Idea in Brief

The Problem

Few companies use the strategic tool kit—scenario planning, Monte Carlo simulation, and real options—for strategy development under uncertainty. Most have stuck with conventional techniques for strategy-making, to the detriment of customers, shareholders, and other stakeholders.

Why It Happens

Executives complain that the tools require data that is impractical to gather and analysis that is too expensive to perform routinely. Moreover, the output can be counterintuitive and complicated to explain to senior leaders and a company’s board.

How to Fix It

Business leaders need to think of strategy-making as a continuous process that generates a living, dynamic plan. That demands a new approach and mindset for making decisions along with a new model, proposed here, for strategy development and performance monitoring.

In crafting strategy, companies often struggle to cope with volatility. Using the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan for winning in that future state. The organization is then called upon to execute that plan. Performance is routinely monitored, ostensibly to keep everyone on track.
A version of this article appeared in the September–October 2022 issue of Harvard Business Review.
Read more on Strategy or related topics Strategy formulation, Strategic planning, Risk management and Change management