A Strategic Guide for business leaders in times of crisis

Better Strategizing - The Science Of Making Good Bets

Turn Your Business Around Towards A Brighter Future, ep. 3

Photo by cameradud de Pixabay

After you have made the initial adjustments necessary and took stock of the cards you are holding, it is time to look forward.

In the first article of this 4-part series, we discussed the initial adjustments you need to make in your business. In the second part, we looked at how to evaluate your situation. Following that, we now turn our sights towards the near and mid-term future. The goal is to understand how to assess our potential moves and think in bets. I had the pleasure to co-write this piece with Sebastian Mueller who brings his seasoned strategic eye, pragmatic mindset, and on-the-field expertise as COO of MING Labs.

Thinking in Bets — A Primer

Annie Duke published a popular book with the same title, which is a great initial reference and primer. More in-depth reading would include Superforecasting as well, which scales the topic deeper into concrete prediction domains and expert system applications. The basic principles, for the sake of this piece, are:

Understanding Probabilities

As humans, our intuitive decision-making algorithm is highly skewed by what can be observed in the real world. Intuitive decision making has little regard for the theory of probabilities and goes for a mere True/False or 0%/100% evaluation after observation. We need to resist this urge, and try to understand the likelihood of events (ideally through joint forecasting) to make better decisions.

I.e., if we assign an 80% likelihood to a scenario, and it does not play out, that does not immediately mean that the probability was wrong. It could also mean that the less likely 20% scenario played out, which was always possible.

Being accurate and mentally rational about probabilities is essential to evaluate potential scenarios and moves properly.

Photo by Vlad Sargu on Unsplash

Probability-Weight Decision Making

With point one understood, we can move forward to make probability-weighted decisions. The idea here is to recognize potential properties (execution, outcome, etc.) of decisions and assign thought-through probabilities to each possible instance. This way, we can develop an outcome-driven view and can run relevant analyses over decisions to understand their potential value. Monte-Carlo is one of the possible methods described here by Investopedia.

Decision Portfolios

Image par pikabum de Pixabay

Taking the prior two concepts into account, we can develop a portfolio view on our initiatives, to simulate and understand the implications of specific actions being run conjointly and what the probability-weighted outcomes are likely to be. This allows for more efficient resource allocation, as resources are probably incredibly scarce right now.

Further good reading includes this piece from Mike Walsh for Harvard Business Review. He shares his perspective on leadership through probability, how it is interlinked with experimentation based culture as well as how it is applied by Amazon, Alphabet, or Spotify.

List Your Potential Plays

Let’s see how to put these elements on probabilities for your business strategy in practice. Going through each area of your business and diagnosing the situation is a significant yet very worthwhile effort as it equips you with the right information to make decisions and take action, in a fast yet strategic manner. For this purpose, you can use the model of Ritter and Pedersen. This business diagnosis framework is easy to understand and to set-up. The step by step guide is documented in the previous article.

With that input, you can now compile all the possible actions and decisions that shall require your attention. Writing out your assumptions is also a way to acknowledge and document what is changing. Try to compare apple with apple by qualifying them through the same lenses wherever possible.

Taking a customer-centric approach

The future will be brighter for the ones who adapt and solve the best the new customers’ problems.

So, why not getting this mapped visually? I very much like the Ansoff Matrix as a way to display all the possible plays in a simple segmentation.

source: thisholdhand.com

Going from your diagnosis (see ep. 2, Evaluate Your Strategic Options) to a list of initiatives isn’t always a straightforward process.

Taking a Business Design perspective will be an interactive and engaging way to get everyone’s ideas on board and get the teams involved anticipating the next steps of the strategy execution journey.

Leveraging Design Thinking and Lean Business toolkits, Business Design approach will allow you to put together an Opportunity Map.

The application of this concept is introduced here by the co-writer of this article Sebastian Mueller, COO from MING Labs and evangelist of Business Design. How to use Business Design for Comparison and Arbitration is also explained in practice a bit later in the article.

Qualify to compare…

All initiatives do not come with the same level of effort, the same impact or the same probability to activate. Qualifying your possible plays will help you make the most rational and unbiased decision making.

impact-effort matrix
source: itamargilad.com

You can use dimensions such as the scenario in which it activates, the probability of it to happen forced by external factors, the financial impact, the impact of the resources, etc. I find this revisited version of Itamar Gilad very interesting, as well as the explanations that go with it here. Any quick wins and low hanging fruits shall be looked at with the utmost attention of course. More structural move too. In any case, a great opportunity to filter out many initiatives with less visible potential and further assess the most interesting ones.

In Practice

With all these possible moves identified, you need to decide. Resources, such as money, time, and capabilities, are scarcer than ever. What is the ideal way to allocate them across a portfolio of initiatives that will drive the best outcome for the business?

Setting the scene

This is where, ideally, more granular scenario planning comes in. In the most basic form, you can pick two critical dimensions of the future that will significantly impact your business. The most prominent risk/opportunities axes you monitor, or significant structural changes that might occur. It could also include potential horizons in how the current crisis will play out.

