Shell's scenario planners saw the 1973 oil shock coming — and rose from laggard to leader

Shell in the late 1960s was the 'Ugly Sister' of the oil Seven Sisters, behind Exxon and Gulf. Planning ran on the Unified Planning Machinery, a computer model extrapolating business-as-usual, and its forecasts were drifting just as Arab producers began to organize.

Plan from several sharply different futures instead of one forecast: pick critical uncertainties, write them as vivid stories, and aim them at managers' mental models.

From 1971 Pierre Wack and Ted Newland's Group Planning team built scenarios on critical uncertainties such as oil politics and growth limits. They briefed the managing directors with vivid, divergent stories — one 'benign' scenario was deliberately stuffed with implausible assumptions to expose how much consensus rested on luck — and had operating units test strategy against each future.

When the 1973 embargo hit, Shell alone among the majors was ready: it had rehearsed the shock and moved early on conservation, pricing and sourcing. Forbes had called Shell the industry's 'Ugly Sister'; it emerged as one of two breakout leaders beside Exxon.

Through the 1960s Shell planned like everyone else: a computer model, the Unified Planning Machinery, extrapolated demand and cash flows six years ahead. As the model's errors grew and Arab producers began to flex, Shell's planners Pierre Wack and Ted Newland concluded the problem was not the math but the format: a single 'official future' let managers stop thinking.

Their fix was to plan from several sharply different futures at once. Scenarios were built on critical uncertainties, written as vivid narratives and presented to the managing directors — Shell's committee of CEO-equivalents — whose mental models, not spreadsheets, were the real target. One 1972 scenario family described an oil shock, a price leaping from $2 toward $10 a barrel; another, 'benign' family was deliberately built on implausible assumptions, so rejecting the crisis story meant admitting the comfort story was fantasy.

In October 1973 the Yom Kippur War triggered the embargo, and oil quadrupled from $4 to $16 a barrel within weeks. Shell was the only major that had already rehearsed the world being described: it moved early on conservation, pricing and sourcing. Forbes had mocked the company as the industry's 'Ugly Sister'; within a few years it stood beside Exxon as one of the industry's two breakout leaders.

Forecast-only planning fails exactly when change is fastest: the extrapolations of the 1950s-60s boom missed the political discontinuities of the 1970s.

Scenarios aim at managers' mental models — Wack's insight was that decision-makers act rationally inside a private 'microcosm', so the frame itself is the target.

Vivid, internally coherent futures let operating units rehearse decisions in advance, so the first surprise is not the real event.

Pairing a scary scenario with a rigged 'benign' one stopped management from choosing the comfortable middle as the reference case.

A forecast is right until the day being right matters most. Rival scenarios built on critical uncertainties break the consensus trance and let an organization act before the surprise arrives.

Shell institutionalized scenarios and kept scoring: its planners flagged both the 1979 price surge and the 1986 oil-market collapse. Alumni Peter Schwartz, Arie de Geus and Kees van der Heijden carried the practice to Global Business Network, business schools and governments, and scenario methods even shaped South Africa's negotiated transition. Wack codified the craft in two 1985 Harvard Business Review articles. Most large firms now run scenario exercises, though strategy+business warns the method decays into a three-day workshop unless decision-makers keep living in the futures.