A new approach and mindset for making strategic decisions.
cope with volatility. Using the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan for winning in that future state. The organization is then called upon to execute that plan. Performance is routinely monitored, ostensibly to keep everyone on track.
The world is now changing so quickly that no business can plan for every eventuality. Scholars and practitioners have spent years crafting tools and frameworks for strategy development under uncertainty—including, most notably, scenario planning, Monte Carlo simulation, and real options analysis. Each of those represented a significant advance.
Let’s look in detail at the five steps of this new approach and how each leverages the tool kit for strategy-making under uncertainty.Companies that employ scenario planning attempt to forecast how political, economic, technological, and social conditions may evolve. They then develop best-case, worst-case, and base-case scenarios that are probability weighted to assess strategic moves.
But CMS chose to employ a different model. Its leaders developed four extreme but plausible scenarios:. None of those scenarios was viewed as likely. Rather, they represented outcomes that the company might face, each with a very different impact on CMS’s core utility business. Real options analysis emerged as a methodology to help companies better account for this value. A real option represents a right but not an obligation to undertake some business decision, which means that the option holder can delay further investment until additional information has been analyzed. Techniques based on financial option pricing allow analysts—given the right data—to quantify the value of being able to delay or walk away from an investment.
Often, though, the situation is less clear-cut, and leadership teams must choose between options with wildly differing payoffs, depending on how the future unfolds. By accounting for the value of flexibility, executives can often uncover strategies that allow them to hedge their bets while preserving valuable options for the future.
Singapore Latest News, Singapore Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
5 Myths About StrategyIn common with many professions and disciplines, strategy has its myths – half truths and half understood assumptions that eventually lead to mistakes and even disasters. In this article, strategy expert Stephen Bungay identifies five such myths, explaining why we believe them and why they’re wrong. The myths are: strategies about the long term; disruptors change their strategies all the time; competitive advantage is dead; agility is a substitute for strategy; and you need a digital strategy.
Read more »
In Uncertain Times, the Best Strategy Is AdaptabilityCompanies everywhere labor under the illusion that the key to a great strategy is a good handle on the future. But meteorologist Edward Lorenz demonstrated that small differences can have massive consequences or none at all, which means that unless you have a perfect, complete picture of existing conditions, forecasting the future with any precision is impossible. Instead, advises Bain’s Michael Mankins, companies should focus on making themselves better able to cope with unexpected changes. For strategy, that involves instilling an adaptive mindset among managers, building in flexibility into operations, creating dynamic plans.
Read more »
Benito Skinner, Soon-to-be Movie StarKnown for his Instagram personalities, Skinner makes his break into acting with “Queer as Folk,” “First Time Female Director” and more.
Read more »
Donald Trump’s Latest Lawsuit Suggests He Only Approves of Government Power When It Belongs to HimDonald Trump's reported political strategy reveals much more about what's happening behind the scenes.
Read more »
Why my home renovation is taking forever: high costs, labor shortage, supply chainInsider tells the global tech, finance, markets, media, healthcare, and strategy stories you want to know.
Read more »
Gen Z has some serious trust issues — from government to businesses and other peopleInsider tells the global tech, finance, markets, media, healthcare, and strategy stories you want to know.
Read more »