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Steve Hoy

What To Do?

Since it is not possible to measure uncertainty in quantitative terms, positioning is the correct response. Have a strategy, and be prepared for the next big thing.

The common response to uncertainty is to pretend it does not exist. Uncertain elements are given numbers which are then included in calculations, the rest are airily waved away as ‘nothing to be done’ in a fit of magical thinking. Magical thinking comes to the fore in business strategy, which is a mix of woolly thinking, hopium and sloganeering, among other things.

  • Woolly thinking obscures the hard parts of strategy, especially making choices and not doing things. It’s hard to say no to something when you’ve a bunch of VPs whose jobs rely on it being included in the strategy - so your strategy will mirror the existing organisational structure of the company (a sort of twisted Conway’s Law).
  • Hopium arrives when hoping saying a thing will be so is enough to make it so. This is a real problem today, especially in the PMC, but I’ll get into that more in later posts. Here, it’s management simply stating an outcome, such as ‘being number one’, and then expecting the firm to somehow conjure it up.
  • You will have seen slogans around (did you write them?) perhaps on posters in corporate hallways, with sayings such as “We’ll be the Number One supplier of choice for our preferred customers”. What does this even mean? How could it possibly help your staff make decisions to support the strategy? Lots of uplifting statements on posters, in all-hands meetings and management briefing sessions is not having a strategy.

Have a strategy

The fact is, it is hard to arrive at a decent strategy. Not because it’s technically difficult for an imaginative person to do (though there are few enough of those in business), but because having a strategy involves properly understanding the problem in all its complexity and uncertainty and then making choices about what to do. The clamour will be for action, even if waiting is the correct response. It takes a very strong leader to resist this clamour, which you might get in a startup controlled by its founder, or with especially charismatic leaders like Steve Jobs, or when the company is facing an existential crisis (and in that case very often there’s too much momentum to save it).

The people typically required to come up with a strategy are exactly those who will be worst at it. The Action-oriented types will have no time for the conceptual grappling needed and will simply want to get on with things. It is also mostly beyond a general class of educated person who once were educational high-achievers and who now float around in organisations saying that something must be done, demanding it even, but when pressed bring nothing. These people think that management is a skill independent of the subject, probably learned after a year in a sausage factory and then an expensive MBA. For them ‘perception is reality’, and their core skill lies in swimming in the tide of the organisation - a purely social affair - not necessarily doing good work. They are often bullshitters in the strictest meaning of the word.

Corporate strategy also has a bad case of physics envy, with its reliance on projects and plans, numbers and projections, risk assessments and utterly pointless DCF projections. This is all part of the performance of strategy and is the best you can expect from a deeply unimaginative cadre. What you will get is a cargo-cult strategy.

Cargo Cult

A cargo-cult strategy has all the decorations of an actual strategy. There are SWOT analyses, 5-forces drawings, DCF and ROI, ARR and CAC, throughputs and burn-down rates, multi-year plans: a salad of strategy-adjacent stuff which looks impressive, but which says little. The trouble is the future is uncertain, most of the present is also uncertain, and reasoning in the presence of uncertainty is hard and most people are crap at it.

Very likely your managers are tuned to turning out day-to-day outcomes and simply cannot think in a strategic way. It’s highly unlikely that a decent strategy can emerge from these people because they’re just not configured that way. Best to leave them in middle management, although they will be very unhappy with that.

Or perhaps you have professional strategists on board who learned their craft at a management consultancy, where success is rewarded through achievements with PowerPoint (nearly always works of fiction) and who at best can talk only in theoretical terms.

No, a genuine strategy involves a clear-eyed look at the actual situation in all its complexity and uncertainty and which produces a policy and actions (including things to stop doing).

Take a position

Richard Rumelt, a professor of strategy at UCLA’s Anderson School of Management, when asking executives about their corporate strategies said he heard “a lot about doorknob polishing. They were doing 360-degree feedback, forming alliances, outsourcing, cutting costs, and so on. None of them even mentioned taking a good position quickly when the industry changes”. Contrast this with Steve Jobs, who in 1998 said to Rummelt, “I am going to wait for the next big thing”. Jobs wasn't focusing on a series of strategy-salad items. He was waiting for a suitable opportunity, which came with the iPod and then the iPhone.

Uncertainty is all around

One could argue that the Russian incursion into Ukraine was highly predictable (NATO's efforts to bring Ukraine in and Russia's stated objections). This was Risk. What could probably not have been predicted was the EU's decision to stop buying Russian gas, greatly increasing the cost of German industry and likely forcing relocation to the US. This was uncertainty. How would this have shown up in corporate planning? Maybe a consultant’s scenario planning might have come up with it. Probably not.

The only correct response to uncertainty is to position yourself and your company for the eventualities which may emerge, good or bad. Make bets, sure, but don’t bet the company. Above all, have people on board who are mentally equipped to deal with uncertainty.

It’s simpler for startups. You only have one bet: your product, and if you’re not yet making sales you are burning investor cash. It's exactly your job to find the fit between your product and what the market will pay for.

Trying to put numbers on uncertainty is very foolish

Climate scientists warn that a 2°C to 4°C global average temperature increase will be an extinction-level event for humanity and most other life on Earth, and yet the economics chapter of the IPCC’s Sixth Assessment Report, “Key Risks across Sectors and Regions”, predicted a 10-23% fall in GDP from 4°C of warming by 2100. Since economists also assumed that economic growth would continue over this 80-year period, this 10-23% decline would still result in a per capita GDP of the order of four times higher than today.

So which is it? The end of humanity, or slower GDP growth? I’m with the hard scientists here; climate change must be treated as an existential threat, rather than an issue which is suitably addressed by economists putting numbers on Uncertainty and ignoring what they do not know.