Predicting the Future

An interesting article been recently published in McKinsey Quarterly on how the strategy is getting redefined now.

Predicting the future is arguably the most important and hardest task facing strategists. One way of loading the dice in their favor: scrutinizing the demographic, technological, environmental, macroeconomic, and other long-term forces constantly shaping the global economy. The most eye-opening implications typically lurk at the intersections where multiple trends interact with one another, often in complex and not-so-obvious ways. Moreover, to analyze trends successfully, executives must develop a fine-grained understanding of the potential impact for specific geographies and industries.

How can company strategists spot the next big opportunity or looming threat in their industries before it’s apparent to everyone? There is a four-step methodology for making global trends part of a scenario-based strategic-planning process. By bringing together trends and their interactions, industry-specific insights, and problem-solving techniques, this approach helps create quantitative, actionable, and unbiased scenarios for what might happen in the next five to ten years. Better scenarios, in turn, can help companies challenge conventional wisdom, pressure-test existing business models, identify market opportunities, and develop more innovative products and services.

Four-step methodology
• Establish the reference frame
• Expand the solution space
• Define scenarios
• Quantify industry impact

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The Strategic Control Map

Lowell Bryan, a director in McKinsey’s New York office, describes the strategic control map, a framework that tracks the dynamics of market capitalization within industries.....

The strategic control map uses market capitalization dynamics to help companies identify their biggest opportunities and threats, as well as to boost their odds of hunting for acquisition targets rather than being hunted themselves. Developed in 1996 by McKinsey’s Vijay D’Silva, Bob Fallon, and Asheet Mehta, the framework tracks the relationship between the two dimensions of market capitalization by plotting a company’s size (measured by book value) against its performance for shareholders (measured by market-to-book ratio).

Companies mapped in this way fall into four groups, each with its own challenges and corresponding strategic imperatives. The large, high-performing companies in the upper-right quadrant are the least likely to be acquisition targets. Their challenge is to maintain a strong position by pursuing fresh opportunities without watering down returns. Companies in the lower-left quadrant, the most vulnerable to takeover, must improve the performance of their existing businesses or reinvest in others and divest losers. Companies in the upper-left quadrant often possess proprietary knowledge or skills that enable them to earn high returns from intangibles. They can largely maintain strategic control unless their performance drops, making them vulnerable. Finally, if large companies in the lower-right quadrant don’t improve their performance, they could become inviting cost-consolidation targets for even-larger, better-performing industry leaders.

The enduring power of the framework lies in its ability to visualize how changes in market capitalization affect the market for strategic control. You can see at a glance which companies in a given industry are likely to be acquirers and which are likely to be acquired. When companies map their or their competitors’ performance trajectories, they can get a sense of the combination of size and performance that will enable them to remain competitive and independent.
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Making Better Decisions

In recent years decision makers in both the public and private sectors have made an astounding number of poor calls. The list of examples will be never ending if anyone starts to pen down those examples. So let’s not waste time in citing examples. Let’s get into the core issue as being carried in a recent article published in 'Harvard Business Review'.

Why this decision-making disorder? First, because decisions have generally been viewed as the prerogative of individuals—usually senior executives. The process employed, the information used, the logic relied on, have been left up to them, in something of a black box. Information goes in, decisions come out—and who knows what happens in between? (The black box deserves some unpacking). Second, unlike other business processes, decision making has rarely been the focus of systematic analysis inside the firm. Very few organizations have “reengineered” their decisions. Yet there are just as many opportunities to improve decision making as to improve any other process. Recent popular business books address a host of decision-making alternatives.

However, although businesspeople are clearly buying and reading these books, few companies have actually adopted their recommendations. The consequences of this inattention are becoming ever more severe. Organizations must help their managers employ better decision-making processes. Better processes won’t guarantee better decisions, of course, but they can make them more likely. One can improve decision making in following steps:

Identification - Managers should begin by listing the decisions that must be made and deciding which are most important. For example, “the top 10 decisions required to execute our strategy” or “the top 10 decisions that have to go well if we are to meet our financial goals.” Some decisions will be rare and highly strategic. Without some prioritization, all decisions will be treated as equal—which probably means that the important ones won’t be analyzed with sufficient care.

Inventory - In addition to identifying key decisions, you should assess the factors that go into each of them. Who plays what role in the decision? How often does it occur? What information is available to support it? How well is the decision typically made? Such an examination helps an organization understand which decisions need improvement and what processes might make them more effective, while establishing a common language for discussing decision making.

Intervention - Having narrowed down your list of decisions and examined what’s involved in making each, you can design the roles, processes, systems, and behaviors your organization should be using to make them. The key to effective decision interventions is a broad, inclusive approach that considers all methods of improvement and addresses all aspects of the decision process—including execution of the decision, which is often overlooked.

Strategy Has Never Been More Important

In today's business environment, strategy execution is critical to any company's performance. Becoming a strategy-focused organization (SFO) involves five key phases, governing representing the final one. Governing encompasses all the management systems and processes by which strategy execution is carried out and should, therefore, be ongoing in an organization's life as an SFO.

Learn Best Practices of Strategy Focused Organizations
We can all learn from our mistakes, but with something as complicated as managing performance and executing strategy, it is better to learn from the winners than doing experimentation as it is costly, both in human and financial terms.

Managing Innovation
We all know that without execution, strategy is worthless. But innovation without execution is arguably worse. It's costly, both in human and financial terms. Consider the opportunities for value creation — from controlling design and development costs to reducing time to market — that come with getting things right the first time. It's no surprise that companies are looking at improving the way they manage both the efficiency and effectiveness of their various innovation activities.

Leadership and Change
Among the most important things a leader must do is make the case for change.