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Three things all companies must do well
As Figure 7-2 illustrates, the level of residual uncertainty largely determines which approach your company should use to monitor and update its strategy. But no matter which approach a company follows, it must excel in three vital areas of strategic management: market- and time-based decision making, focused competitive and market intelligence, and efficient internal capital allocations.
Market- and time-based decision making
In high-velocity, high-uncertainty business environments, a company cannot afford to suspend decisions until the annual (or even quarterly) strategic-planning meeting. It must respond before opportunities are captured by competitors or threats become crises. Decisions must be tied explicitly to market-based feedback.
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Yet best practice companies don't abandon time or calendar-based planning arid decision-making processes altogether. A calendar-based process that operates at roughly the right pace provides companies the opportunity to substantially rethink their strategies at intervals that are in synch with fundamental market change.18 An e-commerce company will obviously want to do this more often than a mining company. But both companies will want to institute market-based strategy updates to ensure they make the right continuous strategy revisions along the way.
Focused competitive and market intelligence
As a company adopts market-based decision making, it increases its reliance on accurate, timely market and competitive intelligence. In particular, this intelligence must be focused on the variables that really matter: those that determine the success of its strategy.
Strategists that avoid misleading all-or-nothing views of uncertainty and identify the residual uncertainty they face have the best possible view of the future. |
Hugh Courtney |
Unfortunately, many companies don't do this well. Typically, the latest "report" from the company's competitive intelligence group is a twelve-inch-high stack of press releases, industry trade association data, and analysts' reports. There is breadth, but no depth. It's too focused on the past and presentnot the future. And, most important, implications for strategic decision making are rarely spelled out. As a result, this so-called intelligence has little impact on a company's decisions as it updates its strategy in uncertain markets.
There is a better way. Whether you use contingent road maps, option portfolio management principles, or strategic evolution principles to manage your strategies, the implications for competitive and market intelligence are the same.
First, identify the key value drivers of your company's strategy. Second, to the extent possible, determine the range of potential outcomes for those drivers. Third, identify the potential early warning signs that would suggest these drivers are headed in one direction or another. Finally, focus your data gathering and other intelligence efforts around these value drivers. These are the data that are most important for updating your strategy over time.
A word of caution: It is possible for intelligence gathering to get too focused, causing companies to miss early indicators of next-generation business opportunities and threats. There are ways to avoid this, though. Best practice companies, for instance, also sponsor periodic forums to explore broader trends and indicators that have no immediate impact on today's strategy, but may be vital to tomorrow's strategy. Johnson & Johnson, for example, sponsors "FrameworkS," a periodic scenario-development and discussion exercise that scans the health care field for future opportunities and threats. 19
Focused competitive and market intelligence is essential to effectively managing and updating a business' current strategy. Broader intelligence-gathering exercises are fundamental to continuing to identify and plan for next-generation opportunities and threats. The masters of uncertainty will make sure they do an adequate amount of both.
Efficient internal capital allocations
As markets evolve, companies must reallocate financial, human, and management "mind share" resources across different projects and fundamental strategic directions. All three of our approaches to manage and update strategies over time rely on the premise that companies will follow through with necessary resource allocations and reallocations when called for.
The six-region framework, for example, may help Merck identify which R&D options are now in and out of the money. But this information won't allow Merck to create and capture more value through its R&D programs unless it redirects resources toward the winners and away from the losers.
Certain organizational norms facilitate efficient internal capital reallocations. For example, companies must cultivate cultures where failure is tolerated when it is driven by uncontrollable market forces and not internal performance. New business ideas and R&D programs fail in rapidly evolving markets, and often no one is to blame. Managers don't fight so hard to keep "dog" projects alive when they know their failure will not keep them from moving on to other vital projects.
It also helps to have fluid "internal labor markets" where winning businesses attract the best talent over time, and losers are abandoned. Gary Hamel, for one, argues that companies must "bring Silicon Valley inside," creating internal capital and resource markets that allow the best ideas to garner the most (and best) resources, and leaving less attractive alternatives to starve due to lack of resources. 20
20/20 Foresight: crafting strategy in an uncertain world
Strategy under uncertainty is a dynamic game. Just when you think you've developed the strategy for success, a new technology emerges, a new competitor enters, or fickle consumers turn their focus to the next "must have" product. While "sticking to your knitting" is sometimes the key to success in stable markets, turbulent markets require that companies make the right strategy updates at the right time.
Winning business strategies are always forward-looking, seeking to position a company for success in the years to come. One's view of the future a year, a month, and even a day from now will be different than it is today. This has always been true. But the accelerating pace of change in today's business environment ensures that the likely difference between today's view and tomorrow's view is getting bigger all the time.
In this new, more dynamic economy, the deficiencies of the old, static strategic-planning and decision-making processes are clear. It is past time to get serious about strategy under uncertainty. The stakes are too high to continue to rely on strategy tools and frameworks that are obviously inappropriate for the majority of today's strategy decisions. This book offers an alternate path forward.
Figure 7-3 summarizes the book's approach to making, monitoring, and revising strategies under uncertainty. It all starts with 20/20 foresight. Strategists that avoid misleading all-or-nothing views of uncertainty and identify the residual uncertainty they face have the best possible view of the future. This view is essential to crafting and managing winning strategies under uncertainty.
The level of residual uncertainty helps determine which situation analysis tools and frameworks are most useful, which strategies (shape or adapt, now or later, focus or diversify) are most likely to succeed, and which management processes are most appropriate for monitoring and revising strategies over time. And when the level of uncertainty changesas it often does in today's turbulent business environmentsthe process must repeat itself.
As you craft strategy in your uncertain world, 20/20 foresight should be your goal and the four-levels framework should be your guide. Of that, I am certain.
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18. Brown and Eisenhardt's "time pacing" concept is helpful in setting the right "rythym" for time-based planning and decision making. See Brown and Eisenhardt, Competing on the Edge, 161-188.
19. See Richard Foster and Sarah Kaplan, Creative Destruction: Why Companies That Are Built to Last Underperform the MarketAnd How to Sucessfully Transform Them (New York: Currency Doubleday, 2001), 261-287 for more on FrameworkS.