Strategy-Making in Uncertain Times - ' What Next' (
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What Next?
CIO Insight: We've been talking about what you've observed them doing. What do you recommend they do now?
Courtney: First and foremost—and this seems quite simplistic—is not to ignore the uncertainty they face and to take it quite seriously. It all starts with diagnosing the individual uncertainty they face.
What you find is that for most decisions that businesses face, there are a handful of very important value drivers, whether it be the cost performance with a new technology, the response of a competitor to a new pricing or marketing campaign and so on. But it's usually a handful of five, six or seven variables that really drive whether the strategy pays off or not, and what we have found is that if you can systematically start with those value drivers and get the best competitive and market intelligence out there, that will tell you something about the uncertainty you face.
Sometimes these variables, or at least a subset of them, can be reasonably predicted. It doesn't mean you're going to be 100 percent right, but the range of what's going to be wrong isn't going to matter for making the choice. Sometimes there are really only a limited number of ways that it can play out, a limited set of scenarios. Competitors will match your pricing policy or they won't, for instance, or they'll meet you halfway because that's what they've done in the past.
Sometimes a very broad range of outcomes could occur. For example, new technology could give you a cost performance advantage of anywhere from 5 percent to 25 percent, but it's just too early to know where within the range you're going to fall. And then, finally, there are some variables where really you do know next to nothing. I call these Level 4 uncertainties, and you'd be fooling yourself if you even thought you knew.
What we find is that if companies are very systematic about identifying those value drivers and then taking each in turn in trying to figure out what can be known and can't be known about them, they will have a very clear sense of the range of potential outcomes, a much clearer sense anyway. They will know what it would mean to actually hedge their bets, if that's something that they can afford and is desirable. They will know which scenarios they can influence and shape and which ones they can't and that maybe they have to hedge against others.
Again, it sounds simplistic, but if companies use the information that's out there, if they are systematic about it, we find that they can do a lot better job than winging it or using old-fashioned strategy tools that pretend that the whole world is reasonably predictable.
CIO Insight: And this approach applies to the ways the world has changed since Sept. 11?
Courtney: Oh, absolutely. For instance, let's take an example of a U.S. airline today. It is trying to craft origin-destination strategies and rethink the hub and spoke network, which a lot of them are doing today. If the airline thinks about its value drivers, a big driver is business and leisure demand for travel on different origin and destination pairs, and what people are willing to trade off, such as price for convenience. The macroeconomic spillover effects from Sept. 11 and what's happened with consumer confidence in terms of the demand for secure travel have an enormous impact on whether or not those strategies will play out. And those variables are definitely more uncertain today than they were pre-Sept. 11 for those companies. In fact, they have probably a much broader range of possible scenarios for how some of these value drivers might play out over the next five or ten years than they thought they did on September 10.
And what I would recommend to them is not to go to the extreme of saying, "Well, it's a completely new world, we can't know anything about those value drivers today," or, on the other hand, saying, "Well, we'll use the controlled standard model approaches we did pre-Sept. 11." Rather, I would say the residual uncertainty is undoubtedly much greater, and you need to think about new scenarios. But that doesn't mean that you just have to throw up your hands and say none of this can be analyzed systematically.
