Performing amid uncertainty

By Jörg Esser

Today's businesses operate in an environment of extreme uncertainty. While that has long been true – think of the 1973 oil crisis or the global financial crisis of 2007-08 – unpredictable events with far-reaching consequences seem to be occurring with increasing frequency in recent years, from the global pandemic to armed conflict almost on our doorstep. Companies face overlapping uncertainties arising from their environment in all the STEEP areas: social, technological, economic, environmental and political. The challenges they must deal with are multifaceted and constantly mutating.

In this new, re-ordered world, the old way of running a business is no longer fit for purpose. Established management practices, based on predictable demand and stable supply lines, do not function in a world where demand can dry up overnight and supply can be disrupted from one day to the next. To continue performing in this environment of extreme uncertainty, leaders need to rethink their approach to various areas of business, such as how they plan for the future, how they lead their companies on a daily basis, and how and when they cooperate with other companies.

These three key areas of management – strategy, leadership and partnership – have formed the subject of a number of articles and studies we have published in the past two or three years. Below, we look back on some of our findings and identify the golden thread that runs through them all: the need for a rethink.

Rethink strategy

The continuously evolving challenges faced by companies make it impossible for leaders to rely on the old way of developing strategy, the "observe-plan-execute" method. Instead, they need to develop the ability to envision different potential future scenarios – a sort of third eye. That includes classifying and prioritizing the various uncertainties in a systematic fashion and at the same time becoming smarter, building a learning culture within their organization.

Scenario-based thinking has become an essential skill for companies today, a way of observing what is happening in the world around them and deriving an actionable strategy. In fact, scenarios enable leaders to perform two vital tasks: First, they form a basis for checking the validity of existing decisions and strategies, and second, they can be used to develop robust, "no regret" moves – actions that will be beneficial in any scenario.

As we discuss in Scenario-based management – Taking action in an uncertain world , scenario-based management is especially effective when it comes to breaking with tradition and leaving long-established but ineffective practices behind. When embedded in the company's thinking and actions, it goes far beyond managing risk. Rather, it is all about the opportunities that arise from new, formerly unimagined paths to growth: looking at the world, making sense of it and deriving a strategic plan.

Rethink leadership

Closely related to the area of strategy is leadership. In The Secret of Adaptable Organizations is Trust, published in the Harvard Business Review, we discuss what it takes to create adaptability within a company and what this means for the approach to leadership. The idea behind the rethink here is that management should loosen their hold on the organization and gives it the freedom it needs to work effectively. The company's leaders should stick to defining what they want to achieve and let the organization focus on how to achieve it. In the article we present four design principles inspired by the scientific concept of "emergence": address purpose, nominate owners, test (don't guess), and spark collisions.

How does this work out in practice? In Future-proof airports, we discuss how the pressure to decarbonize, combined with the massive impact of entirely unpredictable events such as the COVID-19 pandemic, has created a conundrum for airport operators. On the one hand they need to be adaptable, while at the same time they must take a long-term view and hammer out an expert investment plan that can cope with future eventualities. They are thus pulled in two contradictory directions, having to plan for a future that they cannot foresee while remaining sufficiently flexible to deal with challenges that they cannot avoid. Building a future-proof airport requires transformation on four levels: functional excellence, cross-functional collaboration, value creation and breadth, and new businesses. The key for leaders lies in trusting the organization to do its job, which will in return generate more commitment and responsibility from employees.

Rethink partnership

The third element in the performance triangle is partnership. We include all types of cooperation under this heading, from informal networks to formalized partnerships. As part of "detoxing" their operations, companies need to ask themselves what they must do in order to fulfill their value proposition, and then which services they can provide themselves and which would be better provided by partners. In the past, companies were often advised to choose between "make or buy"; today, the alternative is to "master and partner". The days of the classic value chain are over and we are now operating in a world of value networks. It is now essential for companies to concentrate on their core business – and leave their partners to handle everything else.

The key to keeping things simple here is to differentiate between core and non-core activities and have a smart partnering strategy in place. This stops company leaders being pulled between the poles of conflicting strategies – as we discuss in Detox your business: Keep it simple, stupid.

Find out more

The different aspects of our rethink of management practices for an unpredictable world come together in what we call our "Results Factory" approach, an employee-centric approach to operational improvement programs, as described in Results Factory – Mobilizing for organizational change.