and Asia, and “Pierre became to some extent a ‘traveling salesman.’”38 Davidson took Wack and Beckers to Houston and Toronto with a presentation of the latest scenarios to show senior vice presidents and managers the changes that were being made in the planning system. While the scenarios were well received in Shell Canada, they were met with skepticism by Shell Oil in the U.S. This experience led Davidson, Beckers, and Kuiken to conclude that Wack’s macro scenarios might not fit individual countries, and that these companies had to prepare their own focused scenarios in order to identify sensible investment options. The scenarios provided an unintentional ‘door opener’ for Shell to engage with senior government officials. Between November 1973 and April 1974, the Shell scenarios were presented to the Head of the UK Civil Service, the Head of the UK Treasury, the EU Commission, and the OECD, as well as to a number of officials in the U.S. State Department, occasionally resulting 38 J. Davidson, memoir, op. cit., p. 10.

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in reports within Shell of immediate impact: “In a presentation by Wack and Newland of the 1973 scenarios to [UK Prime Minister Ted Heath], the PM called ... the Bank of England … to set up a new department.”39 Similarly, after studying discontinuities in the scenario process, one of the scenario team members, Guy Jillings, became “aware that there was no global institution that could avert or manage a global oil crisis. I initiated discussions with the OECD and made proposals for the creation of an International Energy Agency. These proposals found their way to Mr. Kissinger who endorsed them in a speech at the Mayflower Hotel, and the IEA was in business.”40 Meanwhile, the regions and functions were finding it difficult to relate the long-term view that the scenarios offered to the more immediate future for which investments were being considered. Davidson and his team found a way around this difficulty by reintroducing the old UPM five-year planning horizon as a way of calming anxiety over the new approach. “They were still trying to get used to the concept of planning against uncertainty and against different views of the future, and it was necessary to move forward slowly. The organization had to be weaned gently onto the new approach.”41 In 1974, Newland was assigned to Houston for a year to help the senior executives bring the rest of their organization around to accepting scenarios. While he was in the U.S., he also forged closer links with the Hudson Institute and the scenario work of Herman Kahn. In 1975, Davidson visited the International Institute for Applied Systems Analysis (IIASA) in Austria and found two aspects of their work to be very fruitful for the development of scenarios. One was the concept of ‘resilience’ in ecological systems – a capacity companies also needed in order to adapt to the different circumstances described in scenarios – “and if this flexibility was not possible or if it was too expensive, one had to assess whether the investment was still justified against the risk of not having such flexibility.”42 The second was the idea of catastrophe theory – the attempt to understand what happens when systems suddenly flip over into another state. “This is one of the problems in which we are very interested with scenarios – how we can be heading along a certain scenario or pattern of events and suddenly a perhaps fairly small perturbation can cause a flip-over into another scenario or pattern of events.”43 Unlike scenarios, forecasts are 39 G. Jillings, interview, 14 December 2010. 40 G. Jillings, interview, 14 December 2010. 41 J. Davidson, memoir, op. cit., p. 12. 42 J. Davidson, memoir, op. cit., p. 12.; also see C.S. Hollings, “Resilience and Stability of Ecological Systems,” Annual Review of Ecology and Systematics (1973). 43 J. Davidson, Note on Group Strategy to G. A. Wagner, Shell internal memo, 25 June 1976, p. 3.

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poorly equipped to deal with discontinuities – with radical changes, not just business cycles. Peter Kassler, one of the Shell Group Planning Coordinators, said that Wack introduced him to the idea of a weak signal, pointing out to him that the 1960 publication of Rachel Carson’s Silent Spring introduced a step change in the life of an oil company. 44 Both Newland and Wack understood the usefulness of wider and longerterm perspectives as a non-threatening and intellectually intriguing space for dialogue. Wack and his team also recognized the challenge of connecting this open space with the microcosm – or implicit mindset – of the decision-maker. Linking scenarios to decisions required work to bring these alternative futures into the present in order to help executives see more clearly their present-day challenges and identify new and actionable options. The scenarios provided the intellectual scaffolding to gain a logical perspective on the wider context. Newland and Wack also understood that first they had to engage intuition and debunk the ‘official’ future, which wasn’t even on the table in any explicit way. The assumptions weren’t expressed. The Shell method was called the ‘intuitive logics method’ in part because it dealt not with where the world was, but where company executives thought it was. In this sense, ‘environment/context’ was specific to the intuition and perception of the scenario ‘client’ and was, in effect, a social construction. Wack even went so far as to create ‘phantom scenarios’ – a deliberate story of miracles that gave executives what they wanted before he then gave them what they needed to think about. 45 Wack and Newland created what might be considered a kind of corporate ‘therapy’ in their use of scenarios to change mindsets over time by changing what stories were possible even to think about. In the fall of 1973, Alkema was assigned to be the first of a series of ambassadors of the Shell scenario method to Europe.46 Because this position was inside the finance function, it created a bridgehead between Finance and Group Planning. As Alkema’s successor, Collyns supported fourteen European operating companies in adopting the scenario planning methodology, with a notable instance occurring in Norway, where the CEO built his strategy using alternate scenarios provided by the Group. While Alkema and Collyns succeeded in Europe, Newland failed on a similar ambassadorial mission to the U.S., in part because they ran counter 44 Gareth Price’s Symposium, op. cit., p. 30. 45 P. Wack, “Unchartered Waters,” Harvard Business Review, 1985. 46 The full job title was “Head Planning and Investment Evaluation within the European Regional Organisation.”

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to the 1970s oil business culture in the U.S., where “no one opens their mouth unless they have made $50 million.”47 From that time forward, Shell Oil in the U.S. occasionally produced its own scenarios, but these never became part of the DNA of that company’s culture. 48 By 1976, with the exception of the U.S., scenario-type planning seemed to have finally become accepted across the Group, in part as a result of the way Wack was able to communicate the scenarios to others, but also because of the talents and persistence of team members such as Davidson, Kuiken, Beckers, Newland, and Collyns. Key to the success of the scenarios was the Wack-Newland dynamic. With offices at opposite ends of the 18th floor of Shell Centre, they formed a veritable dipole – the two men could not have been more unlike. Newland was an introverted Brit who carried the weight of the world on his shoulders, with a second home in Argentina, the home country of his wife. Wack was a theatrical and highly charismatic Cartesian Frenchman, with a deep interest in Eastern thought. Wack, a disciplined, systems thinker, believed everything would look different to him if he only looked hard enough. Newland was equally brilliant, but thought more inductively. He was an almost pathological apologist for the sins of the world, viewing life as a constant struggle against nasty realities, while Wack was an eternal optimist, particularly in relation to the future. 49 While there was constructive conflict between these two very strong personalities, together they saw things nobody else would have seen. In 1976, Davidson began reporting directly to the CMD chair, a practice that continued with subsequent heads of Group Planning.50 This change reflected the significance of the new approach to strategy as different from and a complement to financial planning. It also reflected the success of the 1973 scenarios. Most CMD members were now convinced of the value in the scenario approach. After Davidson’s departure, Wack and others continued the practice of producing plausible alternative macro scenarios and also began producing granular scenarios more suited to specific decision-making. While the learning process continued, the period of initial experimentation was drawing to a close. The challenges of marrying scenarios to strategic decisions at Group level and of responding to the power dynamics 47 E. Newland, interview, 2 February 2011. 48 R. Karlin, interview, 27 October 2010. 49 J. Kopernicki, interview, 13 October 2010. 50 In 2008, the reporting shifted to the CFO, although the distinction between scenario planning and financial planning was maintained.

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of the regions and functions were being actively addressed, and five out of six CMD members had embraced the scenario approach. The new planning system continued to evolve with changes in Shell’s business environment and with the restructuring of the Group. However, not everyone in Group Planning was enthusiastic about the new approach. Even those supportive of scenarios expressed strong criticism about the content of the macro scenarios. Michael Jefferson, Shell’s first staff Chief Economist in 1974, who was responsible for assessing both the macro-economic environment and the geopolitical environment, said, “The scenarios directed attention to geopolitical over macroeconomic affairs, but much of this attention was misplaced and resulted in drawing the CMD eye away from the real ball of the instability of the Shah of Iran’s regime.”51 Jefferson viewed the 1976 macro scenarios (Belle Époque and The Carter Miracle) as too optimistic, drawing too strongly on similar global scenarios developed by the Hudson Institute. He developed an additional scenario, Producer Miscalculation, which was designed to rebalance the attention of the CMD. Despite what some misunderstood as their inadequacy as predictive tools, scenarios continued to flourish in Shell. Medium-term scenarios, which looked three to five years into the future, were added to complement the longer-term ‘macro-scenarios’, which looked five to ten years into the future. An alternating focus between oil and the macro or ‘global’ context started to emerge, and attempts in Europe to link scenarios to the planning cycle of the country operating units were successful. On a few occasions, the CMD severely restricted the wider circulation and sharing of the macro-scenarios, for fear that they would become self-fulfilling prophecies of changes to the oil price and politics of the day. After the second oil crisis of 1979-80 the market for oil experienced a significant collapse coincident with the ensuing recession. Unlike the first oil crisis, however, the subsequent recovery did not lead to an upturn in demand. The scenarios of the early 1980s attempted to plumb the potential downside of demand but this continued to confound most estimates.52 Before retiring from Group service in 1981, Wack took a long study trip, returning briefly in response to Van Wachem’s invitation to reflect on how to increase the impact of scenarios. In a series of eight briefings to senior management, Wack presented his findings on the emerging state-of-the-art in strategic planning. As Van der Heijden says:

51 See also M. Jefferson, “Shell scenarios,” op. cit. 52 “History and Strategy in Shell,” draft internal report no. 72.0527 (11 December 1985).

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When I joined Group Planning in 1980, Pierre Wack had just negotiated a two-year sabbatical to study how scenarios should be used better by managers for directing their business efforts. It quickly transpired that there was much more to it than just scenarios. Competitive positioning, option planning and strategic vision were added to the list.53

Wack himself said: I learned most of what I know about strategic vision in Japan. When you speak to a Japanese company about planning, they will usually tell you, “We do not share your enthusiasm in the West for planning.” They will add with a smile of satisfaction, “We have just a clear vision of what company we want to be.”54

Wack did not offer any ideas on how to implement this new strategic planning system, but the challenge was picked up by others in the team, notably by Wack’s understudy, Van der Heijden, who had started to clarify his own thinking on the state of the art in scenario work. Van der Heijden saw the challenge in moving beyond the ‘surprise-free’ scenario that was assumed in the business plan through successive iterations of scenario building to help make decisions that would take into account multiple futures.

Moving Closer to the Business, 1982-1990 Understanding the Business Environment was also found to be essential to the formation of sound strategy. Scenarios were one powerful means to do this, though not necessarily the only approach. Scenarios were something Shell could tackle with confidence, though they would need to be focused onto the strategic issues in question.55 – History and Strategy in Shell

53 K. van der Heijden, “A Personal View of Planning History, Given on the Occasion of Arie De Geus’ Departure from Shell, 25th April 1989,” Planners’ Newsletter (Shell, 1989), p. 1. Pierre Wack Memorial Library. 54 Pierre Wack, “Pierre Wack @ GBN,” unpublished typescript interview (?) (1993), Pierre Wack Memorial Library, p. 16. 55 History and Strategy in Shell, op. cit., p. 25.

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[With] every single [external expert] I talked to in 1989, I asked the question “Could the Soviet Union break up?” They all said no. They could not foresee or imagine any scenario in which the Soviet Union could break up. – Arden Brummel, Scenario Team Member, 1984 and 1988 Ted Newland actually stood before the Shell managing directors in 1982 and intoned a nursery rhyme to describe OPEC’s impending disarray: “Humpty Dumpty sat on a wall. Humpty Dumpty had a great fall.” As the price fell over the next three years, it set in motion an industry consolidation that eventually swallowed three of the major oil companies known as the ‘Seven Sisters.’56 – Art Kleiner, Author We are all Keesians now. – Adam Kahane, scenario team member 1988-93 (referring to Kees van der ­Heijden’s innovation in scenario practice of deep listening using interviews)

The first oil shock of 1973 had initiated an era of OPEC domination. In 1976, Venezuela had nationalized its oil industry, followed by Nigeria in 1978, and Iran in 1979. The overthrow of the Shah of Iran had disrupted oil supply, contributing to a second oil shock in 1979. Shell suffered lighter losses than other international oil companies, retaining control in its main producing areas (Nigeria, Oman, Brunei, and Gabon). In addition, Shell was better positioned in the new and expensive regions of the North Sea. As a result, the company moved up the rankings of the Seven Sisters, and by 1986 was neck and neck with the industry leader, Exxon. The organization and culture of Shell was very well adapted to the nationalistic sentiments and the rise in power of the National Oil Companies (NOCs) that characterized the oil business in the 1980s. These companies also began to invest in natural gas recovery when the commercial prospects for natural gas in high-efficiency power generation started to be realized. In the late 1980s, as concerns about climate change and greenhouse gas emissions began to emerge, natural gas was also positioned as the cleaner fossil fuel, compared to coal and oil. The era of unchallenged OPEC domination came to an end in 1986, with an oil price shock that brought prices down to single digits and began to severely reduce the profitability of Shell and other privatized international 56 A. Kleiner, “The Man Who Saw the Future,” Strategy & Business (Spring 2003), pp. 26-31.

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oil companies. Reagan and Thatcher brought a wave of privatization and deregulation. In the midst of these challenges, Shell was also facing criticism of its presence in South Africa and Rhodesia. * * * After Wack departed for a two-year sabbatical at Harvard, Newland headed the team. Both men retired from Shell on the same day in 1981. Following this, a dual leadership structure was briefly established for the team – Guy Jillings, a Shell career man, and Peter Schwartz, Wack’s choice for his successor, a scientist from the Stanford Research Institute (SRI). After a year, Jillings left for a position in Shell he had wanted, leaving Schwartz in sole charge of the team, and a new era began. Schwartz brought what was perceived as a U.S. point of view to the scenarios – that Europe lagged behind the U.S. and was not paying sufficient attention to technology-enabled demand-side discontinuities. In 1984, the phrase that was common in the upstream industry was ‘drilling on Wall Street’. Oil companies were buying other oil companies, but Shell was not actively engaged in this flurry of acquisitions. Building on the approach he had started to develop in SRI, Schwartz focused the scenarios on the supply mix, the shape of the barrel (that is, the proportion of the various components of oil, from ‘light’ to ‘heavy’, including such components as gas), and strategic choices such as whether to acquire oil fields at high prices. He also experimented with linking computer-based models and scenarios, even though the CMD meetings were not well suited for open discussions, much less spontaneous interactions in response to different sets of assumptions. He attempted to link scenarios with ‘real options’, a method that became popular in the 1980s as a way of formally quantifying a company’s business options.57 He later concluded that while “the concept [of real options] is brilliant, the practice doesn’t seem to work very well. By the time you got to the quantification of the real options, you had made so many assumptions that they [CMD members] basically didn’t trust it.”58 In a scenario called Hard Times for the Oil Industry, Schwartz and his team effectively demonstrated that the price of oil might collapse:

57 See P. Cornelius, A. van der Putte, and M. Romani, “Three Decades of Scenario Planning in Shell,” California Energy Management Review, vol. 48, issue 1 (Fall, 2005), pp. 92-109. 58 P. Schwartz, interview, 1 October 2010.

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We got the price exactly right at $16.86. And it was not, of course, because of the oil model. It was because of a basic psychological logic. What we said was we need a price low enough that it frightens them [the CMD] but not so low that it paralyzes them. As it turned out, you could have traded oil with that line. It gave them the confidence to make huge investments in deep offshore, 3D seismic and low price acquisitions.59

Whilst many experts pointed to the strength of the Communist regime, Schwartz and his team considered the possibility of a significant changes, in effect, anticipating the fall of the Soviet Union, pushed in one scenario called “The Greening of Russia.” Competition in scenarios in Shell was becoming evident. As one insider noted, “Shell Supply and Manufacturing stole a lead, setting out scenarios for partial oil price recovery.”60 In 1982, an internal report, called “Planning Under Uncertainty,” proposed a two-year planning cycle commencing with global scenarios, signaling the end of the medium-term, five-year business cycle-focused scenarios.61 Between 1980 and 1984 an executive development program exposed future leaders to remarkable new thinking in neuroscience and complexity. For example, the pioneering neuroscientist David Ingvar and the Nobel prize-winning chemist Ilya Prigogine expanded on concepts such as memories of the future and self-organization. And a “Decision Processes Seminar” offered to senior executives in May 1981 noted the importance of intuition: But in a business environment undergoing major and often unforeseen changes, these assumptions [that uncertainty can be minimized and knowledge maximized] are undermined by uncertainty and ignorance. Decisions which allow scope for hunch and procedures which recognize that excessive quantification is counter productive, may be more appropriate to the challenges of the 1980s.62

Because the scenarios were seen as an asset, Schwartz found the Shell MDs to be very responsive, and he had abundant resources at his disposal. 59 P. Schwartz, interview, 1 October 2010. 60 M. Jefferson, interview, 4 February 2012. 61 Baron Guy de Wouters, “Reflections on the Evolution of Scenario Planning in Shell, 19711992,” internal report (Shell Group Planning, 1992). 62 From the boxed text for Figure 8.9, “Objectives of the Decision-Processes Seminar (May 1981), Shell Advanced Management Study Group Course” in M. Jefferson, op. cit., p. 148.

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Considered a success by the senior executives, even if not by middle management, Schwartz left the Group in 1986 to return to the States, where he co-founded Global Business Network with four friends, including Collyns and Van der Heijden. ‘GBN’, as it was known, was a U.S.-based think tank specializing in scenarios-to-strategy work. Schwartz was followed by a Shell career man, Joop de Vries, a rising star in the company with a track record in trading. De Vries had already developed an interest and experience in Shell scenarios, with a special focus on characteristics that do not change, or change very slowly, such as the core values and personality of Shell. De Vries had written a comprehensive report on the relationship between corporate culture and corporate strategy, using custom-made scenarios to illustrate the different types of cultures and their associated strategies that would lead to different stories of Shell’s future, saying that “a well-defined scenario leads to clear objectives and suggestions, and the ‘ideal’ corporate culture for a given scenario can be described.”63 De Vries began by creating oil price scenarios because they were more focused, and had a more tangible relevance. He reflected on whether the role of the global scenario was to help Shell executives to respect and navigate different paradigms or to better articulate dilemmas in strategic options. Some wanted the scenarios to provide different interpretations of what was happening, interpretations that reflected “people of the post-war generation and the young people [who] had very different things in mind and behaved differently.”64 De Vries was also dissatisfied by what appeared to be the norm of two global scenarios, in contrast to the paradigm-challenging scenarios of the mid-70s but felt he lacked the organizational mandate to add a third, new paradigm scenario. Others interpreted this direction as being idealistic and out of touch with the interests of senior management who were, after all, the clients. One of these people was Lo van Wachem, who had succeeded Peter Baxendell as the Chairman of the CMD in the usual British-Dutch alternation. First becoming a director in 1977, Van Wachem was to loom large in Shell, moving on to chair the supervisory board until 2002. He was characterized as a particularly tough manager and “one of the most logical people on the planet,”65 yet supported the independence of Shell Oil, even to the extent 63 J. de Vries, “Corporate Cultures and Corporate Strategies,” (Shell internal report, 19April 1982). Pierre Wack Memorial Archive. 64 J. de Vries, interview, 21 October 2010. 65 M. Moody-Stuart, interview, 16 November 2010.

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of having different oil price screening values for investments.66 While he approved the energy, oil, and mid-term scenario work, and harnessed the global scenarios to explore new strategic challenges, such as environmental sustainability, he considered the global scenarios as “irrelevant” for decision-making at the local level. On the other hand, Van Wachem was deeply attentive to the role the global scenarios might play in the relationships between the CMD members and the ‘country barons’ who headed each of the fifty or so operating companies that comprised the decentralized Shell organization. He referred to the macro-scenarios as one of the two key instruments available to the CMD to steer the largely decentralized Group of Companies – the other being the Business Principles. While scenarios were tools of top-down corporate glue, they were not meant to induce grassroots strategy initiatives. Despite continued efforts to engage the Group beyond the CMD, some of the major Shell operating companies continued to ignore the global scenarios. Significantly, these included Shell Australia, Shell Nigeria, Shell UK Expro, and Shell Oil in the U.S. For these companies, scenario planning must have appeared as an experiment that would probably be dropped, with planning being returned to its traditional home in Finance. Shell was now producing a variety of scenarios – oil, energy, global, and medium-term – and this proliferation may have resulted in ‘dilution’ of the impact of the scenarios or even of the capacity of the CMD and operating companies to take them all into account. A second issue was that while Wack’s macro-scenarios had focused directly on the environment and dynamics of Middle East producer countries, De Vries had developed scenarios that felt more abstract. De Vries had looked at new paradigms like value shifts in Europe. Although these would prove in the longer term to be very relevant, they did not capture the attention of the CMD, as Wack’s scenarios had. Their less familiar, wider contexts were intended to set the scene for more focused work on energy and oil. But links between the different sets of scenarios were never made explicit, creating an impression that the global scenarios were abstract and even “irrelevant.” By the mid-1980s, the appreciation for scenarios was beginning to wane. One of Van Wachem’s instructions was to bring the scenarios “closer to the

66 The screening value was the price of oil that was used as the reference assumption on which investments would be approved. This was typically a conservative value, lower than the price of the day. Setting the value was a laborious and contentious process, as it had an enormous impact on the business. The value was set annually by the EP Coordinator.

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business” – which De Geus, among others, interpreted as a euphemism that signaled the chairman’s desire to end the global scenarios experiment. When De Vries left Group Planning in 1988, Kees van der Heijden, a Dutch Shell career man, was chosen to lead the scenario team. Van der Heijden was the ultimate insider, well connected and respected across the Shell world. In the two years before becoming head of the scenario team, Van der Heijden had led a new internal consultancy function in Shell that propagated the new strategic planning system, including scenarios, throughout the Operating Companies. In addition, he had been instrumental in translating the ideas Wack had explored in his final presentation to the CMD into a practical process that linked the systemic insights enabled by the scenarios to the core business idea and value creation model of the businesses and worked to integrate the scenario methodology into the planning process of the operating companies. For example, he expanded a method that Wack had brought back from the Institute of the Future that was based on three questions into an engagement tool he called the “Seven Questions.”67 The interview questions did not attempt to comprehensively survey different factors of change, but instead probed the core concerns of decision makers and their hopes for the future and uncovered uncertainties about the company, its business, and its environment. The synthesis of these interviews helped clarify the agenda for the scenarios. This work, along with his leadership of the in-house consulting function, helped De Geus create a convincing case for retaining the scenario practice, as well as alleviating Van Wachem’s concerns that external consultants were getting in the way of his conversations and relationships with the managers running local operations. In effect, Van der Heijden established that the Shell scenarios practice not only served to harness intuition and promote systems thinking, but that the scenarios were ‘client’- rather than ‘issue’-focused, designed for specific leaders and with a particular purpose in mind. As such, scenario-based interventions were a means to an end, rather than an end in itself. This emphasis on scenarios as embedded within and enabling strategic conversation that enabled linking between organizational silos and processes helped prevent scenario planning from becoming reabsorbed in the short-term cash flow planning of the finance function. 67 Van der Heijden, Scenarios, op. cit., pp. 175-76. The seven questions covered the participants’ background and current role; three key issues confronting the organization over the next decade on which information is sought; developments relating to these issues under a good scenario; developments relating to these issues under a bad scenario; landmark events in the history of the organization; and major decisions ahead.

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Culture Change, 1990-1999 On the whole, though, PL has not done too badly in attracting management attention. The scenarios are always extremely well received as stories, but that is the easy part. But do we really use them for strategy work? I would assert that the Group’s New Market Entries programme received an extra boost from the understanding of global market mechanisms transmitted in New Frontiers.68 – Peter Kassler, Group Planning Coordinator, 1992-95

The 1990s opened with the First Gulf War creating oil price spikes over $30 a barrel, and ended with historic lows at $10 a barrel69 – a level not seen since the early 1970s. In the middle of this turbulent decade, two events had a profound effect on the culture of the company: the hanging of Ken Saro-Wiwa, a Nigerian environmental activist, who had accused Shell of damaging the environment of the Niger Delta, and the occupation of the Brent Spar platform by Greenpeace in protest against the Group’s decision to dispose of the platform by dumping it into the sea. For Shell it was the start of a period of unwelcome global attention. The controversy over the disposal of Brent Spar and Shell performance in Nigeria, including claims that it was complicit in the execution of Saro-Wiwa, resulted in sustained and negative international attention on Shell from civil society and the media. Shell managers were quite unprepared for the challenge of public communication. Shell’s expertise in dealing with governments began to be less relevant as other institutions, especially global financial markets, became more powerful. Global NGOs also began their rise to leadership in areas such as the environment and human rights. Towards the end of this period, the Long-Term Capital Management crisis and the Asian financial crisis highlighted the new vulnerabilities of a more globally and economically interconnected world. Meanwhile, the culture in Shell in the early 1990s remained very hierarchical with occasional anecdotes of people being “thrown” out of the office of their boss. At the same time, a genteel Oxbridge culture prevailed in London, with one member recalling inspiration for the scenarios being facilitated by offsite team meetings, occasional dinners with fine wines, 68 P. Kassler, “Signing Off,” Planners’ Newsletter (1995) in Planners’ Newsletter Archive, p. 55. 69 The price of North Sea oil (Brent crude oil) briefly hit $9.80 in December 1998 in nominal terms, and spiked at $36.09 in October 1990 (http://www.indexmundi.com/).

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impromptu conferences with world experts, and at least one informative lunch-time walk through the British Museum.70 Sixty autonomous country units formed the power base in the Group. Meanwhile, inside Shell, the hierarchical, Western, and technocratic culture that had benefited the operation of a decentralized group of national operating companies was starting to cause concern about Shell’s ability to thrive over the longer term. Shell’s old-fashioned culture was manifest, for example, in the separate dining rooms for different ‘classes’ of staff in London. The E&P technocratic culture had become more dominant than the more commercial culture of the downstream, or distribution and retailing businesses. After Van Wachem’s retirement in 1992, his successor, Cor Herkströter, embarked on a thorough reorganization based on a McKinsey review process that had found that power plays between regions and functions were suppressing real business development.71 A lack of business sense and a poor quality of commercial leadership called for urgent restructuring and cost-cutting. By 1996, the matrix structure with its country units had been replaced by global business units. The new structure was based on business committees. It took a while for the implications of this to be worked out, but eventually, four international businesses were established: Exploration and Production; Oil Products; Chemicals; and Gas and Coal. (A fifth – Renewables – was added later.) Herkströter drove the changes through the organization and maintained a simple focus on the rate of return on capital employed, which saw the Group results improve significantly, even after discounting the benefits of a return to higher oil prices. Once the new business structure was in place, the heads of the businesses became fully accountable for profit. It was not, however, until 1998, when Sir Mark Moody-Stuart became chairman, that the power of the country chairs (the so-called ‘barons’) was irretrievably broken, but it required the symbolism of the sale of the old headquarter buildings in Rotterdam and London to complete this shift from country chairs under a Dutch-British governance structure to a global focus with a single CEO. * * *

70 B. Flowers, interview, 20 September 2010. 71 See R.M. Grant, “Organizational Restructuring within the Royal Dutch / Shell Group,” Case study 7 appendix to Contemporary Strategy Analysis (Wiley-Blackwell, [date of fifth/most recent edition] [2005].

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Throughout the 1990s, two very different men headed the scenario team: Joseph Jaworski, a philosophical American external expert on leadership chosen from a diverse field of contenders (including a former astronaut), and Roger Rainbow, a pragmatic Shell-man from the downstream business. Their tenures were over-shadowed by the re-organization and realignment of the Group, and for the first time, themes of internal dynamics became important components of the scenarios. Both Jaworski and Rainbow inserted elements into the scenarios to help catalyze changes in the Group culture and organization. Jaworski was an entrepreneurial American with success in the oil, legal, and insurance sectors, who happened to hear Norman Duncan, the editor of the 1989 Global Scenarios, give a speech in Houston. Fascinated by the account of Shell’s success in using scenarios to help managers react more quickly to emerging futures, Jaworski came up to Duncan afterwards to ask questions about scenarios – which led to further conversations and eventually to Jaworski being hired.72 Jaworski focused on the quality of the team. Shell had the reputation of hiring the top 5% of those with high intellectual and analytical capacity, but Jaworski also wanted people who were open and curious as well as smart. He brought in an unusual mix of people, including an HR professional from within Shell to complement the social, economic, and political change experts. Members of the team included a Canadian physicist, Adam Kahane, an American economist, DeAnne Julius, who was later a founding member of the Monetary Policy Committee of the Bank of England, and Vince Cable, who later served as a cabinet minister in the Cameron government. Over strong objections, Jaworski brought in a poetry professor from the University of Texas, Betty Sue Flowers, who became both the voice and the sparring partner for a decade of scenarios. It was an exciting time. The collapse of the Soviet Union signaled the end of the old world order. After picking the team, Jaworski followed the model of best practice established by Van der Heijden and focused on discovering what scenario agenda would be relevant and challenging to Shell managers. He spent the next six months conducting over 100 deep dialogues with Shell executives, consisting of one-on-one interviews that lasted for three to four hours. He met with every functional and operational coordinator, every managing director, and a selection of thought leaders on Shell teams, traveling across Europe and to the U.S., Canada, Japan, Brazil, Singapore, Malaysia, and Nigeria. He shared the essence of these conversations with the rest of his team 72 J. Jaworski, Synchronicity: The Inner Path of Leadership (Berrett-Koehler, rev. ed. 2011 [1996]).

