Before joining Sid Lee as CEO of Sid Lee USA, Andy Bateman was the national lead partner for innovation strategy at Monitor Deloitte Australia. He’s accumulated 25 years of experience in helping international businesses, brands and teams to initiate the changes that spur dramatic growth – so if anyone’s got their finger on the pulse of good business in this era of transformation, it’s him. Here are his thoughts on how to hedge your bets in an age of uncertainty.
Never before has the human race seen such a level and rate of change, whether it’s sociopolitical change; the rise of dominant economies like India and their influence on growth patterns driven by the West; the end of water, resources and food; the ongoing transformation due to digital technologies, current technologies and the Internet; or in fact the impact of the millennial population, who now dominates the workforce in the United States and in many other countries. All of that is changing the way we work and live, where we work and live, who we work for and how we work, and the future of work. Everything is fundamentally changing.
So, for the CEO of a business, or any kind of organization for that matter, making decisions about strategy has never been more difficult or more unpredictable. It’s almost impossible. But if you’re on the leadership team of a large organization, you have to think about what the next five or ten years will look like. And funnily enough, the more data you gather, the more unclear that is. I feel for decision-makers today who are not necessarily trying to predict the future, but are trying to predict their place within the increasingly uncertain future. It’s like throwing darts with your eyes closed.
If we’d had this conversation 30 years ago, there would have been predictable patterns of behaviour. Predictable market patterns. There were known quantities and life was a lot simpler; now it’s a lot more complicated. Faced with that challenge, you have two options as a leader. The first is you increasingly look short-term at what is predictable. And there are a lot of people doing that, who look quarter to quarter; I know companies in China who have said, “We no longer have a strategy. We just throw stuff at the wall, we experiment, and whatever works, we chase that.” Tencent, the organization that owns WeChat, is doing fantastically well, so that’s not necessarily a bad strategy. However, there are companies that need a second option, that are in transformation or need to think about how they change and pivot according to market conditions. What’s next for us? What makes us relevant? What guarantees our future? We have to look in a five- or ten-year time frame. You have a choice: You either face the future and try to navigate your way, or you cede and try to manage your business quarter to quarter, but in my view that’s akin to not leading.
I define leadership as useful, non-incremental change. The job of management is making sure all the trains arrive when they said they were going to arrive, today, tomorrow and the next day. If you increasingly shorten your focus on the next quarter, that looks a lot more like management than leadership.
So if we accept the fact that the vast majority of companies do need to, if not predict the future, then at least have a vision of their future and their role in it, then they need some help navigating their way there. And what I’ve examined is the process by which the most successful companies do so.
Planning on uncertanties
There’s a guy called Michael Raynor who was a Deloitte consultant, and he wrote a book called The Strategy Paradox. In the book, he takes the time to examine not just the successful strategies of organizations, but the unsuccessful ones in the same category. Like VHS vs. Betamax, for those who remember videotape, or he way that AT&T vs. BCE in the continental U.S. approached the coming digital revolution, or Sony vs. Microsoft. Raynor examined the difference between competitors and their strategies, and what he found was that their strategies were more or less identical. He saw no significant difference in the execution of those strategies either. So he concluded that unfortunately, and it’s almost heresy for a strategy person to say this, but the determinant of success or failure largely comes down to luck. It’s kind of sobering, but let’s just deconstruct what we mean by luck: What we mean is things other than what we have control over.
An example of this would be VHS vs. Betamax. Identical technologies, identical strategies, identical execution. In the United States, both businesses bet on the fact that time-shifted television would be the dominant use case for videotape. But it turned out that the dominant use case for videotape was renting films. That industry began as a series of mom-and-pop shops and there were a couple in the Midwest that couldn’t afford to stock both VHS and Betamax tapes, so they decided to stock just VHS. And the rest is history. So I don’t know how in your strategy you can account for a mom-and-pop shop in the Midwest choosing one videotape technology over another, and in turn influencing how a population adopts it. VHS and Betamax arguably hadn’t foreseen it either.
If we have all these uncertain things that might offset our given strategy, what can we do about it? If we knew that video-movie rental was going to be big business, maybe we’d have put a bet on movie rentals and the number of titles that we could get our tapes loaded on. Maybe we’d have done a deal with video shops to incentivize them to use our technology vs. another. If we’d have known all of these things, we could have anticipated in our strategy what to do about them. But of course, most organizations don’t do this. What Raynor recommends and what I’ve done quite a bit of, is something called scenario-based planning. We plan for uncertainty. We write strategy by looking broadly at uncertainty vs. our business objectives.
