Strategy for Uncertain Times

Most strategic planning assumes a rough continuation of the present.   In normal times, that is not a bad assumption. But what about very not-normal times — like the present?

How does your plan handle the kinds of extreme changes we are experiencing? Very, very few plans today have any provision for such changes:

• In healthcare, for example, regardless of reform outcomes, there is an almost certainty of enormous cost pressures that will never go away. If you are a hospital, how does your plan address these?
• For most businesses, much higher borrowing costs are increasingly likely with every trillion added to national debt. At what point does your current plan break down as borrowing costs rise?
• Suppose serious inflation fires up, as it did in the 1970's. How do you manage this situation?
• What happens in the event of a major communications — phones or internet — breakdown after a natural disaster or terrorist attack?
• Could strong economic growth return? Improbable, perhaps, but some businesses may be more likely to experience such localized growth. What do you have to do to be ready?
• Uncertainty always presents opportunities for the watchful. Do you have any mechanisms in place for identifying those that present opportunities for you?

Planning for Major Uncertainties

Major uncertainties are improbable but high-impact events, trends and situations. Although any one of these may be very unlikely, there is a considerably greater chance that at least one of these will occur within a period of years.

The past decade provides ample evidence of this. It gave us the 9/11 attacks, two serious wars, several major natural disasters,  continuing terrorist attacks, a near-depression following global economic collapse, monetary weakness, and ever-higher unemployment, among others.

Individually improbable, but as a group, more likely than we routinely imagine or prepare for. 

These kinds of uncertainties cannot be addressed within the structure and mechanics of annual strategic planning and budgeting. They do not lie within the best-case — worst-case envelope around your base planning case. 

Huge potential impact and low likelihood uncertainties must be handled very differently. The fact that normal planning processes cannot handle them properly may explain why so few organizations have such plans. 

There are several common responses to the kinds of major uncertainties we are considering here. Only two are effective. Both require a special planning process, often referred to as scenario planning.

 

Scenario Planning

A proven technique for dealing with high impact, highly uncertain events, situations and trends.

Responses to Uncertainty

Of the six most common responses, only two are effective in practice. 

Black Swans 

The outliers—highly unlikely events with huge impacts—that can change everything.  

Flexibility vs. Brittleness

Most strategy today just makes you more brittle and vulnerable. Flexibility is more important than ever. 

Prediction & Forecasting

Terminology can be important in dealing effectively with uncertainty. 

Crisis Avoidance

The best crisis management is crisis avoidance. Lead time is critical to success. 

The Planning Process

Here is an outline of how you might go about planning under great uncertainty.

How We Can Help

Unlike familiar annual planning processes, this process requires special skills and expertise that few organizations have. 

We hope that the discussion on these pages will help you decide what is best for your organization.