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and with them started conducting joint dialogues and small workshops. He also convened external dialogues with government and industry leaders, including investment bankers, who were operating in other sectors. From all this active listening and wider engagement, some tentative ideas started to emerge, most notably the importance of the relationship between rich and poor countries. While there was much open discussion, the hierarchical structure and organizational culture of Shell at that time inhibited less comfortable truths about the Group itself from being shared and discussed. Jaworski saw open conversation as a means of managing disagreement as an asset, but there was no vehicle for supporting such conversations among Shell executives at that time. It was not until 1994 that the first Group Leadership Forum took place in Shell, bringing together the top fifty people to discuss Shell’s underperformance and its leadership culture. As with earlier scenario rounds, the 1992 global scenarios were developed through an intuitive, discursive process in which scenario team members were encouraged to engage in dialogue and argue with each other, free from the bounds of hierarchical structures. Jaworski himself appeared to have a limited appetite for the intellectual battling between different members of his team. He would often leave Kahane and Rainbow to fight it out between them and await their conclusion. The team also engaged with a raft of remarkable people, both as they went around the world visiting the various operating companies and through interactions with scholars and others who frequently visited Shell Center. It was in this context that the Shell scenario team developed the 1992 global scenarios, New Frontiers and Barricades. New Frontiers pointed to the opportunities for more growth arising from beyond the OECD countries through the rapid industrialization of Brazil, Russia, and Asian countries, for example – but a growth that could be sustained only if rich countries cooperated with poorer ones. Barricades hinted that some countries might resist globalization and liberalization and adopt protectionist stances in response to more intensified and widespread global economic competition. Jaworski’s belief that Shell could build scenarios that would help it shape the future led to the theme of the leadership culture reflected in the New Frontiers scenario under the heading of “Business and People.” While the idea of ‘normative’ scenarios led to passionate debates among scenario practitioners and has had ramifications in the academic literature, the issue itself never rose above the noise of the company’s travails of that period. Having published the scenarios, the team spent the next two years running workshops for the sixty or so decentralized power centers of the Group. At that time, there was an expectation that managers had to think about their strategy

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against the group scenarios. The scenarios functioned as a kind of common language as well as a common basis for generating and testing strategic options across the group of companies. “We were doing a lot of regional scenarios, five or six substantial exercises, global scenarios, and some country scenarios,” said Adam Kahane. “I remember going to Kuala Lumpur and borrowing somebody’s computer, and I was very surprised to see that ‘global mercantilism’ was in his spell checker. This to me was proof that the scenarios were being widely used.”73 Following their internal release, Jaworski quietly pushed the CMD to reconsider the role of scenarios: to overcome the “moral ambiguity” of the Shell scenarios (a phrase coined earlier by Charles Hampden-Turner) by indicating a preferred future – New Frontiers – and to use its considerable influence as a global organization to secure progress towards this future direction. It is important to note, however, that the 1992 Global Scenarios were not originally intended to be a normative set of scenarios. But as the stories emerged, New Frontiers began to appear to be a much more desirable future than Barricades. As Roger Rainbow put it, “Joe really wanted to use the scenarios as a kind of force for good – not just to be reactive to the environment, but to say, Shell is big enough to change the world or to have an effect on the world.”74 However, the normative thrust of New Frontiers failed to gain any traction within the CMD. Shell was in a deep identity crisis, stuck in a non-inclusive leadership model that discouraged strategic conversation and proactive engagement in the wider world. Yet it was also starting to realize the importance for a global organization of having a reputation for integrity. The seeds of transformation were beginning to be sown by the global scenarios and through the emergence of a new generation of Shell leaders, such as Sir Mark Moody-Stuart and Jeroen van der Veer, who operated through a more inclusive style of governance. In the midst of building the 1992 scenarios, Kahane helped lead an influential scenario project in South Africa, which later came to be known as the “Mont Fleur Scenarios.” Again, while a normative outcome had not been present in the design of the process, a desired scenario emerged from the group of four that were produced. “Shell people were developing scenarios to help the company adapt as best it could to whatever happened,” Adam Kahane commented. “And the South Africans – all of whom from different perspectives had fought and sacrificed for the future of the country – were

73 A. Kahane, interview, 17 November 2010. 74 R. Rainbow, interview, 13 October 2010.

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using the scenarios for a fundamentally different purpose, which is to create a better outcome.”75 As with earlier rounds, the 1992 global scenarios were presented to the CMD and at the joint meeting of the Supervisory Boards known as “Conference.” Jaworski also brought in a series of remarkable people, including Roberto Allemann, the Minister of Economy of Argentina, and Rupert Sheldrake, a biologist, to discuss the ideas in the scenarios with Shell executives. “It was like trying to turn an aircraft carrier,” Jaworski said. “But no one was really trying to kill or ignore what you were saying because we’d gotten the buy-in early on through the interviews and cemented this with specialists whom the CMD basically couldn’t argue with.”76 The 1992 Global Scenarios were also shared with selected outside audiences, including the Atlantic Council, which comprised fifty or so of the most senior people in the U.S. in government and business, including senior Congressional leaders, CEOs of large companies, White House staff, and investment bankers.In addition to sharing its global scenarios, focused scenarios were developed for the local state oil companies – for example, in Brunei, Kuwait, Nigeria, and Oman. Jaworski had contracted to do one round of scenarios, after which he returned to his leadership practice,77 to be succeeded in 1993 by a Shell insider and the head of the scenario energy team, Roger Rainbow. Jaworski had been only the second of three external hires to head the scenario practice and in fact strongly recommended that an insider succeed him. All the external heads had short tenures, reflecting the strong but somewhat insular culture of the Group. With a background in the more commercial downstream business, Rainbow was concerned with increasing the business focus at Shell. To his surprise, some members of the CMD appeared never to have heard of the concept of a business portfolio, and a senior upstream executive needed to be told about the idea of sales per square foot.78 The first set of scenarios under Rainbow were Just Do It! and Da Wo (‘Big Me’), reflecting the growing impact of the American and Asian business cultures. These stories served the dual purpose of catalyzing the necessary culture change, as well as being proper scenarios in their own right. 75 A. Kahane, interview, 17 November 2010. 76 Interview, 14 October 2010. 77 Jaworksi had been invited by Peter Senge to become a senior fellow and member of the Board of Governors of the MIT Organizational Learning Center, working with Senge in the center and later cofounding the Society for Organizational Learning (SoL). 78 R. Rainbow, interview, 13 October 2010.

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Rainbow fit into the Wack tradition of inspirational presenters and went on to lead two scenario rounds. One CMD member recalls a presentation for the Saudi ministries, who were made very uncomfortable by the implications of Rainbow’s evocative description of Just Do It! until Rainbow moved on to Da Wo (‘Big Me’).79 In spite of the cost cuts and overhead reductions that were sweeping through the company as a result of the McKinsey review, Rainbow engaged the needed people and performed the usual number crunching. He also adopted the intuitive approach to building scenarios that had become established since the time of Newland and Wack. Building on the New Frontiers themes, Rainbow coined the term “TINA” – shorthand for “There is No Alternative” to globalization and liberalization. The strong business and Asian themes of Just Do It! and Da Wo (‘Big Me’), were designed to enable the Shell leadership to attend to different commercial implications of the rise of Asia and the BRICs. Focused scenario work also continued, both within the organization and in partnership with others. Scenarios on the future of e-business were developed with Cisco, for example. Whilst public versions of the global scenarios were distributed to and shared with selected third parties, the large volume of focused scenario work was not published. The 1995 scenarios reflected insights emerging from the periphery of the organization, including national scenarios developed by the central office team at the request of country chairs. But one significant signal that was missed was the insight from the Taiwanese scenarios that as increasing demand from emerging economies resulted in rising oil prices, the higher prices would trigger consolidation in the industry. While the 1995 global scenarios were being created, a separate group developed long-term energy scenarios, which focused on the future energy mix and the inevitability of an increase in renewable energy. This emphasis on renewables helped encourage the establishment of Renewables as one of the five international businesses in the reorganization that followed the McKinsey review. Rainbow focused the 1998 global scenarios on leadership: The New Game and People Power. As one scenario team member put it, “Roger, in particular, used scenarios to help the business think through difficult or ignored topics and if necessary, to push the business to becoming more commercially astute.”80 The Group’s chief economist maintained a market fundamentalist view that colored the scenarios. In spite of a sense that the CMD was preoc79 M. Moody-Stuart, interview, 16 November 2010. 80 D. McKay, interview, 5 October 2010.

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cupied with other matters, CMD member Moody-Stuart remembers that “I used to wander down to the planning floor and talk very much to people down there, to Roger Rainbow, to Vince Cable who was there at the time.”81

Cheaper, Deeper Thinking, 1999-2006 Ged and I committed to work jointly to figure out how to make scenarios more applicable to what was at the time a brand new activity for Shell because by and large, corporate level, top-down strategy work wasn’t being done in Shell at the end of the 1990s. – Roxanne Decyk, Head of Group Strategy, 1999-2002 The core of scenarios is a mindset to recognize that the challenges facing the business don’t come from the energy business itself. They come from politics, the social – a whole host of different areas. – Ged Davis, Scenario team member 1972, 1980-82, 1986-90, 1994-99, Head of scenario team 1999-2003

The period 1999-2006 was characterized by uncertainty, turmoil, wars in Iraq and Afghanistan, and a push for more accountability among companies. The contagion of the 1997 Asian financial crisis had destabilizing effects on investors’ confidence, and in 1999, the stock markets crashed as the dot. com bubble and investors’ optimism for the overvalued Internet companies burst. The 1999 Seattle protests against globalization and the World Trade Organization made apparent the negative effects of a more integrated world. On September 11, 2001, the U.S. was hit by terrorist attacks, and the following years saw an increase in attacks and suicide bombings across the world, including in Madrid and London, ending the world’s expectation of collecting a Cold War peace dividend. In the business world, in December 2001, the American energy company Enron, whose asset-light structure was exemplified as the corporation of the future, filed for bankruptcy under a haze of fraudulent accounting. And as economies such as Brazil, Russia, India, and China (the BRICs) started to emerge as economic powerhouses, questions as to whether there would be enough oil to support their growth showed that the days of taking the world’s energy supply for granted had come to an end. 81 M. Moody-Stuart, interview, 16 November 2010.

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In the oil markets, 1999 began with the oil price dipping to $10 per barrel in January as a result of an increase in Iraqi oil production and a reduction in demand following the Asian Financial Crisis. But by September 2000, oil had reached $35/barrel, next peaking at $77/barrel in July 2006. With globalization, liberalization, and the new technologies still prominent on the radar of Shell and its scenarios, and with Shell recovering from a poor financial result in 1998, the Group’s strategic intentions turned towards: a) reducing costs through realignment of internal structures and divestments; b) extending its investment horizons to new continents, such as China; and c) exploring new sources of energy.82 Within Shell, Moody-Stuart sought to continue the streamlining of reporting structures by replacing the consensus-based decision-making with greater individual accountability and leadership. Within the new business sectors, chief executives replaced the business committees. By the end of 1999, Shell Oil, Inc. (the U.S. subsidiary) was merged with the parent Shell company, with the CEO of Shell Oil becoming a de facto member of the CMD. Within the CMD, the ‘committee of equals’ was replaced by an executive committee with specific roles and responsibilities.83 Shell’s position among the major oil companies had changed dramatically in this decade. In 1991, Shell had been second on the Fortune Global 500 list of the world’s largest industrial corporations and for two years in a row had earned more profit than any other company or group.84 But by 2000, BP and Exxon had grown through mergers and acquisitions to the extent that Exxon was well ahead of Shell in crude oil production and net income, and BP was closing in fast. In 2001, Moody-Stuart was replaced by Philip Watts, a hard-driving manager, as the Chairman of the CMD. Three years later, the Group faced a crisis when it was discovered that Shell was not in compliance with the method of reporting proven oil reserves required by the U.S. for any company listed on a U.S. stock exchange. Shell had to resubmit its financial statements to reflect that 20% of its 2002 reserves – 4.47 billion barrels of oil equivalent (boe) – had been erroneously reported as proven reserves in the SEC filing. 82 “How Do We Stand? People, Planet & Prof its,” The Shell Report 2000. Available online: http://sustainabilityreport.shell.com/2010/servicepages/previous/files/shell_report_2000_99.pdf 83 R.M. Grant, “Organizational Restructuring within the Royal/Dutch Shell Group,” (2002) http://www. blackwellpublishing. com/grant/docs/07Shell.pdf (2002) 84 C.Knowlton and W.E. Sheeline, “Shell Gets Rich By Beating Risk: The Anglo-Dutch Giant has Become the World’s Biggest and Most Prof itable Petroleum Company by Preparing for Anything,” Fortune (26 August 1991), http://money.cnn.com/magazines/fortune/fortune_archive/1991/08/26/75405/

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A further 1.37 billion boe were retroactively removed in the 2003 filings after a reservoir-by-reservoir review was undertaken in 2005. Ironically, shortly before the crisis, Shell U.S. had produced a set of post9/11 scenarios, based on the Group’s Business Class and Prism scenarios, which had included an extensive section on the evolving relationship between the corporation and the state called “The Long Arm of the U.S. Justice System.” The section included the warning that “In summary, corporate directors and officers may be more exposed to efforts to impose civil and criminal liabilities in the future than an analysis of the corporate structure of parent and subsidiary companies might suggest.”85 When Shell went through the legal debacle relating to its reporting of oil reserves, Watts was asked to resign, leaving Jeroen van der Veer to take up the helm. Van der Veer pushed through the re-structuring, including the unification of the dual-parent structure. In July 2005, the CMD was dissolved, and Van der Veer became the first CEO of a unified Shell. The restructuring of Shell’s portfolio from 1999 through the early 2000s involved investments in renewable energy sources with lower carbon footprints, such as solar PV and wind. (Shell had invested in forestry since the 1970s.) But by the end of the decade, most of the renewable businesses had been divested. Another significant development involved China. In 2001 Shell extended its investment into China by buying an interest in Sinopec (China Petroleum and Chemical Corporation) and forming a joint venture to build the $4 billion Nanhai petrochemical complex.86 The McKinsey review continued to be implemented, with Shell businesses finally assuming prominence over functions and regions. Each of the five international businesses had its own strategy function, while Group strategy began to focus on portfolio analysis. * * * At the beginning of this period, in 1999, Ged Davis, a soft-spoken Brit and a rare career scenarist in Shell, replaced Rainbow as head of the scenario team, which was renamed The Global Business Environment Division. Davis attempted to work creatively within cost-cutting constraints, extending the depth of research into scenarios by commissioning studies and reaching out to new stakeholders, particularly international NGOs. Davis was allowed 85 “U.S. Scenarios 2001-2020: How the 2001 Global Scenarios Business Class and Prism Play Out for the United States at Home and Abroad (revised Oct. 2001), p. 13. 86 The Shell Report 2000, op. cit.

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to expand the team if he billed internal and external clients to cover any additional costs over and above the annual GBP 3-million budget for the global scenario team and its work program. Like Jaworski, Davis embarked on a wide set of interviews within the organization to help ensure relevance to decision-maker mindsets and concerns. He pushed hard to combine intuition with rigorous analysis, testing and refining the global scenarios within quantitative modeling. In addition to conducting initial interviews, Davis also engaged executives in building the scenarios through a series of large-scale workshops. The team leveraged their expertise in scenarios to conduct third-party scenario work, sometimes for a fee, but more often as a means of gathering new insights and a deepening understanding of key partners and stakeholders. Partnership initiatives that leveraged Shell’s scenario-building expertise included scenarios on AIDS in Africa with USAID, scenarios on the future of the world’s environment with the World Business Council on Sustainable Development, and the Risk World Scenarios developed with EDF, the European Patent Off ice, and the UK Health and Safety Executive. Some of these scenarios were remarkable in terms of their attention to deeper shifts in cultural mythology and the challenge of navigating parallel paradigms and worldviews. Joint initiatives on focused scenarios with third parties also continued and helped offset budget reductions, making it possible to commission in-depth research. The intent was not simply to cut costs: building scenarios with others provided a means to anticipate and inform changes in Shell’s business environment in a way that helped reveal and overcome blind spots in Shell’s considerable in-house expertise. For example, the RiskWorld scenarios helped Shell get to grips with the changing landscape of risk.87 These projects also resulted in finding ways to frame complex challenges relevant to Shell’s businesses, such as HIV/ AIDS in Africa. But along with their benefits, these experiments in partnered, collaborative futures also exposed challenges in extending the firm-level scenario practices and scenario culture of Shell into new settings. In contrast to the moral neutrality of Shell scenarios, most of the collaborative endeavors had to navigate different worldviews and sometimes had to grapple with a

87 A. Wilkinson, S. Elahi, and E. Eidinow, “RiskWorld Scenarios,” special issue of RiskWorld. Journal of Risk Research, 6 (4-6) (July 2003) pp. 297-335.

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rejection of the “economic myth”88 underpinning Shell business models and practices. These partnership projects required new and explicit governance structures that ensured that sponsors could not dictate the content or implications of the work, and that participants, rather than the a priori client, collectively determined the stories that made it into the final set of scenarios. In contrast to the Shell setting, these collaborative initiatives involved manufacturing a client. For example, Peter Piot, the Executive Director of UNAIDS, understood that it alone could not find solutions to the puzzling situation that characterized the continued spread of HIV/AIDS across the African continent. The proxy client was manufactured in the form of a Steering Group for the initiative, which represented different interests with different perspectives on ‘the problem’, national development agencies, pharmaceutical companies, national health ministers, and community- and faith-based organizations. These initiatives also encountered methodological misunderstandings. The practice of intuitive-led, plausibility-based scenarios developed at the interface of business, government, and wider stakeholders stood in stark contrast to the conventional model-based, expert-led, and probabilityfocused scenario work in public policymaking and the more activist, visionary, and normative orientation of NGOs. In addition, there was the challenge of building the capability and opportunity to use the scenarios in a diversity of different settings, by different audiences with different needs. In a continuation of earlier efforts, the global scenarios under Davis sought to open up the organization to new thinking– for example, to heterodox economics, which viewed the global economy as a complex, open, and adaptive system in contrast to the assumptions of orthodox economics of a closed and single equilibrium system. 88 A term used by B. Flowers to characterize the dominant cultural story accepted as the basis of reality at this point in the history of the west – the first truly global myth, with implicit values that differ from earlier myths (religious, scientific, hero), although these earlier myths still operate to some extent today. The four myths appeared in a chart in the 1998 WBCSD environmental scenarios. “In the West I think we’ve been shaped in the past by a heroic myth, a religious myth, and a democratic myth; and I think now, we’re in the economic myth. That myth doesn’t have the kind of old fashioned ‘once upon a time’ story we’re used to; it doesn’t have in Campbellian terms a hero’s journey – there’s no journey part to it. It has a dynamic and it has implicit values of measurement – number, quantity, growth. It’s got an inherent bias towards a series of evolutions that are additive – like we get better and better, we grow more and more. It doesn’t tell a very coherent story. But it has a thrust and a power to it” (R. Davis-Floyd, “Storying Corporate Futures: The Shell Scenarios – An Interview with Betty Sue Flowers,” Corporate Futures, Late Editions Series, G. Marcus, ed., Vol. V (University of Chicago Press, 1998).

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Davis emphasized clarity of framing and awareness of the audience as key to ensuring the plausibility, relevance, and challenge of the global scenarios. While sympathizing with both the globalization and anti-globalization camps, he reframed globalization away from the “accept or reject” reaction of previous rounds and focused instead on two contrasting perspectives: on one hand, increasing competition and homogeneity (Business Class) and on the other, the rise of emerging economies leading to a diverse pattern of multiple modernities (Prism). The resulting stories had worlds in which globalized growth continued but with different patterns and implications. He also emphasized the need for more science in the scenarios, striving to combine intuition with rigorous analysis. He further deepened and refined global scenarios by customizing existing macro-economic models to test the internal logics and ensure consistency as well as to illustrate the implications of different scenarios through numerical projections. As with previous scenario rounds, the team also played a role in helping others use the scenarios and reap a return on the investment made in scenario building. The team made itself available to support each of the five international businesses and corporate functions, engaging variously with the specific strategy units supporting each business. For example, the Chemicals business commissioned the global scenarios team to facilitate scenarios-based strategic conversations involving all its leadership teams and worked with the scenario team to deepen the strategic analysis needed to move from the scenarios to its strategy and business plan. Some of the newer businesses, especially Hydrogen and Renewables, were particularly interested in the scenarios, as was the Gas Business, which was considering big new investment options in Iran and Saudi Arabia. Even though Watts had mandated the use of the global scenarios as a context for the strategic plans of the businesses, responses from many of the other businesses were often a matter of mere compliance rather than the result of deeper reflection. These businesses adopted a ‘tick box’ approach to using the global scenarios, preferring to harness specific elements of the supporting analysis involved in developing the global scenarios within their own scenario building and strategy processes. On the other hand, some individual functions engaged the global scenarios to explore and inform elements of strategy. The HR Director, John Hofmeister, was particularly interested in the global scenarios as a way to cultivate an ‘external mindset’ on the core skills required by a Shell Executive. The CMD agreed to move to an integrated planning system (the Group Strategic Management System – SMS) and engaged Mercer to review and

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catalogue the Group’s business models. Increased collaborative efforts between the Group Strategy and Global Business Environment teams led to further attempts to link scenarios to Group strategy and portfolio analysis. Portfolio management was still a relatively new approach for Shell, so the idea of examining different integrated portfolio sets that outlined different futures for Shell was novel. Three scenarios were created: OPEC’s Poodle, SuperMajor, and True Titan. Given the highly strategic and commercially sensitive nature of the implications, these scenarios were strictly embargoed, restricted to CMD and Conference Board members only. Just as the 2001 global scenarios were to be released in the form of a public booklet, 9/11 happened. Although the scenarios were not re-written to highlight the implications of 9/11, an addendum to the scenarios was quickly penned, and the two worlds, Business Class and Prism, enabled different outcomes post 9/11 to be considered. This clarity in alternative frameworks enabled an event as surprising as 9/11 to be interpreted without too much difficulty. The speed with which the 9/11 addendum was produced supported a growing sense that scenarios could be created much more quickly, and this expectation led to an outpouring of short-term and crisis-driven scenarios, including scenarios on the invasion of Kuwait, and the prospect of a global influenza pandemic triggered by a new flu virus. The long-term energy scenarios of 2001 (Business as Usual and Spirit of the Coming Age) focused on technology development in the 21st century as its central theme and was only loosely linked to the reference frames of the 2001 global scenarios. In 2003 Davis retired from Shell and was succeeded by Albert Bressand, a French intellectual and think tank co-founder, who had occasionally contributed to the global scenarios process as an outside consultant.89 The 2005 global scenarios were developed against the backdrop of increasing global insecurity and a drive within Shell towards a more Exxon-like accountability culture. In response to cost pressures, Bressand chose to appoint more junior staff and to leverage his network of remarkable thinkers rather than to continue the self-funding model developed by Davis. In a deliberate move away from the linked themes of the previous decade’s stories, Bressand approached the scenario-building process “in a more conceptual manner,” saying that this approach “was sometimes painful as it tended to downplay the joys of the scenario discovery journey 89 Bressand had worked in McNamara’s office of the World Bank and as an advisor to the Minister of Foreign Affairs of France before co-founding PROMETHEE, a think tank in Paris.

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and made lesser use, or no use at all, of the literary art of story-telling.”90 Determined to put trade-offs at the center of the analysis – as economists are inclined to do – Bressand and his team sought inspiration from work by Harvard’s Dani Rodrik, who observed that of the three desirable objectives of democracy, sovereignty, and globalization, a given nation could achieve at most two, never three. Armed with these insights, the team came up with a general map which ended up being labeled the Trilemma Triangle. Rather than exploring the effects of globalization, the 2005 scenarios instead applied a theoretical approach of considering a trilemma of key objectives and their underlying factors– a level of Efficiency through Market Incentives, a level of Security through Coercion and Regulation, and a level of Social Cohesion and Justice through The Force of Community. The publications presented three possible scenarios, illustrating the combination of these factors and objectives at the mid-point, of the sides rather than at the extremes (apices) of the Trilemma Triangle: the dogmatic world of Flags, the pragmatic world of Open Doors, and the legalistic world of Low Trust Globalization. The intent was to produce “a grammar rather than a story,” as Bressand put it.91 Analytically, as was agreed after some soul searching, three forces can support a vectorial geometry like the one associated with the Trilemma Triangle. The more rigorous description of the 2005 scenarios was therefore framed in terms of the force of attraction to incentives, the force of coercion and/or regulation constraining choice, and more diffuse mimetic forces emanating from the need to belong in, or at least relate to communities in ways that vary greatly across regions and cultures. … The use of a robust analytical framework turned each point on the ‘Trilemma Triangle’ into a possible future; rather than contrast one storyline with another one could now chart paths across them and reflect on trajectories rather than steady states.92

Bressand also grappled with the challenge of relating different sets of Shell scenarios – for example, linking global and more focused scenarios. He introduced metaphors such as the “jet stream,” “weather system,” and “local market conditions” in an attempt to help others understand the links between scenarios sets focused at different scales of business, such as the 90 A. Bressand, cs., 16 May 2012. 91 A. Bressand, cs., 16 May 2012. 92 A. Bressand, cs., 16 May 2012.

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global or group portfolio, the regional or market level project investment, or the new market entry level. These three levels provided a foundation for relating different sets of scenarios and avoiding the assumption of topdown logic in which global scenarios always provide the reference frame for focused scenarios. Different sets of scenarios, he suggested, could be related by seeing the combinations between different sets of global and focused scenarios as ‘attractors’ – a term from complexity science.93 In spite of a successful demonstration workshop for a group of Shell managers, providing these conceptual tools for creating ad hoc scenarios rather than offering two fully developed stories did not encourage widespread internal adoption of the storylines. The storylines themselves, created through engagement with external experts rather than Shell executives, were largely perceived as very clever but not central to concerns of decision makers and thus unhelpful within Shell. They were used more as door openers by Van der Veer and for public relations by Corporate Affairs. Even though the 2005 scenarios were perceived as having limited usefulness within Shell, the capacity to develop and use scenarios had now become widespread across the organization. Group GameChanger (the technology innovation process that Shell used across its businesses) picked up scenarios as central to its role.94 E&P was also doing its own scenario work. These various decentralized scenario projects created a dilemma – who would take the lead connecting the short-term thinking being done by a large number of groups to the long-term thinking being done by a small but growing number of groups? Meanwhile, the door-opener value-add of the Shell scenario brand still remained. For example, in 2001, Chinese government officials invited Shell to facilitate scenarios for the future of China. Other outsiders, however, expressed skepticism about the independence of thinking in firm-level scenarios such as those that Shell produced, viewing them as a form of 93 Some complex systems spontaneously and consistently revert to recognizable states known as attractors. Whilst they might, in theory, be capable of exhibiting a huge variety of states, in fact they mostly exhibit constrained attractor states. Like the pendulum of a grandfather clock that is given a nudge, it may move around erratically for a period but soon settles back into its customary regular beat. Society’s norms and customs are another example of persistent, hard-to-displace attractors. Bressand aimed to identify the underlying combination of scenarios across different scales that taken together would form attractor states. 94 Shell Group GameChanger was an in-house innovation process designed to encourage new ideas and nurture them to commercial success. Established in 1996, with 10% of the total E&P research budget, the process generated more than 2000 new ideas, turning 200 of these into commercial projects.

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stealth advocacy. Even so, ongoing collaboration between, for example, the China State Council and the Shell scenario team, continued into 2012.95

New Pathways to ‘Challenging and Heard’, 2006-2013 It’s a very subversive process that helps enhance the perception and quality of judgment of the executives without them always realizing it at the time. It’s like Schopenhauer said: new ideas are first ignored or ridiculed, then vehemently opposed and ultimately taken to be self evident.96 – Jeremy Bentham, Head of Scenario Team, 2006-…

The reserves crisis of 200497 had been a defining moment for the structure and culture of the Group. It had led to the resignation of half the board and the dissolution of the century-old joint venture model between Royal Dutch Petroleum and Shell Transport and Trading. The single new entity, Royal Dutch Shell plc. was the culmination of a decade-long process of centralization and integration, replacing the consensus governance model at the top of the company with a more traditional single CEO structure. As Jeroen van der Veer, Shell’s first CEO under the new structure, put it, “The Chief Executive should say, ‘We should go to that corner,’ and if that corner turns out to be wrong, you take a new Chief Executive.”98 Van der Veer was widely credited with bringing the company back from the brink and giving it a new direction, emphasizing investment in new technology and better discipline in project delivery. There was now also more external competition in long-term futures planning. BP, for example, coined the term “energy pathways” to describe the practice it had developed 95 Shell’s focus on China had roots: Alkema had already taken part in a Dutch trade mission to China in December 1971 at the request of CMD member Wagner. 96 J. Bentham, interview, 26 November 2010. 97 “A reduction of 20 percent, or four billion barrels, in its stated oil and gas reserves in January forced the departure of two top executives, including the chairman, Sir Philip Watts. It has also led to shareholder lawsuits, investigations by the Securities and Exchange Commission, the Justice Department and European regulators of the way Shell accounts for reserves, and a decision by the company to delay publishing its 2003 report until late May. “The Dutch and British parent companies, which trade on the New York Stock Exchange, fell by as much as 15 percent over six trading days after the reserve cut was announced. They later edged higher, then fell again this month after Shell announced another, though much smaller, downward revision of reserves.” – New York Times (18 April 2004). 98 J. Kopernicki, interview, 22 October 2010.

