Every business today deals with uncertainty in the future and every firm tries to reduce it as much as possible in order to prevent itself from the effects of uncertainty. Uncertainty in a way is the lack of certainty. In other words having limited knowledge about the present state and future outcome. This limited knowledge for companies becomes dangerous when they do not know what is going to happen in the future. Firms mostly used traditional approach all their life but since all the uncertainties cannot be forecasted by it other approaches are used as well.
Traditional approaches to strategic planning under uncertainty require accurate predictions, which lead companies underestimating ...view middle of the document...
Diagram 1.1 Strategic Planning Process
In order to predict the future instead of traditional strategic planning approach is used. As seen in the diagram strategic planning requires 3 components, which are: Assessing the level of uncertainty, determining the intent of the strategy (strategic posture) and determining the strategic movies
There is no approach that can eradicate the uncertainty but they can offer direction, which leads to strategic decisions. The level of uncertainty can determine by a four level model. To tackle it there is a four level framework that can help companies
1. A Clear Enough Future – In this level of framework for determining the strategy one single forecast is enough. There is a clear single view of the future. The level of uncertainty is up to 30 %. Companies to accurately forecast the future use the Traditional Strategy tool kit in value chain and market research. At this level for making strategic decisions residual uncertainty is irrelevant that helps manager to make a single accurate forecast for their strategies. In this level companies adapt to the future by innovations in their products and services create value, or by changing the business systems. Also in this level companies buy and resell the latest products and services relying on the pricing rather than product innovation as their competitive advantage. For Example Southwest Airline’s value creating and innovative Point-to-point strategy is an adapt to the future strategy. Managers recognized the opportunity in the low uncertainty environment, which could be established within the present market structure.
2. Alternate Futures – In this future is defined by the few discrete outcomes. The level of uncertainty is up to 50%, which is the highest among the four level frameworks. A limited number of potential future outcomes. Analytic tools like Game theory, decision analysis and options are used. In level 2 shape the future strategy is used to increase the likelihood that a favored industry situation will disclose. Shaping the future deals with setting standards and is likely to capture the initial core...