Lowell Bryam, Source: Forbes
The economic shock of 2008, and the Great Recession that followed, didn’t just create profound uncertainty over the direction of the global economy. They also shook the confidence of many business leaders in their ability to see the future well enough to take bold action.
It’s not as if we don’t know how to make good decisions under uncertainty. The U.S. Army developed scenario planning and war gaming in the 1950s. And advanced quantitative techniques, complete with decision trees and probability-based net-present-value (NPV) calculations, have been taught to MBA students since the 1960s. These approaches are extraordinarily valuable amid today’s volatility, and many well-run companies have adopted them, over the years, for activities such as capital budgeting.
Here’s the challenge: Coping with uncertainty demands more than just the thoughtful analysis generated by these approaches (which, in any event, are rarely employed for all the business decisions where they would be useful). Profound uncertainty also amplifies the importance of making decisions when the time is right–that is to say, at the moment when the fog has lifted enough to make the choice more than a crap shoot, but before things are clear to everyone, including competitors.
Over the past year or so, progressive strategists have been undertaking noble experiments (such as shorter financial-planning cycles) while dropping the pretense that they can make reasonable assumptions about the future (for some examples, see “Navigating the new normal: A conversation with four chief strategy officers”). My sense, though, is that achieving truly dynamic management will prove elusive for most organizations until they can figure out how to get their senior leadership (say, the top 150 managers) working together in a fundamentally different way. The knowledge, skill, and experience of these leaders make them better suited than anyone else to act decisively when the time is right. Such executives are also well placed to build the organizational capabilities needed to surface critical issues early and then use the extra lead time to gather intelligence, to conduct the needed analyses, and to debate their implications.
The specifics of how companies should build these muscles will of course vary. Well-run organizations–particularly those accustomed to using stage-gate-investment approaches for activities such as oil exploration, venture capital investment, and new-product development–may find that moving toward a more dynamic management style requires a few relatively small, though collectively significant, shifts in their operating practices. Others may find the necessary changes, which include migrating away from rigid, calendar-based approaches to budgeting and planning, more wrenching. What I hope to do in this article is to lay out some core principles that will help either kind of company make the passage of time an ally rather than a challenge.