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of extrapolating from existing trends to produce multiple futures. While these were not scenarios in Wack’s sense of the term, they did offer an alternative to straight-line forecasting. * * * While the Shell global scenario process had become a brand in its own right, the internal focus of the company was on return on investment, a focus that became even more intense during the Transition 2009 reorganization, in which all senior executives in Shell were told they needed to re-apply for their jobs, and thousands of jobs were shed. In 2006, Jeremy Bentham, a Shell insider, took over the scenario team at a particularly challenging time, when the legitimacy of scenarios was again being questioned. For the first time, the scenario team was placed under the finance function and actually grew a little when it absorbed a few of the activities that had been in the business units. While the move to finance seems to reverse the historic intent to keep scenarios at a distance from the forecasting-based culture, it is currently being purposefully managed independently within the finance function. During this turbulent time, some executives felt that the value of scenarios was in their application rather than in the expensive process of building them – scenarios could simply be chosen from the more than 1000 energy scenarios and 350 climate change scenarios available at the time. But others felt that acquiring scenarios from the market would circumvent the learning value and create what Wack called the “water on stone” risk, where the insights just wash over without making any impression. In addition, the inherent tension between the broad thinking characteristic of global scenarios and a more immediately relevant, action-oriented focus continued. Under the new, centrally focused corporate structure in The Hague, a number of important developments occurred in Shell’s scenario practice. The first arose as the result of the creation of a state-of-the-art world energy model. The model, along with other sophisticated analytical techniques, not only enabled a faster and more detailed consistency check of scenario assumptions, but also helped provide a foundation of plausibility for the scenario stories. These improved analytical techniques underscored familiar uncomfortable truths: how long it takes to change, and the reality that

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political processes normally delay technological transitions, such as the shift to a low-carbon global energy system.99 The second development involved the rapid production of three-to-fiveyear scenarios in response to specific crises – for example, Recession & Recovery, scenarios that explored the aftermath of the 2008 global credit crunch and the subsequent global economic downturn. The third, and perhaps most important development, was an attempt to meld the long-term and broad scope of global scenarios with the focused emphasis on energy that had characterized the long-term energy scenarios. The evolution of the business culture and some erosion of credibility due to the perceived over-abstract framework of the 2005 global scenarios meant that the appetite for global scenarios had waned. Furthermore, challenges relating to Sarbanes Oxley and the restatement of Shell’s reserves had drawn attention to the rigor of Shell’s long-term thinking and scenarios analysis, raising the risk of possible legal action based on what scenarios said about the market price of oil, for example. Scenario publications began to be accompanied by elaborate legal disclaimers. As it often had before, the scenario method adapted to the needs of the business and the spirit of the times by a reinvention of the relationship between qualitative scenarios to harness intuition and quantitative modeling to support decision-making. This ‘hybrid’ form was intended to leverage Shell’s expertise in both global scenario building and energy, resulting in global scenarios with an ‘energy’ point of view. During the period of traumatic transition that Shell was undergoing, when the scenario enterprise itself appeared to be at risk, the focus on energy implicitly argued for a focus on relevance rather than challenge. The Blueprints and Scramble set of scenarios, of which a version was released to the public in 2007, contained a deeper and more comprehensive model of the world’s energy system, allowing the Group to vary the impact of many parameters, such as speed of innovation in appliances, or energy efficiency. Because of this emphasis, the 2007 scenarios attracted wide interest. As Bentham reported, by 2012 there had been a “re-connection with fundamental strategic influence” and a regaining of “the legitimacy to challenge within an organization and business environment.”100 But what some saw as a hybrid approach, others saw as a de facto abandonment of the social and political analysis characteristic of global 99 G.J. Kramer and M. Haigh, “No Quick Switch to Low-Carbon Energy, Nature 462 (7273) (2009), pp. 568-69. 100 Cs., 23 March 2012.

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scenarios. The rise in prominence of the role of chief economist, who produced forecasts, led managers to look outside scenarios for the global economic future, while looking inward to the energy-focused scenarios for the energy future. Even so, when the global financial crisis hit beginning in 2007, the Recession & Recovery and Eurozone scenarios, produced quickly in response, were credited internally with influencing Shell’s response. As Simon Henry, Shell’s CFO said in 2012: I believe Shell weathered recent economic turbulence relatively well, and this view seems supported by investors. In general, we neither under-reacted nor over-reacted to substantial swings in energy demand and price, despite some hairy moments. This has been helped by having the backdrop of Recession & Recovery scenarios and, more recently, Eurozone work to deepen and communicate business-specific understanding and provide plausible bounds to the impact of events. Otherwise, like so many others, we might have seen people kneejerking more to the latest bit of news or speculation in the press.101

The fourth development was made possible by the change in management structure. To influence most of the decision makers in the “country baron” era of diffuse, decentralized power, scenario teams depended on occasional meetings and after-the-fact printed booklets. But with a clear and limited set of accountable top executives, the scenario team could realistically hope to interact often and over time with the top executives, implementing what Jeremy Bentham called “the drip-drip approach” of introducing challenges to mental models.102 For example, a monthly strategy and growth forum was established, attended by heads of finance and strategy as well as the Executive Committee. Such a focused and continuous interaction also meant that the interview phase of scenario building was not limited to an intense period of activity immediately before each global scenario round, but occurred on an ongoing basis. This process replaced the deep and reflective management interviews, which had been conducted since Kees van der Heijden, with an ongoing dialogue. Since 2005, the scenario team has also attempted to create a more dynamic interaction between scenarios and corporate strategy by creating fast and focused energy scenarios and short-term crisis scenarios accompanied

101 Cs., 22 October 2012. 102 Cs., 20 March 2012.

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by a system of early-warning signals hinting at the advent of one scenario dynamic or another. Finally, the success of the scenario framework or stories became less dependent on one-time scenario presentations and workshops and more integrated with follow-up white papers and business-level scenarios as well as Signals and Signposts, a regular update of the insights gleaned from monitoring and tracking the scenarios. This scenarios-based horizon scanning enabled the rapid interpretation of a larger set of early warning signals of change and was used to test the validity of the scenarios in terms of developments in the wider world.103 Since the framework stories as well as a number of white papers have become available on the web, the three-year scenario production cycle is no longer observed. The frameworks continue to be used until the team feels they need to be refreshed, while the implications for the business are communicated in the form of, for example, ‘vignettes’ designed for individual businesses. The vignettes process begins with interviews of executives to identify concerns. Then a three-page paper is produced, with the first page summarizing key issues and identifying the dimensions and drivers of these issues, as well as the dilemmas arising out of them. The second page compares in column form how these dilemmas might play out in each of the two long-term energy scenarios. The third page concludes with implications for the industry as a whole and lists the external affairs position through a set of standardized key messages. Over twenty-seven vignettes were produced from 2008-09. Although these were not directly linked to decision-making, they were intended to serve as pre-decision framing devices. They met a new executive need for less direct engagement with scenarios and more concise pre-processed information. A quarterly cycle of engagement with the EC on key issues was established with greater emphasis on economic and energy-focused scenarios accompanied by efforts to link scenario-based analysis to corporate strategy and communications processes. Building scenarios came to occupy less than 15% of the time for most team members, with the other 85% of the time devoted to their roles as members of a ‘think tank’ for Shell-specific business analysis and as external ambassadors, using scenarios to engage Shell’s key stakeholders. The relative success 103 A public version was made available at: http://www-static.shell.com/static/aboutshell/ downloads/aboutshell/signals_signposts.pdf.

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of this new approach has been tracked by the scenario team in its quarterly self-review of such measurements as the feedback on the team’s “tangible deliverables” and evidence that ideas or language introduced in the scenarios have worked their way into the mental models of leaders inside (and even outside) Shell. The role of the scenario team and the scenarios themselves have thus come closer to the business environment with the advantages and disadvantages that shift entails. The advantages include the possibility of ongoing engagement with key decision-makers and more ‘buy-in’ to the stories. The disadvantages include the danger of the scenario team becoming insular, with less input from outsiders and, potentially, a lessening of the challenge to mental mind maps that a more traditional global socio-economic perspective might provide. A flavor of this shift can be found in a comparison of the “pre-determined elements” from the 1995 scenarios (Just Do It! and Da Wo [‘Big Me’]) with those of the 2007 scenarios (Scramble and Blueprints). In 1995, the ‘givens’ – expressed as elements of “TINA” (“There Is No Alternative”) were globalization, liberalization, and the growth of technology; in 2007, the “Three Hard Truths” of Blueprints and Scramble were all related to energy.104 A significant development occurred with the publication of Scramble and Blueprints, namely that the Group for the f irst time expressed a preference (for Blueprints). Under the new CEO structure, this decision on preference was reached without the elaborate internal consultation and analysis that Shell had grown accustomed to. “An unintended consequence of this was that Blueprints lost some of its scenaric neutrality, and this created a dilemma where it reflected pathways which differed from beliefs embedded in the Company strategic direction and public positions. This obliged the company to be clearer in reconciling these differences.”105 For example, while the degree of vehicle electrification was not material to the 104 The three hard truths were developed as part of the 2007 Long Term Energy Scenarios. In the words of CTO Jan van der Eijk: “The first hard truth is that the world’s energy demand will grow and it will actually grow substantially. This is driven by a growth in the world population, but also in an improvement of living standards in areas of the world like China and India. The second hard truth is that the supply of energy from conventional oil and gas sources will struggle to keep up with this growing demand and we will need new sources of energy, ranging from renewable energies to also unconventional oil and gas. Then finally, this increase in energy demand and also the need to use all kinds of sources of energy will lead to an increase in CO2 emissions and we all know that these CO2 emissions are related to global warming. So that’s a major concern and also something that calls for aggressive action.” Interview on Earth Sky’s Clear Voices for Science podcast (29 June 2008). 105 M. Brinded, interview, 26 November 2010.

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internal consistency of the scenario, it might have created confusion about strategic direction if various Shell public documents had shown different assumptions. Support for Blueprints reflected the broad preference for a collaborative future “rather than Shell’s detailed policy agenda.” 106 As one Vice-President of Strategy and Planning put it in 2010: “Given the issues the world faces, it is a requirement to express preference about the scenarios.”107 In contrast to a visioning exercise, however, the choice of one scenario as preferable to another is made only after the scenarios have been constructed. Similarly executives appeared divided about the emphasis on scenarios versus energy models. Some expressed the belief that the capability to run what-if scenarios within more granular and sophisticated energy models had the greatest value. Others pointed to the danger of becoming enamored with mechanistic modeling without attention to new signals and the need to refresh interpretative frames. In 2009, the incoming CEO, Peter Voser, sponsored a visioning exercise called “Shell 2025+.” This study, led by Dick Benschop, head of strategy, with input from the scenario team, combined insights into the future energy landscape, highlighted in scenarios, as they related to potential business opportunities beyond traditional oil and gas activities. With the renewed emphasis on linking scenarios and modeling, the Shell method continues to evolve and reinvent itself. Once again there is emphasis on value in use. However, it is not clear at this point, whether or how such scenarios would address an ‘elephant in the room’ kind of question like that raised by the 2008 global financial crisis, such as: Has the Anglo-Saxon model of capitalism reached its sell-by date? What comes after the economic myth? A round of scenarios was produced in 2013, broader than the previous energy scenarios but less detailed than the traditional Shell global scenarios. The New Lens Scenarios for the 21st Century focused on the traditional areas of politics, economics, energy, and the environment, but also emphasized three “lenses” as ways of approaching these stories of the future: 1 three paradox lenses (the prosperity paradox, the leadership paradox, and the connectivity paradox); 2 two transition or pathway lenses (“Room to Maneuver” and “Trapped Transition”;

106 M. Brinded, interview, 26 November 2010. 107 H. Brekelmans, interview, 26 November 2010.

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3 two panorama lenses, which are the global scenarios themselves (Mountains and Oceans). The detail has been reserved for a number of in-house focused scenarios that were built alongside the global scenarios and which influenced those stories rather than simply being derived from them. Among them are in-depth stories of various aspects of the energy landscape informed by the state-ofthe-art model that continues to play an important role in the energy team. Rather than following the earlier model of in-depth interviews followed by scenario development, the 2013 scenarios were introduced piece by piece to senior executives while they were being developed, often at dinners, where they could be discussed, as if the executives themselves were members of the scenario team. According to the current CEO, “The need for fresh challenges to strategy is recognized in Shell, as well as the role scenarios play in the development of individual executives and our corporate culture.”108

108 P. Voser, interview, 16 February 2011.

III The Essence of the Shell Art Scenarios provide the right framework for appreciating fundamental long-term choice, which is not the same as next year’s annual plan. – Peter Voser, CEO Royal Dutch Shell Plc, 2009-14 The word “scenario” emanates from the film industry where a scenario is used as a detailed plan of action for the production of a film. The words “scenario” and “plan” are synonymous in this context. In strategic planning a scenario is the opposite of a plan – there is no such synonymy at all!1 – J.P. Leemhuis, Manager, Corporate Planning Shell Netherlands, 1983 An organization needs to be aware of its perceptual limitations, and to detect the unexpected its managers have to become more skillful observers of the business environment. This is where scenarios come in.2 – Graham Galer, Socio-Political Team Leader, 1976-78

In contrast to the more secretive and ‘one-off’ practices of other firms, Shell has widely shared and disseminated its scenarios. Shell now regularly publishes its global and long-term energy scenarios, and these, together with several handbooks detailing the Shell scenario method, have been used as reference by other companies, governments, and international institutions. This widespread use of Shell materials suggests that the impact and influence of the Shell scenario practice extends well beyond the company. Given the continuing relevance of Shell’s scenario practice, an examination of the essence of the art, extracted from almost half a century’s practice, offers a rich treasure trove for those interested in actionable foresight who seek to avoid the extremes of “interesting but useless” on the one hand and “useable but not very interesting” on the other.3 Throughout its history, the Shell scenario practice has largely assumed that while the future cannot be predicted, it can be prepared for. The sce1 “From Scenarios to Strategy.” Address to the European Society on Opinion and Market Research Conference on “Strategic Planning: A Thing of the Past or a Necessity for the Future – Can Research Contribute?” (San Francisco, 17-20 April1983). 2 G. Galer, ms. of untitled talk presented at seminar on “Das Unternehmen als Lernende Organisation” (Zurich, 29 April 1993). 3 A. Wilkinson and R. Kupers, “Living in the Futures: How Shell’s Scenario Planning Approach Delivers Better Leadership,” Harvard Business Review (May 2013).

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nario ‘magic’ is not in the quality of the scenarios as a product but in the ability of the company to make effective use of the scenarios and to create additional value through linking the creation and use of the scenarios with other processes. Scenarios have helped individual decision-makers as well as management teams to engage with uncertainty and to attend to important developments that lie beyond their sphere of expertise and influence. Imbuing an organization with scenario competence leads to wider benefits, such as a culture of learning, or the capacity to engage with outside stakeholders through sharing the current set of scenarios. Shell has developed hundreds of scenarios over the years. During this time, practices have evolved in response to leadership, culture, business needs, organizational structures, and technology developments. But throughout the changes, a number of important principles have remained the same and contributed to the longevity of the practice. Whilst forecasts are for anyone, Shell scenarios are always developed for someone(s). Rather than relying on more data and information to remove or reduce uncertainty through ever more sophisticated risk analysis techniques and management approaches, the Shell scenario philosophy encourages even the most experienced business leader and expert to becoming more attentive to the role of mental models and ‘group think’ in enabling better decisions. In contrast to the usual problem-solving mode of organizations, Shell scenarios involve the search for better questions and a deeper appreciation of novel, puzzling, and ambiguous situations, thus offering much more than a decision support tool. No one can determine in advance if one decision is better than another. In contrast to decision theory, which assumes all outcomes can be known in advance, scenarios encourage attention to the openness of the future and its irreducible uncertainty. Scenarios address the challenge of ‘better’ decisions by attending to the quality of judgment. They make explicit and challenging the pre-decision framing that, in turn, stems from social and cognitive biases associated with rationality in an inherently uncertain and interconnected world. The strategic conversation enabled by the scenarios provides a kind of ‘therapy’ – a way to expose, test, deepen, and clarify the shared understanding of the world needed by managers. This deepening of understanding, in turn, helps ensure a better quality of judgment in the decision-making process. The value of the scenarios is not in better forecasting what ‘the’ future will be, but in encouraging already smart people to learn by seeing the present situation afresh, from the perspective offered by plausible, alternative

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futures, in a process that Wack termed ‘disciplined imagination’. Scenarios in Shell are designed to help leaders prepare the organization for the futures it might have to live in, rather than the future it would like to create. In this section we extract fifteen core principles of scenario work in Shell that illustrate the ‘why’, the ‘how’ and the ‘what’ of the practice. These principles were derived from our own experiences and from the more than 40 interviews we conducted and checked against unpublished (internal) reports and published works, especially the books of former Shell practitioners, such as Peter Schwartz, Joseph Jaworksi, Kees van der Heijden, and Adam Kahane. The core principles of Shell’s scenario practice represent an overlooked legacy in ‘actionable’ foresight. The lessons Shell has learned over 50 years are still valid in an era in which ‘big data’ is once again leading to increased confidence – and perhaps over-confidence – in our ability to foresee the future. These principles highlight the importance of leadership and culture in keeping an organization open to learning and innovation rather than succumbing to the pressure to drive to consensus and close down the decision space. In effect, they maintain a distinction between technical knowledge and wisdom that is as old as Aristotle4 but often overlooked in the modern quest for rational choice.

1

Improving Intuition Planning’s objective is to recognize the fact that business decisions are initiated from the gut. They may be checked by mathematics later but the real problem is to condition the gut, which is what scenarios do.5 – Tony Vicars-Miles, Shell’s coordinator for the former Soviet Union and Eastern Europe, 1992

4 Aristotle was the first to distinguish three different forms of knowledge. See Aristotle, Nicomachean Ethics, trans. Terence Irwin, 2nd ed. (Hackett, 1999 [1985]). These are techne (teachable skills, practical knowledge), sophia (the ability to construct logic and discern reality), and phronesis (ethical judgment). More recently, the American philosopher and systems scientist, C. West Churchman, has highlighted the role of ethical values in ‘rational’ operating systems, having observed that any decision-making situation involves three different forms of judgment: reality check (what is going on); values alignment (what does it mean for ‘us’); and instrumental judgment (what can we do), See C. Churchman, The Design of Inquiring Systems, Basic Concepts of Systems and Organizations (Basic Books, 1971). 5 Gareth Price’s Symposium, op. cit., p. 24.

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Intuition is part of the right part of the brain capable of coping with a much higher degree of complexity than what you can do with the left part of the brain which has to explain. When we have to explain to convince others, it gets much more difficult.6 – Pierre Wack, Head of Scenario Team, 1971-81 Exploration – of a territory or the future – involves not just analytical thinking but also intuition.7 – Ged Davis, Scenario Team Member 1972, 1980-82, 1986-90, 1994-99, Head of Scenario Team 1999-2003

The essence of the Shell scenarios lies in the recognition of the role of intuition for senior leaders and decision makers when they approach the future. Wack recognized that some leaders had an intuitive capacity to intuit the future – “to sense what is getting ready to emerge as reality in the world.”8 One way to think of a chief executive is as the organization’s most highly paid expert, who uses an intuitive understanding of the world to help prepare the organization for the future and to keep it one step ahead of the competition. While studies have shown that an intuitive understanding of the world precedes an explicit and rational understanding, and that the human stomach has more neurons than the brain, not every leader has the capacity to use ‘gut feeling’ with equal skill in facing the future. Recognizing this, Shell has encouraged leaders to develop their intuition through a structured process that enables a wider set of options to be considered and sometimes modeled. Scenarios provide an elegant and safe way to engage the interpretive frames of individual leaders and also to expose the organizational mindset. This process highlights not only what decisions get made but also which decisions are deemed worthy of attention in the organization, and which ones are simply ignored. As management guru Peter Drucker noted, “It is this common human tendency to confuse plausibility with morality

6 “Presentation by Pierre Wack to the Manufacturing Function in Shell” (1982). Transcribed by Kees van der Heijden. 7 “Introduction,” Scenarios: An Explorer’s Guide (Shell International 2008 [2003]), p. 5. This guide provides details on the global scenario methodology as codified by Ged Davis and his team. It does not contain information on the new methodology developed in recent years for developing long-term (50-year) energy scenarios. 8 J. Jaworski, interview, 14 October 2010.

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which makes the incomplete hypothesis so dangerous a mistake and so hard to correct.”9 In addition to the power in engaging the group-wide planning network in its scenario work, Shell has used scenarios to appreciate the perspective of NGOs who have an alternative hypothesis of the energy future, and who build their picture of the future on a different base of supporting evidence. The harnessing of diverse perspectives into the scenario building process helps develop the peripheral vision of the organization. Seeing, after all, is conditioned by preconceptions of what is going on. As Schwartz puts it, “Pierre Wack had the perception that the real issue was not getting the future right, but affecting the minds of management and the organization.”10 Intuition offers a means to reveal and test the interpretative frame that provides a deeper foundation of knowledge and self-awareness. This approach assumes that the ‘official’ view of the future, embodied at the organizational level in the business-as-usual outlook, not only reflects an optimism bias but also is based on the common human tendency to see what we are looking for and to be blind to what we do not expect. Seeing, after all, is conditioned by preconceptions of what is going on. Leaders are required to have a special form of expertise, a certain combination of experience and reflexivity that enables them to avoid the arrogance of power and the confusion of the unfamiliar with the improbable. As U.S. Secretary of Defense Donald Rumsfeld famously said: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”11 Signif icantly, Rumsfeld missed an essential category – unknownknowns. Having covered all four options well before Rumsfeld, Ibn Yamin a 14th-Century Persian poem articulated this as: “One who knows, but doesn’t know that he knows... He is fast asleep, so you should wake him up!”12 Unknown-knowables (or unknown-knowns) are uncomfortable – the things that others know about but that, often for lack of time or alignment, leaders are unable to include in their strategic considerations.

9 P. Drucker, The Effective Executive (Harper & Row, 2002 [1967]), p. 128. 10 P. Schwartz, interview, 1 October 2010. 11 Press brief ing (12 February 2002). At this brief ing, Rumsfeld addressed the absence of evidence linking the government of Iraq with the supply of weapons of mass destruction to terrorist groups. See http://www.defense.gov/Transcripts/Transcript.aspx?TranscriptID=2636. See, also, D. Rumsfeld, Known and Unknown: A Memoir (Penguin, 2011). 12 Ibn Yamin is thought to have been the court poet of the Serbedar dynasty (mid-14th century).

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An important reason why there are so many ‘unknown-knowns’ comes from the psychological tendency to avoid uncomfortable knowledge. Psychologists give various explanations for this. The story we tell about ourselves as humans is that we are swayed by rational arguments and facts. Legal proceedings and science are founded on this story. But in fact, it is extraordinarily difficult for us to change our minds, and it takes repeated assaults on a conviction to vanquish it. Not until we hear something several times from multiple trusted sources do we even consider shifting positions on a substantial issue. Revealing and testing deeply held assumptions about the future is not straightforward, however. Shell scenarios start with an intuitive-led inquiry involving interviews and a process of strategic conversation, followed by a further iteration of discursive-analytical processes to build a more shared and systemic sense of what is emerging. This intuitive logics approach acknowledges the value of and the challenges in enhancing the quality of judgment in the face of information overload and competition for mindshare.

2

Plausible, Not Probable Whilst a forecast is essentially a statistical distillation of probabilities and ‘expert opinion’, a scenario is an archetypal description of a possible future based on a mutually consistent grouping of determinants.13 – Peter Beck, Planning Director, Shell UK Ltd But, of course, you can never identify all the forces at play. If you could, and see their interactions, then real prediction of the future would be simple. This is never likely to be possible and furthermore there are some situations that balance on a hair’s breadth. – J. Davidson, Head of Group Planning, 1967-76

In Shell, widespread competence in the creation and use of scenarios has led to a day-to-day acceptance of uncertainty, or at least vigilance about what is accepted as certain. When leaders routinely contemplate multiple futures rather than a single extrapolated business plan tailored to the strategic 13 “Corporate Planning for an Uncertain Future,” Long Range Planning 15 (4) (August 1982), p. 18.

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vision and the ‘official’ future, uncertainty is accepted as integral to the business context, and the quality of strategic conversation is enhanced. The use of plausibility as a guide in directing attention to the future in Shell scenarios originated in the 1960s, when Shell planners were concerned that planning was too strongly rooted in deterministic assumptions and relied on the repetition of past events to provide a guide to future risks and opportunities. Rational, bottom-up planning assumed that businessas-usual could go on forever and that improved statistical techniques held the key to the predictable or probable future. The shift to plausibility was an attempt to acknowledge that a new era of business-as-unusual was beginning and that historical trends were set to bend and break, heralding a future of novel situations and nonlinear, discontinuous changes. The early impetus that led Shell to invent a scenario practice was the need to wrestle with this complexity and accelerating change by helping the organization to engage with uncertainty and to keep an ‘open mind’ about key challenges, risks, and opportunities. The early scenario team concluded that plausibility-based scenarios provided the best ‘on-ramp’ for grappling with such dynamics.14 Plausibility helps maintain attention to novelty and is practiced more as a form of art than science. Plausible stories encourage attention to the basis of judgment not just to the availability of data and other forms of information. As a consequence of acknowledging that subjective judgment is an integral part of the planning process, managers are led to embrace uncertainty rather than to call for adding ever more expertise in an effort to dispel it. Shell’s plausibility-based approach to scenarios differed from both the probabilistic approach that was emerging in the US and the normative approach characteristic in France: The foremost difference between scenarios developed under the intuitive logics methodology versus those developed under a La Prospective or PMT methodology, is the issue of probability. Scenarios developed under the latter two approaches are presented as the ‘most probable’ scenarios, i.e. a base case plus upper and lower limit scenarios based on probabilities assigned to the scenarios, whereas the hallmark of

14 A. Wilkinson, R. Kupers, and D. Mangalagiu, “How Plausibility-Based Scenario Practices Are Grappling With Complexity to Appreciate and Address 21st Century Challenges,” Technological Forecasting & Social Change 80 (2013), pp. 699-710.

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scenarios developed under [Shell’s] intuitive logics approaches is that all scenarios presented are equally probable.15

However, to speak of plausibility as “equally probable” is to risk confusing scenarios with forecasts. From the beginning, those engaged with the Shell scenario practice have always maintained that the scenarios are not predictions. Newland saw the dangers of probabilistic analysis techniques (such as Monte Carlo simulations) in that the results tend to “stop any discussion” rather than to encourage the exchange of different perspectives. Probability is useful in situations where historical patterns are set to repeat. However, when structural shifts are in play, new and unfamiliar situations emerge that benefit from attention to problem framing instead of problem solving. Failure to focus on problem framing can result in the application of yesterday’s solutions to novel situations, often making the situation even worse.16 The Shell concept of plausibility is very different from the emphasis on the single and most probable forecast. Forecasting assumes that trends will not bend and that the future is a continuation of the past. Scenarios, on the other hand, are used in situations where forecasting is either unreliable or inappropriate – when the emphasis is on understanding why things might not continue as usual. The Shell scenario method has consistently rejected the assignment of probability to any scenario. Furthermore, what happens at the end of the scenario, at the horizon date (2050 in the case of Blueprints) is not as important as the insights relating to the deeper, systemic dynamics revealed in the story. As a Shell scenario team economist put it, “the real value of the scenario is not … what it will be like in 2030 or 2020 – rather the key contribution lies in the articulation of the storyline how we get from here to there.”17 In the Shell practice, plausibility is co-produced and rendered in the clarity of logic embodied in the scenario storylines and in the absence of inconsistencies within each story. It is also strengthened indirectly by other qualities, including relevance, challenge to Shell, and memorability. During the early years of experimentation, Wack encouraged his team to consider any scenario, so long as he could not render it implausible through a process of logical reasoning. In the very early years, the emphasis appears 15 R. Bradfield, G. Wright, G. Burt, G. Cairns, and K. van der Heijden, “The Origins and Evolution of Scenario Techniques in Long Range Business Planning,” Futures 37 (2005), p. 810. 16 R. Ramirez and J. Ravetz, “Feral Futures: Zen and Aesthetics,” Futures (May 2011), pp. 478-87. 17 A. Khanna, interview, 19 October 2010.

