For a generation of business executives, Kodak is the poster child for an industry giant that failed to see the future coming. But the truth is actually more revealing.
In fact, Kodak developed a digital camera prototype in the 1970s and launched the first commercial digital SLR in 1991. Its strong brand and market power should have made it a force to be reckoned with as the market made its historic shift. Instead, it walked into a set of traps common to large companies trying to cope with uncertainty: its initial moves were small-scale and scattershot. It was unwilling to risk cannibalising a highly profitable core. A last-gasp big bet was the wrong one -- a failed joint venture with Hewlett-Packard to create photo-developing kiosks.
As uncertainty and turbulence sweep across most global markets, a growing number of companies are struggling to avoid their own Kodak moments. Few are completely blind to what's coming, but many still struggle to adapt their strategies effectively. That's often because traditional approaches to strategy -- analysing trends, making forecasts and committing to only the "best" course of action -- are not calibrated for the high degree of instability many companies face. They tend to disregard the one thing we really do know about making projections: they will be wrong.
In uncertainty, both the strategic planning process and the strategy itself need to change. In our experience, the most effective leadership teams develop a clear and actionable portfolio of strategic actions that balance commitment with flexibility. Instead of relying on a planning exercise defined by conditions at a discrete point in time, they commit to a cycle of "execute, monitor and adapt", redirecting the company toward the best opportunities over time. Their strategic processes prepare them for a range of possible futures by:
Defining which uncertainties the company faces and cutting through the noise by separating them into those that matter and those that don't.
Creating a set of probable scenarios for how the future might unfold and discussing the threats -- and opportunities -- that each one presents.
Devising a specific set of strategic options that balance commitment to one course of action with the flexibility to adjust and thrive amid different future scenarios.
Identifying a clear set of signposts that will signal important market changes and trigger a set of actions already foreseen during the scenario-planning process.
This is very different from what many call "sensitivity analysis." It's about creating a coherent set of scenarios across all critical variables in an analytically rigorous fashion. The goal is to prod leadership to monitor change on a regular basis and move ahead of competitors as future states begin to take shape. If the world is evolving toward scenario X, the company has already laid plans to roll out strategy Y.
Strategies that are robust in uncertainty are no less devoted to a bold, long-term ambition. But they do strive to balance commitment to this vision with an explicit set of investments that prepare the company to seize the future as it unfolds. This might include planning for big bets like a major factory expansion as well as investing in a range of options and hedges that can be ramped up and scaled down quickly. The idea is to shorten the decision-making cycle considerably, giving the company a head start when the time is right.
Because knowing when to move is as important as being prepared, companies also need to identify the critical signposts that signal change early. To that end Aurizon, Australia's largest rail freight company, has created a permanent, cross-functional market-intelligence unit that monitors shifts in coal and other commodities. It maintains a dashboard of signposts that executive management reviews regularly, looking for trends that might require shifts in emphasis among a predefined set of strategy playbooks. Action flows from rapid and closed feedback loops that result in faster, more informed adaptation.
Fast adaptation hardly means abandoning the company's core strengths or mission. On the contrary, our experience suggests that those strengths provide the best compass for adapting to changing circumstances. When Macy's confronted the threat of online retailing in the early 2000s, for instance, it might have done what many of its rivals did: outsource their digital showrooms to a more experienced online firm. But the leadership of Macy's reasoned that owning the customer experience was (and is) a core element of the retailer's strategy, whether that experience takes place in a store or in cyberspace. Short term, outsourcing might have been less risky. But under all futures, Macy's eventually had to learn how to bring its merchandising prowess online. Building a platform of its own allowed it to control the customer experience and learn from it in real time.
There was a time when innovation and disruption were most acute in highly changeable industries like technology or pharmaceuticals, but those days are gone. Finding a way to sustain profits and reach full potential amid a constantly shifting landscape is increasingly the central challenge in every market. The companies that make the future--not just take it as it comes--will be those that can embrace uncertainty and turn it to their advantage.
Written by Miguel Simoes de Melo, a Bain & Co partner in Sydney, and Sharad Apte, a partner in Bangkok.