White paper Strategy under uncertainty: setting future direction

Alongside the operational challenges of day-to-day business, topics in the social, societal, economic and environmental dimensions are gaining in importance. They challenge business models and will change them.

These include wars and their consequences, geopolitical developments and the shift in the balance of power, disrupted supply chains and shortage economies, energy costs and raw material scarcity, refugee movements, rearmament and populism. Added to this are pandemics, inflation, cost risks and interest rate rises, insolvencies, regulation and stoppages in production and the skilled trades.

On the societal side are demographic change, the shortage of skilled workers and the management of bottlenecks, new worlds of work and New Work, sustainability and values, climate change and natural disasters.

How such developments affect companies is described by the multi-level perspective on societal transitions, following Geels and Schot. It distinguishes three levels: overarching developments (landscape), the existing socio-economic, political and technical structures (regime) and niche developments.

The regime comprises markets and the preferences of users and consumers, industry, science, politics and the state, technology and culture. Overarching dynamics put this regime under pressure. In the niches, small innovative networks of different players support innovations on the basis of shared expectations. External influences act on these niches, and viable solutions emerge through processes of selection, consolidation and channelling.

When a window of opportunity opens, a new configuration prevails and leads to adjustments in the regime. Restabilised regimes in turn influence the overarching developments. For strategy this means: pressure for change comes from overarching developments as well as from the niche, and it unfolds over time.

Organisations are social systems, surrounded by many environments: customers, suppliers, competitors, banks, employees, the city, the internet. They select their relevant environments through observation and evaluation grids in order to reduce complexity and remain capable of action.

Established routines are geared towards confirming internal ideas about the environments and filtering out divergent impulses. An organisation sees what it sees, and as a rule it does not see that it does not see what it does not see.

An organisation cannot perceive and take in everything that happens around it. It inevitably has to select. To do so, it automatically forms observation and evaluation grids that structure and organise its perception according to organisation-specific criteria. These grids usually exist only implicitly; the processes of distinction take place unconsciously.

This goes hand in hand with a dangerous process of self-confirmation. On the one hand, what worked well in the past is repeated. Successful patterns of explanation and interpretation are retained and reinforce one another into fundamental convictions that can hardly be shaken any more, regardless of whether the environment now requires different criteria.

On the other hand, divergent observations are mostly not perceived as such and are reinterpreted until they fit the familiar pattern. Instead of regarding them as a signal of change, they are adapted to what is familiar.

Organisations therefore perceive only what is already on their radar screen, until at some point the so-called “black swan” appears: an event that until it occurred was considered unrealistic or even impossible and forces the organisation to become aware of its blind spots. Every leadership should assume that it does not see everything and, in all probability, does not see that it does not see something.

Shaping the future is a special process in the tension between knowledge and not-knowing. Without deliberately shaping the future and coping with uncertainty, a company tends to cling to the success patterns of the past. The greater its entrepreneurial success in the past, the more difficult it becomes to overcome its “immunising power”.

The focus is on the company’s strategic capacity for change. This means observing the relevant environment, reviewing existing assumptions and readjusting the strategic points of orientation. In this way a company stays on course even when unforeseen developments have fundamentally changed the framework conditions.

According to Wimmer and Nagel, the expert-oriented form of strategy consulting rests on three problematic basic assumptions. The first is predictability: if one only proceeds “correctly”, the knowledge and information required for strategic decisions can be fully mobilised.

The second is calculability: market and competitive developments follow identifiable laws, knowledge of which allows reliable success strategies to be derived. The third is trivialisation: the organisation as such functions merely as an instrument for implementing strategic purposes and objectives that are mostly set from outside.

These basic assumptions suggest a false security. They thereby miss the fundamental problem that companies have to solve in dealing with the future.

What can decision-makers still rely on when the basic assumptions of predictability and calculability are increasingly losing their validity? They are replaced by three new basic assumptions. The environment of companies is not transparent. The future is and remains uncertain. The company as a complex social structure is not a trivial machine.

With this understanding of shaping the future and the new basic assumptions, the paradigm “structure follows strategy” is no longer up to date. In the old paradigm, the effect runs in one direction: from the environment to strategy and from strategy to the organisation. Behind this lies the attempt to adapt the company as well as possible to given environmental conditions.

The necessary change of perspective gives rise to a new paradigm. It describes a circular process of loose couplings and mutual influence. The environment influences strategy, strategy influences the environment. Strategy influences the organisation, the organisation influences strategy.

The focus is therefore no longer on adapting to the environment. It is about uniqueness with regard to relevant performance dimensions and about actively shaping one’s own market.

In this way, shaping the future is closely interlinked with its effects on operational business. The problematic separation between thinking and acting that exists in the old paradigm is removed.