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to have been in articulating a number of possible futures and removing only those that could be logically argued off the table as implausible. Plausibility encourages attention to less familiar and less comfortable developments that might otherwise be dismissed as ‘implausible’. For example, the 1971 scenarios drew attention to the uncomfortable possibility of an oil price hike that had, up to that point, been dismissed in probabilistic terms as highly unlikely. Van Wachem’s directive in 1989 to harness the scenario approach to explore sustainability is an example of the value of plausibility in converting unfamiliar concepts into relevant terms. Two years before, the 1987 energy scenarios had included only a passing mention of climate change because many senior managers believed that the subject was irrelevant. Introducing the broader frame of sustainability allowed issues such as climate change to be less directly threatening. Co-production of plausibility is achieved, in part, through sustained engagement with Shell executives as a way of sensing their mental maps and then through building bridges from these to new ways of thinking that the scenarios might present. One aspect of this co-production involves conversations that bring the choices of the organization into relationship with the wider context in which it exists. This engagement with senior leaders means that plausibility is partly determined by relevance – not how rigorous the scenario-building process is, but how well the scenarios challenge the client. But working with plausibility has not been without its challenges. At various points Shell executives have been reluctant to widely share what they perceive as a more disturbing, yet plausible future for fear of triggering a self-fulfilling prophecy – for example, an oil crisis. More recently, the 2013 “New Lens” scenarios have included the uncomfortable statement that avoiding climate change impacts, such as a global temperature increase of less than 2 °C, is implausible.18 This presents an awkward dilemma for the scenarist: on the one hand such a message from a fossil fuel company will carry weight as it touches the very core of the enterprise; on the other hand, expressing a strong concern risks being met with a certain degree of 18 The Intergovernmental Panel on Climate Change – representing the global scientif ic consensus on climate change science – suggests a ‘safe limit’ of no more than a 2 °C increase on global average temperatures is required to avoid irreversible and potentially catastrophic impacts of human-induced climate change. This equates to an atmospheric carbon dioxide concentration of no more that 450 parts per million by volume (ppmv). Some scientists and climate change activists suggest an even more stringent ‘safe limit’ of 350 ppmv. In May 2013, the US National Oceanic and Atmospheric Administration reported that amount of heat-trapping carbon dioxide in the atmosphere exceeded 400 ppmv for the first time in human history.

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scepticism. The content of the scenarios are not merely statements about the future, but create an impact in the context of the present. The emphasis on plausibility is a signif icant aspect of the value of scenarios in framing and reframing problematic situations rather than forecasting the future.19 It draws attention to the interpretative frames that would otherwise remain implicit and in doing so, reveals and tests assumptions embodied in the ‘official’ future and ‘conventional’ outlook.

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Striking the Balance Between Relevant and Challenging I have consciously tried to play the part and get the tone of being a Shell business insider in order to help with rebuilding our credibility, but as an HR director of Shell said, “As one of the senior executives of the company, you are tolerated, but not embraced.” I think that’s about right for what I do – invited to the table but not always a comfortable guest!20 – Jeremy Bentham, Scenario Team Leader, 2006 Scenarios are like different lenses through which you see the world from other points of view. Sometimes this experience is uncomfortable. – Betty Sue Flowers, Global Scenario Editor, 1992-2001, 2007-13

In addition to plausibility, Shell uses two other criteria to guide its concept of ‘good’ scenarios – “Is it relevant?” and “Is it challenging?” Shell scenarios aspire to be relevant and challenging stories about the future context and how it comes about. The Shell scenario practice began as a subversive means to expose and challenge the implicitly held official version of the future that pervaded the consensus culture of the CMD and wider Group. Harnessing the future as a safe space to consider unfamiliar developments (for example, the sustainability agenda in late 1989) and to enable the discussion of ‘inconvenient truths’ (for example, producer country perspectives on oil prices in the 1970s) allowed the testing of strategic assumptions and encouraged strategic conversations that went beyond incremental, comfortable, and familiar developments. 19 See “Canaries in the Mind: How The Financial Crisis Impacts 21st Century FutureMindfulness, Journal of Futures Studies 14 (3) (2010), pp. 45-60. 20 J. Bentham, cs., 26 Sept. 2012.

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Scenario planning was initially developed as a way of shifting from forecast-based planning to a more adaptive approach to strategy in response to the challenge of inherent uncertainty and the need to be flexible.21 While scenarios are designed to support strategic decision-making, Shell maintains a distinction between scenarios and strategy. Unlike strategy, the scenarios are almost always about the future context of the organization not the future of the organization itself. The scenarios focus on what might happen that is beyond the control of the organization, on the wider interplay of contextual factors that will influence the interaction of actors, such as the ‘rules of the game’ in the marketplace or the transactional environment.22 In this way, the scenarios are designed to contribute ‘outside-in’ perspectives that are useful in putting new questions onto the strategic agenda and in surfacing more and different options. Getting the balance right between relevance and challenge is an art. There is a continual tension between these dimensions – too plausible can be too familiar; too challenging can go unheard. Wack himself recognized the delicate balance between relevance and challenge when he said, “You take the piece of bread and you put it in front of the goldfish, but not so far that the goldfish can’t get it.”23

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Pragmatic, Not Ideological How did we actually use them? That varied from mandatory “thou shalt” use them when you think through your strategy [2001] to working with those businesses that really want to work with scenarios because they are open to using them as a vehicle to think things through. Mandating use didn’t go all that far in my experience. – Doug McKay, Scenario Team Member, 1996-2002 If you take the top ten guys and ask for a summary of the long-term energy scenarios, you would get a pretty coherent story. If you asked the top ten guys about giving a good summary of the global scenarios, then you get a less good story. – Jeroen van der Veer, Chairman CMD, 2004 and CEO, 2005-09

21 J. Davidson, handover note, 1976. 22 R. Ramirez, J.W. Selsky, and K. van der Heijden, Business Planning for Turbulent Times: New Methods for Applying Scenarios. (Earthscan/James & James, 2008). 23 Attributed to P. Wack.

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In Shell, the scenarios are useful, not truthful – that is, Shell does not believe its scenarios will or should come true – and whether they do so is not the point. The Shell scenarios practice has long rejected preference as a guide for developing scenarios, even when Jaworski expressed a preference for one of his team’s 1992 scenarios over the other. And when CEO Jeroen van der Veer expressed a preference for Blueprints in 2006, he did so only after the scenario set had been fully developed (and causing a scramble to adjust them as we described). The Shell scenarios are not developed with the aim of identifying good or bad futures: after all, there is nothing to learn in Heaven and no one in interested in visiting Hell. In spite of this long-standing policy, from time to time, scenarios have led to discussions about whether Shell ought not display leadership by advocating particular views of the future. For example, in 2001, the Shell Long Term Energy Scenarios (Business-as-Usual and Spirit of the Coming Age) took steps in this direction by purposefully designing them to both meet the constraint of needing to limit global greenhouse gas emissions to realize the UNFCC target of less than 560ppmv and allowing for reasonable economic growth. The scenarios explore different paths for achieving this and the implications for the global energy mix. Similarly, the 2013 Shell scenarios Mountains and Oceans take as predetermined the inevitability of climate change impacts not as a matter of strategic preference but rather on the basis of a combination of new analysis. First, developments in global climate change science suggested a much lower ‘safe limit’ (closer to pre-industrial levels) for avoiding irreversible and catastrophic climate change impacts. Second, developments in Shell’s in-house world energy model led to new insights about the inertia of the global energy system and the slower than previously expected process of technological transition. An example of normative scenario practice can be found in the 2012 Global Energy Assessment, which “is unashamedly normative.” Led by former Shell scenario head Ged Davis and the lead author of the UNDP World Energy Assessment, Jose Goldenberg, it defines four goals that the scenarios will deliver, most notably, “stabilizing global climate change to 2°C above pre-industrial levels to be achieved in the 21st century.”24 The pragmatic nature of the Shell scenarios practice can also be seen by comparing the first decade of scenario building with the most recent. Initially, the scenarios were designed to challenge and open up executive thinking and support a strategic conversation in an environment in which 24 GEA, 2012: Global Energy Assessment – Toward a Sustainable Future (Cambridge UP and the International Institute for Applied Systems Analysis, Laxenburg, Austria, 2012), p. xii.

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companies like Shell were “logistic machines involved in producing and transporting oil and its products”25 directly to customers with no need to communicate among themselves or to focus that closely on the outside world. Each company was largely self-supporting, demand was predictable, and the main job was to get oil to the customer as efficiently as possible. This was the context in which Wack “opened the company to the outside world.”26 By 2010, strategic thinking in Shell had become more centrally led and thus more closely reflected a CEO-led agenda. The focus of scenario activities shifted, also. As CEO Voser put it, “We have maintained intellectual agility and operational flexibility by shifting beyond global to more ‘sliced and diced’ scenarios” – that is, more focused scenarios responding to specific aspects of the global context.27 These “sliced and diced” scenarios were not only embedded in the larger global scenario context, but also contributed to an evolving understanding of that context. These shifts also reflected the internal organizational changes in Shell from a ‘gentleman’s club’ to a CEO-led, competitive structure. During these years, Shell was transformed from a one-of-a-kind dual nationality company with roots grounded in the colonial past to a more conventionally structured multinational with a firm focus on ROI for shareholders. The external environment also shifted, with state-owned companies like Saudi Aramco and technical services providers like Schlumberger becoming increasingly influential. Whereas earlier, Shell had enjoyed the scale, relationships, and technology to play a role in defining the rules of the system, on par with governments, in this new context, it became more of a player inside the system. This shift from having a role in defining global and national energy systems to being just one of many players, fundamentally changed the purpose of foresight within Shell. In the 1990s, insights into the dynamics of the whole system, developed increasingly by engaging different perspectives on the ‘system’, offered a way to learn about and navigate better through the confusing and puzzling arrays of the pressing energy challenges and choices of the time. But as the direct influence of the company decreased, it became more important to make better use of its seat at the table, rather than being concerned with the design of the table itself. In this world, maintaining a leadership position required attention to relationships and a broader set of capabilities and assets, such as reputation and openness. 25 K. van der Heijden interview, interview, 22 October 2010. 26 K. van der Heijden, interview, 22 October 2010. 27 P. Voser, interview, 16 February 2011.

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In helping Shell adapt to the times, scenarios, too, have adapted and evolved, “driven by pragmatism, not ideology.”28 The shifts in scenario practices reflect Shell’s experience that the value of scenarios lies not solely in building, but also in using and engaging with scenarios.

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Realizing the Role of the Future in the Present [In the early ’60s] in the Economics Division at Shell, our job was to inspect and quality check the demand forecasts coming in from the operating companies. Since we knew nothing about the drivers in the field, we spent a lot of our time doing correlation analysis between different variables and evaluating ‘fit with trend.’ We manifestly got that wrong, consistently in one direction for a few years and then consistently in the other, with an amazing ability to select the turning point that was most disadvantageous to our predictions. – Leslie Dighton, Member of Shell Economics Division, 1961-63

Although scenarios help leaders attend to more possible futures than forecasts would allow, they are not primarily about knowing the future but about developing a more systemic view of the wider business context to help position an organization to appreciate future change. In other words, the Shell scenarios are not about the future per se. They are not derived on the basis of the projected interplay of today’s trends, a projection that has the unintended consequence in decision-making of distancing future developments – after all, they will not happen for some time to come – from today’s more immediate and pressing concerns. Instead, scenarios have the opposite effect. They offer a way to see the present situation more clearly through using the perspective of alternative futures, thereby drawing attention to the role of the future in shaping current priorities and facing immediate challenges.29 To achieve this, scenarios use multiple orientations of time, rather than the chronological concept of time (past-to-present-tofuture) that underpins quantitative forecasting.

28 W. Thomas, interview, 22 September 2010. 29 A. Wright, “The Role of Scenarios as Prospective Sensemaking Devices,” Management Decision, 43 (1) (2005), pp. 86; A.Wilkinson and R. Ramirez, “Canaries in the Mind,” op. cit. These papers position scenarios as anticipatory sense-making processes in which sense-making and sense-giving are not separated or separable but occur simultaneously and retrospectively.

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There are no solid examples of Shell anticipating future developments better than other companies, notwithstanding the mythology around the anticipation of the oil crisis in the 1970s – but there are plenty of anecdotes of Shell catching on quickly to changes in market or in culture. Shell historian Keetie Sluyterman characterizes the company as being perhaps less slow than others in this respect, by being more sensitive to emerging topics such as climate change, the rise of China, or the boom in the development of the massive unconventional gas resources in the US.30 Working with scenarios enables leaders to see challenges and changes in a wider context and to explore alternative futures to make space for the conflicts involved in motivating and initiating change. The practice accomplishes this not just by building different stories of the future, but by pulling the future back into the present to explore current implications and options. Scenario-based inquiry opens the space to consider ‘what if’ rather than ‘whether’. The value of ‘what-if’ is that it helps executives avoid ‘if only’ by, for example, adjusting project appraisal crude oil prices or better understanding the changing global energy mix. In any large organization such as Shell, this would be no mean feat and a source of competitive advantage.

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Focused and Targeted For some market truths to be revealed, the big picture of framework scenarios is needed. Other discoveries require the detail of decision scenarios.31 – Norman E. Duncan, Principal Scenario Writer 1989-90 All successful scenarios are focused in the sense that they are derived from a fundamental consideration of their client’s dilemmas and needs. – Ged Davis, Scenario Team Member 1972, 1980-82, 1986-90, 1994-99, Head of Scenario Team 1999-2003 Remember the analogy of the cherry tree. Cherries do not grow on the trunk: they grow on small branches – but you need the trunk. So we need global scenarios but the real productivity of scenario work is projects.32 – Pierre Wack, Head of Scenario Team, 1971-81

30 K. Sluyterman, interview, 6 December 2010. 31 “Scenarios Designed to Improve Decision Making,” Planning Review, 22 (4) (July/Aug. 1994), p. 46. 32 Gareth Price’s Symposium, op. cit., p. 16.

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All Shell scenarios are client focused. When Shell uses the label ‘global’ it does not mean the scenarios are ‘about’ the future of the whole world, but rather that the scenarios are relevant to the overarching concerns and interests of the whole organization. The scenario agenda, or ‘problematic situation’, is developed in response to the concerns of a real client – a specific person or set of people. The selection of other dimensions, such as the focus on the time horizon or geographical scale, is determined on the basis of what is useful and useable to the client. From his experiences in Shell, Wack formed a view that global scenarios were not directly useable in decision making and suggested that more focused scenarios are needed in the development of strategic options. However, in more recent years there have been renewed attempts to strengthen the connection between the global scenarios and corporate strategy and portfolio analysis, striving to make them more relevant to decision support and not only in pre-decision framing. Scenarios in Shell are a means to an end, but not an end in themselves. In other words, they are not simply products – their value comes from the way they encourage new connections with different ideas, processes, and communities, within and beyond the organization. In 1976, Davidson wrote to the CMD that “we will undoubtedly have had to adapt the system itself to changes in our environment and the structure of the Group. This leads to the thought that not only do strategies have to be adaptive and resilient, but also planning and control systems.”33 Indeed, the UPM ended, and a strategic planning system emerged in its place, and was paralleled by the development of an in-house scenario practice that had the flexibility to focus not just on oil price and government taxes but also on broader questions such as sustainable development and globalization. In the process, attention was shifted from an exclusive focus on projected growth targets to uncertainty about developments in the wider external environment. As a consequence, scenarios also increasingly served as a platform for engaging diverse external stakeholders. However, as Wack noted, the global scenarios were merely the trunk on which to grow further insights with more direct impact on the organization, with more focused scenarios used for deriving implications for specific business decisions or units. While the outside world has always seen the global scenarios, the bulk of the work and impact was in the myriad of scenarios targeted at specific issues that were executed as branches of the trunk. For example, in October 2001 Shell Oil in the U.S. used the Business 33 J. Davidson, note to G.A. Wagner, 1976, p. 5.

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Class and Prism scenarios to explore the possible reactions of the US to the 9/11 terrorism events.34 The scenarios include a deep reflection on the nature of democracy in America and how the business and the political culture may play out in the various futures. The stories distill specific implications for Shell’s business and its governance in the U.S. The global scenarios themselves were also focused in the sense that their scope was dependent on the role of the company in the world and the concerns of the senior management team at the times. In recent years there has been a debate inside Shell whether with the ubiquitous availability of scenarios from other organizations, it might be sufficient to address more targeted questions inside the company only. With the publication of the 2013 Mountains and Oceans scenarios, it seems the view that values the global scenarios prevailed. This view is consistent with the essence of a scenario practice that values the broad context as a means to understand how the uncertainties of the future play out in the narrower reality that is the focus of the scenario client.

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Engaging the Client in the Process Unless you’re actually sure that you’ve addressed their preoccupations – what’s important to the business – then the scenarios will be interesting but they’re not vital.35 – Gareth Price, Energy Team Leader, 1981-83 Pierre Wack had the perception that the real issue was not getting the future right, but affecting the minds of management and the organization. – Peter Schwartz, Head of Scenario Team, 1982-86

In the early years, the scenarios were developed for use by the CMD and without direct involvement of senior executives in the process. Davidson and Wack operated as ‘high priests’, divining the needs of the executive from their personal interactions with them. But most of the members of the team built the scenarios with no direct engagement with the CMD. By the early 1980s, the scenarios were simply presented, without conversation, and the ‘shop’ was nearly closed down. 34 “U.S. Scenarios 2001-2020,” op. cit. 35 Gareth Price’s Symposium, op. cit., p. 21.

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In the 1980s, when it became evident that ‘deep listening’ through structured interviews with the senior leaders was essential for understanding the internal mindset and for ensuring relevance and challenge, a formalization of the interview process began to be part of the standard practice. The engagement-by-interview with Shell leaders to help scope the scenario agenda prior to building a set of scenarios reached its peak (in terms of numbers) with Jaworksi. A number of scenario teams – and usually, the scenario team leader – conducted at least two different rounds of interviews. The initial set of interviews was conducted one-to-one with busy executives. These interviews involved deep listening to identify critical concerns that often came from the executive’s intuition of how the world works. The interview process helped to reveal and test the assumptions executives were making about the future that would otherwise have remained implicit. While individual interviews were not shared, a synthesis of these interviews, often featuring a set of direct quotations, was discussed and used. The synthesis helped to clarify the scenario agenda and harvest storyline snippets (or vignettes). During the building phase, two further rounds of interviews were conducted involving wider stakeholders and leading experts. After the initial scenario building had created a sufficiently clear and stable set of outline scenarios, a third round of interviews with experts was also sometimes conducted to help fill in details and enhance the plausibility of the scenarios. These engagements were core to engaging the intuition of Shell executives, leading experts, and wider stakeholders. In the 1990s, the team began to engage primary users beyond the CMD in the scenario-building process itself and to add a post-building ‘affirmation period’ of scenario-focused research and illustration along with wider engagement in order to clarify and enhance the plausibility, relevance, and communicability of the scenarios before their wider dissemination. In the ‘cheaper, deeper thinking’ period that followed, the scenario agenda, or problématique, was increasingly shaped through a combination of internal interviews and widening external engagements, in particular, under Davis, with international NGOs. Leading academics were instrumental in shaping the trilemma scenario framework developed by the team under Bressand’s leadership. In addition to engaging the clients in an interview process, the scenario team also engaged executives in workshops. But as time constraints increased, the team began to find alternative ways to maintain engagement. Lately, that has involved introducing pieces of the scenarios as they are de-

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veloped in small, informal engagements – at internal dinners, for example, or in one-on-one discussions with senior executives, apart from the interviews. The question of who is the client and how to engage the client effectively has also arisen in attempts to transfer Shell scenario practices into new settings, especially in relation to third party collaborations on societal issues such as HIV/AIDS. In these situations, there is no simple a priori client. Indeed, the lack of a single client is one of the reasons certain challenges persist. The scenario-based intervention helps to ‘manufacture’ a client and acts as a temporary institution, forging new common ground and building social capital as a basis for enabling and sustaining collaborative action. In these situations the ‘client’ is the outcome of the process – a new network of actors, with different interests and perspectives on a problematic situation, and with a more shared and systemic understanding as a means to forge new common ground and motivate action.

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Memorable, Yet Disposable So there is a danger in scenarios that they are morally neutral. I found them too promiscuous in their willingness to envision almost anything, even the most disagreeable events. – Charles Hampden-Turner, Scenario Team Member, 1981-84 We use a metaphor of exploration and map making to describe how we think about building scenarios. The imagery conveys not only what we are trying to do, but also important elements of how we do it. Like a set of maps describing different aspects of the landscape, scenarios provide us with a range of perspectives on what might happen, helping us to navigate more successfully.36 – Ged Davis, Scenario Team Member 1972, 1980-82, 1986-90, 1994-99, Head of Scenario Team 1999-2003

Memorability is enabled by the clarity of the scenario stories themselves, a visual ‘map’ showing how they are related, and the restriction in the number of scenarios so that they can all be remembered. As the neurobiologist, David Ingvar, noted, the human brain is always working, consciously and subconsciously, processing signals from the environment and rehearsing possible actions and options – not in a narrow sense of predicting what will 36 “Introduction,” Scenarios: An Explorer’s Guide, op. cit., p. 5.

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happen but in terms of having ‘time paths’ or what Ingvar calls “meaningful memories of the future.”37 Such “memories” can be effectively manufactured in the form of scenarios. At the same time, any set of scenarios has limited shelf life. The tendency is to open up the space for thinking outside the box, only to become locked into a different set of boxes. To avoid this, Shell has developed mechanisms to monitor and track its long-term energy scenarios. By looking for signals that appear to confirm a particular scenario and keeping an eye out for signals that seem to fall outside the scenarios, Shell has found a way to enable a more organic rhythm, shifting from the previous regularized cycles of three-year processes to refreshing or disposing of its scenarios depending on the signals of change it can ‘see’ through using them. In the absence of alternative interpretive frames, this practice provides a more effective contribution to a strategic early warning system than simple horizon scanning would. A systematic scan of the horizon aims to detect signals and trends that might otherwise go unnoticed in the shorter timeframes used in decision making – but without attention to interpretative framing and purpose, horizon scanning can result in information overload, with a potentially infinite noise-to-signal ratio. Combining horizon scanning with scenarios helps keep the eye on new signals and prepares the mind to see novel and uncomfortable changes as relevant. While effective scenario engagement is more than a matter of presentation style and format, having excellent and compelling storytelling has always been highly prized. Many of the scenario heads were great performers, each with his own personal style. These performances were not simply info-tainment, but an effective way to connect the scenarios to the interests of busy executives. The role of effective presenters is also key in striking the right balance between relevance and challenge and in creating a sense of plausibility through the clarity of the story logics that result in unfamiliar end-state possibilities. Much care and attention has always been paid to the delivery of the scenarios, with multiple practice rounds and continuous improvement of the delivery based on feedback from previous performances. In addition to effective presentations, the use of metaphor, images, and illustrative numbers help engage different communities within and beyond the organization. In later years, graphic design has been incorporated in helping to render and clarify key insights as well as to aid easier comprehen37 “Memory of the Future: An Essay on the Temporal Organization of Conscious Awareness,” Human Neurobiology 4 (3) (1985), pp.127-36.

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sion and wider dissemination, especially as publication has moved to the Shell website.38 In the early years of experimentation, sets of six or seven scenarios were developed. By the mid-70s, three scenarios were common, which tempted managers to choose a ‘middle way’ as a best guess.39 From 1989, two scenarios became the norm as a way of enhancing usability and recall of these ‘memories of the future’. Two stories open the mind but don’t numb it with too many variables. The stories are as simple and clear as possible, often resting on root metaphors and designed to enhance recall through the use of such devices as evocative names or specially designed graphics. As a set of scenarios becomes familiar, the challenge they originally posed begins to dissipate at the same time that a temptation arises to cling to them. But the value of scenarios lies not in the stories themselves but in the process of generating them on an ongoing basis. The temptation to hold on to the familiar scenario set has been countered by a regular rhythm of creating new scenarios, initially on an annual basis and then every three or four years for global and energy scenarios. In the past decade this rhythm has been abandoned, reflecting a different role for the scenarios in the organization. The penultimate set of twenty-year global scenarios was created in 2005 and used for eight years until the ‘New Lens’ scenarios were produced in 2013. The fifty-year energy scenarios, last developed in 2008, have been maintained and refreshed rather than rewritten. Making the scenarios memorable is instrumental for their effectiveness in providing shorthand reference points in debates and for cultivating a shift in common sense, as well as for introducing a new shared vocabulary. Making them disposable means that they don’t become another fixture of a large organization, but catalyze new thinking.

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Storytelling – the Heart of Strategic Conversation Scenarios are based on intuition, but crafted as analytical structures. They are written as stories that make potential futures seem vivid and compelling. 40 – Scenarios: An Explorer’s Guide

38 London-based designer Peter Grundy’s striking and colorful illustrations and lay-out characterized the publications for a decade, adding to their memorability. 39 C. Hampden-Turner, interview, 15 October 2010. 40 Op. cit., p. 21.

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Corporations, like human beings, act on the basis of an agreed-upon reality, which is, in essence, a story. Strategy is the most expensive story. While the story of the past and the present can be based on facts, the story of the future is just a story even though some facts can reasonably be extrapolated into the future – that the sun will rise, for example. The problem with the future, however, is that while we know, in general, that it will be different from the present, the story we most commonly tell about it is simply an extrapolation based on the present. In other words, the default story of the future is a continuation of the present. Perhaps the greatest power of scenarios, as distinct from forecasts, is that they provoke rather than suppress conversation and, in turn, enable new common ground to be forged in a process of sequential consensus building that uses the efficient mechanism of storytelling to forge more shared and systemic understanding. Strategic conversation lies at the heart of the adaptive capacity of any organization – and scenarios help make this kind of conversation possible. Scenarios, as unthreatening stories of the future, have enabled Shell executives to grasp futures that appear inconceivable or imperceptible and to keep their minds open to see more than they would have expected or hoped for. A story is not a position, so no one has to be for or against it or line up behind the CEO’s opinion. If the images and titles used to characterize the story are sufficiently vivid and memorable, the stories also provide a shorthand language for discussing difficult issues without having to go through the arguments again – a word evokes a world. The Shell scenarios practice has always emphasized the importance of engaging intuition through storytelling, and combining this with rigorous analysis. Charismatic performers, evocative graphics, the use of memorable phrases, images, and archetypes, the persuasive power of the ‘quantifiction’ and graphs of future growth, and the preparation of the audience (through interviews, workshops, and other forms of participation in scenariobuilding) – all contribute to the storytelling power of the scenarios. Scenarios are not literary fictions – that is, they are not intended to be entertaining, but to provide a stage setting of a future world in which readers imagine themselves as actors. In this setting of the future, leaders are invited to pay attention to deeply held assumptions about how a particular world of the future works. What happens at the horizon date of the scenarios is not as important as the deeper understanding of the underlying system that helps clarify the present situation and inform more effective options.

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The Necessity of Numbers Pierre regarded computer modeling as the enemy of thought. – Napier Collyns, Head of Scenario Analysis/Quantification, 1971-80, scenario team member, 1972-86 We are dealing with issues where it’s not clear there is any single model. In many cases, you’re challenging an existing framework. It’s not always easy to go that far in your thinking; it’s a novel framework. 41 – Ged Davis, Scenario team member 1972, 1980-82, 1986-90, 1994-99, Head of scenario team 1999-2003

In part, the Shell scenario practice originally developed in response to dissatisfaction with mechanistic, bottom-up, quantitative, model-based projections, as exemplified by the UPM. UPM forecasts were not only inadequate for the long term, but proved to be too imprecise for the five-year planning cycle as well. While scenarios are not developed from mechanistic modeling, they contribute conceptual models of ‘soft systems’ thinking and have always been associated with mini-modeling – quantification of the scenarios to enhance internal consistency, reveal deep story logics and systemic insights, and illustrate outcomes through the language of numbers that characterizes most corporate cultures. In the early years of the scenario practice, Beckers and Collyns supported quantification in spite of Wack’s limited appetite for such routes to refining intuitive logics. The real links between scenarios narratives and numerical modeling has been in developing deeper and more systemic shared understandings of the dynamic systems that shape the company’s business environment. Experiments with different forms of modeling were tried from time to time, including Schwartz’s experiments with computer models linked to scenarios as a means to encourage serious learning through ‘play’. In the 2001 scenario round, two different econometric models were used after the global scenarios had been developed to quantify the implications of different patterns of oil and gas price coupling, decoupling, and volatility in each scenario, and the implications for GDP growth.

