Coping with uncertainty: long-term strategic planning vs. short-term experiments – which way to go?
Uncertainty and speed of change have accelerated ever since the internet was born. Companies struggle with how to adapt – long-term strategic planning or investing in multiple bets, and hoping some of them will succeed and build new sources of growth.
In order to stay competitive, companies have no choice but to make tough choices about how they are going to win. These choices are ultimately about identifying the few differentiating things the company does better than anyone else. This requires executives to make decisions about where to invest, and to stick to those decisions over time.
However, in today’s ever-changing and complex business environments, business leaders may feel pressure to act fast instead of committing to long-term business planning.
Challenges in developing long-term strategy have often led to a delusion that companies do not need one. Nevertheless, when times are turbulent, locking down strategy becomes even more critical. Otherwise, companies may become stuck with launching initiatives after initiatives and chasing quarterly targets without ever committing to strategic choices that would bring them competitive advantages in the long term. Eventually, such advantages will be lost for good.
Scenario-based strategy
helps executives look beyond
their current circumstances
and build advantage that carries over time.
Here are six steps that help to build long-term strategic advantage:
1. Identify the forces that shape your business and operating conditions
These may be related to shifts in customer needs and behavior, competitive landscape, technology evolution or regulation. The crucial thing is to find the uncertainties critical to your business and choice-making.
2. Build scenarios that describe potential development paths of operative conditions
Good scenarios are concrete and well rooted in the actual operating conditions of a company. One way to build scenarios is to model them as combinations of alternative development paths on critical uncertainties - but this is where most companies fail. Imagine, for instance, 10 critical uncertainties with 4 alternative development paths each. This results in over one million possible scenarios.
To manage such complexity, most companies choose to focus solely on the extreme outcomes of two most critical uncertainties - but in doing so, run the risk of creating an overly narrow view on the future. Instead of limiting the scope of future uncertainty at the outset, we encourage companies to leverage the power of analytical tools to accommodate all the available information in their scenario development efforts. Such tools help identify a small but diverse set of plausible scenarios even from a massive number of candidate scenarios.
3. Use scenarios to identify options for strategic decision-making
Scenarios are a decision-making frame: they help to understand alternative future operating conditions and identify those choices that would need to be made to succeed in each one of such conditions. What should we do if X and Y happens? The future-oriented approach also helps to identify emerging opportunities and turn them into new initiatives and business models at an early stage.
4. Optimise your strategy portfolio with choices that perform well in all plausible scenarios, in the light of multiple objectives
A robust strategy is built on advantages that perform well in all scenarios. As part of the process, it is as crucial to identify what should not be done as what should be done to ensure the company focuses its resources on the right actions. Aiming to be best at something (differentiators) requires a tight focus on those.
5. Identify the actions that shape the markets for your benefit
Future has not happened yet, so companies must understand their possibilities in creating it. A reactive approach on strategy is how we adapt, but a purely adaptive strategy may not be the optimal way to go. We encourage companies to shift their thinking to a proactive approach: how can we shape the operating conditions in our favour?
6. Focus on solid execution with a concrete action plan
Strategy is 95% about execution. Strategy materializes when it is clear at all levels of the organisation and is implemented through actions. A good strategy is concrete, built around long-term strategic advantages and executed in an agile manner.
Experiments are good for testing new initiatives, technologies and hypotheses on the markets. Experimenting is validation, not strategy
Experiments are useful for testing new initiatives, technologies and hypotheses on the markets. But if not aligned with long-term strategic goals and advantages, they can easily become a single, separate try-outs without enough commitment and focus to give them a chance to succeed. Experimenting is validation, not a strategy.
Read more:
Five key take-aways on resilient strategies https://www.swanlakestrategy.com/post/five-key-takeaways-on-resilient-strategies
Kolme keinoa skenaariointiin https://www.swanlakestrategy.com/post/kolme-keinoa-skenaariointiin-kuvittele-haluttu-tulevaisuus-ja-varaudu-pahimpaan
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We at Swanlake use the latest academic research to help companies build robust and proactive strategies in an uncertain world. We are different from other strategy and scenario companies in that applied mathematics is in our core. Our analytical approach helps design a structured and transparent strategy process that accommodates the entire range of expertise and insights of a variety of decision-makers and stakeholders.
We use mathematical decision models to generate defensible recommendations about which strategic actions the company should pursue in light multiple strategic objectives, constraints, and future worlds. These models help leadership prioritize strategic initiatives - do now, keep as options, avoid.