Uncertainty about the future, dynamic developments and the lack of predictability are often lamented. In fact, this uncertainty is the basic prerequisite for entrepreneurial action.

A thought experiment shows this. Suppose a company knew exactly how markets, societal needs and customer behaviour would develop in the coming months and years. That sounds tempting. But if all competitors had the same information, no competitive advantage could be gained from it, and no one could stand out from the competition.

Precisely because this information is not available with certainty and decisions are made on the basis of assumptions, it is possible to recognise trends and developments before anyone else. Those who succeed are those who discover needs and problems in the market or in society for which there are not yet any good solutions, and who find smart answers to them.

Uncertainty can thus be regarded as a source of entrepreneurial activity and as an opportunity to actively shape one’s own environment through innovative and surprising solutions.

No one knows what is coming. The future is and remains fundamentally uncertain. To become capable of making decisions, the only option is therefore to make assumptions to the best of one’s knowledge and belief. Strategies and pictures of the future are built on them, as are subsequent decisions.

When forming hypotheses about future developments, it is important to incorporate different perspectives and to use the knowledge available in the organisation, the so-called system intelligence.

Hypothesis-based work follows a cycle, presented following Königswieser and Exner: observing and gathering information, forming hypotheses, deciding and planning the intervention, intervening. After that, observation begins again.

The basic understanding of strategy, which follows Wimmer and Nagel, builds on the three new basic assumptions. Strategy is an essential leadership dimension in the company for working on the difference between present and future. It is the method of giving the company a perspective for the future and of coping with the existing uncertainty.

Strategy work comprises a regular process of reflection and decision-making for shaping the future and coping with uncertainty. It is a joint leadership achievement within the management system in which key players from the organisation are involved.

In terms of content, strategy means a company’s positioning in the market. It answers three questions. In which markets does the company want to operate? Which target customer segments does it want to focus on? What benefit, that is, what value proposition, does it want to offer its customers, and how does it want to differentiate itself from the competition with it?

Behind this lies a basic thesis: organisations tend to be oriented towards the past. Left to themselves, they concern themselves in their problem-solving activities with problems of the past. Strategy work must therefore open up the difference between present and future and derive development impulses for the company from this difference.

Since the future is and remains uncertain, work must be based on assumptions. The future cannot be calculated; the organisation must shape it itself. In doing so, the “immunising power” of past successes must be overcome. In this understanding, uncertainty is regarded as the source of all entrepreneurial activity and not as a problem.

Shaping the future and coping with uncertainty are understood and set up as a joint achievement in the leadership system, making use of system intelligence. The aim is an attractive picture of the future that gives the organisation identity and orientation.

For orientation, an organisation needs a meaningful picture of the future that is understood by its employees. It comprises the future business identity and the associated future strategic positionings.

The picture of the future thus answers several questions: in which markets the organisation will operate in future, which target customer segments it will focus on and how it will design its offerings for these segments. It also names the growth and profitability targets associated with this positioning and the key indicators by which the organisation is to be steered strategically.

Within this positioning, external effects of entrepreneurial activity are deliberately and specifically incorporated into the development of corporate identity, corporate values and the corporate brand.

Strategy work combines reflection and action. Wimmer and Nagel describe three levels for this. In operational business, the currently valid strategic positioning is implemented. At the level of reflection, a strategy review takes place at regular intervals, from which the positioning for the next period emerges. At the level of meta-reflection, the routine of the strategy review itself is examined.

In the strategy review, the existing strategy is critically scrutinised with regard to developments in relevant environments and, where necessary, adjusted in a reasoned way. Two core questions are at the centre. Which commitments does the company deliberately hold on to despite indications of a need for change? And which commitments must it change in order to secure business success?

This requires courage and a willingness to change course. No one should cling to decisions already made at all costs. Future developments can only be forecast with great uncertainty. It should therefore always be assumed that the state of knowledge may be different tomorrow and that there may be a better alternative tomorrow to the decision made today.

The probability of error should always be communicated along with the decision; this helps with correction. If other paths turn out to be more suitable and more promising, it takes courage to correct course instead of staying on the wrong track.

A map with three areas serves for working on strategic positioning: the question of where the company wants to grow, the question of how it wants to grow, and the translation of the positioning into a strategy map.

The question “Where to grow?” is answered through market segmentation and the assessment of the market segments. For the segmentation, the basic logic, main criterion and scope are defined. The assessment is made from the outside view (outside-in) on the basis of market attractiveness. Criteria are volume, growth and trends as well as profitability, retention potential, revenue and margin.