41 Gareth Price’s Symposium, op. cit., p. 10.

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This attention to narratives and numbers helped forge a culture that was not only open to new ideas, but also possessed flexibility in the strategic vocabulary needed to forge the new meaning and common sense necessary for large-scale changes and for managing an increasing diversity of key external relationships. Qualitative model building using stories helps to frame quantitative analysis, rather than the other way around. During the preparation of the 2007 Long Term Energy Scenarios, under the leadership of Wim Thomas, a very comprehensive world energy model was built that enabled the development of the energy system to be simulated over decades. The motivation behind the model was not prediction, however, but learning. The model allowed the team to explore a much wider range of ‘what-ifs’ through tweaking a large number of model input parameters, including the energy efficiency of electric appliances, the depreciation time of coal-fired power plants, and shifts in consumer behaviors. The model was then run to balance supply and demand and to identify stress points. This approach to the interplay of narratives and numbers crystallized intuitive assumptions into the “Three Hard Truths” of the 2007 scenarios – growing demand, supply constraints, and environmental stress. The energy model also informed the 2013 scenarios, pointing so clearly to the possible consequences of the growth of greenhouse gases that a separate section was written about the importance of climate change and why it was removed from the scenario stories, which otherwise would have become undifferentiated climate change stories: Our work illustrates a hypothetical trajectory of greenhouse gas emissions, but the potential disruptions resulting from climatic turbulence could have an increasingly severe impact on global economic, social, and political conditions. Given the uncertainties around all these potential developments over the longer term, it is not fruitful to build them directly into the core scenarios, but instead to be clear about where the trajectories are heading and to support a better-informed dialogue about the potential consequences.42

Shell’s world energy model was a significant improvement in the quantitative discipline underpinning the energy scenarios, enabling a much wider set of assumptions to be included as inputs. It also satisfied demand from

42 New Lens Scenarios for the 21st Century (Shell, 2013).

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the technocratic culture for the demonstration of robust analysis. It is, of course, only one of many global energy models that exist today. Large-scale quantitative models require a considerable investment to create. Such an investment can lead to a kind of ‘model lock-in’. The difficulty in changing basic assumptions and the natural authority of algorithmic calculations can result in model users becoming blindsided by changes in the world that do not fit with the model’s parameters. A computer model in the mind of a scenario builder can be like a heavy axe in the hand of a fireman – even if it hinders his escape from a fire, a fireman is reluctant to drop his axe. The axe is help most of the time, but a dangerous burden in extreme events. This heavy tool effect can be illustrated using the 2007 scenarios, where the new World Energy Model moved the tools closer to central stage. In the few years following the publication of Blueprints and Scramble, there were at least three distinct events that significantly impacted the energy landscape but which did not fit the frame of the model: the 2008 financial crisis with its ensuing drop in energy demand; the shale gas boom, which could have negated an investment of over $100bln by the gas industry to supply the U.S. through LNG were it not for a sudden surge in Asian demand spurred by Fukushima; and the German decision, following the Fukushima nuclear disaster, to speed up the transition to renewables, accelerating the cost reduction of renewable power. This is not to say that the energy model should have forecast these events, but that the model was not equipped to take this category of ‘black swan’ event into account. One of the significant distinctions between scenarios and models is that scenarios are uniquely equipped to provide a frame within which these kinds of unexpected events can be imagined. On the other hand, apart from the scenarios, the model had been used to trace the energy impact of a deep recession – a piece of work that gave credibility to the Recession and Recovery scenarios that were created and presented to the Shell Executive Committee within days of the Lehmann collapse. Quantification is essential to scenarios – the challenge lies in realizing how, when, and why models linked with scenarios can hide assumptions and constrain thinking rather than grapple with intuition and enable reframing. If, for example, Shell begins to rely on its state-of-the-art global energy model to provide the ‘what-if’ analysis, the signature advantage of scenarios to re-frame will be weakened. But if it continues to be used as a secondary tool, it can do much to lend credibility to a rapid-response scenario. Scenarios are always quantitative and qualitative, but in the end, the numbers reflect the stories – a practice that has often resulted in two sets

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of quantification tables, for example, to reflect the trajectories of each scenario – hence the term ‘quantifiction’. Another danger inherent in modeling is the over-stretching of a model developed for one purpose to address another – a danger analogous to the risk of irrelevance were a company to reuse another company’s scenarios. Shell’s approach to qualitative inquiry does not require the rejection of any use of numbers, and quantitative results are not used to drown out the less comfortable futures that can be engaged in scenario work. Rather, its practice combines disciplined imagination and rigorous analysis, recognizing the importance of relating narratives, as interpretative frames, and numbers, as indicative claims. In addition to relying on narratives in the interpretation of numbers generated by models, 43 Shell has also recognized that there are different methods for building scenarios in relation to models. 44 The deductive method, which commences with a comprehensive listing of drivers of change, is perhaps easiest to couple with a quantitative model. It involves different stages of opening up and closing down with the opportunity to clarify what gets selected, when, and by whom. This helps create a sense of systematic rigor in contrast with the messier inductive building method used by Shell, which commences with generating and synthesizing storylines into coherent scenarios. The deductive 2x2 matrix method, developed by Jay Ogilvy, is closely identified with Peter Schwartz at the Global Business Network, which has led others to refer to it as the ‘Shell method’. 45 While the deductive method has never been used by Shell to generate global scenarios, it has been deployed to structure scenarios in crisis management situations. The deductive method assumes that the right question can be identified before building a set of scenarios. In contrast, the inductive building method builds full and rich sets of scenario stories before trying to compare and contrast the elements of the stories. It allows new questions to emerge in the building process.

43 J. Epstein, “Why Model?” Journal of Artificial Societies and Social Simulation Vol. 11, No. 4 (2008). 44 K. v.d. Heijden, The Art of Strategic Conversation, 2nd ed. (London: Wiley & Sons, 2005), pp. 236-59. 45 Development of the 2x2 matrix method has been credited to Ogilvy by N. Collyns.

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The Creation of a Scenario Team We did this Myers-Briggs test, which looks at different personalities. Of the 18 of us in the team, 16 were introverts and 2 were extroverts. You have to get the balance right in choosing the team. 46 – Doug Wade, Scenario Team Member, 1972-77, 1980-93 Those people who have produced successful scenarios have somehow had the ability to step out. You have to be both within the organization – be fully conscious of its needs, politics and so on – and yet have this ability to step out and see something different. 47 – Ged Davis, Scenario Team Member 1972, 1980-82, 1986-90, 1994-99, Head of Scenario Team 1999-2003 We are doing ‘purely scenarios’ for only 10-15% of our time. There are a lot of operational pressures for doing other things as well, like linking analysis and insights into the corporate strategy and communication processes. – Wim Thomas, Scenario Team Member, 2003-…

The structure of the scenario group has varied surprisingly little over the past forty years, beginning with the remarkable chemistry of the Wack and Newland leadership duo. 48 The substructure of the core team has mainly comprised three groups: economics, energy, and socio-political analysis, with technology added as a separate group from time to time but otherwise covered as an element that cuts across the other groups. Today there are five ‘pillars’ of the team: economics, political and international affairs, energy, socio-culture, and communications. The size of the team has varied over the years – although, as one scenario team member pointed out, “a larger team doesn’t necessarily make a better scenario.”49 Before the days of personal computing, Wack’s scenario team of twenty-five included analysts as well as more experienced business people, like Newland and Collyns. In more recent years, the total team size has fluctuated between twelve and eighteen members, occasionally 46 Gareth Price’s Symposium, op. cit., p. 3. 47 Gareth Price’s Symposium, op. cit., p. 12. 48 We have concluded that the brief, twin-headed structure of Schwartz and Jillings that followed Wack and Newland was never fully operationalized. 49 D. McKay, interview, 5 October 2010.

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filled out with part-time external consultants. In 2012 the Shell scenario team comprised fifteen full-time staff, including administrative assistants. Whatever the size, the composition of the team has always been diverse, encompassing a multinational mix of intuitive and systems thinkers from a range of disciplines. It is important to have the right skill set for any given project, and when it comes to scenario work, an effective team contains a mix of expertise, experiences, and personalities and a modus operandi that must retain cohesion whilst resisting too-rapid consensus building. Team members were not necessarily smarter than the executives, but at least some of them needed to be ‘T-shaped’ – that is, with real depth (the vertical bar in the ‘T’) and with the curiosity and capacity to connect to the ideas of others (the horizontal crossbar in the ‘T’). Because of their immersion in important areas of strategy, scenario team members often included young ‘high flyers’ on short-term assignments, who were being groomed for future corporate leadership. Over the years, with increasing transparency and globalization, Shell began relying much more heavily on outside expertise, including on studies that were available to the larger public on the World Wide Web and on focused scenarios published by other entities. In this context, the emphasis of the scenarios began to shift from serving a ‘challenge’ function to serving an ‘education’ and ‘alignment’ function. Either as a cause or as a result of this shift, scenario team members began to be drawn from Shell experts rather than from future leaders and to focus more specifically on the energy business rather than on the global political and cultural environment. Another change was the lessening bandwidth in the organization as a whole, with time becoming more of a luxury. In Wack’s era, building scenarios comprised most of the scenario team’s role – but by 2011, team members spent a much smaller percentage of their time on scenario building, putting more emphasis on using the scenarios and linking them to other processes. The dynamic between scenario team members and people leading or working in other corporate functions – for example, Group Strategy, HR, R&D, and HS&E – has been pivotal to the use and usefulness of global and focused scenarios. The contributions of brilliant intellectuals, such as Beckers and Kuiken, in the early years highlights the importance of the right combination of constructive challenge and cooperation between the various heads of the scenario team and the corporate strategy and planning function. The Shell scenario practice has been sustained through the existence of a specific scenario team that has enabled experience to pass across successive

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generations of practitioners. The level of Shell investment in maintaining an ongoing core group is unusual compared with other organizations, such as the World Economic Forum, which maintains a much smaller core, or those like Nokia and Wartsila, which convene a new team for each scenario intervention. The practice in the Shell context to supplement the scenario core team with insightful individuals from outside the company provides flexibility and depth. Effectively harnessing a mix of permanent and supplementary expertise to generate new insights and provide supporting analysis would not be possible without good team leadership. Scenario work can become a lightning rod for anxiety when senior executives are encouraged to engage with what they do not know. Whether the scenario team is temporary or permanent, the team members must feel as free as possible from departmental politics and be licensed to challenge. As one scenario team leader put it, “You need to push to within an inch of being fired and keep the executive in the room.”50 This requires a combination of trust and courage on both sides of the relationship and the ability of the scenario team leader not to be intimidated. The Shell scenarios have always been developed through a qualitative, intuitive-led inquiry process involving interviews with Shell executives and ongoing discussions among team members and with ‘remarkable people’. Wack borrowed the idea of “remarkable” people from his teacher Gurdjieff, who introduced the concept to him, and talking with remarkable people became an established element of the scenario practice.51 For Gurdjieff the term referred to those who had superior visioning or intuitive capacity. In the scenario practice it was used to refer to people from outside Shell who had something unusual and unique to contribute, whether this was expertise, experience, or opinion – subtly different from what Gurdjieff understood as “remarkable.” Sometimes the meetings were fortuitous, in part because so many thinkers passed through London where the scenario team was based until 2005, or spent time researching or presenting the results of their research there. The diversity and quality of a foresight team is essential to its success, but necessarily has a different profile from much of the rest of the organization. The ability to attract, maintain, and nurture this mix of people is a continuous challenge for any foresight practice. 50 Attributed to Ged Davis by A. Wilkinson. 51 G.I. Gurdjieff, Meetings with Remarkable Men: All and Everything (Routledge, 1963).

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Serving as Door-Openers and Adding Value to External Relationships The global scenarios and the specific Shell Oil scenarios were shared, believe it or not, with the U.S. Army. I was regularly invited to talk about Shell scenarios to the future elite of the U.S. Army, a select 30-50 senior career men and women, who – as part of the Army’s succession-planning and leadership training – spent a year at the U.S. Army War College before they went to their new assignments. – Renata Karlin, Shell Oil Corporate Affairs, 1986-2008

Other companies and governments would often visit to compare notes about how they were conducting scenarios and these exchanges enabled a lot of learning. – Rafael Ramirez, Visiting Scholar and Member of the Shell Scenario Team, 2001-03

The one aspect of scenarios about which there appears to be unanimous agreement over time is their value in relation to external engagement. They have been used as fodder for corporate speeches, as door openers for privileged conversations with resource-holding and other governments, and as ways of building a network of constructive NGO contacts. In addition, facilitating scenario building with others has often resulted in privileged insights: We facilitated a set of scenarios for the Chinese government. The notion that you would actually think outside the official plan was like pulling teeth. Over a one-year period we developed the scenarios with them, and it gives you insights into the way they are thinking that you just can’t get otherwise and, of course, you wouldn’t get as a businessperson across the table discussing things with them.52

In many cases, scenarios have been developed for the local state company – for example, in Brunei, Kuwait, Nigeria, and Oman. These activities should not be confused with ‘PR’. Although Shell has made available public versions of its global scenarios (2001, 2005) and long-term energy scenarios (2003, 2007), building or sharing scenarios with key stakeholders has enabled an invaluable exchange of perspectives and insights. Shell scenario experts often went on to contribute to other efforts after leaving Shell, starting with Wack, who participated in scenario rounds in 52 Interviewee 1, interview, 5 October 2010.

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South Africa in the 1980s, following the introduction of Robert McNamara, who was on the boards of both Shell and Anglo-American. Shell has also occasionally loaned its scenario-building expertise in the form of members of the scenario team. For example, a remarkable series of unpublished scenarios on Greater China was started by Aart Beijdorf, Shell Planner for China and Hong Kong, in the 1980s. Adam Kahane helped in 1991 with the Mont Fleur scenarios for South Africa.53 In 1998, Ged Davis led the development of Global Scenarios 2000-2050: Exploring Sustainable Development for the World Business Council for Sustainable Development. These scenarios offered three different ways the world might organize and explored deeply held assumptions about economic growth. Bjorn Stigson, President of the WBCSD, said the scenarios elevated the perception of the WBCSD on the global stage from being a mere advocate of the business voice to being a thoughtful commentator on the myriad, complex roles of the players in the sustainable development arena.54 In 2005, Angela Wilkinson helped build scenarios for UNAIDS in 2005.55 From the beginning through the 1990s, the scenarios were widely but not openly shared with select groups of outsiders, often at the highest level of governments and business. In 1985, John Jennings spoke to many government and banking organizations, including Exxon and the US Federal Energy Agency. Beginning in 1992, several public versions of the global scenarios have been released, but only after a period of delay to enable any comparative advantage from early internal digestion and use. The 2005 Global Scenarios were the most widely disseminated of all the published scenarios, having been made available for purchase to the public. This shift in public dissemination of the scenarios, however, should not be confused with the more discreet sharing of scenario-derived insights – for example, sharing the Iraq war scenarios Shell created with UK Prime Minister Tony Blair’s senior advisors, or the extended learning arena and relationship-building Shell has created in lending its in-house scenarios expertise to the IPCC, WBCSD, US National Intelligence Council, oil producer governments, the National Development and Reform Commission in China, and others.

53 See A. Kahane, Solving Tough Problems, op. cit. 54 http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=143&NoSearchCo ntextKey=true Philip Watts was Chairman of the WBCSD from 2002 to 2003. 55 AIDS in Africa: Three Scenarios to 2025 (UNAIDS 2005).

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The 2007 energy scenarios (Blueprints and Scramble) and the 2013 global scenarios (Mountains and Oceans) are openly available from the company’s website along with the Shell Guide to its global scenario methodology, which was first published in 2003.56 In 2011, Shell also released it Signals and Signposts report online, providing an update of its 2007 energy scenarios. Shell has yet to harness online trend databases, electronic Delphis, data mining software for foresight, scenario planning software (such as EIDOS), interactive gaming, and visualization technologies, which are shaping participatory and collaborative scenario work elsewhere, or the cross-impact and consistency analysis techniques that others are suggesting to link scenarios with multiple quantitative models in approaches involving ensemble modeling and integrated assessment techniques. Curiously, in spite of the apparent consensus about the key stakeholder relationship value of scenarios, this benefit of these external linkages seems never to have been taken into explicit consideration in deliberations about funding or other support of scenario activities.

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Fostering a Culture of Openness and Curiosity The value is three-fold: being prepared; a way of socializing thinking and ideas; a brand in its own right. – Harry Brekelmans, Executive Vice President, Strategy and Planning, 2009-11 You are trying to manipulate people into being open-minded. – Ted Newland, Manager, Long-Term Studies, 1965-71; Scenario Team Leader, 1980-81

Over the years there have been numerous attempts to relate scenarios and decision-making. For example, the work by Kees van der Heijden to bring the scenarios closer to the business pivoted on the business idea and the contribution scenarios made in providing more options. In the early 2000s, as developments in Group Strategy progressed, Davis worked together with the head of Group Strategy, Roxanne Decyk, to better relate, but not conflate, the two practices. The potential power of scenarios to open the minds of decision-makers so that they can identify weak signals and be prepared for potential future events is the basis upon which Shell scenario planning was founded. When 56 Scenarios: An Explorer’s Guide, op. cit.

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the oil crisis of October 1973 happened, Shell’s CMD had already worked though that potential future scenario, and although Shell did not react to what the scenarios had imagined until after the oil crisis, the exercise did enable the company to have a competitive edge in working out their next steps. As one scenario team member put it, “And then of course low oil prices came, and everybody said, ‘You’re very clever, you’ve got that right.’ And we all said, ‘No, wrong. We’re not forecasters. We’re your ‘personal trainers.’”57 Scenario team leaders held a variety of views on the way scenarios foster learning. Wack, for example, emphasized ‘seeing’ as the root of learning. Schwartz attempted to introduce simulation through system dynamics computer models. Van der Heijden used engagement through a team of consultants. For Jaworski, learning came through responsible leadership. Davis used the idea of memories of the future, and Bressand offered deep intellectual analysis. Bentham emphasized an osmosis approach in which executives were led to own the ideas in the scenarios as their own. Under the country baron and CMD structure of earlier times, scenarios also served the function of creating a common learning culture. Scenarios were not embedded in other strategic processes because they were a steering tool for the CMD and helped create a common view of the world, a corporate glue that held the organization together – or, to use another analogy, an interpretative framework through which the CMD could communicate and strengthen their agenda across the Shell businesses. Of course, having established a reputation for deeper reflection has the potential to change the expectations of others towards the company. The strong criticisms of Shell in reaction to events such as Brent Spar and the reserves crisis may have reflected the higher expectations the public held towards Shell – and therefore, a deeper disappointment in the company’s subsequent behavior. Opening up is one thing, but remaining open is another. The Shell scenario history started in an extraordinarily closed culture in which there was little space for managing disagreement as an asset. Now the challenge of openness has more to do with maintaining a large number of highly diverse relationships beyond the organization. Historically, the scenario practice has both helped internal alignment and also supported a culture of curiosity and tolerance for different ideas. In a world where speed is prized, but decisions carry significant, long-term implications, scenarios potentially encourage contemplative depth and quality of judgment.

57 J. Kopernicki, interview, 13 October 2010.

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The paradox of openness is that it requires sustained focus. Wack compared the workings of scenarios to water on a stone, suggesting that the value of scenarios lies in the long-term effect and not just in whether or not they secure immediate traction within the company. In the 1970s scenarios allowed Shell to appreciate the perspective of the oil-producing governments; in the late 1980s the CMD directed the focus of the scenarios towards sustainability issues; in the 1990s scenarios helped Shell grapple with the different business logic of globalization and the rising influence of new state actors; in the 2000s the scenarios reflected the rising influence of NGOs and how these were reshaping the threats and opportunities of globalization. Scenarios were one mechanism for opening up the organization and the individual minds of executives to unfamiliar and uncontrollable developments.

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Managing Disagreement as an Asset Internally, the cat can look at the king. – Philip Watts, Director for Strategic Planning, Sustainable Development, and External Affairs, 1995-1998 and Chairman of the Committee of Managing Directors, 2001-04 In hindsight the greatest value of scenarios is that they created a culture where you could ask anyone a question, and the answer would need to be contextual. Answering “because I’m the boss” or “because the business case is positive” was out of bounds. – Ted Newland, Manager, Long-Term Studies, 1965-71; Scenario Team Leader, 1980-81

In the early years, when significant decisions about future direction and investments were progressed through a joint board structure and a process of dialogue and consensus-building, the scenarios provided a way to manage disagreement as an asset by requiring even the most senior executive to test their ‘pet’ projects under different future conditions. As such, the scenarios helped disturb the “God-given view of the future” that tends to result from wishful thinking or the linear extrapolation of current trends. In later years, as scenarios were linked with the corporate strategy process, they opened the space for more constructive conflict in strategy discussions. In situations of inherent uncertainty, contradictory certitudes

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are common as different perspectives, and worldviews disagree about problem definition as well as solutions. Rather than deny these framing contests, a set of plausible scenarios encourages respect for different perspectives and makes space for conflict in a way that enables disagreement to be managed as an asset for deeper learning and shared understanding. As ‘disturbers of the peace’, scenario leaders and the compelling logic of the scenarios themselves often test deeply held assumptions. Within the CMD, the scenarios also became a tool for mediation. Given that the CMD did not vote things into approval but recommended them for formal approval by the respective boards of the parent companies, scenarios were a unifying force, a non-threatening way to redirect attention and encourage dialogue rather than prescribing action. Under the decentralized Shell structure of earlier times, Van Wachem used the scenarios to align values and overcome the tendency towards ever more fragmentation. They were a steering tool for the CMD and helped create a shared view of the world, a corporate glue that held the organization together. As the organization became more centralized, the role of the scenarios evolved to open the space for constructive disagreement about group strategy or priorities. For an organization engaged in a complex business situation, perceiving crisis or experiencing a turbulent environment, the ability to discern fuzzy signals, disagree constructively, and debate issues, is at the heart of its adaptive capacity.

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Providing Value within a Broader Management System A vacuum cleaner has an effectiveness between 25 and 30 per cent, and the rest is dissipated in heat and noise. Future-oriented studies usually are way below a vacuum cleaner.58 – Pierre Wack, Head of Scenario Team, 1971-81 So we still have the same bandwidth, but we’re just trying to be more dynamic across the bandwidth [between scenarios and strategy] rather than collapsing it. – Harry Brekelmans, Executive Vice President Strategy and Planning, 2009-11

58 Presentation by Pierre Wack to the Manufacturing Function in Shell,” op. cit.

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Scenarios are a means to an end rather than an end in themselves. They are always part of a wider intervention that can have one of three main purposes: decision support, exploratory learning, and values alignment (often for the purpose of avoiding conflict). Scenarios get their value from being embedded in a broader management system, as Wack and others recognized early in the development of scenarios at Shell. The transcription of one farewell presentation in Wack’s eight-part series presented to the CMD in 1981, before his retirement, captures his understanding of the role of scenarios in what became the Group strategic management system. In it Wack presented a framework with five elements and contrasted it to the so-called “corporate raindance” – a ritual that happens at a given time of the year, following the dry season, when the planning process is rolled out. “It has no impact whatsoever on the weather, but everything that comes afterwards is nicely linked to and explained by this raindance. And some people enjoy it very much.”59 Wack was convinced that it was possible to institutionalize creativity in corporate strategic planning and avoid the rain-dance ritual. Because it is distinct from the strict annual strategy cycle, the scenarios schedule allows the organization to access a reality that otherwise can get overlooked in the predictable cycles of objective analysis. From Wack’s perspective, Global Scenarios and Competitive Positioning are the two starting points of corporate strategic planning. The first is the world of possibility and the second the world of comparative analysis. Competitive Positioning is described as a way to get ahead of the usual management parameters. In particular, profit is a late warning signal that may be counter-productive as it can be overstated when advantage is being lost or gained. The challenge is to go beyond the obvious observations related to competitive positioning in order to find the right geographical and time scale of observation and to look for relative capabilities as well as to understand probable behaviors. From these two sources, a strategic vision is created. Wack argued that strategic vision is not a top-down idea driven by a corporate leader but requires a capacity to ask the right questions and to be amazed. In this view, the organization is seen as an animal that can prosper within a particular 59 Wack took the term “corporate rain dance” from Russell L. Ackoff, “The Corporate Rain Dance,” Wharton Magazine (Winter 1977), pp. 36-41. In it, Ackoff said: “Most of the planning I have seen in about 250 American and foreign corporations is like a ritual rain dance performed at the end of the dry season to which any rain that follows is attributed. Rain dancing has no effect on the weather even though it may have theraputic effects on the dancers” (p. 36).

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habitat, but in order to prosper, it must have strong attributes that matter in that habitat. So the success of the strategic vision depends on the matching of capabilities and context. Then, Wack felt, you need an exciting atmosphere so that the vision can evolve and become a source of dynamism and not merely of friction.These elements, along with issue-specific scenarios, lead to the set of options that are pursued by the company. This is a fundamentally creative process, not in the sense of output creativity, such as an artist might exhibit, but in the sense that a highly diverse and broad set of inputs goes into the formulation of the strategic options. This input creativity enables a step change in the quality of the strategic conversation. After this initial formulation of the frame within which the scenarios deliver most value to the business options, the process of the strategy formulation within Shell went through many twists and turns. Even though there was no strategy process that would be recognizable through a business school lens until well after 2000, the scenario process carried on, with Wack’s original three-point frame coloring corporate thinking about the role scenarios play – even though the frame itself never became fully implemented.

IV Looking Ahead Top rate tennis players pay trainers, top rate golfers have their coaches, but top rate managers somehow or other know it all.1 – Brian Marsh, Shell Group Planning, 1993-97 Scenario planning changed my conception of time. – Arie de Geus, Group Planning Coordinator, 1981-89 Anybody who is interested to understand transport in India by looking at the price of fuel rather than the number of elephants and camels on the road is mistaken. – Lee Schipper, Scenario Team Member, 1986-87

Most businesses are less than forty-five years old, the average tenure of the CEO is getting shorter, and fads and fashion in strategy don’t last a decade. Shell’s reputation for disciplined imagination as a basis for long-term thinking is therefore all the more surprising in an engineering-orientated business culture. Sustaining a practice for over forty-five years is even more remarkable. In grappling with accelerating change, irreducible uncertainty, and genuine complexity the Shell scenario practice has engaged intuition, in combination with rigorous analysis, to redirect attention from businessas-usual projections to novel changes and discontinuities, to reveal and test deeply held assumptions about the future, to build shared understanding, and to engrain a disciplined approach to ‘gut feeling’. Scenarios in Shell play an essential role in helping executives and others ‘see’ problematic situations with clarity and ‘seed’ the future (that is, develop more and better options), making space for conflict and disagreement and developing new systems of vigilance that enable more efficient horizon scanning and the trap of confirmation bias – looking only for signs that things are going as expected.

1

Gareth Price’s Symposium, op. cit., p. 27.

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From ‘Seeing’ to ‘Seeding’, Not Growing Better Futures Roger Rainbow had it right when he distinguished in approaching scenarios what made for good scenarios. One, you can think harder and come up with better insights. Two, you can bring together the interaction of trends and find some unexpected conclusions from that. Three, in rare occasions, tell plausible stories of a “Butterfly Effect.” – Michael Klein, Group Economist, 1997-2000 So there is a danger in scenarios that they are morally neutral. I found them too promiscuous in their willingness to envision almost anything, even the most disagreeable events. – Charles Hampden-Turner, Scenario Team Member, 1981-84

Shell scenarios have been used for a variety of purposes, including sensemaking, major project management, and the support of investment decisions, as well as a means to engaging with external stakeholders – in effect, acting as ‘door opener’. In the first decade, Pierre Wack emphasized the role of scenarios for ‘seeing’ – that is, for helping Shell executives become more open-minded, so that they could re-perceive the present and improve the quality of their judgment. Seeing requires an open mind that looks from different perspectives – including that offered from the future – in order to forge a shared understanding about the bigger picture. In subsequent decades, Shell has harnessed scenarios not only to ‘see’ but also to ‘seed’ the future. In the spirit of Wack, what we might call ‘seeding’ involves finding effective means to intervene, that is, to identify new and actionable options. These options, like any seed, still need to sprout, which involves time and the resources of the company. These are seeds for securing the future for Shell and its shareholders. In the early 1990s Jaworski failed to convince the CMD to express a preference for a specific scenario as a part of corporate responsibility; but in 2007, the CEO (de Veer) chose (Better) Blueprints over Scramble. This expression of preference, illustrating the difference between seeding and growing, also raises an ethical question about the nature of Shell scenarios. Should the scenarios be used only to identify ‘options’ that enable the organization to adapt to any future developments? Or should the scenarios also be harnessed to forge wider leadership responsibility for creating a better future for society as a whole, and not just for Shell?

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Shell has grappled with this issue at several points, but on balance continues to hold the view that regarding any scenario as normative is a matter of the eye of the beholder rather than an intentional choice. It does not deploy its global scenarios to help ‘grow’ a better future for others, but as a mechanism for developing its own adaptability.

Beyond Products to Value-Added Services The use of scenarios as transitional objects can be a very effective device of management.2 – Graham Galer, Scenario Team Member, 1976-78 We occupied a difficult position. Churchill said that you must never try to change a culture from a subposition – we were trying to do that. They [the executives] locked us away in a tower at the start, and didn’t expect us to bother them too much. – Ted Newland, Manager, Long-Term Studies, 1965-71; Scenario Team Leader, 1980-81

In moving from seeing to developing options that could be realized by Shell to seed its future, Shell scenarios are better thought of in terms of value-adding services rather than stand-alone products, and as inputs rather than outputs. In addition to building and using the scenarios, the Shell practice also plays an important role in activities involving linking, relating, engaging, broadening, and deepening. Linking Shell scenarios are always inputs to something else and have played an important role in helping to link parallel processes – for example, strategic visioning and competitor intelligence. There have also been attempts to link scenarios – for example, relating global scenarios to regional scenarios, or using the global scenarios to rapidly interpret crisis situations and to develop more customized scenarios to support crisis management.

