The World Just Got More Uncertain and Your Strategy Needs to Adjust

Martin Reeves

Donald Trump’s unexpected win in the U.S. presidential election is unleashing an inevitable maelstrom of analysis: Why and how did it happen? As with the Brexit vote, almost all pollsters and pundits failed to foresee this result. But now that we have a clear outcome, it’s time to move forward and assess the implications for business and society.

So what are those implications, exactly?

Based on his campaign, Trump’s policies are directionally clear: Reduce personal and corporate taxation, invest in infrastructure, repeal the Affordable Care Act, tighten up on illegal immigration, strengthen law enforcement, and take a tougher stance on trade policy. It seems reasonable to use these intentions as a basis for forecasting the impact on taxes, trade, demand, employment, and mobility of labor. But even with these directions in mind, there’s a lot we just don’t know yet. What will be the administration’s take on science and technology? How will the Affordable Care Act be repealed? And what about the details of trade deals or infrastructure investment?

One thing we can say with confidence is that uncertainty will remain high for some time in politics, macroeconomics, and business, at both global and national levels. We can also assume that precise point forecasts are likely to be wrong. Likewise, we know that whatever our historical assumptions have been, many are likely to change as technology advances. And the impacts of policies will be highly specific in nature, degree, and speed for each industry and company.

To respond to this challenge, companies will need to become more sophisticated about strategy during uncertainty in five ways.

Match Your Strategy to the Environment

As we have described in Your Strategy Needs a Strategy, businesses will need to adopt the right approach to strategy and execution, depending on the predictability, malleability, and harshness of each environment they operate in. Consider whether your company is able to employ each of the following approaches:

• Classical. This represents the traditional approach of analysis, planning, and execution against a one- or five-year plan. There will be fewer and fewer highly predictable environments in which businesses can rely on this.
• Adaptive. In the growing number of unpredictable environments, businesses will have to iterate their way toward the future by using discipline experimentation.
• Visionary. In malleable environments, such as in newly created or disrupted markets, they will need to envision and realize new possibilities.
• Shaping. In environments that are both malleable and unpredictable, businesses will have to orchestrate the activities of entire ecosystems of companies using platform-based business models.
• Renewal. When viability is threatened by demand, supply shocks, regulatory change or competitive developments, they need to decisively transform their business models.

Reinforce Capabilities Required in Uncertain Environments

The capabilities of adaptation, shaping the business environment, and ambidexterity (the ability to apply different and potentially conflicting approaches to strategy, as described above, in different parts of the business) are typically under-developed in large established companies and will likely become more important. This is necessarily so, since winning in uncertainty requires more than defensive moves, and every company will need to both run and reinvent the business.

Improve Economic and Political IQ

Companies need to detect, interpret, and translate patterns in politics and macroeconomics for business implications. We are living in an era where macro effects can easily swamp competitive and operational considerations. For example, the presence or absence of a trade deal or an interest rate cut can potentially have a bigger impact than reducing cost or increasing marketing.

Invest in Resilience

We should expect the unexpected and be prepared not only to survive it but to seize unexpected opportunities. Our work with Simon Levin at Princeton University shows that complex dynamic systems, like biological ecosystems, economies, and companies which are able to survive and thrive over the long term, exhibit six principles that may seem counter to conventional business thinking:

• Redundancy. They buffer against unexpected events.
• Diversity. They have multiple ways of thinking and doing things, which not only serve as a hedge against change but also form the substrate for experimentation and learning.
• Modularity. They have firebreaks, which stop problems in one part of the company from affecting the whole. Modularity also facilitates innovation through recombination and promotes greater agility because of the reduced scale of each unit.
• Adaptation. They learn and evolve by leveraging diversity in the face of change.
• Prudence. They are open to serendipitous upsides, while designing decisions and actions be robust to plausible unfavorable scenarios. They ask, “What if X happened?”
• Embeddedness. Companies are embedded in economic, social, and political systems. They need to preserve a harmonious relationship between these different layers by ensuring trust and reciprocity to avoid sanction and alienation.

These principles can be hard to implement because they are often at odds with everyday managerial thinking. The familiar logic of short-term shareholder value maximization may be at odds with long-term survival and prosperity of the corporation, which instead requires a more biological, systemic mode of thought.

Reevaluate Purpose

Embeddedness, as described above, hints at this. The growing number of unexpected events like the Brexit vote and the U.S. election are rooted in the polarization of politics and economic inequality. Significant parts of the population now see business leaders as a part of the mistrusted elite that is responsible. This risks limiting leaders’ ability to shape the future agenda, both for their businesses and society. Now more than ever, leaders should intensify their efforts to maintain society’s trust and keep their social license to operate. How? They need to renew and clarify their firms’ deeper social purpose, the intersection of their identity and social needs. To help alleviate the deeper economic and social tensions in our societies, business leaders should then proceed to action in seven opportunity areas that we defined after the Brexit vote in the UK, from building entrepreneurial ecosystems to leveraging technology responsibly to reinvesting in human capital and labor productivity.

As the next weeks and months unfold, managers accustomed to stabler times will have to improve their game for strategy in uncertainty. Those leaders who succeed will thrive in the long term, no matter what lies ahead tomorrow.