Sep 19, 2022
How Companies Can Plan for Uncertainty
How can your organization plan for the future when the future keeps changing? It’s easy to plan for your company’s future when markets are stable, weather is consistent, and politics are predictable. In fact, many business strategy systems such as scenario planning, Monte Carlo simulation, and real options analysis work well when conditions are constant. However, they don’t help as much when events become extreme or volatile. So how can you plan for uncertainty?
In the Harvard Business Review Sept-Oct 2022 magazine article “Strategy-Making in Turbulent Times” by Michael Mankins and Mark Gottfredson, the authors suggest leaders should think of strategy-making as a continuous process, which generates a living, dynamic, and flexible plan.
In order to prepare for an uncertain future, the authors suggest using these five steps to create a more flexible and agile strategy.
1) Define Extreme but Plausible Scenarios
Companies should plan for extreme but plausible scenarios. What’s an extreme but plausible scenario? For example, what if the world stopped using oil and went completely electric? The purpose of such planning is to uncover new and different ways to compete and win.
One company that used extreme scenarios with success was CMS Energy in Michigan. They planned for a scenario of abundant natural gas, which helped prepare them for the sudden plunge in natural gas prices in 2014.
To learn more about disruptive scenarios, consider co-founder of Netflix Marc Randolph who disrupted the movie rental market. In his keynotes, Marc gives audiences a peek into how the company was able to adapt from renting DVDs online to streaming movies.
2) Identify Strategic Hedges and Options
One key to preparing for uncertainty is being flexible in your planning. The authors suggest organizations adopt hedges and options into strategic decision-making. It’s important to have strategy alternatives. For example, Disney did this when they saw volatility in the cable and satellite broadcasting market. They decided to hedge and invest in streaming options, which later led to the success of Disney+.
If you would like to learn more about strategizing for the future, consider Nancy Giordano. She is a strategic futurist and corporate strategist who helps companies navigate change in dynamic and complex environments.
3) Run Experiments Before Locking in Investment
If you’re having trouble deciding which way to invest, consider running an experiment. Amazon has been successful with its test-and-learn culture. For example, it was able to build Amazon Prime into a great strategy by first testing it in select markets before going globally.
If you would like to learn more about how to plan for global markets, consider Frits van Paasschen, author of The Disruptors’ Feast: How to Avoid Being Devoured in Today’s Rapidly Challenging Global Economy. As a former executive at Starwood Hotels and Resorts, Coors, and Nike’s, van Paasschen has firsthand experience handling global disruption.
4) Identify Trigger Points, Signposts, and Metrics
Another way to prepare for uncertainty is to identify trigger points, signposts, and metrics to spot changes in the market before the competition does. For example, Netflix may not have identified Disney’s acquisition of streaming technology as a move to start a streaming service. But had they done so, they would have been quicker to prepare for the competition.
For more on responding to changes in the competitive environment, consider Jackie Freiberg the internationally bestselling author of Nuts (about Southwest Airlines’ innovations). She helps companies navigate the new post-pandemic landscape.
5) Provide Prescriptive Surveillance
Finally, companies should use prescriptive surveillance to evaluate their data and plan for the future. While most companies often use data to answer the question “How did we perform?” they should also ask “Should we alter course?” Some companies have created thresholds (green, yellow, red) that signal when there is a cause for a change in direction (red) or a need for more investigation (yellow).
Planning for the future can be difficult in times of uncertainty. This is why the authors suggest companies change the way they use and gather data in order to prepare a more flexible strategy for more extreme situations.
If you would like to learn more ways to plan for an uncertain future, contact BigSpeak Speakers Bureau to hire a strategy keynote speaker.
For More on Business Strategy Read
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