2

G. Galer, unpublished talk, op. cit.

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Relating Scenarios are deployed in combination with other qualitative and quantitative methods – for example, visioning, computer-based modeling, and forecasting. Care is taken to ensure that scenarios do not become extensions of quantitative models nor constrained by ideas of a preferred future. By maintaining an emphasis on plausible futures, the scenarios can help relate different communities of professional practice – those that work with probability and those that work with preference. Without this emphasis on the value of plausibility as something different from quantifiable probability and values-based preferences, there is a risk of seeing scenarios as either an alternative approach to forecasting or as a process of visioning. Engaging Realizing the role of scenarios as value-adding services rather than products has also enlarged the group of decision-makers engaged in strategic conversation. Over the decades of Shell scenario practices this widening engagement has occurred both within and beyond the organization, contributing new insights and cementing new relationships. In turn, it has raised challenges relating to stakeholder analysis (dynamic, rather than ‘up front’) and required attention to different modes of engagement – for example, deciding, consulting, informing, testing, and sharing – at different points in the scenario-building process. Broadening Scenarios in Shell are always focused on the future contexts of something for someone or some business unit. Shell uses scenarios to shift attention from the urgency of short-term decision-making to the longer-term perspective needed to identify strategic challenges and choices. The Shell scenarios also grapple with complexity and conflict. Theories of complex systems have been informally imported into the practice over the decades – for example, ecological resilience in the 1970s, the practice of differentiating three strategic landscapes (the client, the transactional environment, and the contextual environment) in the 1980s,3 and the concept of attractors in the 2000s. This transplanting of systems, management and other theories into scenario practice has been facilitated through many channels, including leadership development programs, the scenario team leader, and the temporary presence of visiting external scholars within the 3 F.E. Emery and E.L. Trist, “The Causal Texture of Organizational Environments,” Human Relations, 18 (1965), pp. 21-32.

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Shell scenario team. As such, the scenarios provide an important mechanism for keeping the organization open to developments in the wider world, whether conceptual, theoretical, or physical. Deepening In the process of developing scenarios, there is attention to the appropriate scale of granularity required to enable a deeper and more widely shared understanding of the problematic situation of concern to the scenario client(s). To reflect the selected scale of interest, Shell scenarios have been labeled in various ways – for example, ‘macro’, ‘energy’, ‘long term’, ‘short term’, ‘national’ and ‘global’. Shell has also leveraged scenario work across different scales, for example, by using global scenarios as a basis for rapid development of crisis scenarios. Having identified the focal scales (time horizon, geographical) that are relevant to the client situation, the process of intuitive-led inquiry, involving interviews and dialogic processes, enable the development of storylines which provide the starting point for more systemic thinking and analysis. The storylines are converted into insights about the deeper system structure. In turn, a more systemic understanding of the client situation provides the basis for exploring more and more effective intervention options. The Shell scenarios are practiced as an art for revealing and testing deeply held assumptions that relate to the mental models of the individual client in the case of focused scenarios, and to the organizational mindsets in the case of the global scenarios. These mental models, which relate to an intuitive understanding of how the world works, would otherwise remain implicit and untested. This approach to developing shared and more systemic understanding by starting with an intuitive-led inquiry is remarkable given the tensions among the highly numerate, technocratic, and financial cultures that characterize a typical oil and gas business. The scenarios are deployed to frame and reframe the present situation rather than forecast the future. In the process of reframing, Shell has grappled with deeper assumptions and big questions about issues such as the economic myth, the role of business in society, and sustainable development. As we look to the future of Shell scenarios, it is clear that the evolution has not stopped. But in which direction might the practice continue?

The Future of Shell Scenarios Only God or a fool would pretend to know what the future will be. – attributed to Pierre Wack, Head of Scenario Team, 1971-81

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Pierre opened the company to the outside world and that was really the remarkable thing to happen. – Kees van der Heijden, Scenario Team Leader, 1988-91

Today, the Global Business Environment team, or Shell scenario team, is one of several parts of the organization striving to maintain effective ‘openness’ in a multi-cultural and multi-faceted international organization. Scenario ‘thinking’ remains an important part of the executive skill set at Shell and helps meet the need for developing intuitive judgment in a commercial and technologically driven organization. At the same time, there has been a proliferation of service providers of long-term thinking and analysis of macro-trends. Global, as well as more focused, scenarios are available from the market and regularly featured by the media. Meanwhile, advocates of predictable futures point to ‘big data’, quantum computing, and complexity modeling, thereby reviving confidence in our ability to know the future and leading to the prospect of a renaissance of forecasting based on better algorithms in combination with better models. Even with increasing computational speeds, better software, and the availability of bigger data sets, it is unclear whether policy-makers are willing to rely on a single global model, whether focused on world energy, resource security, or climate change. Beyond Shell, scenarios are being combined with multiple models as policy-makers seek to navigate progress in a more complex and turbulent world. Despite the continuous evolution and increasing openness of the Shell scenario practice, the new leading edges of scenario practices may be shifting to other sectors and organizations. For example, the state of Singapore has moved more quickly than Shell to embrace social media technologies and extend participation in building and using alternative futures to its citizens. In the process, they have suggested the value of ‘scenarios plus’ practices, using scenarios in combination with backcasting, policy-gaming, and horizon scanning to identify factors that will shape the future and enable “Whole-of-Government Integrated Risk Management” to help reduce some of the complexity. 4 4 Peter Ho, “Foresight and the Future of Governance,” speech to DSTL Horizon Scanning and Futures Symposium, 15 January 2013, Defence Academy, Shrivenham, UK. The term ‘wicked problem’ comes from social planning and describes a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. Wicked problems resist resolution because of complex interdependencies: solving one

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Former Shell scenario team member Adam Kahane has suggested that scenarios could play a role in developing the shared insights, social relationships, and collaborative strategy required to create a better future.5 Given widespread concerns about enabling a transition in global energy systems to sustainable sources and uses and recognizing that Shell scenarios have always provided a conduit for new influences, how might these wider developments influence Shell’s scenario practices in future? As the world enters an era of flourishing international networks and multi-polar geopolitics, the global scenarios practice may become more important to Shell than it was in the period of Western-led globalization, when the company was more deeply entangled with the political establishment. As individual companies face systemic and emerging risks stemming from the cumulative actions of others in a more globally interconnected world, scenarios offer a means for more collaborative leadership designed to make sense of and cope with changes that no single government, company, or community can appreciate and navigate alone. Global scenarios may also help Shell leaders grapple with new economic development policies aimed at green and inclusive growth and the political realities of the Eurozone crisis. As global connectivity becomes the driver of value and vulnerability, new concerns are coming into the foreground – for example, the resource security-climate nexus; or the means of governing novel technologies such as carbon capture and storage under globalization; or the return of an age-old concern of technological unemployment from the continued convergence in bio-nano-AI-information sciences, which creates active, intelligent, and automated systems and services that displace increasingly high skilled workers from jobs; or shifts in social norms and behaviors of the internet-native generations. On the other hand, the continued growth in publically available futures studies and foresight service providers might tempt Shell to rely on the market for long-term scenarios, focusing on the use of scenarios developed by others rather than the development of specialist, in-house capabilities in producing scenarios. The deeper and broader shift in Shell that has helped create the scenario practice as it is enacted today can be summarized using two different metaphors of governance – from steering an introspective, logistics machine, aspect of a wicked problem reveals or creates other problems. See H.W.J. Rittel and M.M. Webber, “Dilemmas in a General Theory of Planning,” Policy Sciences 4 (1973), pp. 155-69. 5 A. Kahane, Transformative Scenario Planning: Working Together to Change the Future (San Francisco: Berrett-Koehler), 2012.

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similar to a very heavy crude carrier in a relatively calm sea, to navigating a flotilla of different businesses through the ever-shifting tides and winds of an uncharted, open ocean. The “bottom-up experiment that became culture” resulted, in part, from the effects of the scenarios opening up the organization, helping to shift it from operating as an efficient machine to behaving more like an organism within a wider ecosystem. In the 1970s, the typical oil majors were closed off and inward-looking. In contrast to U.S. majors, Shell already had a more diverse Dutch and Anglo governance structure, but its consensus decisionmaking discouraged healthy conflict and constructive disagreement. By harnessing the future as a ‘safe space’ and depersonalizing these thinking frames from individuals, the scenarios provided the foundation for a better quality of strategic conversation and enabled a new common sense and a new shared vocabulary. Stories and conversation in a culture that was curious and tolerated diversity became a fundamental adaptive capacity of this highly complex business organization. The intellectual debates of the scenario team about different ways of considering the role of the future in the present were never part of the scenario discussions with Shell executives – indeed, most senior managers were unaware of these considerations. The ideas resulting from these debates did, however, impact the content of the scenarios. At the same time, the practice of openness, engagement, and interest in new thinking spread well beyond the scenario team. Other internal functions, such as leadership development, external affairs, Shell’s innovation process called “GameChanger,” and sustainable development, were exposing Shell executives to new ideas and increasingly working in collaboration with the in-house corporate scenario team. Although it is impossible to ascribe this development entirely to the scenario practice, there is no doubt that the sustained discipline of building scenarios stimulated a culture of curiosity, tolerance for difference, and openness. Its reputation for long-term thinking also made Shell a desirable partner for others to engage with. In relation to the future not just of Shell but of major market-listed resource-extraction companies in general, a number of developments will continue to shape strategic planning needs and catalyze the further evolution of scenario practices. These developments suggest that success will rest on appreciating and navigating a more complex and novel global energy scene: –– Global energy shifts and transitions shaped by a combination of national energy security concerns and global market interests, technological developments within and beyond the energy sector,

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shifting preferences (e.g., nuclear in a post-Fukishima world), and the balance between new energy abundances (shale gas, deepwater gas, and radical gains in energy efficiency) and other concerns, such as food and water security and ocean health. –– Continued entry of more and new players into the energy sector, bringing different systems of enterprise and new sources of competition in the form of national champions of the emerging economies – for example, the international rise of state-owned energy companies. –– Developments in big data and the generation and capture of value in the knowledge-based economy are increasing interest in predictive analytics, information asymmetry, and the possible reshaping of intellectual property regimes, as well as raising questions about privacy, the global information commons, and data as a common good. –– Aspirations to realize new pathways of global progress, as denoted by terms such as “green and inclusive growth,” “sustainable development,” “ecological resilience,” and “global transition management.” We conclude, in the spirit of Shell scenarios, by offering thumbnail summaries of two possible scenarios for the future of the global scenarios in Shell that might arise from the interplay of the above changes.

Business Lens Shell has finally moved on from the consensus-driven culture of its past to a more focused delivery culture in which scenarios continue to play a strategic role. The availability of market-based futures studies and foresight services, including a proliferation of global foresight hubs and publically available scenarios, leads Shell to concentrate on using a mix of outsourced and homegrown scenarios to present real business dilemmas. Inputs on the social, political, technological, and economic changes are detected using two filters – strong trends and weak signals – and e-harvested from high quality foresight initiatives and scenario studies done elsewhere. Automated web-crawls and online Delphi surveys of an increasingly extensive network of worldwide experts are combined to enable the development of scenario building blocks. This practice allows the scenario team to glean the best insights from many and varied sources and also helps to maintain the ‘outsider’ perspective that is so important to the traditional scenario function of engaging with remarkable people.

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In this future, the investment in building global scenarios is shifted to undertaking regular reviews of the proliferation of available scenarios and foresight studies done elsewhere and coupling these more closely with bespoken, in-house models. This focus enables Shell to conduct more rigorous and comprehensive environmental scanning and to draw on ‘big data’ sets and existing futures reports and scenarios studies to more rapidly detect and analyze longer term and systemic risk. Shell scenarios continue to provide the basis of the firm’s global early warning and tracking systems, fed again in real-time by a range of global dashboards and monitoring systems established by others.

Reaching Out Dramatic changes in the energy landscape, coupled with inertia by governments in addressing the integrated risks of connectivity, such as the resource security-climate stress nexus, unleashes an era of new social movements and bottom-up changes. As a result, Shell reinvents its scenarios practice in order to reach out and establish linkages with many communities on which it depends to produce and buy its products. A new ‘open source’ scenario practice emerges in which social media technologies combined with workshop-based dialogues explore the futures of energy in the context of planetary ceilings and social foundations. Nested scenarios – sets of scenarios focused on different scales and dimensions – are developed to appreciate nexus issues. Shell harnesses social media technologies to navigate parallel paradigms in a multi-polar world and develop new insights into multi-scale resiliency. ‘Scenario-Plus’ methods are developed, combining visioning, scenarios, and design to inform transition pathways and innovation domains. In the process Shell gains a deeper understanding of new business opportunities stemming from interactions among energy, water, and food systems, as well as from the linkages resulting from changes in governance, technology, and consumer behaviors. By continuing to attend to the role of intuition and interpretative frames, and by linking in-house modeling to open-source modeling contests, Shell scenarios provide the means of evergreen sense-making and market shaping by building rapid social capital in a world where relationships determine flexibility and new ideas are only as effective as the wider networks that make change happen.

V Conclusion It is difficult to convince people, especially when you have no cataclysmic event with which to confront them, that the world is going to be different. The policy makers, whether in government or business, tend to put off making decisions which they do not like. Scenarios, by illustrating the consequences of delayed decisions, can provide a powerful spur for a more positive response.1 – Hans DuMoulin, Head of Energy Team, 1972-79 and John Eyre, Energy Team Analyst, 1976-78 Pierre Wack was forbidden to work on strategy. – Napier Collyns, Head of Scenario Analysis/Quantification, 1971-1980, Scenario Team Member, 1972-86 Our source of competitive advantage was not to be found in developing the scenarios per se but actually making them systemic within the organization so that they could be part of corporate glue and organizational learning and development. – John Robinson, Editor, Scenario Planners Newsletter, 1988-2004

Inevitably, for such an unusual corporate function, there has been a continuous low intensity debate about the value of scenarios. On at least three occasions, the board seriously considered discontinuing the practice. The first of these occurred immediately after Wack’s retirement, when De Geus was instructed by Van Wachem to “bring it closer to the business.”2 The scenario team under Van der Heijden asked De Geus for six months to convince him of the use of scenarios. The fundamental lesson learned was that the scenarios are effective only when focused on the concerns of a specific client. De Geus concurred with the conclusion of the review that the lack of strategic implementation of insights gained from the scenario work reflected the quality of the CMD’s engagement with the scenarios rather than the quality of the scenarios themselves. De Geus reported that “After Van Wachem was shown a review that claimed the scenarios had influenced

1 H. DuMoulin and J. Eyre, “Energy Scenarios, A Learning Process,” Energy Economics (April 1979), p. 77. 2 A. de Geus, interview, 16 November 2010.

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the company’s anticipation of ‘lighter’ barrels ahead of the competition, he changed his mind and became a staunch supporter of scenarios.”3 Other observers have felt that scenarios do not provide anything “more than what I can read in the Financial Times.”4 Even during those periods when the overall level of support for global scenarios was strong, individual propensities meant that some were more attracted to the abstract nature of the process than others. This ambivalence was reflected in the opinions of many of the most senior leaders, who seemed to waver between feeling, on the one hand, that scenarios should provide immediate and direct value to the business and recognizing, on the other, that given the very longterm nature of the investments Shell was considering, the global scenario capability was essentially important. Investment decisions in the oil and gas business carry very long-term implications. As Van der Veer put it, “We are not selling ice creams. The decisions we are making are for the successor of the successor of your successor, so they have to work in a huge range of uncertainty.”5 Even when the value of scenarios is assumed, the question remains as to the value of Shell investing to such an extent in actually producing them. The healthy market in futures studies and the proliferation of scenario work beyond Shell is evident – so why shouldn’t Shell use scenario work done elsewhere? Some Shell executives hold the view that while the energy scenarios are essential, global scenarios can be sourced from many other organizations; or they are really not needed to understand the energy system; or they are important only as an element in building a common management culture. The question is whether outsourcing the creation of scenarios would diminish the client engagement in the scenario building process, which is a critical factor for increasing the usefulness of the scenarios. The receptiveness of the CMD to the scenarios has varied through the decades for various reasons, usually having to do with timing. For example, the serendipitous coincidence of the first oil shock and the 1973 scenarios (developed in 1971 and 1972) encouraged widespread interest. In contrast, early in 2004, the reserves crisis distracted attention away from the scenarios. On other occasions the focus of the global scenarios was determined a priori by the chairman. For example, in the 1980s, Van Wachem requested 3 A. de Geus, interview, 16 November 2010. 4 M. Williams, Shell Downstream Director, as quoted by Interviewee 1, interview, 5 October 2010. 5 J. van der Veer, 22 October 2010.

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that sustainability be considered and incorporated into the scenarios, which at that time was a novel topic. Of the two 1988 global scenarios only one (Sustainable World) addressed such issues. The other (Global Mercantilism) did not. More recently, there has been a focus on global supply chains. Not only has the receptiveness of the CMD varied throughout time, but the impacts of the scenarios on decision-making, leadership quality, and cultural engineering have varied, also. In some instances, the scenarios fell short of expectations, were misunderstood, or were marginalized for political reasons. And the impact on strategy – which was often thought to be the key reason for the existence of scenarios – is a complicated story. The Shell Group was unusual in that for the first century of its existence, it never had an explicit Group strategy – rather, the strategy emerged from the bottom-up strategies of the country units at first and the business units later. In the early days of Shell scenarios, Davidson argued that short-term planning should be done for just two years by the finance department, thus leaving the longer-term thinking in the hands of Group Planning.6 But the job of Group Planning was never to produce explicit strategy. Only following the centralization after the year 2000 did the first topdown strategies start to be developed. So in the early decades, the issue of scenario and strategy alignment is actually a bit of a red herring. In 2001, immediately following the introduction of an explicit top-down strategy, the CMD made it compulsory to include a discussion on the robustness of business plans under various scenarios, but the practice was not strongly enforced and so gradually diminished. Recently, a conscious effort has been made “to be more dynamic across the bandwidth between scenarios and strategy, rather than collapsing it.”7 While evidence of the scenarios having a direct influence on strategy is circumstantial, at best, they have almost certainly contributed to the justification of diversification and experimentation, strengthening the narrative that corporations should learn, adapt, and be agile. Former head of Shell Group Planning Arie de Geus, for example, argued in The Living Company8 for a view of the corporation not as a machine but as a biological entity that learns, adapts, and evolves. This view of the corporation reflects Wack’s argument that scenarios should only ever be seen as part of a broader strategic management system that includes other elements. While increasing the learning capacity of an organization, and, thus its adaptive capacity, 6 Keith Mackrell, 5 October 2010. 7 H. Brekelmans, interview, 26 November 2010. 8 A. de Geus, The Living Company, (Harvard Business School Press, 1997).

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is undoubtedly a good thing, using scenarios to make discrete portfolio choices is something else. In short, although the global scenarios have contributed to enriching the context within which decisions are made, it is hard to trace their direct causal relation to company performance. Davidson explicitly references Shell’s investments in coal and nuclear as having been influenced by the 1970s scenario work, and others saw the renewables business as originating in the 1980s sustainability scenarios. Links between more focused scenario building and decision-making, especially in relation to major investments or in the face of crisis, are clear, at least according to participants. Even so, scenarios were always one of many inputs. In the case of more bottom-up and focused scenarios – for example, the scenario work undertaken by functions such as Chemicals in 1975 and Manufacturing in 1981-82, and operating companies such as Svenska Shell in 1982-84 – the direct impact is suggested either in references to specific decisions or as part of the contribution to an improved bottom line. For example, Svenska developed medium-term scenarios to drive crude oil acquisition strategies between 1982-84 and achieved record profits for two years running.9 These success stories are offset by the possibility that scenarios contributed to a culture that allowed enormous distractions from the core business, led to wasting very large sums of money by encouraging a race down blind alleys, and allowed the promotion into senior roles of people who did not have the narrow interests of the core business at heart. During the height of scenario influence in Shell, the company entered and exited several lossmaking businesses, including nuclear, metals, coal, forestry, and renewables. Arguably, Shell did best when it learned, adapted, and evolved in relation to its core strength. Among Shell’s competitors Exxon can be said to best represent this perspective, with its ruthless focus on doing its core business well and not being tempted by diversifying in other sectors, even inside the energy business. Except for the 1990s, Exxon’s market capitalization has consistently been greater than Shell’s. Many of the ventures that have secured the long-term success of the company, such as the North Sea, Nigeria LNG, Malampaya, Qatar Gas to Liquids, Sakhalin LNG, and Athabasca Oil Sands, are solidly part of the core oil and gas business, sometimes in joint ventures with other oil and gas companies. On the other hand, most, if not all of these ventures, were the subjects of focused scenarios. 9

M. Jefferson, cs., 4 February 2012.

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The exact role that scenarios have played in the evolution of Shell is an argument that has not been settled and perhaps never will be. While increasing the learning capacity of an organization, and, thus its adaptive capacity, is undoubtedly a good thing, choosing to apply that capacity to continuous adaptation or to discrete portfolio choices is another thing. From this perspective, Wack’s conclusion about scenarios becomes even more significant – that scenarios are best used to hone incremental adaptive capacity rather than to help make big portfolio choices. In the case of Shell, there may have been unforeseen consequences of scenarios operating in a culture where big moves are prized over adaptation – the scenarios may have provided a justification for big moves and a career path for those inclined to make those moves. The value obtained from increased intelligence in continuous adaptation is much harder to measure and thus to judge whether that benefit offset some of the costlier portfolio moves – if indeed scenarios were even a decisive influence in those strategic decisions. So the question of what effect, if any, scenarios have had on Shell’s bottom line is essentially unanswerable. Fostering a culture of openness and curiosity, managing disagreement as an asset, serving as door-openers, deepening business relationships, building social capital, emphasizing the role of the future in the present, and all the other characteristics of the Shell scenario practice are values in themselves, important to creating a particular culture and to attracting the curious, intellectually vibrant, and adaptively creative participants who are drawn to that culture.

The Evolution Continues – the Essence Remains [We] realize that we can’t look at greenhouse gases in isolation, but that the various social-ecological systems are interconnected, and that resilience requires a more integrated approach.10 – Peter Voser, CEO Royal Dutch Shell, 2009-14

When Jimmy Davidson came upon the concept of resilience in ecological systems, he perceived it as a way of better assessing the long-term risks of 10 “Resilience and the Energy Sector.” Speech to Cambridge Sustainability Leadership Programme Alumni Reunion, London (9 June 2011).

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investments. As with this early example of learning from the outside, collaboration with IIASA, the WBCSD, and others has continued to import and export new concepts and ideas into the company via the nonthreatening space for new thinking enabled by the scenarios. Ideas such as sustainability, resilience, volatility, and values constellation have been gestated in Shell’s scenario community and eventually emerged into public view through, for example, the speeches given by Shell leaders. Such a long gestation period could be framed as simply being slow, but that would not do justice to the pace of development of ideas. Just as the growth of the idea of sustainability in Shell had its roots in Chairman Van Wachem directing the scenario team to consider it in 1985, before including it in the Group Business Principles in 1997, in 2011 the idea of resilience was put on the corporate agenda. Shell began to focus on resilience at the food-water-energy nexus, that is, the points of tension in society where interconnections and trade-offs between these three resources involve critical stresses in society. Yet doing in-house scenarios may no longer be enough in an environment in which the impact of a single company shrinks while the challenges become more global. In 2012, CEO Voser invited 8-10 CEO colleagues to test the resilience of what they do collectively and how they can manage these resources.11 This new process hints at how the futures practice may evolve. In the future, scenarios may well take different forms, perhaps increasingly involving multiple stakeholders or even forms of crowd-sourcing, but the necessity of engaging constructively with the uncertainty of the future will remain. The practice of plausible futures initiated by Jimmy Davidson, Ted Newland, Pierre Wack, and others at Shell has been adopted by companies in many different sectors and governments across the world, and has had a lasting legacy that reaches well beyond a single company. With its unparalleled longevity of practice and dominant influence on foresight in so many other private and public organizations, the lessons from this unique legacy apply broadly to any effort to wrestle with the influence of the future in the present. The early insight that for the most part the future cannot be predicted, along with the courage to hold that thought, led to the development of a practice that helped shape a corporate culture of learning and of openness to diverse perspectives, and provided a 11 P. Voser, Interview at “Powering Progress Together,” Conference (Rotterdam, 16 May 2012), posted on You Tube, (23 June 2012), http://www.youtube.com/watch?v=gq1aJIs3oF4&feature=s hare&list=PL9384C690B08C382F.

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unique way of building bridges to external stakeholders – “an experiment that became culture.” Using these lessons from history to look ahead, we conclude that the difference between good and great organizations will increasingly rest on the adaptability of organizational culture. The quality and flexibility of interpretive frames is the essence of adaptive capacity in an informationrich and globally interconnected era. In this context, there is still a role for scenarios in understanding and responding to the challenges facing societies. Large-scale transitions to green, inclusive, and sustainable development require a shift towards more inter-organizational and international leadership and strategy. Effective collaborations, in turn, will flourish only if disagreement is managed as an asset and if leadership avoids “confusing plausibility with morality.” Scenarios, coupled with visioning and modeling, offer an effective compass for navigating these significant challenges of the future.



Epilogue: Scenario Team Leaders The real purpose of planning is to make innovation and change.1 – Pierre Wack, Head of Shell Scenario Team, 1971-1981 Once people recognize that they cannot forecast the future, I believe they may find that they can understand it remarkably well. As Socrates said, the only knowledge that he had was the understanding of the people. – Gareth Price, Energy Team Leader, 1981-1983

From the earliest days, when Davidson displayed an interest in catastrophe theory and resilience, scenario builders have been influenced by their own experiences and their own ways of seeing the world. In spite of the dangers inherent in over-simplification, the history of this thought provides another lens not only on the history of scenarios in Shell but also on the Shell scenario principles themselves. Jimmy Davidson understood that there is no “God-given” perspective and that organizations needed to speculate with uncertainty. His earlier work on political and general business risk in 1967 had emphasized that “governments do not act capriciously. Their behavior is motivated by internal and external forces.”2 He pushed the scenario approach as a way to “devise strategies that are sufficiently resilient to adapt to meet changes in circumstances.” 3 Ted Newland, the pragmatic insider, started with a long-range analysis to demonstrate the limits of forecasting and moved away from single, straight-line futures analysis to explore other possible futures. He was also the first to study how non-Shell actors might influence Shell’s future and affect its strategy. He was the first leader of what was to grow into the larger scenario team. Pierre Wack was the mystical insider, who harnessed the power of clear logics and storytelling to help executives engage with futures that were plausible but uncomfortable to think about. Wack, for example, contrasted thinking 1 2 3

“Presentation to the Manufacturing Function in Shell,” op. cit. J. Davidson, EP Study Group Memorandum, op. cit., Appendix 1. J. Davidson, talk to KSLA, Koninklijke/Shell-Laboratorium, Amsterdam, 14 May 1976, p. 2.

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about things to seeing the essence of things. He believed that humans have the capacity to sense the future, so he saw scenarios as instrumental in helping train the intuition of senior decision makers. Intuition, in Wack’s view, was vital to business success and involved something more than a “gut feeling.” Wack’s views came in part from philosophical and esoteric roots. In 1943 he had met Gurdjieff, 4 a well-known mystic in Paris, who was to have a lasting influence on him. Later Wack became one of a handful of European disciples of Svâmi Prajñânpad, a yoga master. Wack once wrote that “Seeing was a discipline much more demanding than common predictions…. Every time I had difficulties and doubts on how to ‘See,’ I would consult Svâmiji.”5 In Shell and later at Harvard, Wack was reluctant to share his views on ‘seeing’, no doubt because he sensed that to talk about these ideas would not be productive. These views are nevertheless core to his approach and, given Wack’s foundational role, important to the Shell scenario story. Notwithstanding his esoteric interests, Wack did not consider himself an outsider: “I do not have at all the feeling of being a heretic in Shell. Not at all. I had the feeling of hunting in a pack, and being the eyes of the pack. Now if you see something serious, and the pack doesn’t notice it, you’d better find out: are you in front?”6 Peter Schwartz, a career scientist and outsider from California, focused on leading Shell executives to appreciate the unfamiliar, especially the importance of new technologies that were reshaping oil demand. He saw scenarios as a way to encourage executives to engage with uncertainty and to experiment with models. He went on to co-found the U.S. scenario think tank Global Business Network with two Shell scenarios colleagues, Napier Collyns and Kees van der Heijden, and other fellow Americans. Joop de Vries, a Shell insider, saw scenarios as a way to avoid instrumentalism and instead navigate between different paradigms.

4 Gurdjieff drew from Sufism in his teaching and writing but is generally not viewed as a Sufi. He was a Greek Armenian and purported to be a Christian. In addition to nurturing Wack’s inner wisdom, he is reported to have taken the young, near-starving Wack under his wing in Paris during World War II. 5 From a chapter written by Wack (identif ied only as “Pierre”) in D. Roumanoff, Svâmi Prajñânpad Biographie (La Table Ronde, 1993). In this chapter, Wack describes his concepts of seeing and its relevance to his work at Shell. 6 Wack interview with GBN, op. cit., p. 11.

