Posts Tagged ‘uncertainty’

Strategy, Gambling and Uncertainty

Tuesday, January 22nd, 2013

The argument that strategy has become irrelevant and obsolete in our fast changing, unpredictable world is still, unbelievably, being promoted.

Beware of it. It’s just plain wrong.Strategy - a way to deal effectively with inevitable uncertainty

Business owners and management teams who buy into it limit their ability to grow and to make money. They’re playing with their own and their employees’ futures.

The people behind this “pop”, flavour-of-the-month thinking, are confused. They don’t understand either strategy development or execution.

Last week I read a great blog post which, I think, puts the case for strategy very succinctly and clearly. And while I’d like it to put an end to the “no strategy” lobby it almost certainly won’t.

In Placing Strategic Bets in the Face of Uncertainty, Roger Martin hits several key points:

•    Strategy isn’t about turning uncertainty into certainty. No one can do that because no one can accurately predict the future.

•    Strategy is about making the best possible, most informed choices that can be made now. Then responding quickly and with flexibility if those choices don’t pay off as hoped.

•    If a business owner and his/her team don’t develop and share a desired “future state” for the company how can progress toward it be tracked? And without that reference point, how will they know what matters and how to make sense of what actually happens?

•    Only by making assumptions about what has to happen in order for their desired state to be reached, can the team determine what has to be monitored – to see if the assumptions become reality.

•    In other words having a strategy is the only way to figure out what to pay attention to. And if you don’t know that, how will you be able to respond quickly to developments, which will prevent you achieving your aims?

•    Strategy is helpful (to say the least) in two ways.

o   First, the owner and her/his team are able to closely monitor their assumptions, see deviations quickly and take appropriate action immediately.

o   Second, they have a logical base or structure to which they can apply new data, updating their original thinking. This also allows a faster, better response than having to keep rethinking and recreating their approach.

Makes sense, doesn’t it?

Strategy isn’t a way to get rid of uncertainty. It’s a way of dealing effectively with inevitable uncertainty, by making and updating well-considered bets about the future.

Share

Adaptive Strategy – A Way To Profits In The New Normal?

Monday, February 28th, 2011

The types of strategy required to be successful in an economy and society, in which there is more uncertainty and a faster pace of change than ever before, is generating a lot of discussion. (See Why Strategy Is Still Worth A Business Owner’s Time.)

Adaptive Strategy is an alternative developed by The Boston Consulting Group (BCG)1. Here’s how I think it applies to owner managed businesses.

Adaptive strategy is built on the 3 R’s required in a changing environment2.

1. Responsiveness (or agility). Means a company can respond quickly to changes in the market and begin to act while plans are still being finalized; is flexible in process and structure; and can deal with short cycle times. This should be an advantage for small to mid-size owner managed businesses which, by nature, can react to change more quickly than corporations.

2. Resilience (or robustness). Is a characteristic of owner managed companies which have strong balance sheets and good cash flow. They also must be good at thinking through all of the alternatives, having contingency plans and hedging bets. This gives them the ability to withstand any surprises.

3. Readiness (or anticipation). Is a result of how well a company stays in touch with its market – the quantity and quality of information it obtains from customers, suppliers and other industry players. This can’t be left to front line people. The owners and managers must get out there – they are the ones who use the information to think through different scenarios and improve forecasts.

An adaptive approach is applied using a 4 step closed loop process.

An adaptive strategy is a dynamic approach in which better-fitting strategies continuously evolve in response to change. It is applied via a 4 step process.

Step 1 – Variation (or innovation). A company continually looks to vary the status quo by targeted innovation; natural or proactive modification of internal practices; responding to signals from the economy, customers, competitors; and by leveraging the innovative capabilities of external resources e.g. suppliers.

Step 2 – Selection. The most promising variations/innovations are selected by e.g. pilot projects, limited and full-scale tests conducted directly in the marketplace.

Step 3 – Amplification (or scaling up). Those which show the greatest potential are quickly scaled up. They become a permanent part of the company’s routines and offerings by e.g. allocating resources to them.

Step 4 – Modulation. Modulation is simply fine tuning the application of the first 3 steps in response to what is happening in the marketplace and the company’s goals.

You may feel that you’ve seen each of the steps before. But BCG argues that the way in which they’re combined and applied is what makes adaptive strategy unlike classical strategy in a number of respects.

Practically, the most important difference is that the adaptive approach largely removes the distinction between planning and implementation, since successful strategies emerge from practice rather than from analysis and design.

It’s almost an extreme form of strategy by evolution.

Last words.

Can adaptive strategy be applied in owner managed businesses?

BCG has identified 4 situations in which adaptive strategy can be applied and well-known corporations which fit those situations. I’m not sure if the corporations pro-actively employed adaptive advantage or if BCG is fitting their actions to the model.

I’m waiting for more evidence.

______________________________________________________

1 Kilian Berz, Managing Director of The Boston Consulting Group (BCG) Canada  – presentation to the Canadian Association of Management Consultants (CAMC) and Cost and Management Accountants (CMA) in Toronto on 16 Feb 11.

2 https://www.bcgperspectives.com/content/articles/adaptive_advantage/ 

3 Ways To Test Your Strategy

Tuesday, January 18th, 2011

An article I read recently showcases 10 tests of a strategy that apply some of the best thinking that’s been done on the topic.  It was published in the McKinsey Quarterly and is called “Have You Tested Your Strategy Recently”. You have to register to read the full article but it’s worth it.

I want to focus on 3 of the tests which I think are particularly valid for business owners.

The first one asks the question – does your strategy put you ahead of trends? That new trends develop in any market is a fact. The issue is the length of time it takes for them to become apparent. A major technological breakthrough or a significant change in, e.g. the economy/demand or regulations/legislation can drive a rapid transition.

