More CEOs than not will tell you they were thoroughly surprised by how decisive their organizations turned out to be in the heat of the Covid-19 crisis. With no choice but to act, management teams scanned the horizon, quickly assessed what was changing, and made commitments based on the best information at hand. Not all decisions were the right ones, but course correction became part of the drill. Many acknowledge the freedom of movement was liberating.
In a post pandemic world, the challenge is keeping that energy alive. As the global economy recovers, the expected surge in demand will produce unprecedented opportunities for companies prepared to act decisively. Yet many CEOs know from long experience that more time to plan and deliberate is often the enemy of action. Traditional approaches to strategy—analyzing trends, making detailed forecasts, and committing to only the “best” course of action—aren’t calibrated for the high degree of instability we face today. Those processes tend to be as ponderous as they are cautious, looking at the world incrementally and searching for certainty where there’s none to be found.
The hallmark of companies that chart the right course through turbulence is that they embrace uncertainty; they don’t try to fight it. They focus on the vital few uncertainties that matter, lay out the possible scenarios that could develop, and identify the critical trigger points or signposts that signal swings in direction. Planning becomes a cycle of “execute, monitor, and adapt” that dynamically redirects the company toward the best opportunities over time.
A strategy for uncertainty
A scenario-based strategic planning process proactively prepares for a range of futures by:
- defining which uncertainties, the company faces and cutting through the noise by separating them into those that matter and those that don’t;
- creating a set of probable scenarios for how the future might unfold and determining the threats—and opportunities—that these scenarios present;
- devising a specific set of strategic playbooks that balance commitment to a course of action with the flexibility to adjust and thrive amid different future scenarios; and
- identifying a clear set of signposts that will signal important changes in the marketplace and trigger a set of actions already foreseen during the scenario-planning process.
Defining possible scenarios and building a detailed fact base around them allowed the company to devise a set of strategic moves tailored to each version of the future and to develop a set of signposts, or indicators, that management could monitor on a regular basis to understand how things were unfolding.
This kind of scenario-based process brings analytical rigor to a number of key questions: What are the most likely possible scenarios to emerge from the major uncertainties the company faces, and what would it take to thrive in each one? How could the world evolve in a way that could either disrupt current strategy or create new opportunities? How can the company act quickly depending on which possible future unfolds?
Flexibility not ambiguity
Effective scenario planning requires a degree of flexibility that makes some leadership teams uncomfortable. The breadth of strategic choices seems at odds with developing a coherent strategy the organization can understand and get behind.
In practice, however, preparing for a set of different futures and defining a clear strategy aren’t mutually exclusive. The object isn’t to stray far from the company’s core strengths or long-term vision. On the contrary, our experience suggests that those strengths and values provide the best compass for adapting to changing circumstances.
Strategies that account for uncertainty are no less devoted to a bold, long-term ambition. But they do strive to balance commitment to this vision with an explicit set of options that prepare the company to seize the future as it unfolds. The alternative is to scramble reactively when confronted with disruption and accept the risk that better prepared rivals will define the rules of competition. The best strategies avoid this by balancing three kinds of investments:
No-regret moves. These are actions like ongoing cost management or increasing operational effectiveness that will benefit the company under any scenario.
Options and hedges. These are strategic tactics aimed at specific scenarios. They might include a range of smaller-scale pilots or experiments that can be ramped-up or scaled down quickly, joint ventures that provide lower-cost market entry, or changes to projects that might add cost but provide additional flexibility.
Big bets. These are large-scale commitments that are valuable in the prevailing scenario but may have different payoffs depending on how uncertainties are resolved. Companies might not pull the trigger until there’s more clarity around which scenario is most likely to play out. But advance planning gives them the critical flexibility to move quickly when appropriate.
Moving with purpose
There’s another important shift most large companies face when it comes to effective scenario planning: Not only do they need to get better at monitoring the right signposts, but they also need to link those insights to strategy. When a signal trips, in other words, the most effective planners are prewired to make a decision—let’s investigate this further, let’s run our playbook, let’s back away and pivot in another direction.
There was a time when turbulence and uncertainty were most prevalent in industries like technology or pharmaceuticals, where innovation and disruption present daily challenges. Or disruption was episodic—a temporary supply shock or a cyclical lull in the economy. Increasingly, however, disruption is a steady state for all businesses. Finding a way to sustain profits and reach full potential amid a constantly shifting landscape is the central challenge in every market. The companies that make the future—not just take it as it comes—will be those that can embrace uncertainty and turn it to their advantage.