Profiting from Uncertainty: Strategies for Succeeding No Matter What the Future Brings

275 Pages·2016·4.61 MB·English

by  Paul J.H. Schoemaker

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Contents
Are You Ready for Yet More Upheaval and Global Turmoil?
Preface: Tumultuous Times
Chapter 1
Embracing Uncertainty
Chapter 2
Preparing the Mind
Chapter 3
Experiencing Multiple Futures
Chapter 4
Preparing for the Unknown
Chapter 5
Building a Robust Strategic Vision
Chapter 6
Creating Flexible Options
Chapter 7
Dynamic Monitoring and Adjustment
Chapter 8
Implementation: Living with Uncertainty
Chapter 9
Case Study: Flying through Turbulence
Conclusion
Navigating the Future
Appendix A: The Psychology of Uncertainty
Appendix B: Uncertainty Tool Kit
About Paul J.H. Schoemaker
Notes
Index
I dedicate this book to my children, Kim and Paul, in the hope that they
will navigate life’s uncertainties with resilience, intelligence, honor, and
humor.
Acknowledgments
Those who aim high usually stand on the shoulders of others. This book tackles
a very challenging and increasingly important subject, in a way that is accessible
to managers. I wish to acknowledge here the shoulders my feet rested on. To
properly apportion my intellectual debt, I offer a brief chronological account of
the interesting journey that led me to this book.
My interest in uncertainty traces back to my undergraduate days as a physics
major. This field taught me that common sense serves us well in the middle of
the spectrum (where Newtonian physics reigns), but that to understand the
extremes of the spectrum, we need uncommon sense. From the enigma of the big
bang to the indeterminacies of quantum physics, the edges force us to confront
ourselves, our own mental models, and the sense-making process we engage in.
The same applies to uncertainty in the economic realm—above all we face
ourselves as we stand naked before the unknown with little to hold on to for
comfort or support.
In graduate school my interests shifted to economics and finance and later to
decision making as an intriguing subject of study. I wrote my doctoral thesis at
Wharton on the limitations of expected utility theory, the prevailing model of
choice under risk at the time. Here I benefited much from the keen minds of
Howard Kunreuther (my adviser), Paul Kleindorfer, and later Jack Hershey. I
fondly recall the stimulating dialogues with Howard and Paul as we teamed up
to write our graduate text Decision Sciences (Cambridge University Press,
1993). With Jack Hershey I published several academic papers probing the
nature of people’s risk attitudes, especially their biases and sensitivity to context.
Around 1979 I moved to the rarified halls of the University of Chicago,
where I joined the newly formed Center for Decision Research. This research
group was led by the late Hillel Einhorn, a gifted scholar in behavioral science.
Operating in the shadows of finance and economics, our fledgling group
advanced heretical notions about bounded rationality and flaws in human
judgment. I befriended Jay Russo, from whom I learned much about cognitive
psychology and with whom I wrote Decision Traps (1989) and later Winning
Decisions (2002). I also learned much from my other behavioral colleagues,
notably Robin Hogarth, Josh Klayman, and George Loewenstein. Our
workshops with guest speakers were always fun and spirited as we listened to
and debated the best minds in the field.
After I was promoted to associate professor at the University of Chicago, I
thought it wise to look at how the real world deals with uncertainty. In 1982 I
took an extended sabbatical with the planning group of Royal Dutch/Shell in
London that had been pioneering scenario planning under the inspired leadership
of Pierre Wack and Ted Newland. At Shell I was privileged to work with Arie de
Geus, Kees van der Heijden, and Peter Schwartz, all of whom later wrote
significant books about planning under uncertainty. Like Chicago, Shell was
fermenting with novel ideas as a constant stream of creative visitors passed
through. The Shell experience painted a sharp contrast between theory and
practice and increased my respect for the complexity and importance of context
in real-world decision making.
Upon my return to Chicago, I turned my attention from decision making to
strategy, a field that was still in its infancy and had little legitimacy at the
University of Chicago. I was fortunate that Dan Schendel, founder and director