But most trends develop so slowly that business owners only react when their profits are affected. At that point it may be too late to respond effectively (think about the travel agents who ignored the rise of online competitors). The cost of missing a trend can be heavy, but seeing it early can pay off.

So how do you spot new trends? Keep an eye on customers who have been quick to adopt new products in the past. What are they doing? Think about the impact the new trends would have on your financial position – and the decisions you would make if you were certain they would happen. How do the results of those decisions compare with your current priorities?

The second test looks at how well your strategy deals with uncertainty. A challenge for business owners is to know which choices to make now, given that the outcomes will take place in a future they can’t control. The authors suggest breaking uncertainty into 4 levels.

The first gives a reasonably clear view of the future with a range of outcomes tight enough to support a firm decision. At level two, there are a number of identifiable outcomes for which a company should prepare. The possible outcomes in the third level aren’t specific but fall into a range resembling a probability distribution. And level four features total ambiguity, where even the distribution of outcomes is unknown.

Most companies assume they are facing either levels one or four while they are usually dealing with level two or three. The authors suggest quickly ruling out impossible outcomes and then looking for those which are either mutually supportive or which are unlikely because they undermine one another. A tool like scenario analysis can be applied – by the owner, management team or consultants like us – to the remainder.

The third test, asks if the strategy balances commitment and flexibility. Commitment and flexibility are opposites – if you’re very committed to a course of action you may have very little flexibility.

Making the best trade-off between them requires understanding that, of all of the decisions a business owner has to make, only strategic decisions result in commitment – through hard-to-reverse investments in long-lasting, company-specific assets.

But in this world of uncertainty, strategy is not only about where and how to compete, it’s also about when. Committing too early reduces flexibility, leaving it too late can allow competitors to gain advantage.

A market beating strategy will do 3 things. Take big bets, or make commitments aimed at gaining significant long-term competitive advantage; make no-regrets moves, which will pay off whatever happens; and maintain options, that involve relatively low costs now but which can be turned into a higher level of commitment as changing conditions warrant.

Why did I choose these 3 tests? Because they are, I think, the most relevant right now as a result of the fall-out from the financial crisis and recession and the hardest for business owners to deal with. (Although I was tempted by Test #8 – Is your strategy contaminated by bias?)

If you would like someone to talk the tests over with, drop me an e-mail or give me a call. I’d be happy to spend half an hour chewing them over with you

6 Tips for Getting Better Results in 2011.

Monday, November 8th, 2010

In a recent blog posting I wrote that business planning has started/is starting/should have started for 2011. Then the other day I came across these 6 tips which I pulled together at the end of 2008.

At that time, you may remember, there was a deluge of bad news pouring from the newspapers, Internet and TV all day, every day. Some forecasters were saying the economy would rally in late 2009, others were saying it would take years before we saw an improvement.

I made the point then that, when so much of what is going on around you seems out of control, it’s easy to stop focussing on the things that are under your control. So, since uncertainty is still with us, I thought it was worth freshening up the Tips.

Tip #1 – Remember that we have always had to deal with uncertainty when developing plans and strategies. It may be true that there is more uncertainty now than in the past. However, don’t forget that no one has ever been able to accurately predict the future with any degree of consistency.

Three ways to deal with uncertainty are – keep digging until you find the best information available before firming up assumptions; put flexibility into plans and strategies; and think through contingency plans (e.g. plan for the best, worst, and most likely outcomes and be ready to deal with all of them). A fourth technique is to review, and adjust, goals more frequently.

Tip #2 – Make sure that you actually implement your plans and strategies. According to an Ernst & Young survey, 66% of corporate strategy is never executed.

In our experience implementation is handled just as poorly in owner managed companies – which generally have fewer employees (who are often located in the same premises) and which have fewer departments and layers. All of which should make communication and coordination easier.

There are a number of reasons why strategy implementation fails and the remaining tips will help you avoid them.

Tip #3 – Develop detailed Action Plans for execution. Involve key people when figuring out your goals for 2011 – and they’ll buy into what has to be done.

Compare the goals with the current situation and gaps will appear. Then ask them what – specifically – has to be done to close the gaps, by whom and by when. The answers to those questions will form the basis of your Action Plans for 2011.

Tip #4 – Avoid attempting too much, for 2 reasons. Firstly, there may be a long list of things to be done to close the gaps and no company has the resources to attack them all. So, prioritize the things which have the most impact on your goals and focus on them. You can go back and tackle the others later.

Secondly, you want to stay flexible enough to respond to whatever happens.

Tip #5 – Commit enough resources to completing the priorities. Business owners are inclined to tackle too much at once. They also try to do everything in the minimum amount of time – while spending as little money as possible.

Think about the priorities this way. You’ve invested time identifying reasonable goals and figuring out what has to be done to reach them. That effort will be wasted unless you commit the resources required to complete those action plans.

Even if you are allocating too many resources, you’ll complete the job ahead of schedule. Who doesn’t feel good when that happens?

Tip #6 – Follow up regularly and in a structured way. There are also 2 reasons for doing this. First, because no one can accurately predict the future you have to make time to compare what you thought would happen with what has happened and adjust for reality.

Second, what could be more important than making sure you complete the action plans that will lead to achieving your goals? Not dealing with the day-to-day problems, which always seem to be “urgent”. Prevent them getting in the way of the “important” priorities by making time to review progress toward your goals once a quarter.

The odds are that you’ve heard each one of these tips before. But the reality is that a gap exists between hearing – even knowing – the right thing to do and actually doing it. That’s why 66% of the companies surveyed wasted their time.

Winners eliminate the gap.

Post History