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Strategy Under Uncertainty

This is part of the P3M2 module from the Pillar 3 Your Strategic Market Positioning.

Strategic Planning Under Conditions Of Fundamental Uncertainty

The Outline Highlights

  • Based on the Harvard Business Review article by Hugh Courtney, Jane Kirkland, Patrick Viguerie
  • Four levels of uncertainty – clear trend, discrete scenarios, range of potentials, total ambiguity
  • Roles – shapers, adapters, right to play
  • The Three Actions
    • Big bets – risky depending on uncertainty
    • Options
    • No regrets

The Detail

The best article I’ve ever read about strategy under uncertainty came from three strategy consultants who worked for McKinsey –  Hugh Courtney, Jane Kirkland and Patrick Viguerie – and was published in the Harvard Business Review and on the consultancy firm’s website.

Normally their material is written for big businesses but I think this is very appropriate to small businesses who operate in niche markets.

The Four Levels Of Uncertainty

First there are four levels of uncertainty:

  • Clear trend – it is clear the market is changing and which way it is changing – think of music CD sales going from High Street stores to the Internet, first with physical supply and then digital download. The only uncertainty is how fast the trend happens.
  • Discrete scenarios – it’s going to be A or B but you’re not sure which. You create a strategy which fits both with a bias towards the one you think is most likely.
  • Range of potentials – this time the big decisions which affect your business and market are not the simple Yes/No type but a question of degrees. Examples include the recession could be 3% which puts the economy 6% behind normal trend assuming 3% growth or it could be a long, double-dip recession which creates a double digit gap with the normal trend. Or the Euro/dollar exchange rate might swing alarmingly for any business importing or exporting between the two currencies.
  • Total ambiguity – this time all bets are off – anything could happen.

The Roles Adapting To The Uncertainty

Each business has a possible choice of roles in terms of how it adapts to the uncertainty.

  • Shapers – the existing market leader will want to control the way the market changes as much as possible and will consider competitive moves which set the agenda. It’s the same with an aggressive newcomer who sees the market as old, lazy and fit and ripe for picking. Think of Apple and how it moved from the iPod to iTunes and changed the way music is bought.
  • Adapters – these competitors lack the resources of the market leader to make things happen or the courage of the newcomer because of vested interests in the market. The aim is to predict changes and adapt slightly ahead of the crowd of mainstream competitors.
  • Right to play – these companies have an interest in the market and may have a presence in it already but they don’t see it as a core market where they have to be. They want to keep their options open and play if changes are favourable to them or if changes go in the wrong direction, they may duck out.

The Three Major Strategic Action Types

The final part of the jigsaw are the actions and there are three main types – big bets, options and no regrets.

  • Big bets – these are risky moves designed to shape the market and win. Think Amazon.com as the classic ecommerce store. For as long as I can remember, Amazon has set the standard because of huge investments in getting the websites right, in getting publicity so the name became well known and in building the service infrastructure to deliver great customer service.
  • Options – put your foot in the water without risking too much. It’s like stepping stones across a stream – if you’ve already gone to the middle, then it doesn’t take much to get you to the other side.
  • No regrets – these are actions that make sense whatever happens.

Hopefully your business won’t face too much strategic uncertainty but it doesn’t do any harm to think those big scary, what if questions.

If you feel the situation is particularly complicated with diverse options, you should use Scenario Planning.

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