PLOTTING THE COURSE IN TURBULENT TIMES

We are undoubtedly experiencing turbulent times, although sometimes we forget that we are still trying to recover with relief and effort from a global pandemic crisis, which has changed some of the conditions and rules of doing business. 

The necessary pace of activity requires us to continue making decisions and to rely on a framework that should include multiple models and scenarios. We should even go so far as to consider extreme but plausible options.

After the recent events, nothing can be excluded, and even extreme thinking has gained the right to stay.

1. Live with the risk!

Achieving zero-risk planning is not possible but trying to anticipate risk is. It is also necessary to abandon the idea that you cannot afford to make mistakes or that a posteriori changes would be “unproductive”: they are not necessarily a waste or a matter of inexperience.

It is always worth remembering that progress is more important than perfection.

According to Kaplan and Mikes (2012), companies must adapt – “tailor” – their approaches to managing strategic risks including:

• the scope of the risks involved, 
• their rate of change.

But all the implementation efforts of the undertaken mitigation and resolution activities must be anchored to strategic business planning processes.

The choice of the approach depends on the immediacy of the impact of the potential risk and whether it would result from geopolitical, environmental, economic, or competitive changes.

To manage the main external risks outside the control of the company, companies have sophisticated tools available such as wargames and scenario analysis.

2. Analyze and plan!

The normal approach to risk and volatility scenarios is to develop systems based on the traditional strategic planning method, on predicting and simulating the evolution of the markets, and the possible responses of competition. The organization is then called to implement the plan that is periodically monitored, to keep everyone on track and running. 

There is no doubt that the global scenario is changing so fast that no one can reasonably plan to cope with any future eventuality.

In this regard, the academic and the business worlds have created specific tools through years of study and application of operating contexts, tools, and models for the development of strategy in contexts of uncertainty:

• the Scenario Planning method, which considers multiple future states in the assessment of strategic investments, rather than relying on a single deterministic forecast.
• the Monte Carlo method, which specifies a probability distribution for each critical variable by running thousands of simulations so that management can focus on the distribution of potential outcomes and on determining which would be the most likely case.
• the Real Options analysis, which explicitly incorporates flexibility in the assessment of strategic investments.

3. Pull ahead and stay ahead!

Mankins and Gottfredson (2022) define planning as a continuous process capable of generating a lively and dynamic business plan.

A new approach is to be implemented in five steps:

• define Extreme but Plausible scenarios.
• identify Shields and Strategic Options.
• run experiments before looking into Investments.
• identify Trigger Points, Signals and Metrics.
• keep a Prescriptive Surveillance system active.

Take a dynamic approach!

Pull ahead and you will stay ahead. Those who first plan and then execute, the risk is to remain hopelessly behind.

Maurizio Fappani

maurizio.fappani@hfp.it

 ***

Credits

• M. Mankins and M. Gottfredson, Strategy-Making in Turbulent Times, Harvard Business Review – September-October 2022
• R.S. Kaplan and A. Mikes, Managing Risks: A New Framework, Harvard Business Review – June 2012
• ANZIIF & FERMA, RIMAP – European Risk Management Certification Block 3 (FERMA, COVID-19 Survey Report 2020)

 [P] Photo by George Despiris on Pexels