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Managing Under Conditions of Uncertainty

Written by: Jim Adams

Article Overview: Mapping out different outcomes can reduce the stress and strain of surprise results

Managing Under Conditions of Uncertainty

Most smaller enterprises grapple with mapping out
future possibilities. All too often companies become
wedded to a single outcome without really
understanding the full range of possibilities they
face. From our client experience, one way of
dealing with an uncertain future is to consider a
number of futures through a scenario planning exercise.
One then monitors those futures as they unfold
without getting wedded to any one too firmly.
This is known as “Everyday Scenario Planning”.
Everyday Scenario Planning (ESP)
In order to prepare your company to better operate
in a dynamically changing business environment
we recommend going through the following
steps.
1 Conduct a scan of market conditions,
technology developments, competitor’s
actions and your customer’s shifting
needs, with a view to developing several
future-oriented scenarios.
2 Develop a range of four or five different
futures or end-states. Make them deliberately
different to capture a broad
range of potential futures.
In a recent aquaculture project we were involved
in, our client provided higher quality feedstock
into the fish farming or aquaculture industry at a
much lower cost of production. We had to imagine
an end-state where the local fish farming industry
reduced its cost of production by 60% in order to
compete equally with the fish that comes in from
the Third World. A number of events would have
had to occur for this scenario to come about. We
also imagined an end-state where the EPA forced
a debilitating higher cost structure on the industry.
occurring. We recommend that clients avoid
best-case, most-likely, and worst-case scenarios.
These are usually
variants of one set of
assumptions about
the future.
Look out about two
to three years to
imagine the future
end-state.
Consider how the
main participants in
your market might
shift their strategies and how will you react,
keeping in mind that the scenarios should be quite
different. This step will likely prompt you to
gather more information on the main players in
your market or even in adjacent market areas.
Likely this step will prompt you to gather more
information on the main players in your space or
even in adjacent market spaces.
Get several different viewpoints within and outside
your company in order to develop these scenarios
about the future a step at a time, thereby
avoiding the tunnel vision that can occur in any
small business, especially with a close knit management
team. The scenarios that you develop
will be a sequence of events leading to a clear
outcome or end-state.
Simulated Hindsight
Using a perspective called “simulated hindsight”,
look backwards from the end-states that you have
generated. Keeping this in mind, set out the major
events that would have had to come about in
order for this scenario to occur. These scenarios
outline a series of events that have to take place
to get from there to here.
Describe each end-state as if the future has
already happened.
Write newspaper-style headlines to describe
events that would have happened between
the present time and the planning horizon.
Choose events that could possibly happen
regardless of whether they would have positive
or negative impact on the future end
states.
Ensure that the events identified above
involve a variety of issues, such as:
· Industry structure
· Competition
· Customers
· Technology
· Regulation
· Industry participants
Clarify the things that need to be monitored in the
external business environment. Our client experience
clearly shows smaller businesses are carried
along by external events and have less influence
over them.
Set up a straightforward set of contingency plans
in outline form. Clearly you can’t spend forever
developing plans for a future that never occurs,
but you can create skeletal plans and then expand
on them as that future starts to unfold. This
avoids the ‘deer in the headlights’ reaction that
often happens when the world does not unfold as
planned. And, of course, the world never unfolds
as planned.
When you manage in an uncertain environment,
you need to identify the following:
A The elements you can control:
· Costs
· Hiring choices, etc.
· Technology development
B The elements you have influence over:
· Sales execution
· Employee performance
· Departure or replacement of founder
C The things you have no control over:
· Government regulation
Interrelated Events—show alternate routes
Here is a modified version of the previous diagram
showing an interrelated set of events and endstates.
Some events may lead to several possible
end- states, giving the company alternate ways to
reach its desired future
We recommend that, when you are reviewing the
end-states, you look for events that are common to
more than one and thus may indicate the more
likely scenarios. These common events may also
be critical future flex points that need to be monitored
and managed most aggressively. We also
recommend that you identify which events and
end-states are more desirable as well as which
pathways are more achievable. Clearly they are
not always the same thing.
Comparing the events in each scenario will provide
a structure for defining and prioritizing actions.
Using the analysis above, concentrate your resources
on achieving, influencing or aligning yourself
with those pivotal future flex points as they
emerge.
As a small business, sometimes you are able to create
those external events and sometimes you can
only react. By identifying the elements in your
business that are most important to achieving, influencing
or aligning with the desired events, you
will be able to identify those elements in your
business where you can get the most leverage.
You may apply the same process in shortened form
to different functional areas, such as competitive
strategy, sales strategy and marketing strategy.
This process of aligning internal resources with
emerging pivotal events goes on continuously in
successfully managed companies.
Conclusion
Imagining future states in this way provides insight
into possible futures and allows for direction setting.
You can take action based on what is likely
to occur while you prepare for what might occur.
We recommend that small companies (and perhaps
especially small companies) should plan for several
divergent futures and map out the events that may
occur so that they are prepared for whatever happens.
Written by Geoff Salmon and Tony Gifford
Geoff is a Partner at The Venture Catalysts and
has been assisting small business since 1987
Tony was an associate partner at Accenture before
becoming a partner with Corporate Partners International
where he assists small and emerging businesses
grow

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