In our strategy work, we often help clients flush out potential future scenarios based on facts already in evidence today.

Consider health care (for example).  Many of the president’s health care reform measures are already gaining steam, and will be hard to reverse.  The health care community is moving towards electronic medical records, an idea whose time has come independent of other components of health care reform. The health care sector is in a bit of a funk, as it is hard for businesses to predict what the rules of the game will be in a year or two. But health care is the exception, not the rule.

Generally, futurists view the political landscape based on which party is in control of the executive and legislative branches.  As a nation, we are gripped by the nightly reporting on poll numbers, debates and the latest sex scandal. It is the Tea Party vs. Protest Wall Street. The unfortunate truth is that the balance of power has become completely neutralized.

The U.S. populace is so displeased with both parties, neither can win a clear majority, and the result is stagnation.  Congress passes legislation that is neutralized by executive order or by bureaucrats at the Federal Trade Commission, FDA, EEOC and other agencies where politics trump responsibility.

This neutrality was clearly evidenced by the “super committee” that was a super disappointment. Congress is too big and dysfunctional to agree on anything so the thinking was that a smaller group could find consensus. No compromises were forthcoming in a political climate so polarized that the two sides couldn’t even agree on minor details like saving the country and the world from economic doom. Details, details.

This principle is so simple it is obvious. In the absence of any clear evidence to the contrary, it could be argued that we should run our businesses under the assumption that there will be little regulatory change.

It is ironic that based on the absence of any new action, $1.2 Trillion in spending cuts and tax reductions expire in 2013 (as agreed to the last time the government was on the brink of collapse). [i] The only thing the two sides can agree on is that such cuts to defense; Social Security and Medicare are “draconian.”

It beats the alternative. We simply can’t believe that the situation in Europe is so bad, that “austerity measures” are being used, as nations cannot meet their debt obligations. I only got a B in macroeconomics but I am pretty sure Italy and Greece paying 7% interest on their debt is problematic[ii]  The writing is on the wall, and the ramifications for both parties are extreme: much higher taxes on the wealthy and deep cuts to entitlement spending.

So what is there to be learned from all of this gridlock? First, if your business is reliant on government, you had better diversify into the private sector quickly (especially if you do business with the military).  Second, we should expect the status quo from Washington.  Our representatives are simply too inept, and too political to change.

Some political experts are even suggesting that an independent could emerge during the Presidential campaign, which would threaten our two party system (it may not happen this year but is almost certain to happen in future years). As an American, I find that troubling but perhaps it would do us some good.

Everybody wants to develop the next iPad app. Inventing things is a great way to impress your friends.  But sometimes crafting strategy is more tepid.  One needs to balance their need to disrupt based on positioning, industry stage, resources and a myriad of other factors.

I have always viewed the exercise of strategic planning as a blend of revolution and evolution.  It is important for companies to fully bake their last innovation before they can move on to the next.   The inability to fully develop an idea can be futile. As the old saying goes, a man with two watches may not know what time it is.

Some companies have the chops to work on multiple disruptions at once, but they are usually the ones with an abundance of resources. For most, execution can require the attention of several executives and their underlings. Such work is both exhilarating and exhausting and it is not for the faint of heart.

One critical constraint is that the people who dream up such ideas are in the C-Suite, and they are the ones with the most limited bandwidth. It is for that very reason that the most senior people need to delegate operational responsibility so that they can keep their eye on the ball.  It is extremely challenging for CEO’s to focus on revolution as they manage evolution. They may have the vision for evolution, but it is the job of the COO (or similar of a similar ilk) to see through incremental change.

That is not to say that incremental change is not valuable. It is more than valuable; it is the cost of admission in a business culture where customers expect Nordstrom quality and Wal-Mart pricing.  Customers will not accept the status quo for very long, so continuous improvement is a required business practice.

