Brexit, presidential elections, hurricanes and sterling under pressure – what next?
It’s been an interesting – and at times frustrating – few months with so many contradicting reports, statistics and opinions about the fate of the business world in light of recent far reaching changes, and those still to come.
Uncertainties such as these will affect businesses and the economy, create more volatility, and present new short and long-term economic risks.
This is however nothing new or unique! With businesses and commerce increasingly operating on an international and global scale, they are dependent on and influenced by wider geo-political and economic events. And these large scale events do seem to be happening more regularly.
So how should executives and business owners deal with an increasing level of uncertainty?
Traditional strategy development
The traditional approach to strategy requires precise predictions. The assumption is that by applying some well-proven analytical tools, you can predict the future with enough certainty to create a clear strategy. This assumption often leads executives into complacency and can even be downright dangerous.
Executives also like to stand in front of their boards, shareholders and ‘troops’ with confidence and argue for their chosen strategy. As the strategic choices are made, the points that support it are given more validity while the points that will weaken the arguments are dismissed or downplayed (see also my previous article on decision making biases).
Dealing with levels of uncertainty
When the uncertainty gets very complex there are a number of different typical responses:
- Panic – favoured by the press
- Keep calm and carry on as usual – favoured by a surprising number of politicians and business organisations
- Do more research and analysis – favoured by procrastinators
- Get more advice – favoured by advisers
None, of which really help.
A structured approach to uncertainty
Courtney, Kirkland and Viguerie suggested a four-level uncertainty framework in a Harvard Business Review article in 1997.
Level 1: A clear enough future
Level 2: Alternative futures
Level 3: A range of futures
Level 4: True ambiguity
In level 1 the process of determining the strategic response is relatively easy using the traditional strategy development approaches.
For level 2 to 4 the process is fundamentally about creating order out of an increasing level of chaos, in effect trying to bring the level of uncertainty down from Level 4 to 3 to 2.
Level 4 tends to be transitional in nature and can offer great opportunities as well as threats.
Here are some recommendations when facing the top level of uncertainty:
- Catalogue what you know and don’t know
- Develop some possible and probable scenarios to gain some strategic perspectives – understand circumstances, implications and the likelihood of each
- Identify some indicators that can show which scenarios are becoming more or less likely as the future unfolds
- Plan for the most likely outcomes and consider your contingencies if they don’t pan out
- Identify particular high level risks and implement early warning systems
- Identify trigger points for some particular courses of action in line with the strategy or to stop and review whether the chosen course of action is still appropriate
- Align your team around your wishes for how to deal with uncertainty i.e. the strategy you are planning
- Strengthen the resilience of your team and ensure they are part of your intelligence gathering and early warning systems
Remember to also be on the look-out for opportunities – don’t focus exclusively on the negatives and risks.
Choosing a strategy
Depending on your size and influence you may choose Shaper or Adapter strategies – or both. Shapers aim to influence the direction that the future will go, while Adapters aim to be agile and flexible enough to handle different scenarios – but with limited resources Adapters may have to back a limited range of outcomes.
A mini case story
I was working with the senior management team in a medium size business a little while ago. They were having to face up to some very significant uncertainties in the markets they are operating in. We applied many of the principles above to understand their situation, create scenarios and build their future strategy.
The strategy they arrived at in the end was however interesting. For all the complex scenarios considered, including a “status quo” scenario, the predominant strategic response of the business was to avoid a future that was determined by external factors largely beyond their control. Therefore they needed to reduce dependency on their current customer segment and start to leverage their core expertise into new market sectors and geographic regions. This changed the whole focus of the senior team from one of defensive strategies to one of proactively growing into new markets and sectors. Yes – we still came up with a number of scenarios and strategies to protect, grow and even prosper in their existing market, but the mood was now galvanised into one of optimism, opportunities and enthusiasm.
Chronic uncertainty certainly complicates strategy, but it also offers many opportunities. It is important not to get stunned into inaction, like a deer caught in the headlights. Proactivity remains key to success and can be a driving force in building resilience and greater prosperity.
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