Essay on "Strategy Under Uncertainty Business Environments"

Essay 5 pages (1755 words) Sources: 0

[EXCERPT] . . . .

Strategy Under Uncertainty

Business environments are often uncertain, even in good economic times. When that is the case, it is important to consider this uncertainty when creating a strategy for a business. Companies that are not flexible often do not last when they have to make changes or things do not work out in the ways in which they were expecting. There are several ways in which a company can consider employing strategy. One of the ways strategy is used by companies in an uncertain market is to move toward something that is high-stake and high-risk. That is not always a good idea, of course, but large companies that have the capital for it are often interested in doing something out of the ordinary and significant. They take risks with the extra capital they have available to them, but they know they are not actually risking the business because they are so well-established. Occasionally, however, smaller companies also take those kinds of risks, and there are start-ups that jump right into an uncertain market and sometimes make it work - mostly because they took the time to devise a good strategy.

Not all companies think high-risk betting is a good strategy in a market and economic climate that is uncertain. These companies focus on uncertainty and flexibility as being good things. They end up spending time coming up with strategies that allow them to be flexible, so that they are able to move quickly with changing conditions. When a company is prepared to be flexible it has a better chance of adapting to changing markets and climates. That can save it financially and also help ensure that it does not go out of business because of issues such as dips in the market or months where the production is not as high or not as many people are making purchases. All things considered, flexibility is good for just about any business in any industry. Some businesses, of course, have more of an opportunity to be flexible than others, and that is something that has to be carefully considered. Not all industries lend themselves to flexibility, of course, which is worth considering.

The key is to determine whether the company should hedge its bets, do something exotic, play it safe, or take an entirely different course of action. In order to make that determination, strategy will be needed. The issue with strategy in an uncertain business climate is that "normal" strategy is only designed for business climates that are certain and stable. Using a standard strategy during a time when the business world is having a high degree of uncertainty can be a serious recipe for disaster on many levels. Those who view strategy as a black and white type of issue can look at the business climate as being either certain or uncertain. However, that is really not a safe way to consider things. There are varying degrees of certainty and uncertainty in the business world, and business leaders must remember that and put it into practice when they are considering their strategies. If they are not clear on the uncertainty - and also the level of uncertainty - with which they are dealing, they could be led to make critical mistakes in their strategic planning.

It is generally best to overestimate uncertainty to a degree. Underestimation of how uncertain the business climate actually is can lead businesses to struggle when the climate proves to be more uncertain than expected. There is no flexibility during those times, and that causes serious issues for businesses that are not quick to react to changes. Conversely, however, it is problematic to assume that there too many uncertainties in the business climate. Companies that assume everything is completely unpredictable often abandon the rigorous way in which they create their strategy. That can easily lead them toward a lack of understanding of how to operate their business on a schedule that will move them forward toward growth and development. Naturally, that is highly worthy of consideration and is something that must be addressed by all companies so they are better able to be prepared for whatever the future holds. Being careful matters, but being paranoid is a problem that companies can face if they are not clear about the strategy they are employing and the work they need to do in order to ensure they are prepared for the future.

Most strategic planners would agree that there are four specific levels to business uncertainty. At the first level, the future is relatively clear. There will always be some form of uncertainty in the business world, but level one means that it is pretty easy to predict what will be taking place in the future. The development of a strategy during level one will be inexact, but will be very close to what would be seen if there was no uncertainty at all. Because of that, future changes will be small and it will not be necessary to consider major, sweeping changes to the strategy that will be created by and for the company. In the second level, there is more risk. That means that individuals who create strategy with level two uncertainty have to be aware of the possibility for alternate futures. Each future could be very different, or they could be relatively similar. Either way, they will not be exact or identical, and should not be treated as such. While not providing a high degree of uncertainty, this kind of business climate does mean that it will be necessary to add more flexibility into future plans. Creating a strategy with flexibility can be done, with extra effort.

Level three offers a range of different futures that could occur. Instead of just having a couple of different choices for what could take place, a strategy at this level will mean that there will be many different options that will need to be extrapolated out to logical conclusions. If the outcome were a more predictable one, almost all of the elements of the created strategies would have to change. That is one way to tell that things are very uncertain in the business climate. The outcome that actually occurs for this scenario and strategy creation could fall anywhere along a specific continuum within a range of possible options. When people understand that there is a large range of outcomes on which their specific outcome could fall, they are better able to strategize everything they need. Companies that are not aware of the wide range of options will not create a strategy that will accommodate all of those options - and that can be highly detrimental to the company. It is also something that is easily avoidable as long as strategic planners are paying attention to the current business climate when they determine strategies for businesses.

When businesses reach level four on the uncertainty spectrum, there is really no way to plan or create a specific strategy. Still, strategic planning is very important in uncertain times because companies will be faced with not knowing what they should do. They need to come up with a plan so they can be ready for what might or might not happen next. There is no way to identify how many potential outcomes there will be with a very uncertain business climate, so a standard, common type of strategy will not be effective. Despite that, it is important to make sure that there is still some type of strategy in place. Getting complacent and not creating any strategy at all makes little sense, especially as the climate changes and there is once again the opportunity for more clearly-defined endings and outcomes. When all of the variables cannot e identified or predicted, though, getting any kind of strategy created is one of the most complex things possible for a company. Fortunately, the level four kinds of situations are highly uncommon. The business climate is almost never so unstable that there is no way to determine what all (or at least the majority) of the outcomes might be.

That is good news for any company working to create a solid strategy for itself, and also good news for others that will be affected by that business's strategy - such as vendors and stakeholders. Considering where a person is in the market, and where a business is in its industry all has to be done before a company can be ready for a new strategy. Naturally, if the market is full of uncertainty things are even more difficult to handle, since just about anything could happen. Companies that are aware of this are much better at making strategic planning decisions. They know that they can make decisions based on what is actually taking place in the business climate, instead of what they would like to see happen with their business. In an uncertain world, strategy has to be realistic. Too many companies just take a look at what they would like to see happen… READ MORE

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