Strategy Under Uncertainty

Courtney, H., Kirkland, J., Viguerie, P. (1997, November-December). Strategy under uncertainty. Harvard Business Review, 67-79.

It’s easy to find uncertainty in organizations today – how to handle it is the difficult part.  Most strategic planning processes can do little to eliminate uncertainty that comes with strategic planning: When do we expand? And where and when? Should we bet big, hedge, or wait and see?

Hugh Courtney and his coauthors attempt to give managers and planners some assistance in answering these questions and others.  In this article they outline a systematic methodology for tackling and managing uncertainty.  Their first step in this process is delineating four levels of uncertainty.  These are outlined below:

• Level 1: A clear-enough future
  - What can be known?:  A single forecast precise enough for determining strategy
  - Analytic tools: “Traditional” strategy tool kit
  - Examples: Strategy against low-cost airline entrant

• Level 2: Alternative futures
  - What can be known?:  A few discrete outcomes that define the future
  - Analytic tools: Decision analysis, option valuation models, game theory
  - Examples: Long-distance telephone carriers’ strategy to enter deregulated local-service market; Capacity strategies for chemical plants.
• Level 3: A Range of Futures
  - What can be known?:  A range of possible outcomes, but no natural scenarios
  - Analytic tools: Latent-demand research, Technology forecasting, scenario planning
  - Examples: Entering emerging markets, such as India; Developing or acquiring emerging technologies in consumer electronics
• Level 4: True Ambiguity
   - What can be known?:  No basis to forecast the future
   - Analytic tools: Analogies and pattern recognition, nonlinear dynamic models
   - Examples: Entering the market for consumer multi-media applications; Entering the Russian market in 1992

In response to these four levels of uncertainty, the authors recommend a set of strategic “postures.”  These postures define the intent of a strategy in relation to the current and future state of the industry.

• Shape the future:
  Play a leadership role in establishing how the industry operates by setting standards or creating demand.
• Adapt to the future:
  Win through speed, agility, and flexibility in recognizing and capturing opportunities in existing markets.
• Reserve the right to play:
  Invest sufficiently to stay in the game but avoid premature commitments

Perhaps the most valuable aspect of this approach is its recommendation to combine many strategy schools of thought.  It calls for a “portfolio of actions,” whereby a variety of known strategy tools are employed.  For instance, a portfolio of actions may employ each of these strategy theories or tools: scenario planning, game theory, systems dynamics, agent-based models, real options.  This well-balanced approach to strategy under uncertainty is valuable for its well-rounded tool-kit as well as for its emphasis on action after the planning.

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