Scenario Planning: The strategy tool that helps you (and Formula 1 teams) win
The 2022 Monaco grand prix was a memorable one. It was my first time in Monaco — an iconic Formula 1 circuit with an exceptional atmosphere. On the race day, I could feel the tension and excitement building toward the planned start in the afternoon. Both Ferraris would start from the front row (Leclerc in front of Sainz), with the two Red Bulls on the second row (Perez in front of Verstappen).
Monaco is a tight street circuit, where overtaking is very difficult. So most of the time, the one who qualifies first wins the race. Therefore, everyone expected Ferrari to win. However, getting the mandatory pit stop right would be crucial.
All week, there had been talks of that it could rain on race day. But it was boiling hot. I heavily applied sunscreen throughout the weekend as the city bathed in sunshine. Rain was nowhere to be expected.
Half an hour before the race start, the cars exit the pit lane one by one to go to the starting grid. Celebrities, including the likes of Naomi Campbell, Conor McGregor, and Patrick Dempsey, were flooding the grid. Reporters were taking photos and holding interviews. Everyone was dressed in summer clothes, and umbrellas were nowhere to be seen.
Ten minutes before the race started, everyone, including myself, was convinced it wouldn’t rain. Afterward, I heard that even the weather systems didn’t predict what would happen next.
Unexpected heavy rain
One of the reporters on the grid suddenly said — “are those raindrops?” She asked her co-reporter, “Do you feel them as well?” Indeed. A dark cloud suddenly arrived from behind the mountains. It started to rain heavily. I saw celebrities running like crazy to find shelter — as if they couldn’t bear getting their expensive designer clothes wet.
On the grandstands, people quickly opened their umbrellas and put on their ponchos. Earlier that day, I laughed at a salesman trying to sell throw-away ponchos for €25 (at >25x the regular retail price) underneath the grandstand. I’m sure he sold a few!
“I don’t ever think I’ve gotten this wet in a Formula 1 car, ever!” — Mick Schumacher.
Race control delayed the start to allow teams to switch their cars to wet tires before the start. As I faced the pit lane, I saw mechanics franticly running back and forth with tire trollies from the pit box to the starting grid. Observing the chaos behind his steering wheel, Lewis Hamilton came on the radio and said, “Everyone take a deep breath and cool down.”
The race commenced from behind the safety car but was paused again for almost an hour because the rain was too heavy.
A tough challenge for the F1 team’s strategists
When the rain stopped, and the race finally started, the track was slowly going to dry up. All cars were on the ‘full wet’ tire at the start. This tire only performs well when the tarmac is very wet. But when the track starts drying up, switching to the ‘intermediate’ tire becomes worthwhile. This tire is several seconds per lap faster. But only when it is applied in the right conditions. If it is fitted too early, the tire provides too little grip, and your driver might slowly glide around the circuit or, worse, crash. Later on, they must face a similar decision for when to switch from the ‘intermediate’ to the ‘dry’ tires.
In Monaco, a pit stop costs roughly 17 seconds. Some teams might even take the gamble by ‘skipping’ the intermediate tire altogether. In other words: take the ‘hit’ from driving around longer on a slower wet tire, then switch to the dry tire immediately. This allows them to do only one instead of two pit stops.
Estimating the track surface (based on what the driver is telling you) and pitting at the right time would be a matter of winning or losing. Every 75 seconds, there is a small window of opportunity to tell the driver to come into the pits ‘box box’ or ‘stay out.’
How it played out
On lap 17, Red Bull calls Perez into the pit box, then running in third place to switch to intermediate tires. Ferrari told race leader Leclerc to stay out. Perez pushed hard to gain lap time on his new tires. When Ferrari eventually called in Leclerc one lap later, he had already lost too much time on his old wet tires. When he exits the pit lane, he is behind Perez. Perez ends up winning the race.
Everyone was caught off guard. Or were they?
“Everyone has a plan until they get punched in the face” — Mike Tyson.
Formula 1 teams understand that predicting precisely what will happen during the race is impossible. Even though rain was unlikely, they were prepared for it. It was one out of hundreds of scenarios calculated and reviewed before the race.
Similarly, if you’re a leader in an organization trying to achieve a goal, there is a high likelihood that the environment is equally complex and unpredictable.
The traditional approach of spending a lot of time trying to make the perfect plan, with predictions about how things will and must happen, is foolish. Your plan will likely fail if you prepare for only one future and get that prediction wrong.
Instead — be prepared so you can respond quickly. Be complexity conscious.
The technique F1 teams use to put this mindset into practice is similar to what we call ‘scenario planning.’ And at The Ready, we use it to increase the odds of success of our clients. Here’s how to do it.
How to do Scenario Planning
Scenario planning is imagining various possible futures (from disaster to huge success) that might result from a change, decision, or global event. It provides a way to anticipate what might happen so you can be ready to respond. Ideally, this exercise is done with a group with a wide range of opinions.
Take a moment to brainstorm four different scenarios. Imagine it’s 12 months from today, and the decision, change, or project has been…
- …a complete disaster (Disaster Worst-Case Scenario)
- …hasn’t gone the way you’d hoped (Unfavorable Scenario)
- …hasn’t been perfect but has worked out overall (Favorable Scenario)
- …a complete and total success (Best-Case Dream Scenario)
For each of these four scenarios: describe what you see. What’s happening? What are people saying? What’s different from today’s reality? Think about culture, business performance, employee sentiment, customer sentiment, etc.
Then zoom out and reflect on the question: What risks showed up in your scenarios? What risk factors are likely to move your decision, project, or change toward being unsuccessful?
Then for each Risk Factor, come up with Potential Responses. How might we respond if we pick up signals indicating a risk factor is emerging? What interventions should we be ready to initiate?
Then do the same for Opportunities: What opportunities showed up in your scenarios and are likely to move your decision, project, or change toward being successful? Again, brainstorm potential responses. How might we respond if we pick up signals indicating an opportunity factor is emerging?
At The Ready, we have a template for this exercise, made by my excellent colleagues Alastair Steward & Sam Spurlin. Send me a message if you’d like to receive it.
So why did Red Bull win?
Knowing both teams practice scenario planning, it is difficult to say precisely why Ferrari got it wrong and Red Bull got it right.
During the race, Red Bull’s chief strategist Hannah Schmitz and her team had been monitoring several data sources every lap of the race: weather data, lap times, and computer simulations. Despite the immense pressure, they communicated calmly and considered multiple options. In the end, Hannah has the authority to make the final call. Messages on the team radio were calm and timely.
Now contrast this with some of Ferrari’s chaotic team radios that were broadcasted. At one point, Leclerc was told to come into the pits and then, right after he entered the pitlane, heard his engineer, to his frustration, listened to his engineer shout, “Stay out! Stay out! Stay out!” His response “*** ***! Why? What?! What are you doing?! ”
This smoothness in decision-making is likely where Red Bull got the upper hand.
Conclusion
We must accept that most of our organizations operate in an environment that, to a certain extent, resembles the weather. Don’t shout at the weather when conditions change. Organizations that are prepared for possible scenarios can adapt quickly and become more successful than their competitors.
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