The question “How to grow?” is answered through determining threshold benefits and potential and through customer segmentation, likewise from the outside view. The minimum expectations and value creation potential of current and potential customers are determined. Distinguishing criteria are defined for the customer segments and the segments are characterised.

Both lead into the strategic positioning. A portfolio contrasts attractiveness and competitiveness. From this, target market segments and target customer segments emerge along three questions: Which market segments are attractive? How competitive is the company in these segments? Which customer segments are relevant in these market segments? Value propositions are then formulated for the customer segments.

The strategy map translates the positioning into four perspectives. In the markets and customers perspective, target market segments and the corresponding customer segments are identified and positioned. The finance perspective contains cost targets and growth targets. The processes perspective covers customer management, operations and innovation. The learning and development perspective focuses on employees, core competencies and culture.

Companies enter strategy work from different entrepreneurial contexts. Four starting situations can be distinguished, and for each there is a suitable sequence of work steps.

The first starting situation is entrepreneurial, identity-forming or identity-seeking and resource-oriented. The path leads from trends and the environment via core competencies to the strategic challenges and the strategic options. From these emerge the picture of the future and the strategic positioning, which are translated into a strategy map.

The second starting situation is market-driven and business-oriented. Here the work begins with market segmentation and market assessment. This is followed by customer potential analysis and customer segmentation, then market positioning and targets. A strategy map is optional in this case.

The third starting situation focuses on market and customer analysis. It comprises market segmentation and market assessment as well as customer segmentation and the value propositions.

The fourth starting situation covers special cases with a relatively clear strategic framework. The sequence of steps corresponds to the first starting situation: trends and environment, core competencies, strategic challenges, strategic options, picture of the future and strategic positioning, strategy map. Here the work takes place within the set framework.

A strategy review that takes current market requirements into account comprises six areas of work. They take up the elements described above: observing the environment, system intelligence, positioning and the ability to change course.

The first area is the assessment of market developments: evaluating current trends in the socio-technical landscape and market developments, and assessing one’s own core competencies. The second area is the use of system intelligence, that is, the knowledge available in the network, in the organisation and in the ecosystem, as well as the multitude of different perspectives.

The third area is the review of the future orientation. The company’s strategic positioning is examined with regard to economic objectives as well as ecological and societal aspects.

The fourth area is building shared assumptions in management. Establishing commitment and binding agreement in the circle of decision-makers is an essential prerequisite for effective implementation.

The fifth area is evaluating the impact of strategic initiatives. The degree of strategy implementation and its impact are considered, taking into account the perspectives of the strategy map: purpose, planet, people and profit.

The sixth area is examining the capacity for self-renewal. The established routines for strategy work are reviewed. A further aim is to overcome an inward and backward-looking orientation.

The third mode of consulting differs fundamentally from classic expert consulting. Alongside the factual dimension of content, the social and time dimensions are given equal consideration in the architecture from the outset, synchronised and integrated.

The factual dimension means working on a task-related problem of the organisation in order to secure or further develop organisational performance. The social dimension means the indirect further development of the quality of cooperation and decision-making ability of the team or of other communication in the organisation. The time dimension means observation and design over time: avoiding over- or under-steering and balancing acceleration and deceleration in the decision-making process.

Nagel and Glatzel contrast the basic logic of classic strategy consulting with the third mode. Classic consulting is based on delegation and division of labour between consultant and management, that is, on the separation of thinking and acting. It creates security through rational analysis and is oriented towards the past and present: it looks into the future through the rear-view mirror. The organisation is regarded as a means to an end in the sense of the trivial machine model according to Heinz von Foerster.

The end result is external, often pointed recommendations for action for top management. Characteristic features are a deep analytical penetration of the business and market developments and the strengthening of the legitimacy of management decisions vis-à-vis stakeholders.

In the third mode, strategy is an integral part of a management team’s leadership responsibility. Coping with uncertainty is a joint leadership achievement that arises through intensive debate about the company’s future within the management team. It is based on a non-trivial, systems-theoretical understanding of organisation and steering.

Innovation arises through mobilising the company’s internal creativity and intelligence. This contributes to the organisation’s capacity for learning and strategy. The integration of thinking and acting in the strategy architecture ensures a strong focus on implementation. The consistent orientation towards the future makes the company manageable from the future.

The transformis consulting approach follows systemic organisational theory. It takes into account the high dynamism and self-referentiality of organisations, takes up the resistance that change meets, and recognises that players in organisations do not only pursue organisational goals.

Added to this is independence from any particular industry. It avoids the blind spots of focused industry experts, brings in perspectives and experience from other industries and allows previously unknown possibilities to be developed. In the collaboration, all working sessions are facilitated and all results documented. Every session ends with minutes accepted by all those present. Every setting is reflected on, evaluated and feeds into the next preparation.