Thursday, February 26, 2015

How to Make the Strategy Work under Uncertainty

The challenge is in finding the appropriate balance between stability and adaptability.

VUCA (volatility, uncertainty, complexity, and ambiguity) is digital new normal, as complexity and uncertainty increasing, the connection between any single individual organization’s strategy, and their tactical plans and actions can become diluted and disconnected. How to craft a good strategy, and make strategy executable under such uncertainty and unpredictability in order to transform the business into the Digital Master?

Strategy formulation is a combination of planned and emergent thinking. You formulate a strategy and then encounter the real world of implementation, which provides you feedback that allows you to continuously adjust the strategy on the move. Just like a sculptor in the process of shaping a piece of artwork, he or she has a strategy in mind at the outset of the process; but as his/her hands interact with the material the strategy is constantly adjusted until the final artwork is presented. The greater that conditions of uncertainty prevail, the more likely it is that the final strategy will be a product of emergent thinking rather than the original formulation. You concentrate on the objectives of your organization and make sure that the roles and functions are stated perfectly. You can develop a strategic plan based on the improvement of the real situation by analyzing the mandate and extract policies that enable you to make the vision and missions, then to make the smart objectives, policies, and programs that solve your developments problems.

The challenge is in finding the appropriate balance between stability and adaptability. It's tough to make changes, particularly in large organizations with vested resources and cultures supporting "the way things have always been done." An organization needs to have a “healthy” feedback loop so that signals from the operating environment can be interpreted as objectively as possible. When actual results vary significantly from plans, a common mistake that large organizations make is to devote the resources necessary to correct actions in order to get back on the original track. Significant variation from the planned result may, in fact, be a signal that the original plan is flawed; that a major shift in the environment has occurred, which necessitates rethinking the plan. To continue to invest resource to get back on a course that is obsolete could be extremely expensive. This is tough to recognize in an organization whose management has invested not only resources but their own self-identity in pursuing the original plan.

It is important to distinguish between conditions of 'known risk' vs. 'critical uncertainty.' When you are formulating strategies under conditions of known risk, you have sufficient information to establish probabilities of alternative outcomes and the expected impact of strategic alternatives. Hence, probability x size of expected impact = estimated value of the alternative. However, "critical uncertainties," is the unknowns below the tip of the iceberg with utmost relevance for the organization or entity you're planning for. So conditions of known risk are amenable to constructing alternative scenarios and evaluating them. It might be good to work with plans and assumptions and scenarios, as long as you keep in mind that these have been elaborated from past experiences and past knowledge. If it is really unpredictable, that means the future cannot be, in any way, deduced from the past. As such, it becomes far more about influencing others to choose to allow/enable the success of your strategic goals. Additionally, actions can become counterproductive over time, or cease to work as the character of the environment shifts and co-evolves. Strategies can be ineffective because they were once effective, and the other actors have evolved counter strategies.

To "be opportunistic: It could also be expressed as stay curious, especially for the unexpected; even the unwanted - in order to recognize the emergence of the completely new phenomenon. Admit those disruptive events may occur. Learn to stay alerted and to observe with subtlety and learn fast. The strategy is about overall direction, and the direction from the current market to the future market is anything but a straight line. Thus, there will be several short-term changes in direction that could slow the long-term direction but does not cause a 180-degree turn. In times of uncertainty and unpredictability, one must be opportunistic and agile within a general strategy and adapt one's plans to fit the emerging environment while staying the overall course. Further, a strategy is just as much about knowing what you will not do as it is about knowing what you will do. Stay within what you will do in the strategic forum, but change some priorities or weight of effort in the short term, be opportunistic about the emerging event, and you will reach your goal. So it is not about the plan; rather, it is about the planning process that you will go through continuously as you implement the strategy.

It’s about the agile strategy-execution cycle. It's not all about "making a strategy" as end-product, but about implementing it afterward. It is also about communicating about the quality of the strategy, saying openly what is known and what is not. So to not feed the illusion of knowing and controlling everything. Furthermore, the process of elaborating the strategy is as much, if not more important as the result of the strategy itself. The process should be participative in order to take advantage of collective intelligence. But also in order to build and share a common understanding of the situation and a common vision of what is to be attained. The participants should be the ones in charge of the later implementation of the strategy. The process should be set so to establish and enforce trust among participants, to train the participants to sustain together uncertainty and fear, to fail together, to learn together.

Flexibility in strategy execution: So, uncertainty simply requires more planning and more flexibility in implementing. When you are forced to formulate strategy under conditions of 'uncertainty,' you are operating in "white water" with little or no information on which to base your strategic decisions. In such cases, strategy formulation must be based on assumptions that your organization can change the operating environment - and not just adapt to it. Another manifestation of uncertainty is when you are negotiating a strategy with stakeholders who hold the opposite viewpoints. Making a strategy in times of uncertainty and unpredictability is an interesting way of putting things right, "plan, but be able to adapt quickly to current realities. Any planning process is based on a number of assumptions, and when any of your previous assumptions are proven wrong, then one must review the plan to ascertain if it is still valid. That is why a combination of planning and scenario development is best in these sorts of conditions. The scenarios give one an idea of what could happen; but more importantly, they expose signposts that show which future (or the combination of future scenarios) is unfolding.

The digital organizational structure involves networks than hierarchies. In chaotic and complex environments, appropriate strategic responses involve networks rather than hierarchies. The top-down strategic planning approach does not work well in a diverse, mobile, complex digital environment. Strategic plans are not sufficiently, agile Strategists must acknowledge that in a networked situation, a strategy is formulated and adjusted through the interaction of several decision nodes that are richly connected with each other through ongoing streams of information. Strategies emerge through network interaction. The astute strategist learns how to leverage the network by developing approaches for shepherding strategy implementation through a process of influence, capitalizing on temporary power coalitions and data-driven solutions. Feedback and adjustment become pervasive throughout the network - rather than one step in a structured planning and evaluation process. The study found that hierarchies can be accommodated in network approaches. For example, shifting decision rights down and across the levels of recursion closer to the populace and forming richly connected people-networks at each level with the environment is one necessity. This theoretically allows for rapid adjustment and self-organization but only if information distribution and feedback are sufficiently accurate to base decisions upon.

"There should be a zero degree of uncertainty" is wishful thinking that does not help while facing a digital reality that is uncertain and unpredictable. It is more crucial to set directions, principles and value right, instead of a rigid process and fixed strategic axis. So strategy planning is more about changing minds, fostering collective intelligence, involving emergent thinking, and be flexible in strategy implementation.

Digitalization is like a flywheel, and Digital Masters are the one riding above it. Surf more Information about Digital Master:


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