Significant uncertainty surrounds what the “new normal” could look like for firms beyond the COVID-19 crisis, particularly in terms of human capital. But scenario thinking can help organizations better anticipate and adapt to dramatic changes, increase agility and resilience, and turn uncertainty into advantage, write Scott A. Snyder, Eric Skoritowski, Jarrad Roeder and Alex Libson in this opinion piece. Snyder is a senior fellow at Wharton and partner, digital and innovation, at Heidrick & Struggles. Skoritowski is engagement lead at Heidrick Consulting, and Roeder and Libson are principals at the firm.
As Edward Lorenz postulated in his 1963 paper on Chaos Theory, “Does the flap of a butterfly’s wings in Brazil cause a tornado in Texas? Substitute a bat in a Wuhan wet market for the butterfly and the spread of the coronavirus for the weather, and you have the same effect showing how fragile and uncertain our world is. In his efforts to model such phenomena, Lorenz realized that the imprecision inherent in human measurement could become magnified into wildly incorrect forecasts. Things are not much different in the business world.
There is a well-documented human tendency to be overconfident about our ability to forecast the future. Even experts in a given field will generally be more certain than they should be about their own accuracy. Furthermore, the COVID-19 pandemic is intensifying volatility, uncertainty, complexity, and ambiguity across all geographies and industries. Scenario planning provides a framework for combatting natural human biases and challenging entrenched mindsets of leaders and organizations amid uncertainty and crisis situations. While living in scenarios can be a humbling process, it helps to mitigate risks of overweighting the present, building plans based on a predictable future, and being excessively overconfident in forecasts. Scenarios are more than just engaging stories; they are plausible “what ifs” that challenge prevailing beliefs and instill agility, adaptability, and resilience to plan for a world that is much more uncertain than we tend to acknowledge.
Summary of Four Future Scenarios and Human Capital Implications
In order to help leaders and organizations manage uncertainty driven by COVID-19, we have developed four scenarios for the future of human capital in the year 2023, with implications for companies operating in different industries as well as regions of the world. Each scenario presents unique opportunities and challenges. And with those opportunities and challenges, winning operating models, organizational structures, leadership profiles, skills, talent and organizational cultures can be identified for each scenario.
1. Digital enclaves: A world in which the global economy has bounced back, but social scar tissue from the pandemic persists, changing behaviors and lowering trust between people, institutions and countries.
In this scenario, winning organizations will be those that can restructure and retool their delivery models at pace with the recovering “low contact” economy while operating with a largely virtual employee base. A generation scarred by the economic disruption and stay-at-home shutdown creates a more risk averse workforce, attracted to companies that offer job security and stability. At the same time, the heads-down 9 to 5 jobs of the past are fast disappearing as more companies follow Twitter’s lead in encouraging remote work and further blurring the lines between work and home life. Flatter and more nimble organizational structures developed in this future will require more engaged, empowered and capable employees, giving significant advantage to firms that have invested in training and development. As many firms restructure to take advantage of new digital tools and ways of working, strong in-house training capabilities, specifically in the digital realm (e.g., to build widespread awareness and proficiency in data science and machine learning), will be needed to develop the workforce of the future. Likewise, a strong developmental and people-focused culture will be key in attracting external talent into the fold while also maintaining connections between their virtual and physical workforces. Chief Culture Officers emerge as important advocates to drive on-going engagement across a largely distributed employee base.
2. Tech-powered humanity: A world in which the global economy has fully recovered and the COVID-19 protection measures have accelerated some significant tech advances in how we interact, but the pandemic has taught us the real value of human interaction.
In this scenario, winning organizations are those that have used the COVID-19 pandemic as an opportunity to learn and disrupt themselves through rapid innovation and digitization. Businesses retool their operating models to reach new markets characterized by heightened consumer expectations and global connectivity. Simplified organizational structures with less matrix, flatter hierarchies, and more network thinking enable companies to grow at pace with the surging global economy and technological innovation happening within industries. Visionary and progressive leaders with essential business knowledge (e.g., M&A experience, venturing capabilities) take their organizations to new heights. Furthermore, the influx of new roles such as Chief Data Officers and Chief Robotics Officers causes the market to place a premium on leaders that have a combination of technical and people skills – those who can understand emerging technology at a high level while also managing human relationships. Organizations mandate baseline levels of digital fluency in areas such as artificial intelligence, but also make their employees feel valuable and essential through benefits, compensation, and incentives. Physical spaces and talent hubs matter again for both collaboration and innovation, but are balanced with the freedom for employees to optimize their balance of virtual and physical work. Employees are attracted to industries and companies that have strong mission and purpose and can provide relationship-driven work. Company cultures that promote inclusion and diversity in background and thought thrive.
3. Growing divide: A world in which a prolonged economic recession fractures trust between people, communities and institutions.
