Strategy as options on the future

Traditional strategic planning draws from forecasts of parameters like mark et growth, prices, exchange rates, and input costs that managers are unable to predict live or ten years in advance with any accuracy. Nevertheless, s ome firms meticulously construct strategic plans on the basis of forecastin g that, in all probability, will be wrong. These companies lend to overinve st in building assets and capabilities that are highly specific to a partic ular strategy, relative to what would be optimal if planning explicitly ack nowledged that forecasts would likely be off the mark. While companies may focus on executing a single strategy at any particular time, they must also build and maintain a portfolio of strategic options on the future. They must invest in developing new capabilities and learning a bout new, potential markets. By establishing a set of strategic options, a company can reposition itself faster than competitors that have focused on "doing more of the same." Williamson discusses a strategy that embodies a coherent portfolio of optio ns, sketches a process managers can use to develop this kind of strategy, a nd explains how planning and management opportunism can reinforce each othe r. Creating a portfolio of future options involves: Uncovering the hidden constraints on a company's future - both capability c onstraints and market-knowledge constraints. Establishing processes to minimize the costs of building and maintaining th e portfolio. Optimizing the portfolio by considering (1) alternative capabilities that c ould profitably meet customer needs and (2) future markets or new customer behaviors. Combining planning acid opportunism, bath of which are essential to the pro active creation of strategic options. Williamson cautions that a company must keep tactical opportunism within th e bounds of its overall direction, ruling out options that might cause it t o deviate from its long-term mission. Short-term opportunism must determine which precise option a company chooses to exercise.