STRATEGY UNDER UNCERTAINTY

At the heart of the traditional approach to strategy Lies the assumpti on that by applying a set of powerful analytic tools, executives can p redict the future of any business accurately enough to allow them to c hoose a clear strategic direction. But what happens when the environme nt is so uncertain that no amount of analysis will allow us to predict the future! What makes for a good strategy in highly uncertain busine ss environments? The authors, consultants at McKinsey & Company, argue that uncertainty requires a new way of thinking about strategy. AU to o often, they say, executives take a binary view: either they underest imate uncertainty to come up with the forecasts required by their comp anies' planning or capital-budging processes, or they overestimate it, abandon all analysis, and go with their gut instinct. The authors out line a new approach that begins by making a crucial distinction among four discrete levels of uncertainty that any company might face. They then explain how a set of generic strategies-shaping the market, adapt ing to it, or reserving the right to play at a later time - can be use d in each of the four levels. And they illustrate how these strategies can be implemented through a combination of three basic types of acti ons: big bets, options, and no-regrets moves. The framework can help m anagers determine which analytic tools can inform decision making unde r uncertainty - and which cannot. At a broader level, it offers execut ives a discipline for thinking rigorously and systematically about unc ertainty and its implications for strategy.