It may come as no surprise that strategic decision making requires accurate forecasting to be effective. While forecasting in general can be difficult in the best of time it becomes extremely more challenging in times of uncertainty.

To assist in improving the accuracy of forecasting, BusinessWorks highlights a simplified four-tiered approach to strategic planning that may come into play as market uncertainty (not just an uncertain economy) increases.

Level 1 - Uncertainty Level: Low

Forecasting Situation: A Clear Forecast

Potential Tools:
• Market research
• Analyses of competitors’ costs and capacity
• Value chain analysis
• Michael Porter’s five-forces framework
• Discounted Cash Flow Analysis to help determine the value of alternative strategies

Strategic Outcome:
These are simple low-risk strategies about product positioning and demographics (also termed as adapter strategies).  Level one adapter strategies should try to make radical changes in the way the industry works and create value-added products and business processes. Although, being an innovator helps to counter level one uncertainty it increases amount of uncertainty for others in the industry.

Examples of Uncertainty: Typical market cycles

Level 2 - Uncertainty Level: Low - Moderate

Forecasting Situation: Alternative Future Forecast

Potential Tools:
• Managers must develop a set of discrete scenarios wherein particular attention should be paid to the likely paths the competition might take to reach the alternative future
• Estimation of the competitors' strategies
• The input cost variation for a company's products/services

Strategic Outcome:
Market “shapers” or business leaders emerge to prevent competitors from creating excess capacity and reduce margins.  Before an upswing in demand they would create capacity or consolidate their position through Mergers and Acquisitions.

Examples of Uncertainty: Regulatory Framework

Level 3 - Uncertainty Level: Moderate - High

Forecasting Situation: Future Range

Potential Tools:
• Scenarios (not more than 5 most probable scenarios) that provide a number of outcomes are developed.

Strategic Outcome:
Shapers try to lead the market and take it into a different direction through improved, technology, products or service.

Examples of Uncertainty: Entering a new market / geographic region

Level 4 - Uncertainty Level: High

Forecasting Situation: Ambiguity

Potential Tools:
• Aim to procure as much information about specific issues as possible.
• Anticipate the evolution of the market in the future
• Analyze key attributes of all companies that failed and succeeded in that market

Strategic Outcome:
The shaper should provide vision to the industry as there are no potential products developed yet; no knowledge about competition, demand and technological standards is available yet. Companies should create a high degree of leverage and evaluate all the options rigorously and regularly.

Examples of Uncertainty: Transitional and emergence after an economic/ technological/ regulatory shock

BusinessWorks' overall approach for dealing with uncertainty emphasizes rigorous systematic thinking; effective usage of analytical tools and understanding of strategic implications. To learn more about how BusinessWorks can help your business craft a winning and outcome-focus business or customer strategy, contact us.