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    In uncertain times, it pays to keep your options open

    by Arnaud Chevallier, Michael R. Wade, Lars Häggström Published 5 July 2022 in Audio articles • 6 min read • Audio availableAudio available

    A series of global shocks has made effective decision making incredibly difficult. Our experts offer three practical steps to get the balance right. 

     

    Faced with a series of shocks that are increasing in both frequency and intensity — a global pandemic, supply chain bottlenecks, extreme weather, the fallout from Russia’s assault on Ukraine — leaders are having to make decisions under great uncertainty. As they grapple with a large number of forces all at once, corporate executives may feel overwhelmed. Because of their speed and high amplitude, the changes in the current environment introduce unique challenges. For one, delaying action to gather more data — a standard approach to reduce uncertainty — can have disastrous consequences as windows of opportunities come and go much too quickly compared with the pace of traditional strategic analysis. 

    The good news is that executives do not have to be paralyzed by indecision. Adopting a three-step approach can enable them to make effective decisions even when face with a highly uncertain future.

    Making tough decisions with incomplete information in still-unfolding circumstances is part of any leader’s job. However, extreme uncertainty calls many deep-seated assumptions into question. Crises often force leaders to think of the immediate future rather than seeing the bigger picture. This problem is compounded by low-quality data that leaders will often base decisions on. When challenges are unprecedented, such as they are today, the traditional decision-making approach of collect-analyze-decide-learn is rendered largely ineffective, because there’s no recent history to learn from and no time for the process to fully run through. As a result, leaders often fail to take corrective action quickly enough.  

    Fortunately, leaders can adapt their decision-making process with the following three-step approach.

    Three steps to solve any problem 

    Most complex problems can be solved in as little as five minutes with the appropriate techniques. In Solvable: A Simple Solution to Complex Problems, Arnaud Chevallier, Professor of Strategy and Decision Making at IMD, and Albrecht Enders, Professor of Strategy and Innovation at IMD, synthesize research from the fields of management, psychology, design and engineering, breaking down problem-solving into three simple steps: 

    1. FRAME: What is the problem? Define the issue and synthesize it into a single overarching key question. 
    1. EXPLORE: How might I solve the problem? Identify possible answers to the question and the criteria that will help you decide how much you like each option. 
    1. DECIDE: How should I solve the problem? Isolate which alternative, on balance, you prefer.  

    Solvable equips leaders with practical, evidence-based tools to help solve issues at work. Breaking the cycle of “paralysis by analysis”, this book helps readers make better decisions, faster. 

    Solvable is published on 18 June by FT Publishing International. 

    Step 1: identify factors that could significantly impact the future of the organization.

    The scenarios are built from the extremes of these factors. For instance, the evolution of the COVID-19 pandemic might be one such factor. One extreme could be that the virus continues to impact the world for a long time through further mutations and resistance to treatments (high longevity). Another could be a relatively quick return to normality thanks to effective vaccines and weakening of the virus (short longevity). Another factor still might be attitudes towards globalization, where extremes could range from global distrust and balkanization (low global mindset) to high social and economic integration (high global mindset). Other factors might link to geopolitical events, digital disruption, or global economic performance. IMD’s Global Signals has proved extremely useful for leaders to identify potential factors and rate their relative impact on their organization. 

    Step 2: build scenarios by combining extremes of these different factors.

    For example, what if the world was faced with high COVID-19 longevity, a low global mindset, and high geopolitical instability? At least three or four widely different scenarios can be generated to motivate thinking and discussion. Leaders should identify what it would take to be successful in each of these scenarios. This approach builds on the assumption that there are no right or wrong scenarios, and that there is still the possibility of success even in the worst-case scenario. However, leaders should focus on what they can control to make the most out of whichever scenario they find themselves in.

    The power issue

    From CXOs to Gen Z activists, our experts examine where the real sway lies. In Issue VII of I by IMD, we explore the shifting centers of command and how leaders can inspire, empower and wield influence for good.
    Explore issue 6
    “According to Amazon founder Jeff Bezos, most decisions are ‘changeable, reversible — they’re two-way doors”

    Step 3: deploy “backward reasoning”.

    Identify a set of strategies that could lead to success under a range of possible futures, then backtrack from the end goal to work out the steps that would lead there. While designing these implementation plans, leaders should promote effectiveness and optionality — delaying committing to irreversible investments for as long as possible — to keep their options open. Put another way, when uncertainty is high, it’s important to privilege being flexible.

    Jeff Bezos, the founder and former CEO of Amazon, underscored the importance of this approach in his 2018 letter to shareholders in which he wrote: “Some decisions are consequential and irreversible or nearly irreversible — one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation … but most decisions aren’t like that — they are changeable, reversible — they’re two-way doors.”

    By front-loading their implementation plans with two-way-door decisions, leaders create an opportunity to learn from the future: as new developments occur, they can update their thinking. For instance, an airline needs to decide whether to order new planes but is unable to accurately forecast passenger demand in 12 months’ time. Promoting optionality could mean letting go of owning the planes and leasing them instead. Yes, leasing might be more expensive than owning outright, but only if demand is strong. Under uncertainty, the better route might be to spend a little more on leases as this affords the flexibility to return the plane if there’s no demand for it.

    In summary, leaders should adopt an agile decision-making style, continuously modifying their allocation of resources as the environment evolves. Adapting their thinking in light of new evidence might call for maintaining redundant overlapping systems, which is at odds with the general corporate focus on efficiency gains. In normal circumstances, leaders rightfully challenge themselves to make their organizations as efficient as possible. However, when uncertainty skyrockets, they ought to focus on effectiveness, identifying first and foremost what needs to be achieved, then keeping their options open for as long as needed.

    Maintaining optionality, along with scenario-planning for a wide range of possible futures, will help leaders to make more effective decisions as they attempt to navigate an increasingly volatile operating environment.

    Authors

    Arnaud Chevallier

    Professor of Strategy at IMD

    Arnaud Chevallier is Professor of Strategy at IMD, Director of the Global Management Foundations program, and Co-Director of the Complex Problem Solving program. His research, teaching, and consulting on strategic thinking bridges disciplines to provide concrete tools to improve decision making and corporate problem solving. He has written two books: Strategic Thinking in Complex Problem Solving and Solvable: A Simple Solution to Complex Problems, co-authored with Albrecht Enders.

    Michael Wade - IMD Professor

    Michael R. Wade

    Professor of Innovation and Strategy at IMD

    Michael R Wade holds the Cisco Chair in Digital Business Transformation and is Director of IMD’s Global Center for Digital Business Transformation. He directs a number of open programs such as Leading Digital Business Transformation, Digital Transformation for Boards, Leading Digital Execution, and the Digital Transformation Sprint. He has written ten books, hundreds of articles, and hosts a popular management podcast. In 2021, he was inducted into the Swiss Digital Shapers Hall of Fame.

    Lars HäggstrÜm is Senior Adviser at IMD Business School and a former CHRO at Stora Enso, Nordea and Gambro

    Lars HäggstrÜm

    Senior Adviser, IMD Business School

    Lars HäggstrÜm is Senior Adviser at IMD Business School and a former CHRO at Stora Enso, Nordea and Gambro.

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