Action plans and uncertainty

These days, we are all looking for ways to cope with a future that looks increasingly uncertain. Uncertainty creates fear. Fear blocks energy, proactivity, and rational thinking; it is capable of completely taking over our mind and derailing our thoughts.

Many of us respond to fear and uncertainty with optimism. Optimism is an integral part of our nature: research has shown that neuromodulator dopamine enhances people’s ability to think positively about their future. We are more inclined to change our beliefs when presented with positive pieces of information about the future than to review our opinions in the face of negative facts. Since ancient times, optimism (sometimes even unrealistic optimism!) has driven innovation and discovery and motivated people to invest in their professions, relationships, and health.

Optimism bias has an important downside: it makes us underestimate the probability of possible a negative evolution of our future, and of markets and businesses. From time to time, the future catches us unprepared.

The starting point for managers and entrepreneurs seeking a way out of the current crisis must be to take a clearheaded and pragmatic, rather than optimistic, view of the reality.

Alongside optimism bias, our decisions about the future might also be dangerously diverted from proactive and deliberate thinking by an inbuilt desire to belong to a group or a community. This so-called “herd mentality” makes us copy the responses and “best practices” of our peers, firms belonging to our industry, and individuals whom we consider role models. Imitating other firms’ reactions to an emergency looks safe (the approach has been tested by others), easy (there is no need to elaborate a novel solution), and potentially helpful in saving face in case of failure (we tried what everyone else said was the best option).

Even though the role of emergent strategies (“we will find our way out”) cannot be underestimated, improvisation and learning by doing is not suitable for all industries: predictive decision-making is a particularly necessary evil for large-scale and capital-intensive industries.

Today’s current critical situation requires two simultaneously implemented approaches: “emergency room” and “business as a going concern.” As emergency room specialists, entrepreneurs and managers monitor the key “symptoms” and ensure the survival of their businesses daily. These symptoms relate to cash management; compliance with new laws; researching new sources of revenue (for example, many hotels have started offering drop-off laundry services to local residents); communication with clients, suppliers, and employees; and collection of all possible field information to ensure immediate and decisive reactions to new emergencies. Simultaneously, there is a need to prepare and begin to implement an action plan to ensure ongoing business survival and growth—“business as a going concern”—in the months and years to come. This necessity puts incredible pressure on the decision-making skills of entrepreneurs and managers. There is a need to determine the future shape of winning business models even while the future is ambiguous. Which business models will survive? Will we be back to a “normal” or “near-normal” situation? What was a “normal” situation for us, and do we really wish to go back to it?

A crystal ball could have been put to good use, but not at this stage. For decades, the oil and gas industry used a scenario-planning technique to elaborate long-term strategic and eventual contingency plans as a response to the volatility of oil prices. Recently, however, we witnessed an historical event—negative oil prices. Shell Oil, one of the pioneers of the scenario-planning application to business, started implementing strategic actions at least two years ago under an assumption of “permanently low oil prices.”

Scenarios are qualitative (albeit supported by data) descriptions of the future.

Imagine yourself travelling to the near future, let’s say one or two years from now: what would your favorite industry website headlines look like? To get a quick start on scenario planning you may try to write a paragraph or two of a possible newspaper article describing the situation in your industry, even six or eighteen months from now. If you have more than one idea and these ideas are contradictory, it means that you are on the right track! After sketching the first scenario, put your pen aside, refocus, and try again with an article describing a completely different setting of the future, writing down your most creative ideas about what may happen to your industry or market. Usually, three or four scenarios will exhaust both your imagination and logical thinking.

During the scenario-planning workshops we organize at SDA Bocconi School of Management, participants are motivated to be innovative and courageous: Herman Kahn, the pioneer of scenario planning, famously wrote, “history is likely to write scenarios that most observers would find implausible not only prospectively but sometimes, even, in retrospect.”

In your scenarios, courage is particularly important to account for “in-the-pipeline” events. Once you have started to acknowledge the inevitability of certain trends, it is important to remain authentic and include them in every scenario you prepare, even if these trends look particularly challenging for your firm’s business model.

Scenarios will certainly help in keeping your optimism bias at bay. In the mid-1920s, Winston Churchill wrote about the almost inevitable peril of new global military conflict originating in Europe; in his article he condemned the prudent and optimistic “well-meaning behavior” of those who decided to neglect the emerging evidence of what was happening and insisted on using old approaches to deal with new problems.

While looking at your futuristic newspaper articles you may ask yourself: what would we do if one of these scenarios were to become our reality? Considering that you have multiple scenarios, there will probably also be more than one possible response for your firm.

Elaborating multiple scenarios and creating multiple contingency plans might look complex—yet I am convinced their complexity is actually an advantage. First, if one scenario becomes a reality that requires an emergent approach, your reaction will be a planned one. Second, contingency plans might share common features: all your scenarios included “in-the-pipeline” events. Third, you may find yourself investing in “real options”—resources, skills, people, networks, assets, and new businesses—that will help you in eventually activating a plan B in case of emergency.

The action plans, in turn, can be assessed with a so-called “crystal ball” approach—a technique borrowed from military planning. Every stage of a plan is analyzed through an imaginary crystal ball: assumptions are tested, questions are asked, doubts are raised (“what if”). Your crystal ball helps you to identify eventual weaknesses that could potentially undermine your intentions, and therefore to find a solution.

To conclude, we recall Plato’s description of confusion, disbelief, and even pain experienced by a man obliged to look at the light of truth; the man’s preference to turn away and return to the safe illusions within his cave. Honest scenarios and action plans that are free of optimism bias will certainly require a certain stamina, but the good news is that these should not be individual efforts of a lonely leader. The collection of field information; the development of scenarios and action plans; the creation of eventual temporary organizations with new roles, skills, and processes; and the joint definition of priorities require the collective effort of many likeminded allies in your firm, rather than of a lonely leader “in the fell clutch of circumstance.”