In this scenario, winning organizations are those that can cope with cratering and redefinition of entire industries in a necessarily virtual-first world. Lean operating models that drive efficiency with lower-cost resources succeed as cost outweighs quality in most markets. With limited capital available for new technologies, organizations will need to restructure to reduce waste and cost without relying on heavy investments in automation. Companies will increasingly need to tap into the gig workforce or flex talent models to support strategic projects and urgent tasks while limiting fixed costs of full-time employees. Thriving in this scenario will require execution-focused leaders with strong financial acumen (e.g., debt refinancing capability) and operational skills (e.g., Six Sigma). While a more digital workforce will be needed in this future, the high digital divide and limited resources for people development will underscore the importance of cultivating external networks and strong recruiting capabilities to bring in top digital talent. Company cultures that promote empathy and mental health (e.g., through virtual counseling, mentorship) will also help attract and keep top talent in this harsh business environment. Chief Medical Officers become a key part of executive teams in all companies to help manage the growing health risk in the employee base.
Using this type of scenario analysis to inform our human capital strategy can help leaders know where to commit and where to monitor/adapt as needed based on which future unfolds.
4. In this together: A world in which the economy struggles to recover from a long lockdown, but families, communities and NGOs have come together to support one another.
In this scenario, winning organizations are those that can engender trust in their brands and missions amidst a faltering economy. Companies revamp their operating models to facilitate ecosystems and partnerships (e.g., industry associations, continental trade ecosystems, government relations). Organizational structures promote efficiencies but also place high value on human interaction. For instance, many companies utilize gig, flexible, and seasonal workers for specialized projects or to meet increasing business demands. Companies seek empathetic and courageous leaders to instill purpose and guidance in their mission and across their workforce. The market places a premium on “soft skills” (e.g., networking abilities, negotiation tactics) while requiring a baseline digital fluency in areas such as remote work and collaboration. Companies and employees value breadth of skills and experiences over depth in industry-specific knowledge. Portfolio careers increase, as many employees hold more than one job or make radical career changes. The interpersonal cultures of firms – how employees communicate and look after each other – are now highly valued. Company cultures that promote social impact and work-life balance that allows employees to spend valuable time with family and friends thrive.
Moving from Scenarios to Decisions
Looking at the types of organizational strategies critical to not only survive, but also thrive in each scenario, it is apparent there are certain “no regret” strategies that apply across scenarios such as developing digital leaders or the ability to recruit, on-board, and manage virtual workers. There are also scenario-specific strategies where we want to maintain some level of flexibility through strategic options or small-scale experiments to be ready. An example could be deploying more pervasive health monitoring solutions for employees or retooling the use of physical spaces or employing cloud-sharing models to reduce dependence on physical spaces while keeping the option to re-open and scale up in a “Tech-powered Humanity” future. Using this type of scenario analysis to inform our human capital strategy can help leaders know where to commit and where to monitor/adapt as needed based on which future unfolds.
To apply this in your own organization:
- Stress Test Your Assumptions – Use the four scenarios for the future of human capital to stretch your organization’s thinking about possible paths the future might take. Stress test your current re-entry plans and human capital initiatives to understand how well they would perform under each scenario. Identify areas where you might increase flexibility in your portfolio to improve readiness for multiple futures. The figure below shows the types decisions that should be challenged using a scenario-planning framework.
- Build Your Playbook – Engage a team of colleagues to live in each future scenario. If you knew with 100% certainty that your business environment in 2023 would look like this scenario, what decisions, plans and investments would you start making today? Where should you potentially rethink or re-imagine parts of your organization or operating model to position for success on the other side of the crisis? Build your organization’s playbook for each future scenario.
- Prioritize Initial Steps – As you build a playbook for each scenario, you may notice a subset of actions or investments that show up in all four playbooks. If your organization would take these actions in each of the four extremely different future scenarios, those likely represent no-regret investments that you can confidently pull the trigger on today. For those initiatives that are needed in only one or two scenarios, think in terms of options to allow you to scale in that future without wasting time and resources in others.
- Monitor Your Environment – The sooner your organization can see which future is emerging, the sooner you will know which playbook to act on. Start by identifying the key signals or signposts that could tell you when you’re headed toward each scenario and tap into the parts of your organization with visibility on those indicators. Establish feedback loops with your front lines to help contextualize the weak signals they see in the market everyday and use them as a strategic radar to enhance your organization’s foresight and visibility in a highly uncertain world.
Given the significant uncertainty around what the “new normal” could look like beyond the COVID-19 crisis, we need to take a page from Edward Lorenz and realize that the next weak signal of small change we detect could be a sea change that shifts our market and planet dramatically. Using scenario thinking can help us better anticipate and adapt to the dramatic shifts we may see ahead, and help our organizations turn uncertainty into advantage.