Strategic flexibility under uncertainty.

The evolving business environment:

Businesses operate under the assumption that a fair amount of strategizing could allow them to bound the ROI, but with the changing economic scenario, political upheavals and environmental crisis; the business environment grows naive thus making it harder for the executives to coordinate business functions in conjunction with the changing business environment. Thereby putting the organization at a risk of losing its value. With the increased industry turbulence(technological progress, networks and complex systems), the world markets are continuously interacting and the convergence of global and emerging markets is drawing in a large scale of uncertainty.

At the strategic level, business logic is nothing but to innovate the business model in order to make a profit.We need to know about the business environment before addressing uncertainty, as its the environment in which a business operates drives growth and also creates value. When evaluating the potential demand for a product/service, executives mostly undermine the uncertainty quotient surrounding the business environment. Business environment both internal and external are susceptible to uncertainty and often executives in an attempt to confront the odds in their favour, strategize assuming that by applying a set of statistical tools can help them chart the business future to a certain accuracy. But the overarching concern here is that no amount of analysis can prepare an organization to withstand the unanticipated events. An analysis might help establish priorities and if that organization without acknowledging the likely outcomes, act on one version of the future. They might make it through due to a miraculous stroke of luck but in no time the business value is going to be at stake.

Let’s draw a parallel from the 2008 economic crisis, the knock-on effect brought into the emerging markets has forced the emerging market and developing economies to turn up to IMF, world bank and capital surplus countries to cope up with the financial crisis. This illustrates how markets are converging and the interconnectivity between the global and the emerging markets is increasing. With the increasing globalization, uncertainty is also picking up the pace and below is a figure which illustrates how an external business environment is shaped.

Business environment both internal and external undergo changes in a novel and unforeseeable ways, an adaptive approach is to avoid predictions and rather focus on responding to changing events as they emerge. Organizations employ foresight practices with an aim to identify the change in the business environment. These measures are emphasized by strategic planning where the circumstances under which an organisation operates tries to enhance its performance.

In order to succeed, every organization needs a strategy so to set the direction and establishes priorities. But in an uncertain business environment or during uncertain times, most of the organizations depend on traditional approaches often failing to exploit the profitability underlying the uncertainty. To fully comprehend the profitability underlying uncertainty, let’s look up to few assertions made by Frank Knight. In his book titled Risk, Uncertainty and Profit, he argues as follows:

Businesses deal with situations which are far too unique and its an assumption that by applying statistical methods, we can extract value by acting on the information obtained. Tailoring strategy to the level of uncertainty can help businesses exploit opportunities but most executives fail to grab a propositional portion of that pie. At a given instance, every business holds strategically relevant information but bridging it contextually requires identification of market demographics which helps in defining potential demand. Commercialization of product/services is only possible when we tailor a strategy to the market opportunities and pace it across all the business functions so to optimize an organizations development during all phases of its lifecycle.

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