Tuesday, July 22, 2014

Strategy for Unpredictable Times

Virgil Carter

A traditional approach for organizational strategy is based on the view that with sufficient analysis, organizations can make reasonable assumptions about their markets, financial and human resources, technology and customer services, and be successful.  Any unforeseen elements can be addressed through strategy adjustments every few years.  Said differently, strategy for many organizations may be based on internal decisions about what the external world looks like.

But what if the future is unpredictable?  What if an organization’s internal views and preferences just don’t align with the external environment in which the organization finds itself?

Author Lowell L. Bryan, in an article in a recent McKinsey Quarterly, “Just-in-time Strategy for a Turbulent World”, points out that “…globalization and technology are sweeping away the market and industry structures that have historically defined the nature of competition… (making it) impossible to predict, with any confidence, which markets a company will be serving or how its industry will be structured—even in a few years hence”.

Bryan suggests an alternative to traditional organizational strategy:  a “portfolio of initiatives” intended to achieve favorable outcomes for the entire enterprise”.  He writes “usually, these initiatives will be organized around themes focused on achieving particular aspirations, such as increasing the reach of the enterprise, entering a new but related industry, or achieving the greater efficiencies.  Portfolio effects increase the likelihood that some of these aspirations will be achieved even if many others fail”.

According to the author, a successful portfolio-of-initiatives strategy involves “creating enough initiatives offering high returns relative to the risks taken to enable a company to meet its aspirations and outperform the expectations of the markets.  The process requires the CEO and management team to “keep an open mind about where the company may be headed”.  Inherent in this approach is the understanding that “future decisions and future outcomes are likely to vary enormously from initial hypotheses”.  Bryan concludes his article by noting that “Most of the critical decisions involve subjective judgments that, unlike those generated by more deterministic strategies, will be informed by not just the highest-quality staff work but also the knowledge gained as time passes”.

Are you operating in unpredictable times?  Perhaps a portfolio-of-initiative strategy is for you!

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