In all likelihood, our emergence from the pandemic will take longer than its sudden, unexpected arrival, but it’s very possible that the change in the business climate will be no less dramatic. All businesses, whether they have fared well or ill over the past year, face the thorny challenge of an uncertain future and all must be equipped—if not with a clear strategy—with a clear path to a strategy.
Clearing that path is no easy task. Even in the most stable times, crafting strategy is complicated. Today, we’re in volatile, uncertain, complex and ambiguous times, VUCA times. It’s impossible to model the environment and strategy has become a wicked problem. And wicked doesn’t just mean harder. A wicked problem is different altogether. There are no defined edges to this bramble; in fact, there are a tangle of unknown unknowns, no clear relationship between cause and effect, and thus no clearly “right” solution. You won’t get a handle on this problem by trying to break it down into smaller components, by gathering more data or researching best practices. “The way we’ve always done it” will give you no hope of finding a way through this dense thicket.
But there is a process to deal with the problem of strategy in uncertain times, and while this method is no iron-clad guarantee of success, it will suggest a destination and indicate a path to it—a vision and a strategy, if you will.
A caution here. This process is iterative and open-ended. There’s no “plan it, write it, done.” So, if you’re looking for a quick fix, stop reading now.
The strategy you employed before the pandemic, even what you may now be employing in response, is by definition a past strategy. Maintenance does not lead the enterprise forward. The challenges of a new environment cannot be effectively addressed with the same thinking we used in the old environment. And as we recover from the pandemic, we will encounter (yet another) new environment. Even though we may accept that logic, stepping outside familiar patterns is difficult. It calls for disruptive thinking.
You take the first step by asking what might be called naïve questions. For example, what is the firm’s value proposition, why is it valuable? In the simplest of terms, how does the business earn money, why? What is the business environment and how does the firm fit into that environment? How does the business, how has the business responded to change? Why does it respond in this fashion? What’s the effect of that response on operations? Why? Who are our competitors and why have we identified them as such? Why does this enterprise exist, what are its standards, its identity? And how exactly does it preserve its identity and cleave to these standards? Ask these questions of your board, your executives, your employees, your customers, in short, your stakeholders. Of course, these are by no means all the questions to be asked; they are merely the type of questions that should be asked.
This interrogatory process will become more complex with the involvement of stakeholders. However, that involvement will nurture different, novel perspectives. It will expand the potential for lateral thinking and creativity and promote a shared understanding—which, by the way, is the necessary preface to the successful implementation of change.
As a way to structure the questioning, try a variation on “The Five Whys.” Ask why (or how? or what?) five times. Just like you did when you were five. In the 1930s, Sakichi Toyota developed this technique to further root-cause analysis; however, its purpose here is to immerse us as fully as possible in the context of the business. That immersion is our best chance to uncover the unconscious biases that skew the way we see the world and the assumptions that, erroneous or outdated, lead to strategic error. The process also helps us avoid the rush to solutions, which is human nature. We want to make a decision, to prescribe a course of action, to be DONE. That’s fun. All this questioning and examining, particularly when given the complexity and ambiguity of a wicked problem… well, that’s work.
And it’s this discovery, as it’s often called, that not only illuminates strengths, weaknesses, opportunities and threats; it tests assumptions, reveals biases and helps define the firm’s essential identity. In a volatile environment, opportunities and threats shift quickly. In reaction, it’s easy to chase the marketplace, but that pursuit will always leave you a step behind.
This is not to say that the firm shouldn’t respond to change, but rather that the response should be rooted in the firm’s core identity. Those core values are the constant which should both guide and constrain a formulation of strategy. This approach pre-supposes that you thoroughly understand and can clearly articulate those values (and don’t assume that you can without testing that assumption). Apart from the bottom line, fundamentally, what is important to the firm? What are the unique, core competencies that distinguish the company in the marketplace; and how does the company consider and measure success.
Satya Nadella, when he took over as CEO of Microsoft, shifted the culture.
“I was reading not in the context of business or work culture, but in the context of my children’s education. The author described the simple metaphor of kids at school. One of them is a ‘know-it-all’ and the other is a ‘learn-it-all,’ and the ‘learn-it-all’ always will do better, even if the ‘know-it-all’ starts with much more innate capability.
“Going back to business: If that applies to boys and girls at school, I think it also applies to CEOs like me, and entire organizations, like Microsoft.”
Under Nadella, questioning, testing and evaluating—learning—were no longer a periodic “strategic planning exercise,” but constant—a part of the culture. This culture of constant learning has led to a heightened awareness of the firm’s capabilities and prompted a stakeholder-centric focus. Under Nadella’s tenure, Microsoft’s stock price, to date, has risen by 150%.
