Building Better Strategies: Dealing With an Uncertain Environment

Entering a market full of uncertain variables can make forecasting a difficult task. And making the mistake of using precise forecasting methods can cost your company time, energy and money. That’s because forecasting outcomes with so many variables is tricky – and precise models aren’t flexible to change. And even worse, some executives rely solely on instinct, which is also a dangerous mistake.

But if precise models and instinct don’t work, then what does? Breaking away from static models and building more flexible scenarios that react better to change will give your company the ability to perform better in an uncertain environment.

Functioning with Limited Information
Having limited information about market conditions can make planning challenging. For this situation, consider developing a single model strategy. The model will be based on available market research, competitor information, and any other available resources. But this model will differ from traditional versions, with the ability to quickly and easily adapt to change.

Planning for Unstable Conditions
If market conditions are unstable, consider choosing a few flexible scenarios. Build each scenario with several elements, and strategize reactions to changes in market conditions. Also, carefully work out the risk and return on investment for each situation. Examples of companies that may benefit from this strategy are those affected by government laws or regulations, like the pharmaceutical and medical devise industries.

Focus on Trigger Events
For companies launching products or services in emerging industries or an entirely new market, consider developing 4-5 different scenarios that focus on trigger events. When embarking on this process, make sure that each scenario is distinctly different. This will save resources on developing strategies that are too similar. Management should discuss the risks of each scenario, and the appropriate reactions. The ability to expand distribution potential should also be discussed in detail to plan for future growth. Also keep in mind that merger and acquisition activities may be viable options for accommodating growth.

Dealing with Scenarios that Seem Impossible to Predict
Breaking into new markets and countries is difficult because there isn’t any existing experience to pull from when predicting factors like demand. When building scenarios, isolate variables that may indicate how your product will act in the new market. You can also study related markets to forecast product success.

Secure Your Market Position
Once you’ve entered a new market, it’s important to secure and maintain your market position. To establish a leader market position, seek the best information available on pricing, and establish strategies to grow and maintain customer relationships.

The Value of Market Research
If you have an emerging product or service, purchase enough market research to get a snapshot of similar markets and their success. However, don’t spend too much, because this information doesn’t always accurately predict your success. Instead, use the information you have to build flexible models, with the ability to accommodate expansion and growth activities.

Evaluate your Models Regularly
Models quickly become outdated, especially in emerging markets where information is changing constantly. Ensure your models stay current by evaluating them every 3-6 months and making the necessary changes.

Invest in Pilot Trials
When developing your models and plans, consider launching a pilot program for new products and services. While this activity can be expensive, it’s valuable for companies with little or no market research. The results provide a glimpse into consumers’ reactions to your product, and allow you to quickly make adjustments before bringing a product or service to market. This is a good strategy for those interested in launching new products in emerging markets or new counties.

Invest for Growth
Launching a new product or service is a large financial investment. And when a product becomes successful, it’s important to have strategies in place for growth. If your business grows quickly, strategies should be swiftly implemented to preserve customer service, expand production, while maximizing profit. One solution to consider is participating in merger and acquisition activities, which may be more cost effective than expanding operations.

Minimizing Your Risk
Some companies can’t afford to take all of the risk alone. Minimize your risk by entering a joint-venture business arrangement. This allows businesses to share costs and risks when entering uncertain environments, such as a new market or country. Although profits are shared between the companies, it can be a beneficial arrangement, allowing high-profit potential for companies that wouldn’t have entered the market alone.

Building better strategies and planning methods will allow your company to experience greater success. Because more flexible planning allows businesses to react smarter, which positively affects the bottom line. And when outcomes are uncertain, management will be able to react quicker, contributing towards revenue growth, and enhanced productivity.

Resource:
Scott Cade, Robert-Jan Hagens, Caroline Moss and Muir Sanderson. “Moving Beyond Cost-Cutting.” Booz Allen and Hamilton.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or email him.