of the Strategic Management Society (SMS), visited us for a sabbatical year, and
I much enjoyed our frequent lunches. With Raffi Amit, who was then at
Northwestern University, I started to explore the behavioral foundations of the
resource-based view of strategy. In 1993 we published a joint article in the
Strategic Management Journal titled “Strategic Assets and Organizational
Rent.” This work was later honored with SMS’s best paper award and forms the
basis for Chapters 4 and 5 of this book. While at Chicago I also got involved in
various consulting engagements that further challenged the pristine models of
academia. I am much indebted here to the numerous executives I worked with
across a variety of functions and industries.
In the mid-1990s, as my interest and focus shifted to my company Decision
Strategies International, we moved to Philadelphia, where I reconnected with
friends and colleagues at the Wharton School. I teamed up with George Day,
who had started to study emerging technologies through a center composed of
multiple disciplines. I was invited to join this group as a part-time research
director and later edited with George Day the book Wharton on Managing
Emerging Technologies (New York: John Wiley, 2000). The subject of
uncertainty is front and center when studying emerging technologies, and I
benefited greatly from the stimulating discussions of our core faculty group,
which consisted of George Day, Bill Hamilton, Harbir Singh, Jitendra Singh,
and Sid Winter. Also, the executives who joined our research center as industry
partners are thanked for their spirited discussions and valued experiences,
especially Larry Huston (Procter & Gamble) and Terry Fadem (DuPont).
I have learned much from my colleagues at Decision Strategies International
(DSI), who helped conduct many of the consulting projects on which this book is
based. In particular, Michael Mavaddat and Roch Parayre proved to be very
stimulating colleagues who blend a curious mind with a pragmatic orientation.
Stephen Dull and Doug Randall also have been valued DSI colleagues. In
addition, various executives in our client organizations also helped shape my
thinking, especially Mary Jean Connors (Knight-Ridder), Gabriel Gedvilla
(Weyerhaeuser), Leon Mandel (Lagoven), Nanty Meyer (Berkeley’s Haas
School of Business), Michael Packanowski (W. L. Gore), Anil Patel (U.S. Army
Corps of Engineers), Howard Rosoff (NatWest Bank), Steve Rossi (Knight-
Ridder), Franck Schuurmans (Credit Union Executives Society), Sue Sheuerman
(Household Finance), Dean Taylor (Ross Products), and Randy Woelfel (Shell
Oil), as well as my academic and consulting colleagues from the McKinsey
Forum.
Several friends and colleagues have offered valuable commentary on earlier
manuscript drafts, for which I thank them greatly. They are Stephen Dull (DSI),
Terry Fadem (DuPont), Paul Kleindorfer (Wharton), Jeff Kuhn (Columbia
University), Howard Kunreuther (Wharton), Michael Mavaddat (DSI), Hugh
Courtney (McKinsey), Roch Parayre (DSI), Anil Patel (U.S. Army Corps of
Engineers), Doug Randall (DSI), Franck Schuurmans (Credit Union Executives
Society), Gabriel Szulanski (Wharton), and Michael Tomczyk (Wharton). In
addition, I am much indebted to those whom we interviewed and quote in the
pages of this book: Russ Ackoff, Louis Arnitz, Tom Borger, Eric Brooks,
George Day, Terry Fadem, Tom Graham, Mike Hostetler, Alberto Ibargüen,
Paul James, Dave Landsberg, Michael Mavaddat, Jack McAdoo, Roch Parayre,
Rudy Pereira, Jay Russo, Franck Schuurmans, Scott Snyder, Jeff Yass, and Jeff
York. Also, I am grateful for the wise counsel, moral support, and seasoned
editorial judgment rendered by Robert Wallace from the Free Press.
Furthermore, we thank Celia Knight for her meticulous editing, and Michel
Dijkstra for his help with the artwork.
A great measure of debt is owed to Robert Gunther, who helped shape and
hone a large collection of academic papers, client reports, and consulting
experiences into the present book. Robert and I spent many hours at my white
board sketching and reworking the concepts, principles, and examples that
constitute the core of this book. His sharp mind, good cheer, strong work
appetite, and gifted pen made it a pleasure to write this book. Although his
original role was to be that of a writer, he ended up being a valued intellectual
collaborator as acknowledged on the title page. Nonetheless, the usual caveat
applies—any flaws remain mine alone.
Finally, I thank my dear wife Joyce for creating a stable and loving home