Strategy and Uncertainty

When developing strategy, we have to make assumptions about the future of technology, customer needs and economic trends; in particular, what will change and how. Because the future is uncertain, we face the risk that our assumptions, and thus our strategy, are wrong.

A traditional approach to creating strategy can be described as a waterfall.  Strategy is set at the top levels of the organization and it cascades down from the enterprise to business unit to product lines in successively more detailed strategies. A waterfall approach is not quickly redirected, but it has served companies well during times of slow, predictable change. However, in today’s world, most companies are seeing rapid change in their business due to new technologies, new global competitors, the creation of whole new industries and changing customer needs. A new approach to strategy is needed, one that can handle uncertainty.

The s2m Strategic Framework is meant to handle uncertainty. Strategy is built upon certain assumptions about the external environment (for example, competitor activity, customer needs, technological developments and regulatory changes) and assumptions about what the company can control (for example, the capabilities it maintains and the markets it serves).

Change in the internal or external environment creates opportunities and threats for the organization. The more change or the more uncertainty about the future, the more important it is to monitor the assumptions that support the strategic framework. Unfortunately, many organizations miss these changes because they do not have a way to monitor and provide feedback to the system.

Valuable feedback can enter the organization in many different locations and manners. In a fast-changing industry, the most valuable information may come through customer-facing personnel or external parties that interact with competitors. Unfortunately, many organizations lack a mechanism for capturing and leveraging this information.

Probably the biggest impediment we see to maintaining an adaptive strategy is a lack of understanding of the current strategies and business models within the organization: What key characteristics of the market, competition, technology and internal capabilities, for example, make the current strategies and business models work? And, related to this, what kinds of changes can invalidate the strategies and business models, or create valuable new opportunities?

The first step in making your strategy adaptable to uncertainty is to identify current assumptions, the kinds of uncertainties to monitor and establish a feedback mechanism. Later, we cover how to leverage this feedback.