If we think about how strategy is generally developed, a company will take its plan from the last year, or the last five years, and say, “Okay, let’s project that out onto the next ten years and see what a reasonable growth rate looks like.” Now what do we have to do to deliver against that? Well, we’ve got our business-as-usual line, and we’ll add a few new service offerings to that or what have you, and off we go. That’s the strategy, right? What the scenario planning does is start by asking: Relative to the markets we operate in, and if we think about our future, what are we uncertain about? And we look for diversity of thinking around uncertainties – let’s call them critical uncertainties. We can’t do anything about whether the tides will rise and whether global warming will lead to California no longer existing, so that doesn’t qualify as a critical uncertainty to my business – more specifically, I am concerned about the impact that data and digital and automation will have on what we build. That’s a critical uncertainty. Leadership teams have to identify what they’re uncertain about, and what is most likely to affect their company.
Pretty soon you get a catalog of uncertainty. I did this for a client, 7-Eleven, and we identified 60 strategic critical uncertainties. The future of gas. Gas-driven cars vs. electric uptake. Autonomous vehicles. Home delivery of food. The health revolution. The future of smoking. The cost of real estate. The cost of labour, which is going through the roof. We identified a number of things that leadership wasn’t certain about, and we were looking for diversity, not conformity. We weren’t looking to narrow this bank to a few things, but rather we were looking to be as expansive as possible, as uncertain as we possibly could, so that we could, as a second step, categorize these uncertainties and determine the business areas affected by many of these uncertainties.
The next challenge is to say, “Against these uncertainties, let’s paint scenarios.” What if, for instance, autonomous vehicles take off, and there’s a huge levy against gas-based vehicles? Those two go together, so let’s paint another scenario for what might happen. Let’s imagine that car ownership among millennials disappears because they don’t value ownership, and the ride-share industry takes off, and gas prices go through the roof because we need to restrict supply. What does that do? That’s another scenario. You begin to paint a number of different scenarios depending on what you’re uncertain about. What you do with those scenarios is classify them into highly volatile scenarios and really likely scenarios. By working with the leadership team through these scenarios, you begin to identify if Scenario A, for instance, is highly likely but we’re just not sure when we’re going to get there, so we need to do something about that scenario now. And what we’ve got to do with that is discuss, within that scenario, what moves we would make. We begin to sort those moves into what we call options and choices.
Options and choices
The choices are a big bet that we’re going to make. For example, in the case of 7-Eleven, we’re going to bet the farm that autonomous vehicles will take a very long time to take hold because of the infrastructure required, but that vehicle ownership among millennials will continue to decline and deteriorate dramatically, such that ride shares will become the dominant form of personal transportation by 2029. That’s going to have a catastrophic effect on our business; it’s a critical uncertainty, so what are we going to do about it? Well, we could invest in ride share ourselves; we could begin to offer a B2B service to ride-share companies so they can get their services from 7-Eleven; we can connect the B2B2C in that business to better understand how we can serve the needs of consumers and construct offers around that; and we could think about refuelling locations for those sorts of vehicles and deal with their gas needs in the short-term. So, we’ve decided we can make a bunch of choices there that we can reasonably expect the future to deliver.
But we would also create some options for ourselves. We could make investments based on scenarios that are less likely to happen, in our opinion, but that nevertheless could happen. So we begin to make a distinction between strategic choices, things we that we take as big bets, and strategic options, which are smaller bets and investments that we would make. We have found that successful companies do this really, really well. They have a discipline around separating out choices and options; they have one investment strategy for their options, and another execution strategy for their choices. Therefore, this idea of setting strategy based on the distinction between choices and options becomes a mechanism for leadership teams to navigate their future. We’re investing around what we’re not sure about, we’re making big bets around what we’re not sure about but are quite sure will happen, and we’re making small bets, small investments, around things that might happen because if they do, we can run after them.A good example of this is BCE in the 1990s. They thought that B2B services, IBM-style services and consulting capabilities, would be a big thing for telecommunications. They kept their core business as a broadband network and made a small bet in mobility, or mobile phones, because at the time no one thought we’d be carrying the world with us in our hands, accessing a thing called the Internet; it didn’t really exist. But it was a considerable enough bet that they could pivot out of their heavy investment in the services industry and move into mobility as they saw it growing quickly. AT&T, on the other hand, divested itself of all its mobile assets at the same time. It turns out they had to go re-acquire them five years later, which obviously was quite expensive. It’s an example of how you manage a portfolio of options and choices as a means for navigating your future and developing strategy.
All organizations have pet projects to some extent, and we have to have a set of criteria by which we can exit from those options once they’ve proven that they’re not going anywhere. That’s why a lot of businesses have venture funds, because you can manage things a bit differently and test a market, a process, or an industry, but in term you’ll need to be ready to either pull out of the project or push it further.
The future is uncertain, increasingly so. You can navigate it by spreading your bets and distinguishing between the choices you make and the options you create. That being said, if anyone claims to be able to predict it exactly as it will happen, please don’t buy anything from them!