Once the firm’s values and capabilities have been recognized and its business environment largely defined—i.e., the firm’s broad strategic scope—possible strategic plans can be suggested. Notice the qualifiers here. Our understanding of the environment may be vague and our strategy no more than a possible direction. Reminder: in a stable environment, where effect follows cause, companies can plan, execute and reasonably judge strategies to pursue— not the case if the environment is complex and uncertain.
Next, develop and run the scenarios. That’s a two-part process—first framing the scenarios and second developing their narratives. Your discovery has led you through much of the first part. Core values provide a focus, a knowledge of the firm’s capabilities and potentials identifies the key factors that affect that focus, and an awareness of the external forces points to both opportunities and risks. Then there’s the hard part: acknowledging the uncertainties, both positive and negative. Here, imagination and creativity come into play, for here is where this process leaves from the usual strategic planning. We’re no longer projecting from the knowns. We’re asking what is potentially possible.
Out of all possible scenarios, which are the ones you should develop? Here’s where the storyteller takes over. What’s plausible? What, given the givens, is a reasonable, likely story? Remember Occam’s razor. “Among competing hypotheses, the one with the fewest assumptions should be selected.” Focus on what is simple, economical and possible to implement quickly. By the way, it seems that four scenarios work best. Two becomes an either/or, three prompts the choice of a middle road and five begins to confuse the issues.
This initial approach may not yield THE strategy, but it should be a good first iteration, a prototype. As if it were a product, put it in place and test it. It may be incomplete, or off target. It may even fail; but you’ll learn, and your second iteration will be closer than your first. Nadella again:
“Some people can call it rapid experimentation, but more importantly, we call it ‘hypothesis testing.’ Instead of saying ‘I have an idea,’ what if you said, ‘I have a new hypothesis, let’s go test it, see if it’s valid, ask how quickly we can validate it.’ And if it’s not valid, how quickly we can move on to the next one.”
“There’s no harm in claiming failure if the hypothesis doesn’t work. To me, being able to come up with the new ways of doing things, new ways of framing what is a failure and what is a success, how does one achieve success—it’s through a series of failures, a series of hypothesis testing. That’s in some sense the real pursuit.”
It’s likely that each iteration raises new questions and creates an environment where it’s easy to fall into the trap of over analysis; but the focus must be on action. You’ll never have 100% certainty and waiting for it, working for it, means you’ll move too slowly. Perfect becomes the enemy of good. In a time of persistent change, companies survive on their ability to adapt before crisis forces change upon them. Respond by design, not
by default.
So, question. Exhaustively, if necessary. Your persistence will annoy some folk, but it will ensure that you’ve done the best you can to remove your biases and been assured the accuracy of your assumptions. That interrogatory, that discovery will suggest possible courses of action. Limit the scenarios to the most plausible, make your best first guess and give it a go. Don’t worry if you’re wrong. There’s no substitute for the work. So, do it. And you’ll
find the best way out of that wicked strategic bramble.
Uncertainty Scary, but Loaded with Potential
Business planning historically has involved using a given set of means (like production technologies) to achieve a desired set of ends (like increasing profit). In low-uncertainty environments, when means and ends are known, people can use “managerial thinking” to successfully navigate the process, just making minor adjustments along the way. When faced with increasing uncertainty, new means (like launching a new product) or new ends (like moving into a new market) may be needed, a process called “strategic thinking.”
Facing extreme uncertainty, however, people have to use “entrepreneurial” (sometimes called “effectual”) thinking, which involves considering multiple futures because a specific one can’t be accurately forecasted. In other words, the required means may be unknown and no predefined end points exist.
For entrepreneurs, this requires using their skills and business networks to move into the future, interacting with customers along the way to track changing needs while simultaneously engaging with potential suppliers, partners and other stakeholders to enlist support. It may also involve “pivoting” a business’ products and services, based on feedback received from these interactions.
To navigate this uncertain future, it’s useful to remember that a business can be defined by the customers it serves, the customer needs it satisfies, and the assets and skills it uses. When facing extreme uncertainty, one or more of these factors may change, sometimes quickly. As a result, the business may have to seek out new customers, refocus on their changing needs, or even acquire new assets and skills.
Moving into an uncertain future without a predefined plan can be daunting, even scary. It requires both learning and unlearning at the same time, kind of like parachuting into unknown terrain and trying to cross it without a map or GPS (or even a chance to survey the terrain before bailing out of the plane). Taking risks (like trying to climb a mountain to get a better view) also sometimes results in making mistakes (like running out of daylight), so entrepreneurs need to figure out in advance what risks and losses are acceptable.
To quote the movie “Operation Petticoat,” though, “In confusion, there is profit.” Without uncertainty, it is impossible to discover new profitable opportunities because industries remain static. Economists call this “market equilibrium.”
Thus, those who adopt entrepreneurial thinking when facing extreme uncertainty don’t just sit and wait to see what changes tomorrow brings before making a plan. They keep moving forward and help create the future.
Franz T. Lohrke
Lowder Endowed Chair in Entrepreneurship
