| McKinsey Classics | March 2020 |
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| Businesses must plan for the future, and plans imply that they know it. But often that isn’t true, so strategies may seem chimerical even without unforeseen threats like the coronavirus. A classic McKinsey article therefore suggested putting uncertainty at the heart of strategy. The authors recognized four levels of uncertainty. In the first, the future is clear enough for a single plan, though its details may later be refined. In the second, executives can foresee a number of possible futures: for example, in 1995, US long-distance telephone providers didn’t know if deregulation bills would pass or be implemented quickly.
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| Level-three uncertainty doesn’t permit distinct scenarios (such as laws passing or not), but you can anticipate a range of futures, and the actual outcome may lie anywhere within it—the situation often facing companies entering markets. Here at least you know what you don’t know. In the fourth level, you don’t know even that, so you can’t forecast outcomes at all. Companies considering investments in post-Communist Russia in 1992 faced this kind of uncertainty. Yet executives can identify variables determining how such markets evolve and know how those variables must change to justify investments. Read our 2000 classic “Strategy under uncertainty.”
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| Did You Miss Our Previous McKinsey Classics? |
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| To learn how diversity helps companies succeed, read our 2014 Classic Diversity Matters, and look for our next report on the subject later this quarter. |
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