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Why strategists fail to account for uncertainty


By Chris Bradley

“Predictions are difficult, especially about the future,” quipped Yogi Berra (and, before him, physicist Nils Bohr). This rings especially true when you’re trying to develop business plans. Uncertainty is not only everywhere in and around strategy, it is the very reason why we need strategy. Without uncertainty, we’d just need a plan to go from A to B. (My colleague Sven Smit recently explained the challenge of dealing with probabilities in this blog)

Accounting for uncertainty—and even proper planning for various scenarios—is often missing from analyses discussed in the strategy process, an issue that stems primarily from the social side of strategy (I laid out some of the key dynamics in an earlier post) . Why? At some level, it is easy for the CEO to deal with uncertainty by playing the portfolio game of spreading investment like peanut butter around numerous businesses, knowing that not every bet has to pay off for the total plan to work. The problem is that what is a portfolio game on the corporate level becomes a matter of all-in commitment for an individual business unit leader. We have all heard the saying “You are your numbers.” The saying isn’t: “Well, that project only had a 50% chance of success, so I won’t hold failure against him until he’s had another similar failure or two.”

Assessing the reasons for the outcome isn’t always easy. We can’t really tell if a poor result was a noble failure, just as we can’t tell if the great result was blind luck. Was it a case of best efforts on a good bet that were foiled by a bad roll of the dice? Was it a more pernicious failure of planning or execution? Was it, perhaps, just a bad strategy to start with? Uncertainty doesn’t only mean we can’t see around the next corner; uncertainty also invades the past.

Of course, in running a business, there are many elements that you just can’t control—the fate of the economy, political events, your competitors’ actions. So in most strategy rooms, the question of how to deal with uncertainty looms large. It’s the 600-pound gorilla in the room. Nobody wants to talk about it—it’s a complex topic that can easily get in the way of getting a “yes” to the proposed plan. Presenters seeking approval for their projects have to inspire confidence in the outcomes they are promising—providing at least an illusion of certainty.


So what do we end up doing?

We ignore uncertainty. Many strategy presentations start with an analyst-based projection of the market. Not a scenario, not a range of outcomes—the “most likely version of the future.” And that’s the last thing you hear about uncertainty in the presentation.

We treat uncertainty as an afterthought. The strategy room is a harsh place for most, and, quite frankly, failure on that stage is not an option for most managers. Execution problems? Okay. A strategy that has gaps? We can fix that. But a strategy conversation about probabilities? You must be kidding! The result is a slide about risks on page 149 of a 150-page deck, titled something like “Potential Risks and How to Mitigate Them.” It’s there just so the presenter can say the issue is covered should the question about risks pop up. We pretend to deal with uncertainty. In some cases, uncertainty is actually discussed in the strategy room. Say, geopolitical risks are threatening sales growth in an emerging market, or a competitor could make an industry-consolidating move. There will be a few scenarios, plus a discussion about which of them would be more or less likely to emerge. Then, one scenario is picked as “base case,” and that’s probably the last thing you hear about uncertainty.

There are, of course, businesses that could not survive without dealing with uncertainty. For example, in asset management and other financial businesses, risk-weighted metrics are normal. The difference is that these professionals are moving money around. In more tangible businesses, you move people and money around—and also the careers and reputations of business leaders.

All these common practices and related errors can lay the foundation for setting the wrong ambition levels and, consequently, creating flawed strategies. There is nothing wrong about having bold targets , but those ambitions need to be anchored in the realities of a business and the evolving context it operates in.

The best way to deal with uncertainty is to understand probabilities—a topic I will cover in an upcoming blog.

Chris Bradley is a partner in our Sydney office and co-author of Strategy Beyond the Hockey Stick with Sven Smit and Martin Hirt.

Originally published on LinkedIn