One of the toughest challenges facing managers is how to plan for profitable growth in an uncertain future.
Look back ten years at your customers and their needs, your employees, market structures, delivery systems, regulatory policies, social systems, the economy and technology, and it’s clear how much things have changed. It’s a safe bet that at least that much change can be expected in the next ten years, but what kind of change will occur?
Compounding the uncertainty is the necessity to keep managing current activities for efficiency and growth while planning for a future that may call for different activities altogether.
Smart Business spoke with Dr. Jaume Franquesa, visiting assistant professor of strategic management, and Dr. James Martin, associate dean and professor of marketing, both at the Boler School of Business at John Carroll University, about ways businesses can position themselves to take advantage of tomorrow’s opportunities.
How do you get started?
Success in the long run is all about marshaling the right capabilities and resources and using them to create sustainable competitive advantage for the future. Start by identifying and assessing your current capabilities. Generally, there are two categories of capabilities that allow you to do both the day-to-day activities and plan for an uncertain future.
The first category is operational capabilities, which are the things you currently do that give you a competitive advantage in your current markets. That is, the skills, competencies and resources that you use to try to satisfy your current customers’ needs better than competitors or at a lesser comparative cost, leading to higher profit.
The second category is dynamic capabilities, which are the capabilities that will help you to plan for the future. There are generally three types of dynamic capabilities.
The first is the ability to do environmental scanning and sensing. Being able to identify and track trends, and understand how they might be important to your business is a critical competency to develop.
The second dynamic capability is being able to turn the trends that you identified as important to your business into opportunities that can be pursued further. Innovative thinking is the cornerstone of this capability.
The third dynamic capability is being able to quickly re-configure your internal resource base in a way that creates a sustained competitive advantage for pursuing the opportunity. Understanding which resources are valuable, along with adaptive resilience and flexibility in your organization are key ingredients for this capability.
The stronger you are at each of the dynamic capabilities, the better your strategy and its implementation.
How can a manager foster adaptation and flexibility with regard to long term strategic direction?
As you think longer term, the uncertainties about investments in strategic direction can cause significant anxiety. This is really tough, but it is at the heart of building an organization for the future.
One useful approach to navigate this uncertainty is to apply ‘real options’ logic to investments for the future. Instead of making early choices under uncertainty and committing significant resources to a particular strategic direction, consider engaging in multiple directions that will keep several windows of opportunity open. In this way, you can delay commitment to any of them until more information is available and some of the uncertainty is resolved.
To do this, you must design the program of investment in each strategic initiative as a series of sequential experiments, with a continue/discontinue evaluation point at the end of each experiment. That is to say, at the end of the period you have the option of continuing to invest as planned, narrowing the scope of the project, or abandoning the project.
The goal is to create and manage a portfolio of alternative strategic options. You do this by investing in multiple stage-gated projects designed to seed the development of new capabilities or to explore potential new markets. The keys to the management of this portfolio of strategic options are:
- Project selection.
- Design of investment stages in a way that maximizes learning while minimizing the cost of each strategic option.
- Portfolio diversification.
The dynamic capabilities that you develop give you the foundation for creating this portfolio of
strategic options. ●
Dr. Jaume Franquesa is a visiting assistant professor of strategic management at the Boler School of Business at John Carroll University. Reach him at firstname.lastname@example.org.
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