By Dan Bobear (@dbobear)
Looking around the business landscape just a year or two ago, economic uncertainty lingered in the air. There was hesitancy as far as the eye can see. Whether the issue was hiring, funding a new initiative, putting money into product development or any one of countless other issues, the feeling from Wall Street to Main Street was something along the lines of lets wait and see how this shakes out. These days, the outlook is much more positive, but as history has taught us, it will be another handful of years before we’re due for another economic crisis.
Companies cannot afford to stand still. Yes, waiting things out can be the right strategy but make sure your team, department, division and even your whole business reach that decision through a thoughtful process, not a reflexive freeze. How can you maintain momentum even amid uncertainty? One way is by taking a rigorous approach to strategy.
Two steps are at the core of a vigorous strategy-development process, whether youre trying to launch a new team initiative or a billion-dollar drug:
Rationally assess the level of uncertainty youre dealing with. In 20/20 Foresight: Crafting Strategy in an Uncertain World, author Hugh Courtney notes that managers can approach uncertainty systematically. He lays out a four-part framework to help managers determine the level of uncertainty surrounding strategic decisions: In level one, there is a clear, single view of the future; in level two, a limited set of possible future outcomes, one of which will occur; in level three, a range of possible future outcomes; and in level four, a limitless range of possible future outcomes.
The bottom line: Risk and uncertainty always exist even in a strong economic climate. What changes is our perception of those risks. For level one to three, conduct some bottom-up analysis to figure out market drivers, do some market research and uncover competitive intelligence prior to crafting a strategy. For level four, the increased ambiguity requires working backward from potential strategies to what you would have to believe about the future for those strategies to succeed. The classic example would be biotech early-stage biotech investments have always faced level four uncertainty, because youre playing with therapies with an ultimate commercial viability that is unknown.
If youre developing a strategy, make sure your process works. In a world of perfect feedback, this wouldnt even be an issue youd develop a strategy, execute it, and the results would tell you whether or not your planning process worked. Unfortunately, habit and inertia can be our constant companions, and sometimes that means processes that may have worked years ago continue to live on in conference rooms and thick memos, long after theyve stopped being effective.
The recent recession has made some strategies obsolete and revealed weaknesses in others. This requires organizations to examine decisions and trade-offs they put off in boom years. How can organizations know if their strategy will be effective? The January 2011 McKinsey Quarterly outlines 10 tests to help executives assess the strength of their strategies. In the same report, a survey of 2,135 global executives indicates that few strategies pass more than three of the tests. One recommendation: Dont be afraid to kick the tires and test your strategy. This enables executives to identify gaps in thinking, open their minds to new ways to use strategy to create value as well as improve the strategy-development process itself.
Uncertainty isnt new in business and, despite the sometimes overwhelming drumbeat of negative economic news, great products and strong markets can still mean a home run. But to find those products and markets through anything other than blind luck requires solid strategies even if the decision coming out of that process is, for now, to wait and see.