Epilogue: Scenario Team Leaders

133

Kees van der Heijden, a Shell career man, was responsible for the f irst codification of the Shell scenario method. After leaving Shell, he wrote about the role of scenarios in enabling, informing, and challenging strategic conversation. Van der Heijden continues to see the scenario approach to strategy as a way of both paying attention to the interplay of external factors beyond the control of the organization and tapping intuition in order to develop deeper, systemic insights that could be supported by more conventional analysis. Joseph Jaworski drew on his background as the founder of the American Leadership Forum to stress the role of corporate leaders in affecting the future. He believed that entrepreneurship derived from an ability to sense what was about to emerge, a belief that came from a meeting in 1980 with the physicist David Bohm, who had just published Wholeness and the Implicate Order.7 Leaders as well as entrepreneurs help create new realities, but in order to do that, they must change their mental models of how the world works.8 These views led Jaworski to believe that the future was not independent of Shell’s imagining of it and that therefore Shell had a responsibility for pursuing normative futures, such as that depicted in the scenario New Frontiers. Roger Rainbow “came from the sharp end of the business and focused on the practical aspects.”9 He used the scenarios as a way to strengthen the business culture of Shell. Under Rainbow, the notion that “There is no alternative to globalization and liberalization” (commonly referred to as ‘TINA’ in the scenarios) informed strategic conversation about business models and new markets. Ged Davis encouraged the inclusion of outside perspectives in business strategic thinking, especially the perspective of social and environmental NGOs. Like Wack, Davis was practically engaged with deeply philosophical concerns. A proponent of systems theory, he believed in the coupling of intuition with rigorous analysis. In his late teens, Davis had become fascinated with science fiction and the concept of ‘sky hooks’ and later with noetics (a

7 Routledge, 2002. 8 For a discussion of these ideas and a detailed account of the 1992 global scenario round, see J. Jaworski, Synchronicity, op. cit., pp. 139-82. 9 D. Wade, interview, 16 November 2010.

134 

The Essence of Scenarios

theory of how beliefs, thoughts, and intentions affect the physical world).10 He also believed that people could develop “meaningful memories of the future,” an idea that came from the Swedish neurobiologist, David Ingvar.11 Davis viewed scenarios as a way of training the mind of Shell executives to develop this memory of the future, which would then enable them to react quickly and purposefully to developments. He also saw the scenarios as a platform for more effective, wider engagement and collaboration. Albert Bressand took a Cartesian approach and created a set of template scenarios based on trilemmas that managers could use to create their own scenarios. These were informed by expert analysis of what Shell managers needed to know, but the invitation for managers to engage more deeply was not taken up, in part because at this time Shell executives were preoccupied with crisis, scandal, and internal governance matters. Jeremy Bentham took over a team that risked being marginalized as an internal think tank. He was challenged to address the growing skepticism about scenario activity, particularly internally. Like Kees van der Heijden, he was considered an ultimate insider and a safe pair of hands to bring the practice closer to the business. Bentham innovated the practice by developing a set of energy scenarios (Blueprint and Scramble) based on a state-of-the-art, in-house world energy model, but with a much broader perspective than the traditional energy scenarios. These were less abstract than the traditional global scenarios and were well received as being more directly relevant to the business. The 2013 scenarios returned to a focus on the external environment but with much greater attention paid to the energy system in those environments as well as to the pathways – or lenses – that led into the scenarios. 10 Daniel Dennett “uses the term ‘skyhook’ to describe a source of design complexity that does not build on lower, simpler layers – in simple terms, a miracle. In philosophical arguments concerning the reducibility (or otherwise) of the human mind, Dennett’s concept pokes fun at the idea of intelligent design emanating from on high, either originating from God, or providing its own grounds in an absurd, Münchhausen-like bootstrapping manner. Dennett also accuses various competing neo-Darwinian ideas of making use of such supposedly unscientific skyhooks in explaining evolution, coming down particularly hard on the ideas of Stephen Jay Gould. Dennett contrasts theories of complexity that require such miracles with those based on ‘cranes’, structures that permit the construction of entities of greater complexity but which are themselves founded solidly ‘on the ground’ of physical science.” (http://en.wikipedia.org/ wiki/Darwin’s_Dangerous_Idea). 11 Ingvar, op. cit., describes how the brain constantly develops patterns of what the future might hold and how these patterns later help us to recognize and react more adequately to unfolding events as well as to filter out clutter.

Afterword For centuries wise men have been trying to divine the future, and today the endless quest goes on with all the aids of modern science and technology, but like sailing in uncharted seas the best that it seems we can do is try to see where the rocks may be and where there may be some areas of clear passage. But, even if in the unlikely event that one day there is success in unlocking the future – what a dull world we will be entering. Jimmy Davidson



 

 

Oil Price and Energy Scenarios

 

 

Year 2000 Study

Neville Beale Doug Wade

 

 

 

Harry Beckers      

 

 

 

 

Adrian Loader  

Belle Epoque - World of Internal Contradictions

Consumer Ability to Pay - Saudi Leadership Consumer Logic Producer Logic

Carter Miracle - Convalescence Consumer - Relapse Logic - Producer Successful Restructuring Logic - Producer - Constrained Growth Miscalculation Extended Relapse Unrestrained Producer Logic - Gradualism - Stabilisation Imposed Consumer LOQiC Saudi Compromise OPEC Compromises - Unrestrained Crisis Manageable - Crisis Producer Logic Unmanageable - Fragile Accommodation Fragile Compromise - Hard Times - Another Crisis Restructured Growth - World of Internal Contradictions Harder Times

       

 

  John Robinson

Doug Wade

 

 

 

 

        der Veer

Jeroen van

 

 

 

 

Low Take Scenario - High Take Scenario - Low-Growth Seventies - High to Medium Growth Private Enterprise Solution - Dirigiste Solution - Crisis Scenario -Low Demand Scenario - Successful Muddling Through Scenario High Supply Scenario Dirigiste Corrective Action - Market Forces Corrective Action Belle Epoque - World of Internal Contradictions Boom and Bust - Constrained Growth - Depression Contingency

Next Wave - Divided World

Arden Brummel

 

  Arden Brummel

Kees van der Heijden

Lee Schipper  

     

   

 

 

 

Renata Karlin

 

 

Charles Hampden Turner

 

Alan Saunders Ted

Newland/ Jiillings

Adam Kahane

1988

Peter Jeremy Turk Oppenheimer

1987

Dennis Anderson

1986

Lodewijk (Lo) van Wachem

1985

Peter Schwartz

1984

Joop de Vries

1983

Arie de Geus

1982

Peter Brian Baxendell

1981

Jan Kopernicki Joop de Vries

Napier Collyns

Ted Newland

 

Guy Jillings

Chris Vincent

Henk Allkema

Cor Kuiken

 

 

Ted Newland Tom Hart

1980

Dirk de Bruyne

1979

 

1978

 

1977

Michael Pocock

1976

Keith Mackrell

Davidson/ Mackrell

1975

Hans DuMoulin

1974

Michael Jefferson

1973

Energy and oil demand outlook - 1985-2000

Gerrit Wagner

1972

Pierre Wack

1971

James (Jimmy)Davidson

1970

David Haven Barran

 

1969

Keith Mackrell

1967 1968

Medium Term and Global scenarios

Other Principals

 

1965 1966

CMD Planning Chief Scenarios / CoordiEconoteam Leader CEO nator mist L.E.J. (Jan) Brouwer

Year

Appendix A – Timeline

World in Turmoil - Managed World

Managed Market Roller Coaster - No Recovery

2008

2009

2010

2011

2012

 

 

 

 

 

 

 

 

 

     

 

Betty Sue Flowers

 

 

 

 

Wim Thomas

 

 

 

 

 

 

 

Cho Kong

 

 

 

 

Peter Cornelius

 

 

Roxanne Decyk

 

Renata Karlin

 

 

 

 

 

 

 

 

John Robinson

Betty Sue Flowers

 

Cable

Vince

Roger Rainbow

Phil Watts

Michael Klein

Doug McKay Angela Wilkinson

Eric Nijdam

Anupam Khanna

Ged Davis

Rob Walvis

 

 

 

 

 

 

Heidi Sherman

 

 

Doug Wade

 

 

Roger Rainbow  

Deanne Julius

 

 

 

 

 

 

 

Dennis Anderson

Kees van der Heijden

Peter Hadfield

Adam Kahane

Vince Cable

Joeseph Jaworski

Peter Kassler

Lodewijk (Lo) van Wachem

CMD Planning Chief Scenarios / CoordiEconoteam Leader CEO nator mist

 

 

2007

 

2006

 

2005

 

2004

 

2003

Simon Henry

2002

Steven Fries

2001

Albert Bressand

2000

Jeremy Bentham

1999

Brinded

1998

Malcolm

1997

Lynn Elsenhans

1996

Adrian Loader

1995

Ken Fischer

1993

Harry Brekelmans

1994 Peter Holmes

1992

Cornelius (Cor) Herkstroter

1991

Mark Moody Stuart

1990

Philip (Phil) Watts

1989

Jeroen van der Veer

Year

Peter Voser

138  The Essence of Scenarios

Other Principals Medium Term and Global scenarios Oil Price and Energy Scenarios

Global Mercantilism - Sustainable World

 

New Frontiers - Barricades

LTE1

Just do it - Dawo  

New Game - People Power LTE2

Business Class - Prism Spirit of the Coming Age - Business as Usual

The trilemma triangle

Blueprint/Scramble



Appendix B – Summary of Scenarios1

Scenarios, 1971-1981 1

Four Representative Scenarios (November 1971)

These scenarios are based on two themes, “producer government take” and “world economic development.” The first two scenarios relate to the former theme and the second two scenarios to the latter. Low Take Scenario Producers follow the Tehran Agreement to 1976, then increase ‘take’ to $2.35/bbl (in 1970 dollars). Further gradual increases raise ‘take’ to $3.251bbl by 1985. High Take Scenario Seller’s market allows producers to follow “highest possible take/lowest possible production” strategy. Government ‘take’ rises to $4.75/bbl in 1979, which holds through 1985. Low-Growth Seventies Economic problems in major economies continue, and inflation is difficult to control. Difficulties experienced with international monetary system, with moves towards protectionism. High to Medium Growth Major economies cooperate on world monetary and multi-lateral trading issues. U.S. recovers from recession, which leads to the creation of conditions for relatively high economic growth.

2

Scenarios for the 1973 Planning Cycle (January 1973)

The A series is based on “impending energy scarcity.”

1 The following is adapted from Doug Wade, “Scenario Listing,” Long & Medium Term Global Scenarios, 1971-1992 (Group Planning, December 1993). Pierre Wack Memorial Archive. The material from 1993-2007 is based on public Shell material.

140 

The Essence of Scenarios

A.1 Private Enterprise Solution Consumer governments and oil industry react positively to the impact of high oil prices with private enterprise actively encouraged, especially in the U.S. A.2 Dirigiste Solution Consumer governments intervene, supported by public opinion. Subsidies are given to the energy industry, and constraints imposed on energy use and conservation are encouraged. Through the 1970s, economic activity is affected by inflation and balance of payments problems. A.3 Crisis Scenario Late response to impending energy gap causes oil prices to spiral in response to market forces. Nationalization is widespread with tight government control on the oil industry. The B Series was based on the theme of “sufficient energy supplies and low prices.” B.1 Low Demand Scenario Early manifestation of changing social values and nationalistic tendencies hamper world trade with ecological/environmental considerations becoming important. These circumstances combine to restrain growth. B.2 Successful Muddling Through Scenario The U.S. returns to high economic growth, but W. Europe suffers from severe competition from Japan. A satisfactory solution is found to Middle East problems. The U.S., Western Europe, and Japan coordinate their energy policies, which provides new investment opportunities for private enterprise. B.3 High Supply Scenario Major economies recover from recession and successfully control inflation. Improvements also occur in the political arena. Economic growth is buoyant and accompanied by raised living standards and improved quality of life generally. Oil supply reaches maximum technical levels.

3

Scenarios for the 1974 Planning Cycle (October 1973)

The instability of the energy scene leads to two archetypal scenarios being developed based on the A Series of the previous round. The scenarios are

Appendix B – Summary of Scenarios

141

divided into two time frames – the “Rapids” (that is, the period through 1980) and a “New Habitat,” which evolves after 1980. Market Forces Corrective Action Consumer resistance to rising prices causes oil prices to peak, with consumers adjusting to the higher cost of new energy sources. The allocation of supplies is determined by the market, with oil companies evolving into energy companies. Dirigiste Corrective Action Consumer governments take control of energy supplies and pricing. Balance of payments and security problems stimulate drive to energy selfsufficiency. Consumption constrained through legislation and taxation. Oil industry evolves along public utility lines.

4

Scenarios for the 1975 Planning Cycle (October 1974)

The key scenario variable in these scenarios is economic growth. New Belle Epoque New phase of economic mastery, growth ethic, and self-conf idence. Problems of recycling oil revenues overcome. The energy sector is a major catalyst and motor of growth. World of Internal Contradictions A persistent conflict over social issues inhibits growth. Problems are tackled on a national or regional basis, and although international trade expands, the emphasis is on bilateralism. High inflation persists despite government intervention. Energy sector is bypassed and evolves along public utility lines.

5

The Four Year Industry Outlook, 1975-1978 (February 1975)

This exercise arose from a need to examine the short-term outlook in more detail following the publication of the long-term scenarios in October 1974 and the circulation of a special paper on the short-term outlook in August 1974, which featured a “depression contingency” case. An appreciation of the cyclical nature of the economic outlook in the shorter term was now considered essential. The Belle Epoque scenario was thought to be a scenario for the 1980s.

142 

The Essence of Scenarios

World of Internal Contradictions Fine-tuning of the previous World of Internal Contradictions scenario focusing on the near term, especially the economic and energy/oil outlook. Depression Contingency Examines the impact upon economic performance and energy/oil demand in particular. The impact on OPEC was also assessed, but the situation is thought unlikely to cause OPEC to break up.

6

Scenarios for “The Rapids” 1975-1980 (June 1975)

Boom and Bust A sharp but unsustainable economic recovery is followed by hyperinflation and a pronounced economic setback. This is a world in which economic cycles have greater amplitude and shorter duration. A scenario of surprises – for example, reflation is unstable; U.S. oil imports boom; alternative energies stagnate, etc. – the so-called ‘rabbits in the hat’. Constrained Growth Economic cycles are dampened. This scenario depends on genuine surprise events – there is an ability to fine-tune economic programs; the economic cycles of major economies remain out of phase; and international cooperation is achieved with a new consensus between producer and consumer countries. Depression Contingency This describes an extended recession or depression lasting up to two years. This could be triggered by accidents, such as a chain collapse among major merchant banks or renewed conflict in the Middle East.

7

Scenarios for the Eighties: An Update (January 1976)

An update of the October 1974 Scenarios that points out that unlike mediumterm scenarios, these scenarios only analyze trends and not cyclical behavior. The key variant is again world economic growth with the continuing prevalence of high levels of inflation making the system inherently unstable.

Appendix B – Summary of Scenarios

143

Belle Epoque The previous basic underlying features of this scenario are retained except for some modification to economic growth and the expectation that this scenario now commences in 1980. World of Internal Contradictions The previous two years (1974-75) have been representative of this type of world. Again, the essential features of this scenario as described previously remain valid.

8

Scenarios for The Rapids: A Review (May 1976)

Boom and Bust An updated version of the earlier scenario. The potential scope for this scenario to occur is thought to be somewhat greater because all the major economies are recovering strongly and broadly in synchronization. Constrained Growth Much of its previous form is retained with the world presently closer to this pathway since the recovery is well within the bounds of capacity. Recovery Turns Sour The initial boost from pump priming and inventory restocking peters out in the face of weak consumer demand, erratic trade and investment prospects, and political accidents. The economic failures of this scenario have severe social and political repercussions. This scenario supersedes the Depression Contingency scenario.

9

Exploratory Scenarios for the Long Term (January 1977)

The planning horizon of these scenarios was extended on an exploratory basis to the year 2000. The basic framework of the Belle Epoque and World of Internal Contradictions scenarios remain, but the underlying analytical structure has been reassessed and reconstructed. Two principal considerations have been incorporated – the lifetime of the oil industry (‘oil mountain’) and societal change. In addition, two price scenarios were developed – Producer Logic, with oil produced at prices consistent with the aims of the more financially needy OPEC members (high absorbers)

144 

The Essence of Scenarios

and Consumer Logic, with oil produced to meet the needs of the importing countries and at prices that do not impair economic performance. Belle Epoque Economic growth is generally vigorous, but in energy terms, there is either an early response, whereby energy consumers (notably, governments) anticipate potential shortages and respond rationally to constrain demand, or a delayed response. This scenario is unsustainable under Producer Logic. World of Internal Contradictions Economic growth is generally inhibited. Under Consumer Logic, OPEC oil is developed at prices that remain more or less constant in real terms. Under Producer Logic, however, OPEC imposes real price increases in the early years, which reduces economic growth and causes consumer governments to respond vigorously. A Transformed Society This scenario moves into a different dimension in which a major societal shift occurs that has many political and economic consequences. The emphasis on growth is questioned, and the barriers to growth featured in the World of Internal Contradictions scenario become institutionalized.

10

Scenarios for The Rapids (May 1977)

These scenarios evolve from the atypical recovery out of the 1974-75 recession with growth well below normal and a feeling that the recovery is weak. Carter Miracle The moral leadership exuding from President Carter restores confidence with measures taken to strengthen international trade and investment. Convalescence Recovery is below normal, but there is a better control of inflation, profit margins are restored, and economies restructure. Despite greater realism, unemployment, which is accompanied by dissatisfaction with governments and frustrated expectations, generates fragility in the system.

Appendix B – Summary of Scenarios

145

Relapse Inflationary pressures become very strong and are accompanied by wage explosions. A number of external shocks occur, for example, Middle East conflict and Saudi aversion to increasing production. This leads to a loss of confidence and a rise in political instability and extremism.

11

Exploratory Scenarios for the Long Term: Further Developments (October 1977)

The basic frameworks of the Belle Epoque and World of Internal Contradictions scenarios remain, and this round also includes an update of the energy quantification of the previous Scenarios for the Rapids. This publication essentially represents a collection of papers that develop some of the themes outlined in the previous long-term scenario book, for example, “market vulnerability” and “long-term commercial prospects for large oil companies.”

12

Scenarios for the Next Five Years, 1978-1983 (June 1978)

These scenarios are based on a World of Internal Contradictions world with the contradictions intensifying. They stress three inter-related aspects of the next five years – economic prospects, societal change, and energy issues. Economic development is likely to exhibit a mosaic pattern, and the possibility of an oil shortage in the 1980s has become a major energy issue. However, the most important features are not economic but socio-political, with the key element being unemployment. The challenge for any company is to be able to anticipate and adapt to societal developments that could give it a decisive competitive advantage. Successful Restructuring Confidence is re-established through positive political leadership and the ability to face reality. Growth is stimulated in the LDCs, and incentives are given for the creation of new enterprises, with investment and new technology providing a stimulus to the energy industry. Constrained Growth Politicians recognize the limits of their ability to achieve economic miracles and therefore resign themselves to the hope that they can muddle through.

146 

The Essence of Scenarios

There is a lack of political direction, with the electorate moving to the right. Prolonged under-performance in the major economies and reduced growth in international trade lead to a ‘zig-zag’ rather than cyclical economic behavior. Extended Relapse This scenario describes the downside risk emanating from the vulnerability of the major economies to shocks. Business and consumer confidence is lost, protectionism reinforces failure, and a chain of trade and credit defaults occurs. Demand falls, but inflation remains high. The shocks to the industrial system could lead to more authoritarian regimes.

13

Scenarios to 1985 (April 1979)

The World of Internal Contradictions pathway is clearly being followed, and the fundamental economic issues expressed in the previous medium term scenarios remain. Three new elements are now significant – the ‘trigger effect’ of events in Iran, the more fluid nature of oil politics, especially those affecting the relationship between Saudi Arabia and the U.S., and a change in perceptions as a result of a continuing malfunction of the industrial democracies. Middle East politics and oil price are the principal areas of focus. Unrestrained Producer Logic OPEC makes policy decisions purely in its own perceived interest – for example, keeping as much oil in the ground as possible. The price of oil is at the highest level the market will bear. Gradualism The political survival of Saudi Arabia and some other countries overrides the financial needs of the high absorbers and more militant OPEC members. There is also uncertainty about the effect of high oil prices on the world economy. This dictates caution as well as a change in priorities influenced by the resurgence of Islamic fundamentalism. Stabilisation This scenario is born out of the painful experience of either Unrestrained Producer Logic or Gradualism. After a period of turbulence, Saudi Arabia asserts its leadership by enforcing a deal that offers stability and demonstrable benefits for both OPEC and the OECD countries.

Appendix B – Summary of Scenarios

147

Imposed Consumer Logic In this scenario, Saudi Arabia and the Gulf states are prevailed upon to revert to a renewed symbiosis with the U.S., resulting in real prices stabilizing at $15 or $16/bbl for a few years.

14

Scenarios for the Long Term (October 1979)

The necessity to study the future business environment in three different time horizons is stressed: the medium term (1980-85), where oil price is the central issue; the whole of the 1980s, where pre-determined elements – economic malfunctioning and energy problems – limit growth; and the 1990s and beyond, a time of many new growth options and increasing uncertainty. Restructured Growth This scenario emerges out of the shocks from rapid and sharp oil price rises and the situation as described by the Unrestrained Producer Logic scenario. After a difficult transition period, economic growth accelerates, with economic interdependence loosening and the world trading system separating into two spheres, Europe and the Pacific Basin. World of Internal Contradictions – Revisited Relatively moderate price increases over the next few years as described in the Stabilisation scenario leads to a prolonged World of Internal Contradictions situation characterized by chronic malfunctioning and an inability to respond to changing circumstances. Low growth continues with existing trading patterns essentially unchanged and little progress in attaining greater energy self-sufficiency.

15

Medium Term Scenarios (April 1980)

These scenarios focus on the critical uncertainty about OPEC’s “willingness to produce” with the concept of the “backward-sloping supply curve” being introduced to interpret the new economics of Producer Logic. The main emphasis of the scenarios is on the difference between OPEC’s willingness to produce and the call on OPEC oil (i.e., the “buffer”); and the size of OPEC’s current account surplus and the geopolitical pressures that these generate. The potential interaction of the various elements is now so complex that there is little control in the system, and no scenario can paint a comfortable picture.

148 

The Essence of Scenarios

OPEC Compromises Fear of further Soviet aggression post-Afghanistan causes key OPEC producers to perceive that it is not in their best interests to harm consuming countries. A fall in oil demand helps push the case for a more moderate form of Producer Logic. Crisis – Manageable A significant loss of oil supplies by one or two OPEC members imposes a unilateral price increase and triggers a crisis in an already high price environment. Since OPEC is already in financial surplus, the additional revenue creates economic difficulties. This sets off a ratchet mechanism of production cuts and price rises. An important element in balancing accounts is through rapid growth in OPEC’s own expenditure. The multiplicity of players active in the oil industry, however, reduces flexibility, with the potential of prolonging the crisis. Crisis – Unmanageable Rapid oil price increases raise OPEC revenues at a fast pace. Demand response occurs more slowly as buffer capacities in the market are absorbed. The elimination of this buffer capacity makes the market unstable and perpetuates panic behavior, with prices exceeding $100 in a few years, driven by intrinsic market dynamics rather than player strategies. The political situation becomes increasingly tense. Fragile Accommodation Here a balance is attained between OPEC and the consuming countries that has three essential pre-conditions – the potential internal instability in Saudi Arabia caused by the problem of absorbing high revenues is reduced, oil prices rise at a digestible rate, and consumers pull the ‘conservation rabbit’ out of the hat. If – and when – these changes mesh smoothly, order is restored to the market.

16

Links from the Medium to Long Term Scenarios, 1980/85 to 1990 (September 1980)

This note re-quantifies the Restructured Growth and World of Internal Contradictions (Revisited) scenarios in the light of the higher oil prices that now prevail. Nonetheless, the concepts of these scenarios continue to remain valid although the linkage from the medium to the long term

Appendix B – Summary of Scenarios

149

is not straightforward. An early accident could cause OPEC Compromises to lurch into a crisis. A later accident could lead to a World of Internal Contradictions. On the other hand, the powerful forces of change unleashed by a crisis could lead to Restructured Growth.

17

The Restructured Growth Scenario, 1980/85 to 1990 (October 1980)

For the medium term, the Unrestrained Producer Logic scenario has been replaced by Manageable Crisis. Although much higher prices are assumed, the logic linking it to the Restructured Growth scenario in the longer term remains valid. Investment and technology are the critical driving forces in the consolidation of changes in socio-political attitudes and social innovation into the world’s major economies. Equally important is government policy during periods of rapid social and industrial change. These elements and their implications for revitalizing the dynamics of growth are examined in more detail.

18

Medium Term Scenarios, 1981-1985 (March 1981)

The outlook for the world economy in these scenarios is unusually uncertain, with recovery along normal but subdued cyclical lines. Underneath the surface of Western economies there is a deep-seated malaise, which, if activated, could lead to protracted stagnation. A number of elements suggest recovery will be difficult – reduction of growth potential, weakness of economic motors, inflation, the expanding public sector, etc. Another factor is that consumers are reacting to oil price increases and the ‘conservation surprise’ is happening. Furthermore, the severity of internal problems in consuming countries is inhibiting growth, and continuing tensions in the Middle East puts pressure on key states, reducing their willingness to produce. Fragile Compromise This illustrates a ‘surprise-free’ best case with a normal cyclical recovery in the world economy that is largely unhampered by the price or availability of OPEC oil. Iran and Iraq make peace, and no further conflicts or supply interruptions occur in the Gulf.

150 

The Essence of Scenarios

Hard Times This scenario describes a new and more dangerous evolution, especially for oil companies. Economies stagnate as a result of continuing economic malfunction, which overrides the normal business cycle. Recovery is delayed for three years, with the Middle East remaining turbulent and no resolution of the Iran-Iraq war. Oil demand drops to a potentially critical level for OPEC. Another Crisis Any of a number of potential flashpoints leads to another major supply accident. The resultant chain reaction – loss of production, sharp price rises, and soaring OPEC revenue surpluses – damages an already malfunctioning world economy.

19

Scenarios 1981-2000: Update of Medium Term Scenarios and Links into the Long Term (November 1981)

Update of Medium Term The existing medium term scenarios – Fragile Compromise, Hard Times, and Another Crisis – remain largely unaltered apart from a less pessimistic view on world economic growth prospects. Additionally, market pressures are expected to cause a relatively sharp decline in real oil prices. Links into the Long Term Two key processes affect the evolution of the longer term and lead to a major structural change in societies: the transition from agrarian to industrial societies in the developing world and the shift in the industrialized world to a more mature phase of development. Restructured Growth Conceptually, this scenario remains essentially the same as its previous version. However, although this scenario depends to a large extent on international trade and specialization, the move toward national/regional energy self-sufficiency means that markets for internationally traded energy are severely constrained. Fragile Compromise Extended Fragile Compromise Extended is an ideal ‘business as usual’ scenario that could last for twenty years with no serious oil supply/price discontinuity,

Appendix B – Summary of Scenarios

151

even though there is some economic restructuring in major economies. Moderate growth occurs in the world economy with a clear division in world trading patterns between Europe and the Pacific Basin. Dependence on OPEC oil is high, and cohesion within OPEC is strong. This scenario is very unstable in energy terms, with a fragile balance between oil prices and volumes. This generates a strong risk of a serious supply accident in the mid-1990s, which causes oil prices to rise rapidly to $70/bbl ($1980). Hard Times Extended A protracted malfunctioning of economies is the driving force, causing a slump in oil demand. Low economic growth and widespread protectionism prevail, accompanied by a slow improvement in energy efficiency, with little incentive to develop alternative energy. Oil markets tighten in the 1990s as a result of rising demand in the NICs. This tightening, coupled with limited oil substitution in the OECD countries, leads to growing OPEC price aggression.

Scenarios, 1982-1990 1

Scenarios 1982-2000: A System under Stress (October 1982)

The recent past has added a new dimension of uncertainty, with the interacting forces most relevant to the oil industry growing in strength: downward pressure on oil prices and volumes, mounting strains within OPEC, rising conflict in the Middle East, rapid decline in energy/oil demand, etc. Additionally, two aspects raise questions about the long-term growth potential of the global economy: persistence of the most prolonged recession since World War II and the lack of consensus on how to interpret and change the present conditions. Restructured Growth Increasing trauma creates a new consensus for change. Strong growth occurs at the end of the 1980s based on rising productivity, new industries, and expanding trade. The ‘best of all worlds’ manifests itself for energy, with high levels of conservation and a steady development of alternative fuels that lead to an orderly oil market. World of Internal Contradictions A conventional recovery leads to a ‘business as usual’ situation, although the failure to tackle fundamental problems leaves the system vulnerable to future crises. Continuing uncertainty means a weak investment climate, widespread

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The Essence of Scenarios

protectionism, and trade conflicts. When demand picks up, OPEC imposes aggressive ‘producer logic’, and oil prices rise rapidly and become unstable. Harder Times Intractable socio-economic problems and cautious lending policies bring a kind of paralysis that results in very low growth with considerable conflict and instability. Oil and energy demand remain depressed until the 1990s. Competitive success depends largely on trading agility and access to lowestcost supplies, with long-term investments and contractual arrangements viable only within ‘protected’ national or regional markets.