Taking the example of an FMCG business

It might use the prevalent sales channel in the future as a critical dimension. The opposing sides here could be pure 100% eCommerce on the one extreme, and a strong physical retail rebound on the other. There is much space in between for potential scenarios.

The other axis they choose might oppose a V-shaped economic recovery marked by momentary and short-lived job losses on the one hand, and a long-term recession with very high unemployment on the other. This speaks to disposable incomes available.

Those dimensions being crossed lead to four scenarios:

A) 100% eCommerce & High Unemployment / Low Incomes

B) Physical Retail & High Unemployment / Low Incomes

C) 100% eCommerce & Low Unemployment / High Incomes

D) Physical Retail & Low Unemployment / High Incomes

Photo by William Iven on Unsplash

Some are good, some are bad. All are structurally different. Next, the team would write out a storyboard for the scenario. If this future occurs, what would that look like? What are the implications for macro and micro factors? What are the consequences for your business?

Now the leadership team and other relevant stakeholders need to assign probabilities to these various scenarios. In the end, we want to have a robust evaluation based on considered reasoning, how likely each situation could be.

Once the critical scenarios are explicit, and probabilities are assigned, we can look at the initiatives. Which initiative would have what impact under which scenario? You will quickly find that there are:

  • Low-hanging fruit that shows success in every scenario
  • Scenario-dependant winners that perform in only a subset
  • Low performers that never deliver great results

The low-hanging fruit you will want to implement in any case, as they always show returns and traction. The low performers can be safely deprioritized and potentially picked up once resources are more abundant again. They might still have a positive ROI, but not a strong short-term impact.

For the scenario-dependant initiatives, the next step is to run a probability-weighted analysis, taking into account the scenario probabilities and the initiative-dependant probabilities. If you want to go a step further, you can run a Monte-Carlo analysis on that portfolio to understand where to allocate your scarce resources more efficiently.

“The essence of strategy is choosing what not to do.” Michael Porter

Arbitrate & Decide — Making Your Bets

In the end, comes the time to bring it all together. You want to decide what are the things you should stop, what are the ones you should start, and the areas you should keep or improve (KISS framework — Keep / Improve / Start / Stop). All this based on as much rationalized information about the external and internal factors which you gathered around.

Which risk are you willing to take?

source: unknown

Also, there is no one way to do things, and this is where you’ll consciously or intuitively define your risk profile. Will you be aggressive and take risks, leveraging opportunities with no certainty to unlock their potential. Or will you be on the safe side, minimizing all risk and leveraging only opportunities that are certain to convert? Or somewhere in between making some bets.

Thinking digital

In 90 days, the world has undergone a massive digital transformation nobody could have imagined. In times of accelerated digitalization, observing digital companies and how they respond to such events can also be a source of inspiration. McKinsey did write a complete essay about digital strategies in times of crisis, showcasing how this period can be leveraged to make bolder moves towards new digital processes, tools, and technologies.

This is what Nike did when the crisis first hit in China. They pivoted all their sales and marketing towards digital channels and could mitigate impact effectively and produced good numbers. They now claim they have a playbook for other regions — an interesting article by Rob Walker on the topic.

Scenario-based feasibility check

With the above, you should now get a clearer view of the strategic initiatives that will get your utmost attention in the times to come. Yet before moving into execution and confirm feasibility with your finances, you’ll want to check the impact on cash flow depending on the scenarios and get this in one overview. A useful reference for this task comes from Sequoia

Source: Sequoia Capital

Mainly oriented towards cash flow management, this view will allow you to confirm which initiatives — cost-saving or growth — you can afford depending on scenarios. This is a nice view to check regularly as some scenarios will decrease in probability while others become reality.

Building continuity

Fortunately, these decisions don’t come all at one time and will arrive progressively in your direction. Reality will also evolve. Being surrounded by your leadership team and other experienced stakeholders will be of significant value to make the best decisions. You can also set up a regular check-in where all the relevant coworkers step back for a moment a look a the new current reality. This can be done through various strategic execution methods that we’ll address in our next article.

If you want to read more about strategizing in times of uncertainty, we highly recommend this read from Harvard Business Review.

Once you have the portfolio of actions you want to start with, your next considerations will be around strategic planning and execution. Getting things done. The utilization of a probability- and risk-centric mindset does not end here. It will prove useful as you start organizing the execution of each initiative based on its nature and complexity.

“67% of well-formulated strategies fail because of poor execution”, Ron Carucci, HBR

In the next article, we’ll look at ways to optimize your strategic execution and engage all coworkers in that journey. We’ll go through various methods taking into consideration the nature of each type of initiative. You’ll also get insights on how to foster an effective strategic execution culture across all team members.

I hope you found this article valuable and useful. Feel welcome to share your thoughts in the comments area. Let’s stay in touch. Also, I strongly recommend you have a look a the insightful content put together by the awesome minds of MING Labs and one of its founders, Sebastian Mueller, co-author of this article.

Helping founders and leaders bring their vision to life #Innovation, #Product #Strategy #OKR #SocEnt #Impinv , founder of ikiōm / www.ikiom.com

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