Being Opportunistic in a Volatile World

Last week my post drew considerable attention, perhaps because of its shock value at a time when the news was truly shocking. While the tsunami was a natural disaster, the response on the part of the Tokyo Electric Company was a human calamity. Lack of preparation will invariably lead to unintended consequences, if you are managing a nuclear power plant or any other business.

The reverse is also true. The entrepreneur capable of understanding seemingly unrelated external forces, and weaving them into a thoughtful strategy, will clearly realize strategic advantage. How might the strategist consider social, technological, economic, ecological and political factors to gain insight on how to take advantage of ever changing market conditions?

Scenario planning is a methodology whereby the entrepreneur considers converging factors that (in combination) creates a tipping point. Consider some of the following predictions, based on facts already in evidence today.

In the next decade, we are likely to see:

Predicative Modeling-Cloud computing enables the migration and cross-referencing of large institutional databases.  For example, actuaries, using sophisticated algorithms are able to model ailments based on lifestyle choices monitored in real time. They are able to calculate your risk of a heart attack based on which smoothie you tend to order at Jamba Juice, your frequency of exercise, prescriptions you use, etc. Offered as a benefit of a health care plan, the member is offered incentives to opt-in and receive preferential rates. Such tools slow down rampant health care inflation.

A Cashless Society-The majority of transactions amongst big banks are managed by exchanges where no money actually changes hands. Coins of small denomination are nearing extinction. Today, you can download an iPhone app that serves as a debit card, and can be swiped within Starbucks locations.  For most transactions, cash is already irrelevant.

Smart Infrastructure- Automobiles come preinstalled with all of the features of an iPad (the 2011 Hyundai Equus will come with one) and all the benefits of the internet. Smart grids control the flow of traffic, directing drivers to particular lanes at a given speed to optimize drive time and reduce accidents. Traffic signals are regulated based on traffic volume. Sensors predict bridge and rail failures.

Of course, rapid change will occur in every industry, and the strategist must weigh various opportunities based on an organization’s ability to take advantage of them. As a general rule, organizations should seek to achieve scale and reach within its core (at least 30% market share) before expanding into new endeavors. As Jim Collins points out in his sequel to Good to Great (How the Mighty Fall), many companies fail because of an “Undisciplined Pursuit of More”.  In their zeal for diversification they often leap too far from their core competency.

Each opportunity must be assessed within the context of the organization’s resources, bandwidth, and human capital.  For every opportunity there is a cost, and an opportunity cost. To pursue any new opportunity an organization must leverage resources which dilutes focus on the core business.  Choose your opportunities carefully.

In Intended Consequences, I illustrated how our economy had endured a period of unparalleled turbulence. From Y2K to 9/11, the wars in Iran and Afghanistan, the Asian Financial Crisis, Katrina, Mad Cow and Enron/WorldCom we have experienced a decade of volatility. Recent history has presented the Gulf spill, the Haiti and Chile disasters, and now civil unrest in the Middle East. Volatility has become the norm.

The violence in Egypt is particularly daunting because we don’t have a sense of the extent to which the unrest will spread to other nations in the region. Even the White House seemed surprised as stories spread of the President watching television like the rest of us, trying to make sense of it all.

The passage of time has only magnified the “strategy paradox”. How can an organization plan for a future that is impossible to predict?  I believe that in the face of such uncertainty there is a compelling need for more examination, reflection and planning.  Uncertainty should prompt us to think more provocatively about how changes in our environment will manifest within our businesses and our society (one lesson we learned from protests in Egypt is that social networking is not only a tool, but a potential weapon).

Raw materials continue to be unstable, as prices from oil to cotton have moved sharply higher.  If you were a business dependent on such materials, you may need to rethink your pricing strategy, positioning, marketing, etc. in an effort to weather the storm, or perhaps take advantage of new opportunities (to raise prices for example).

One of the ironies of global events is that we cannot comprehend their severity in midstream. When we initially heard of the first plane striking the World Trade Center, we didn’t understand the implications. It was only after time that the terrorist plot and its affect on the world crystallized for us.

So as the events in the Middle East unfold, we must be more thoughtful about what might change. Will civil unrest further American interests or de-stabilize the region? What will be the affect on the stock market, currency markets, energy prices and raw material costs?  How might the U.S. and its allies react?

Only time will tell.