Some companies are particularly adept at overcoming this resource dilemma. They create opportunities for innovation in their interactions with customers (by asking the right questions of the right people) and in the way that they manage their planning.  Some environments are far more ripe for revolution than others, based on how their managers show up.  Others execute vision by using outside resources (outsourcing) or task forces of employees who can focus on improvement. One way to develop mid-managers is to task them with tasks and initiatives that may expand their role and stretch their thinking.

So pick your battles wisely.  Find a way to manage both your disruption and continuous improvement in parallel.

For most entrepreneurs, it has actually been a  pretty good year. One wouldn’t know it based on reading the papers.

Housing and construction remain depressed. But an objective view reveals a surging Dow, low interest rates, stable energy prices and inflation that is in check.  While GNP growth is modest, most businesses grew last year, and should grow again this year.

Many entrepreneurs I talk to want someone with a silver bullet to tell them which direction the economy is headed.  Are we up or are we down? The constant analysis of minuscule shifts in U.S. demand is dizzying. My view is that the directional momentum of the economy is irrelevant for most businesses. It is a variable beyond our control. With no evidence to the contrary, one could assume that 2012 will be much of the same.

Entrepreneurs should be focused on revenue growth and where it will come from. Will revenue gains be with new clients, new products or services, new customers, or new geographies? What are the strategic priorities of your customers?  What new service bundles will your competitors present?  Every entrepreneur should remember, that the ROI within one’s existing core business typically yields a return of several times that earned in any new market.

Here are some things to look for in 2012:

Capital Investment: Of 781 companies surveyed by the National Federation of Independent Business, 24% planned capital outlays in the next 6 months (the highest proportion in the last 40 months).[i] While still relatively sluggish, expansion of U.S. manufacturing capacity should continue as entire industries (such as automobiles) shift production back to the U.S. as a result of the strengthening of the U.S. dollar.

Retail: The convergence of mobile devices and real time data has completely changed the face of retailing. Retailers will be moving towards solutions that morph the in-store and online retail experience.  Consumer spending this Christmas season was high (up 6% through Q3 and with similar strength in Q4) even though joblessness remains relatively high (9.1%) and there is virtually no rise in household incomes.[ii]

Hiring: U.S. companies who have cut staff for 3 years are starting to hire again. Economist Carl Riccadonna said “We’re getting to the stage where employers can’t squeeze more water from the stone”. Remarkably, the talent war persists as many employers can not find skilled workers.

The worst is over with bankruptcies: Over one million consumers filed for personal bankruptcy in 2011, down sharply from 2010.

Credit Markets: If there is a cog in the wheel we should be worried about it is the state of major U.S. banks.  Those with significant mortgage holdings (especially in home equity line of credits) of troubled assets on their books (some have even suggested at least one major U.S. bank is insolvent).  29% of homes in the U.S. are currently under water. The difference between 2012 and past cycles is that foreclosed  property has virtually no value in depressed communities such as Buffalo and Cleveland. A major U.S. bank failure could reverse a year of positive projection in our confidence.

Construction: If there is an industry that has been beaten down it is construction (especially general contractors).  Every project is won or lost by RFQ (request for quote). The few who are still profitable are niche players or those with a unique selling proposition or penetration in unique markets (such as those that do environmental work or projects for municipalities and state governments).  While housing starts are seeing a very modest turn around, pricing will remain brutal for the foreseeable future.

Government: Presidential politics will dominate the debate, with entitlement spending and Obama care in the balance. In 2012, 30% of Medicare’s burden will shift to states[iii]. “Draconian” cuts in government spending at the Federal, State and Local level (with more than 200,000 expected lay offs in local government) will impact businesses reliant on government spending. It’s time to diversify if that is you. Outsourcing for government is an opportunity.

By now, every company should have revisited their strategic plan, set 3-5 year goals and set their budget for calendar 2012. Here is a useful New Years Proposition for you: invest your energy on building the infrastructure to support future growth, and focus on only those markets where you can dominate and remain profitable. For most businesses, this is a time to expect steady modest growth, and not to be making wild bets.