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Strategy in an Age of Uncertainty

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Most existing strategy frameworks, developed during a more stable era, don’t work well in dynamic conditions. We need new frameworks to guide companies through uncertainty. And three key features emerge as common to these frameworks: the individual’s ability to cope with uncertainty; the organization’s ability to experiment; and recognizing that strategy is a creative exercise.

Have you noticed the rush of companies going agile? The many calls for transformation? As we enter an age of uncertainty, firms are desperately searching for the tools to keep pace. The problem is that most of our existing frameworks, developed during a more stable era, don’t work as well in dynamic conditions. This isn’t to say the old frameworks and the tools that went with them are completely irrelevant. There will always be a need to understand industry structure or to use your resources to create new advantages, but when the world is changing fast, we need different tools.

Fortunately, the news isn’t all bad. Much of the uncertainty we face comes with new possibilities. My research focuses on the links between uncertainty and possibility and the ways in which we can leverage the former to identify — and realize — the latter. I am finding that there are indeed better frameworks to use to guide an organization through uncertainty. Three key features emerge as common to these frameworks:

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The individual’s ability to cope with uncertainty

Organizations are created, powered, and led by people. To lead organizations well, we train people in disciplines such as marketing, finance, and leadership. But uncertainty presents a special challenge since few of us have received training in how to deal with it. As a result, although we may call for innovation, transformation, and change, most people back down at even the hint of risk, falling into a series of behavioral traps that limit organizations’ ability to grow and adapt. The challenge is that all growth, change, and transformation inevitably come paired with uncertainty. We have to go through the uncertainty to get to the possibility.

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If leaders can be trained to face that uncertainty well and guide others through the unknown, they can increase the capacity of the entire organization to create new sources of growth. To illustrate, both luxury fashion groups Louis Vuitton Moët Hennessy and SMCP (which includes the well-known brands Sandro and Maje) hire and train for “uncertainty ability.” In an interview, Daniel Lalonde, CEO of SMCP, attributes the company’s ability to triple revenues in a crowded market to this uncertainty ability, or team members’ capacity to meet uncertainty with creativity and gusto.

While there is clear evidence across multiple domains that people can learn to deal with uncertainty, how to select and train for it is still an emerging practice. In our work, we argue that it consists of four central practices: first, reframing uncertainty from a source of loss to a gateway to new possibilities; second, preparing yourself and the organization to be more resilient to uncertainty through self-knowledge; third, applying the right practices to take action such as breaking the uncertainty down into small steps and engaging with cognitive flexibility; and fourth, sustaining yourself through robust emotional and cognitive hygiene in the face of disappointment and change. These are all skills that can be learned.

The organization’s ability to experiment

Well over a decade ago, as uncertainty reached a tipping point, experts predicted that organizations would be compelled to shed more familiar bureaucratic structures in favor of non-hierarchical alternatives that allowed them to act more like a flock of seagulls or a colony of ants, responding instinctively to adapt to new opportunities. We are currently in the midst of a grand experiment in non-hierarchical forms of organizing, with labels like agile, holacracy, flat, and market-based structures becoming commonplace. Some parts of these experiments will succeed and others will fail. But the underlying goal is correct, and that is to create an organization capable of the experimentation required to discover and create growth.

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To do that requires several essential elements. First, as far as possible, companies should empower people to use their native intelligence to solve problems they care about personally — they almost always produce far better results than if they’re directed in their work and feel alienated from it. Second, companies should move from long, planning-based cycles to short experiments to test and learn. Third, they should create the organizational structures that enable, rather than block, people from experimenting. This is the real magic beneath frameworks like agile: They empower people to use their native intelligence, to experiment in short cycles to find the way to go, and then allow them to take action without needing a dozen sign-offs. Leaders still matter, to ask the big questions and point people to the most important problems to solve, but the organization ready for the era of uncertainty is built to experiment and adapt.

Note that Amazon rarely trumpets working agile, but they do highlight that they are an experimental organization as the key to their success. When he was acting as CEO, Jeff Bezos argued that “One of the things we’ve done at Amazon is reduce the cost of doing experiments…If you can increase the number of experiments you try from 100 to 1,000, you dramatically increase the innovations you produce.”

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Recognizing that strategy is a creative exercise

I think of the strategy frameworks for more stable environments as castle-building (e.g., Michael Porter’s five forces framework) or chess (e.g., the resource-based view proposed by Jay Barney); that’s in contrast to strategy in dynamic environments, which is more like surfing, where you try to be agile and prepared to catch the waves of opportunity. But there’s a difference: In uncertain environments, we don’t just ride the waves, we create them. Strategy as creation is about creating, shaping, and defining new markets. Take the case of Mercedes Benz. For decades, the car giant struggled to get access to the profitable after market for sales and repairs. Recently they created a new kind of venture, a hybrid between a corporate venture and a startup, to launch RepairSmith, the first large-scale, on-site repair services. In a very short time, they have delivered over 100,000 on-site repairs with incredible margins and net promotor scores.

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Naturally, these three ideas — uncertainty ability, the experimental organization, and strategy as creation — are just a sampling of the approaches we see emerging as complements to strategy in more stable markets. Uncertainty science doesn’t invalidate the prior strategic frameworks, but it does draw a boundary line, arguing that if you want to create growth, change, or transformation, you are in the territory of the unknown and so need different tools. In the era of uncertainty, having the right tools is essential for firms who want to be at the forefront of their industry.

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