2

The 1982 Scenarios Revisited [A 1983 Commentary] (December 1983)

This paper examines the 1982 scenarios in the light of events over the previous year. No evidence challenges the structure or long-term viability of these scenarios. However, their timing has been affected by the severe and persistent financial crisis of the previous year. In the longer term, the burden of international debt may be particularly difficult to resolve. In this period of transition, no single scenario dominates. Roads and signposts into each scenario are offered as a way of identifying which pathway is being pursued. Restructured Growth This pathway is one of improving profitability, managed oil market, falling deficits, widespread sustainable growth, and the prospering of new industries. World of Internal Contradictions In this pathway, recovery spreads beyond the U.S., with rising oil demand, inflationary pressures, and failure to reduce government debt. Harder Times Economic recovery fades, oil prices decline, a commodity oil market emerges, trade protectionism grows, and non-OPEC oil production declines, raising the possibility of a financial crisis.

Appendix B – Summary of Scenarios

3

153

Scenarios 1984-2005: A Question of Timing (October 1984)

Since 1982 the world economy has enjoyed recovery, inflation has fallen, and the financial system has not collapsed, as many had feared. Intense competition downstream has shifted the focus of attention onto the structure of the oil industry and its relation to the dynamics of the oil market and to interfuel competition in particular. Next Wave This scenario is based on the logic that a near crisis breaks down the structural barriers that prevent change and leads to a high take-up of a rapidly growing technological potential in new and old industries. A new phase of economic growth emerges in the 1990s, permitting the formation of a new cartel among OPEC producers. Competition from gas and electricity is intense, and oil is no longer the swing fuel. Divided World The forces of change are not great enough to overcome the status quo. The more dynamic and stagnant parts of the world economy drift apart, with protectionism and self-interest dominating. Weak growth leads a fragile oil market and a weakening of OPEC. Low oil prices allow oil to remain the swing fuel.

4

Short-term Scenarios (April 1986)

This paper follows the collapse in oil prices at the turn of the year and provides an overview of possible price futures as well as discussing what caused the price collapse.

5

Long-Term Scenarios: The Oil Industry at a Crossroad (October 1986)

The collapse of oil prices calls into question the basic assumptions behind most of the oil industry’s perception of the future. Two key questions are at the heart of the issues facing the industry: –– Is recovery a question of timing? Or are there circumstances in which no recovery occurs for the foreseeable future? –– If prices recover, will the recovery be orderly? Or will there be another over-reaction that carries the seeds of its own destruction?

154 

The Essence of Scenarios

The scenarios focus on the fundamental question of direction, with the oil industry situated at a crossroads and having to make a choice about the path it takes. Managed Market This scenario explores the conditions required for the re-emergence of a more orderly and predictable environment. Lessons of the past are learned, and oil is perceived as a tool to achieve long-term political objectives. Saudi Arabia is willing to act as swing producer in order to ‘manage for stability’, with prices within a band that discourages high-cost energy supply and generates a ‘fair’ producer income. Roller Coaster In this scenario, producers do not see ‘managing for stability’ as a worthwhile objective. Crises are seen as normal, with transitions continually occurring between producer control and consumer control, leading to a swing between a ‘buyers’ market’ and a ‘sellers’ market’. The oil market becomes commoditized. No Recovery Oil demand is low as a result of the changing industrial structure in mature economies, new technologies, and more interfuel options. Non-OPEC supplies are high as countries encourage development for a variety of reasons, with cost reductions achieved in many production projects. The call on OPEC is therefore low, and producers cannot exercise an effective cartel. Low oil prices prevail with considerable spare production capacity, high strategic stocks in consumer countries, and a return of consumer confidence.

6

Long Term Scenarios: Energy – Will Energy Markets Recover? (May 1987)

These represent the energy dimension of the oil scenarios and explore two basic questions: will energy markets recover; and, if so, can the international oil market be managed effectively? Managed Market Relatively high economic growth, a strong demand for energy, and a rising call on OPEC oil provide conditions for a successful management of the market.

Appendix B – Summary of Scenarios

155

Reasonable oil prices create confidence in consumers, governments, and energy suppliers. Low and medium cost supply potential is developed, with consumers more confident about their plant and fuel selection investment decisions. Large investments in high-cost production projects are no longer viable. Roller Coaster This scenario paints the picture of a volatile energy scene that alternates between the buyers’ market and the sellers’ market, as described in the oil scenarios. Suppliers make ‘stop-go’ investment decisions that, coupled with irregular growth, increase market volatility. A ‘herd instinct’ develops, with all players seeing the same opportunities or seeking protection simultaneously, thereby reinforcing the pattern of the scenario. No Recovery A continuing surplus of energy in the context of low economic growth, together with ongoing industrial and technological restructuring, results in modest growth in energy consumption. Economic success is elusive, forcing governments to take a more active role in energy matters. Therefore, political considerations play a major role, especially in assessing project viability, which will be judged against ‘national’ standards – for example, against its effect on balance of payments, employment, or strategic policy. Interfuel competition is strong, and it is possible that international oil prices no longer set prices in local energy markets.

7

Long-Term Socio-Economic Scenarios: Images of the Nineties (October 1987)

These scenarios describe the socio-economic aspects of the earlier oil and energy scenarios. They address the questions of: –– What conclusions does the world draw from the difficulties experienced since 1973? –– Will countries be encouraged by successful economies and follow their example? Or will they be dominated by social and political issues? –– Is uncertainty about future economic growth the decisive uncertainty for business? Managed World The major economies continue to restructure, and the world gets its act together. A strong economic performance is seen as the best opportunity for

156 

The Essence of Scenarios

resolving the world’s problems. The need to be competitive is a major trigger for restructuring, with market economies now seen as more successful than centrally planned economies. World in Turmoil Societies pursue economic objectives but are also driven by emotional and intuitive motivations. As a result, social and political considerations play an important role. National cohesion is strong and acts as a resistance to the forces of internationalism. Symbolic politics dominate, and there is little confidence in the ability to manage the global future. Nations do not encourage producers to improve performance and compete, which leads to disappointing economic growth.

8

1989 Scenarios: Challenge and Response (October 1989)

The thaw of the Cold War has brought the post World War II era to an end, and a very different world is now evolving. The present international system is under stress, and two kinds of limits are being approached that represent the following challenges: –– The limits of financial and political manageability challenge the ability to handle financial instability, adversarial trade, and protectionist tendencies. –– The limits of the global ecology challenge the ability to deal with environmental degradation, stalled development in developing countries, and the maintenance of a healthy financial system. Global Mercantilism This scenario deals with the challenge presented by political, economic, and financial fragility. Economic power is the driving force, with regional interests prevailing on the issues of economic security and the environment. Impetus is given to protectionism and bilateral mechanisms to manage trade. Many developing countries are left behind. Security of energy supply is an important feature, with reciprocal integration and OPEC weakness characterizing the oil market. Sustainable World Environmental and ecological challenges are addressed in this scenario, with the developing world and the centrally planned economies reflected in the response. The environment dominates the agenda, with social issues being the

Appendix B – Summary of Scenarios

157

main driving force. The approach to both economic and environmental issues is global in scope. The global economic system is resilient, with developing countries brought on board. There is limited growth in the energy business. The emphasis on clean fuels leads to a reconstruction of the industry.

Scenarios, 1991-1998 1

Global Scenarios, 1992-2020 (October 1992)

The collapse of the Soviet Empire has brought the old world order to an end. Globalization and political and economic liberalization are the main driving forces. These scenarios examine what happens if the liberalization revolution continues and spreads or, alternatively, is resisted and restricted. New Frontiers

Orientation is essentially outward, with the creation of new opportunities and new players. Moderate growth and restructuring occurs in the rich countries, and rapid growth and the opening of markets is the main feature of the poor countries. Expectations rise, with quality of life issues becoming very important. Differing priorities and standards using market instruments are involved in handling environmental problems. Energy demand is very high, and new sources of supply are brought onstream. Competition is intense, with companies playing a larger societal role and needing to be adaptable and outward looking. Barricades

The orientation is basically inward, with conservatism prevailing and creating many divisions and barriers. Economic growth in the rich countries slows, and regional integration deepens. In the poor countries, growth is slow, causing frustration and a rise in national capitalism. Nationalism, ethnicity, and fundamentalism are key features in this scenario. Green protectionism and NIMBYism dominate the environmental agenda, with regulation as the principal weapon. The energy and oil markets

158 

The Essence of Scenarios

are subject to shocks and security threats, resulting in the emergence of an ‘energy is bad’ syndrome in the rich countries. Entry into markets is restricted with competition among ‘insiders’. Companies still need to be adaptive and outwardly focused.

2

Global Scenarios, 1995-2020 (1995)

‘TINA’ (There is No Alternative) is a rough, impersonal game, involving stresses and pressures akin to those of the Industrial Revolution. Under these pressures, some people do well. But others, who are not so entrepreneurial or well educated, feel the pressure of job insecurity, and income inequality grows in almost all developed nations. Precisely because ‘There Is No Alternative’, people in many parts of the world fear a growing loss of control over their own destinies and also fear that the lives of their children will be more difficult than their own. “Just Do It!”

Da Wo (‘Big Me’)

I n the first scenario, success comes to those who harness the latest innovations in technology to identify and take advantage of quick-moving opportunities in a world of hypercompetition, customization, selfreliance, and ad-hoc informal networking. This world allows the fullest expression of individual creativity and offers a large stage for exploring visions and for new ways of doing business and solving problems. In the second scenario, countries and companies discover that success calls for a committed investment in relationships, where relationships of trust and the enabling role of government provide the long-term strategic advantage. In this world, Asia already has an advantage because its societies and businesses are at home in a world in which the individual – the ‘small me’ – understands that individual welfare is inextricably linked to the welfare of the whole – Da Wo (‘Big Me’).

Appendix B – Summary of Scenarios

3

159

Long Term Energy Scenarios (1995)

In 1995, Shell International published two energy-supply scenarios (Sustained Growth and Dematerialisation): The 1995 Long Term Energy Scenarios (Sustained Growth and Dematerialisation) were based on the assumption of normal market dynamics but a fast change in the energy system. In both worlds considered by the two scenarios fast technological change fostered by open markets is able to reduce GHG emissions. In the Dematerialisation scenario, energy efficiency improves at a rate equal to the maximum observed historically, and technological advances allow spectacular efficiency gains in areas like vehicles and transport. Renewable energy gains a foothold by expanding in niche markets at first and becoming entirely competitive later, while depletion in some fossil fuels pushes up their prices. Nuclear development is hampered by high cost and public acceptance problems. In the Sustained Growth scenario, renewables are characterized by very rapid market penetration, matching the development of oil in the past century, and reaching maximum potential (close to 50% of world primary energy) by 2050.2

4

Global Scenarios, 1998-2020 (1998)

In 1998, TINA is more powerful than ever, and the effects of TINA operate on two levels: at the level of markets, financial systems, governments, and other wide-reaching institutions (‘TINA Above’); and also at the level of individual people, who, in many parts of the world, rich and poor, are becoming wealthier, better educated, and freer to choose (‘TINA Below’). The New Game

2

In The New Game, existing institutions and organizations successfully adapt to the new and evolving complexities of TINA Above. At all levels, from the local to the international, people come together to solve problems, and, in the process, new institutions emerge, and old institutions are reconstructed to deal with TINA’s global revolution. Of course people have

Energy to 2050: Scenarios for a Sustainable Future (OECD/IEA, 2003), p. 26.

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The Essence of Scenarios

always come together to solve problems. But TINA means that now, there’s only one global game to play in – or, as is the case in some regions, to aspire to join. People Power

In People Power, TINA Below brings signif icant increases in wealth, choice, and education, and, for the first time in history, large numbers of people across the globe are free to express their own values and often do so in unpredictable, unstructured, and spontaneous ways. This flowering of diversity undercuts authoritarianism and conformity, and appears to weaken many long-standing social institutions such as marriage, obedience to authority, and norms of sexual expression and public behavior. This is a volatile and exciting world of great creativity and accelerating change, where ‘news of the new’ is rapidly disseminated.

Scenarios, 1999-2006 1

Global Scenarios, 2001-2020 (2001)

The dilemma between efficiency on the one hand and values and social cohesion on the other still shape the focal question behind the pair of 2001 Global Scenarios: “Will the resolution to dilemmas arising from globalization be dominated by global elites or by the people of the heartlands? Business Class

Prism

Business Class offers a vision of “connected freedom” and greater economic integration. This is a world of efficiency, opportunities, and high rewards for those who can compete and innovate successfully. Established authorities are continually challenged, and the power of nation states greatly reduced. Prism highlights the “connections that matter” and “multiple modernities,” reflecting the influence of “heartlands” as opposed to “connected elites.” The power of cultural values and belonging is stressed.

Appendix B – Summary of Scenarios

2

161

Shell Long Term Energy Scenarios, 2050-2100 (2001)

These two energy scenarios, Dynamics as Usual and Spirit of the Coming Age are focused on alternative technology pathways. Dynamics as Usual is a world where the basic dynamics of innovation and competition continue from the past century – but at a faster pace as liberalization and information technologies allow knowledge to be transferred more easily and emerging economies to catch up more quickly with technological advances. Efficiency improvements prolong the lives of existing technologies, including the internal combustion engine. It is a world of shifting priorities, competing incumbents and an increasingly diverse and complex energy system. In Spirit of the Coming Age converging social desire and new technology lead to superior ways of meeting energy needs, fundamentally changing the energy systems. Energy is not a priority in this world and inconvenience is not tolerated. This is a world of experimentation and many failures – with ultimate convergence around a common set of technologies based on fuel cells.

3

Global Scenarios to 2025 (2004)

These scenarios explore the three forces of market incentives, communities, and coercion or regulation by the state. The three forces drive towards different objectives: efficiency, social cohesion and justice, and security. While societies often aspire to all three objectives, the forces display elements of mutual exclusiveness – one cannot be at the same time freer, more obedient to one’s group or faith, and more coerced. The scenarios explore the three dilemmas – a ‘Trilemma’ – involved in the pursuit of these objectives. A ‘Trilemma Triangle’ is used to map the interplay between market incentives, the force of community (aspirations to conform and be listened to), and forces of regulation and coercion. The three corners of the Triangle are tempting starting points for scenarios, as they would pit a market-centric world against society-centric and state-centric ones. In democratic market economies, however, such

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The Essence of Scenarios

worlds are what Thomas Moore in 1516 called “utopias” – worlds that may inspire but cannot exist. Agreeing with Moore, the scenarios explore the most plausible trade-offs between these diverse, complex objectives, namely, the “two wins—one loss” areas in which forces combine to achieve more of two objectives. Each of these areas embodies trade-offs acceptable to a broader coalitions of actors than in the utopian worlds at the apexes. Putting business relevance first leads to more complex, sometimes quite technical analysis of the business environment, as trade-offs reflect investor and customer expectations, corporate governance, legal cultures, regulatory integration or conflicts, policies, and strategic choices. The three scenarios describe ways in which essential trade-offs would be arrived at. The framework also highlights transformations that would influence how various actors – governments, NGOs, or investors – can “play their cards” in pursuit of their objectives.

Scenarios, 2006-2013 1

Shell Energy Scenarios to 2050 (2007)

The 2007 scenarios focus on the energy system, underpinned by a comprehensive world energy model. The scenarios are grounded in the fact that the world can no longer avoid three hard truths about energy supply and demand: a step change in energy use, a struggle of supply to keep pace, and the increase in environmental stresses. Scramble

Scramble reflects a focus on national energy security. Immediate pressures drive decision-makers, especially the need to secure energy supply in the near future for themselves and their allies. National government attention naturally falls on the supply-side levers ready to hand, including the negotiation of bilateral agreements and incentives for local resource development. Growth in coal and biofuels becomes particularly significant.

Appendix B – Summary of Scenarios

163

Blueprints

Blueprints describes the dynamics behind new coalitions of interests. These do not necessarily reflect uniform objectives, but build on a combination of supply concerns, environmental interests, and associated entrepreneurial opportunities. It is a world where broader fears about life style and economic prospects forge new alliances that promote action in both developed and developing nations. This leads to the emergence of a critical mass of parallel responses to supply, demand, and climate stresses, and hence the relative promptness of some of those responses.

2

Financial Crisis Scenarios: Recession and Recovery (2008)

The Recession and Recovery scenarios explored the aftermath of the 2008 global credit crunch and the subsequent global economic downturn and resulted in two crisis scenarios: Severe yet Sharp and Deeper and Longer. The Depression 2.0 scenario was prepared to help leaders understand what signals and dynamics would indicate a deeper and longer recession than economic experts and forecasters expected.

3

Ripples from Macondo (2010)

These scenarios (High Wire and Safety Net) dealt with the BP Deepwater Horizon incident in the Gulf of Mexico. They were not shared in detail externally.

4

Vignettes (2008-2009)

Over twenty-seven vignettes were produced from 2008 to 2009 on business topics such as Liquid Natural Gas (LNG) and oil sands. The vignettes process begins with interviews of executives to identify concerns. Then a three-page paper is produced, with the first page summarizing key issues and identifying the dimensions and drivers of these issues, as well as the dilemmas arising out of them. The second page compares in column form

164 

The Essence of Scenarios

how these dilemmas might play out in each of the two long-term energy scenarios. The third page concludes with implications for the industry as a whole and lists the external affairs position through a set of standardized key messages.

5

Eurozone Scenarios (2011)

Three scenarios for Eurozone pathways were developed, based on the recognition that Eurozone political and economic leaders were engaged in ‘kicking the can down the road’ while trying to create more financial and political room to maneuver. These scenarios (Kick the Can According to Plan, Kick the Can but Hit a Brick Wall, and Kick the Can and It Explodes) helped identify the key dynamics, timetables, transmission channels, and decisions to be made, and were designed to sensitize senior executives to the relative importance of different aspects of the stream of news and events they were exposed to.

6

Signals and Signposts (February 2011)

This companion publication to the Shell 2008 Energy Scenarios, Blueprints and Scramble, indicates that Shell is monitoring and tracking developments in the wider energy world to enable its scenarios to be updated or a new set developed. This publication describes the way four new key factors following the financial crisis of 2008 are actively shaping global developments, namely: greater economic volatility and cyclicality; more uncertainty and risk in oil and gas E&P; the new abundance of natural gas with the availability of massive and economically accessible shale gas resources in the U.S. and coal-bed methane resources in Australia; and the opening of the Iraqi energy industry to foreign investment and participation. The review updates Energy Scenarios to 2050 by taking into account the experience of the global economic and financial crises. It also touches upon the looming stresses facing our planet, such as freshwater shortages and rapid urbanization. Shell concludes that there is slower than hoped for progress of the collaborative efforts needed to bring about the Blueprints scenario in the timeframe imagined.

Appendix B – Summary of Scenarios

7

165

New Lens Scenarios for the 21 st Century (2013)

Mountains This scenario sees institutional rigidities that hamper some economic development, but governments retain the authority to introduce firm and far-reaching policy measures in secondary areas. These help to develop more compact cities and transform the global transport network. New policies unlock plentiful natural gas resources and accelerate carbon capture and storage technology, supporting a cleaner energy system. Oceans This scenario describes a more prosperous and volatile world. Energy demand surges due to strong economic growth. Power is more widely distributed, and governments take longer to make major decisions. Market forces shape the energy system more than policies. Oil and coal remain part of the energy mix, but renewable energy also grows. By the 2060s, solar becomes the world’s largest energy source.

Index Names Alkema, Henk 7, 17-18, 25, 30-31, 34-38, 41, 67 Allemann, Roberto 56 Barran, David 30, 35, 137 Beal, Neville 29-30, 137 Beckers, Harry 34, 36, 38-39, 42, 97, 102, 137 Benschop, Dick 73 Bentham, Jeremy 7, 17, 67-70, 84, 107, 134, 138 Bohm, David 133 Brekelmans, Harry 17, 73, 106, 109, 125, 138 Bressand, Albert 18, 64-66, 92, 107, 134, 138 Brinded, Malcolm 17, 72-73, 138 Brouwer, Jan 35 Brummel, Arden 17, 45, 137 Cable, Vince 53, 58, 138 Carson, Rachel 41 Collyns, Napier 7, 17-18, 31, 34, 36-37, 41-42, 48, 97, 100-101, 123, 132, 137 De Geus, Arie 17, 44, 50, 113, 123-125, 137 De Kuijper, Mia 18, 24 De Vries, Joop 18, 48-50, 132, 137 Davidson, Jimmy 7, 18, 25-26, 29-30, 32-36, 39-40, 42, 80, 85, 90-91, 125-128, 131, 135, 137 Davis, Ged  7, 17-18, 34, 38, 58, 60-64, 78, 86, 89, 92-93, 97, 101, 103, 105-107, 133-134, 138 Decyk, Roxanne 17, 58, 106, 138 DuMoulin, Hans 123, 137

Karlin, Renata 18, 42, 104, 137-138 Kassler, Peter 41, 51, 138 Khanna, Anupam 18, 82, 138 Klein, Michael 18, 25, 45, 114, 138 Khong, Cho 18 Kopernicki, Jan 18, 42, 67, 107, 137 Kuiken, Cor 33-34, 38-39, 42, 102, 137 Kupers, Roland 75, 81 Mackrell, Keith 18-19, 125, 137 McKay, Doug 18, 57, 85, 101, 138 McNamara, Robert 64, 105 Moody-Stuart, Mark 18, 48, 52, 55, 57-59, 138 Newland, Edmund (Ted) 18-19, 25-26, 29-42, 45-46, 57, 82, 101, 106, 108, 115, 128, 131, 137 Nijdam, Eric 18, 138 Ogilvy, Jay 100 Oppenheimer, Peter 18, 137 Piot, Peter 62 Price, Gareth 19, 25, 31, 37, 41, 77, 89, 91, 97, 101, 113, 131

Flowers, Betty Sue 7, 17, 52-53, 62, 84, 138

Rainbow, Roger 18, 53-58, 60, 114, 133, 138 Ramirez, Rafael 7, 18, 20-21, 23-24, 82, 85, 88, 104 Robinson, John 18, 123, 137-138 Rodrik, Dani 65 Rumsfeld, Donald 79

Gurdjieff, George Ivanovich 103, 132

Prajñânpad, Svâmi 34, 132

Hampden-Turner, Charles 17, 55, 93, 95, 114, 137 Henry, Simon 18, 70, 138 Ho, Peter 9, 11, 21, 118 Hofmeister, John 63

Schipper, Lee 18, 113, 137 Schwartz, Peter 13, 18, 22-23, 25, 46-48, 77, 79, 91, 97, 100-101, 107, 132, 137 Sheldrake, Rupert 56 Sluyterman, Keetie 18, 27, 89 Swart, Karel 35

Ingvar, David 47, 93-94, 134 Jaworski, Joseph 18, 53-56, 61, 78, 86, 107, 114, 133, 138 Jefferson, Michael 7, 18, 23, 37, 43, 47, 126, 137 Jennings, John 105 Jillings, Guy 7, 18, 37, 40, 46, 101, 137 Julius, DeAnne 53, 138 Kahane, Adam 13, 18, 22, 45, 53-56, 77, 105, 119, 137-138 Kahn, Herman 28, 30, 32-33, 40

Thomas, Wim 18, 88, 98, 101, 138 Van der Heijden, Kees 13, 17, 20, 22, 25, 34, 43-45, 48, 50, 53, 70, 77-78, 82, 85, 87, 100, 106, 107, 118, 123, 132-134, 137 Van der Veer, Jeroen 18, 55, 60, 66-67, 85-86, 114, 124, 137-138 Van Wachem, Lo 43, 48-50, 52, 83, 109, 123-124, 128, 137-138 Voser, Peter 18, 73-75, 87, 127-128, 138

168  Wack, Pierre 7, 13, 17, 21-22, 25, 31-44, 46, 48-50, 57, 68, 77-79, 82, 85, 87, 89-91, 97, 101-104, 107-111, 114, 117, 123, 125, 127-128, 131-133, 137-138 Wade, Doug 10, 101, 133, 137-139

The Essence of Scenarios

Watts, Philip 18, 59-60, 63, 67, 105, 108, 138 Wilkinson, Angela 61, 75, 81, 88, 103, 105, 138 Yergin, Daniel 37

Subjects 2x2 matrix 100 Atlantic Council 56 Bank of England 40, 53 Billiton 26, 34 Business Principles 49, 128 Chemicals 27, 52, 63, 126 client-focused 50, 90 Climate Change (Global warming, Greenhouse gases) 10, 22, 45, 68, 72, 83, 86, 89, 98, 118, 127 CMD (Committee of Managing Directors) 27, 29-30, 32, 34-39, 42-43, 46-50, 55-60, 63-64, 67, 84-85, 90-92, 107-110, 114, 123-125, 137-138 Coal 24, 26, 30, 35-36, 45, 52, 98, 126, 162, 164-165 complexity 11, 47, 66, 78, 81, 113, 116, 118, 134 Conference (Name of Shell Supervisory board) 27, 56, 64 Corporate structure 27, 60, 68 Dodo 32 Downstream 52-53, 56, 124 E&P (Exploration & Production) 27, 29-30, 33, 52, 66, 164 Executive Committee 59, 70, 99 Exxon 28, 45, 59, 64, 105, 126 FEA (US Federal Energy Agency) 105 focused scenarios 10, 14, 24, 39, 47, 56, 61, 65-66, 70-71, 74, 87, 90, 102, 117-118, 126 forecast (forecasting) 14-15, 19-20, 25-26, 28, 32-34, 38, 40, 68, 70, 76, 80-82, 84-85, 88, 96-97, 99, 107, 116-118, 131, 163 Fukushima 99 GameChanger 66, 120 GBN (Global Business Network) 22, 48, 100, 132 global scenarios 14, 24, 43, 47-50, 53-57, 60-64, 66, 68-70, 73-74, 78, 84-85, 87, 89-91, 95, 97, 100, 104-106, 110, 115, 117, 119, 121-122, 124-126, 133-134, 137-139, 157-161 Hudson Institute 28, 40, 43 IEA (International Energy Agency) 40 IIASA (International Institute for Applied Systems Analysis) 40, 128 intuition 10, 14, 19-20, 24, 34, 41, 47, 50, 61, 63, 69, 77-79, 92, 95-96, 99, 113, 122, 132-133 Lehmann 99 Manufacturing 27, 47, 126 McKinsey 52, 57, 60 mental models 31-32, 70, 72, 76, 117, 133

Middle Eastern (Middle East) 26, 30-31, 35, 37, 49, 140, 142, 145-146, 149-151 modeling 61, 69, 73, 97, 100, 106, 116, 118, 122, 129 Mont Fleur 22, 55, 105 Nanhai 24, 60 Nigeria 26, 45, 49, 51, 53, 56, 104, 126 Nokia 103 novelty 81 Nuclear 26, 30, 35-36, 99, 121, 126, 159 OECD (Organisation for Economic Cooperation and Development) 26, 39-40, 54, 146, 151 Oil Price 19, 23-24, 26, 30-31, 34-36, 43, 45, 47-49, 51-52, 57, 59, 83-84, 89-90, 107, 137-138, 140-141, 146-155 OPEC 26, 31, 35, 37-38, 45, 64, 142-144, 146-154, 156 plausibility (plausible) 13-14, 20-21, 31, 37-39, 42, 62-63, 68, 70, 76, 78, 80-85, 92, 94, 109, 114, 116, 128-129, 131, 162 prediction (unpredictable) 11, 13, 29, 75, 80, 82, 87-88, 93, 98, 110, 118, 128, 132, 154, 160 quantification (quantifiction) 34, 46-47, 96-97, 99-100, 116, 123, 145, 148 Resilience 9, 19, 40, 90, 116, 121-122, 127-128, 131, 157 Risk management 24, 118 Russia 19, 47, 54, 58 Sarbanes Oxley 69 seeing 32-34, 107, 114-115, 132 Shell Oil (US subsidiary of Royal Dutch Shell) 19, 27, 39, 42, 48-49, 59, 90, 104 Singapore 10-11, 21, 53, 118 Storytelling 94-96, 131 strategic management system 63, 110, 125 Svenska Shell 24, 126 Tehran Agreement 31, 35-36, 139 time horizon 31, 90, 117, 147 U.S. Commission on National Security / 21st Century (Hart-Rudman Commission) 21 UNAIDS 62, 105 uncertainty 9-11, 14, 19-20, 23-24, 26, 29-30, 32, 38, 40, 47, 50, 58, 76, 80-81, 85, 90-91, 98, 108, 113, 124, 128, 131-132, 146-147, 149, 151, 155, 164 UPM (Unified Planning Machinery) 28-29, 33, 40, 90, 97 Wartsila 103 WBCSD (World Business Council for Sustainable Development) 61-62, 105-128 WTO (World Trade Organization) 58-