Expert Voice: Paul Schoemaker on Uncertainty

In May, we asked 80 executives and managers attending a seminar at Wharton if they thought there would be at least one more significant domestic terrorist act in the year to come. Two thirds felt there would be. When asked if there would be at least two, half of them raised their hands. They couldn’t be specific about what it was, but I think people now accept this notion that there is greater uncertainty from all kinds of sources, and not only terrorist acts.

Truth is, though, most executives still don’t have the management systems, capabilities and attitudes to do a good job managing uncertainty. We are all still in the grip of single-point forecasting when we put together business strategy. Planning and budgeting is about making predictions and putting out numbers and trying to aim for them, and that’s increasingly difficult because there’s more uncertainty in the world. But I think uncertainty becomes an enemy only if you start to view it as an obstacle that gets in the way of getting revenues up or milestones met.

Business enterprise is really about exploiting uncertainty or profiting from it. We should, therefore, have a much kinder view toward uncertainty. It creates a lot of opportunities. Many companies are paralyzed by uncertainty. But smart strategy is, at its root, a trade-off between flexibility and commitment to certain plans. If you never commit, then you’re not in the game. But if you commit too strongly, then chances are very good that your head will be handed to you on a platter. One view is to say that Sept. 11 was an exceptional event, and it’s not going to happen again. Companies that say this won’t really change how they do stuff. They’ll just hope it won’t happen again.

But if you take the view that Sept. 11 was an implication of globalization, and that as we become more interdependent in our economies we’ll become more vulnerable to international events, then the question is: How do you build the capacity in an organization to deal with uncertainty? Maybe this whole notion that you can command and control your way through uncertainty needs to be abandoned. Maybe the best we can do now is learn how to navigate in uncertainty. The metaphor is the captain of a ship. In calm waters, you can talk about precise navigation around buoys and into harbors. But when a storm is coming, you must embrace the notion that you cannot control things precisely anymore. For a lot of executives, that’s an awkward realization.

There are good tools out there to deal with uncertainty. One is to manage uncertainty by making comparisons against the past. Others are scenario planning, options thinking and benchmarking how other companies deal with uncertainty. The problem, though, is that these tools must be used in a strategic context.

To do that, you need a shift in mindset. That’s number one. And then you need to select an intellectual framework for how you want to deal with uncertainty. What’s your strategic or operational approach? Then you have to experiment with tools that fit. That’s what I call the ABCs of managing uncertainty. A is accepting it, B is building the capacity to deal with it—training people to use these frameworks—and C is choosing the right tools for the right projects.

My prediction is that next year, there will be more emphasis on building the capability to manage uncertainty. We will learn to live with this possibility just as we now accept 40,000 deaths on the highway nationally. The price of globalization is going to be living with these hiccups.

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