STRATEGY UNDER UNCERTAINTY
Companies considering major investments in postcommunist Russia in 1992 faced level four uncertainty. They could not predict the laws or regulations that would govern property rights and transactions—a central uncertainty compounded by additional uncertainty about the viability of supply chains and about the demand for previously unavailable consumer goods and services. Shocks such as a political assassination or a currency default could have spun the whole system toward completely unforeseen outcomes.
This example illustrates how difficult it can be to make strategic decisions at level four but also underscores the transitory nature of level four situations. Greater political and regulatory stability has turned decisions about whether to enter Russian markets into level three problems for most industries today. Similarl , uncertainty about strategic decisions in the consumer multi- media market will migrate to level three or to level two as the industry begins to take shape over the next several years.
Situation analysis at level four is highly qualitative. Still, it is critical to avoid the urge to throw up your hands and act purely on instinct. Instead, managers need to catalog system- atically what they know and what it is possible to know. Even if it is impossible to develop a meaningful set of probable, or even possible, outcomes, managers can gain a valuable strategic per- spective. Usually, they can identify at least a subset of the variables deter- mining how the market will evolve over time. They can also identify favorable and unfavorable indicators of these variables—indicators that will let them track the market’s evolution over time and adapt their strategy as new infor- mation becomes available. By studying how analogous markets developed in other level four situations, by determining the key attributes of the win- ners and losers, and by identifying the strategies they employed, managers can also identify patterns that show how the market may evolve. Finally, although it will be impossible to quantify the risks and returns of different strategies, managers should be able to identify what information about the future they must believe to justify the investments they are considering. Early market indicators and analogies from similar markets will help sort out whether such beliefs are realistic (see sidebar, “Postures and moves,” on the next page).
Strategy in level one’s clear enough future
In predictable business environments, most companies are adapters. Analysis is designed to predict an industry’s future landscape, and strategy involves making positioning choices about where and how to compete. When the underlying analysis is sound, such strategies by definition consist of a series of no-regrets moves.