Leaders must make predictions, understand choices, and place bets on the future. Successful leaders start in the negative. The first step is to constrain choices by confirming what is out of scope. It’s an essential skill in decision making under uncertainty.
Prediction is hard, especially about the future.
Danish proverb
I help develop strategy with a range of different organisations.
One of the most important processes in leadership is to set strategy. To put a finer point on it, the job requires the leader to set good strategy. Strategy matters because its purpose is to help create the future you desire.
It’s a big responsibility: It’s hard for leaders to set strategy and make choices that will deliver progress and success given the future is uncertain (and volatile, complex, and ambiguous…). Strategy is about effectively navigating and progressing to achieve something important despite uncertainty.
The groups I work with have strong strategy foundations. Each has clear intent, purpose, and mission, and these remain valid in the markets they operate.
But there are few other certainties in our world except for:
- There is a value imperative (ie, we want to create or achieve something we think is important),
- There is a need to relate to the outside world and remain relevant (ie, not just be self-satisfying), and
- The only constant is change.
And the challenge of setting strategy is not just in the competitive domains of business or war. It’s essential in day to day life, sport, design, managing personal finances, career choices, choosing where to live, in which schools you might enrol your kids, and any context in which a decision must be made.
Leaders must do three things as part of strategy: make predictions, make choices, and make bets.
Strategy is firstly about choice
Possibilities are endless. So, I think the first and most important choice is to start in the negative.
What are you not going to do?
When there are too many options we get inertia instead of choice. This is the paradox of choice, a concept developed by Barry Schwartz.
So we need to be convergent at first and define constraints. This reduces the range of options we’ll consider.
Our starting points are our Intent, Purpose, Mission, and Customers. These provide initial constraints.
Intent is the desirable future we wish to create, our vision.
Purpose is our why: the enduring reason for existence, our raison d’être.
Mission is our what: the things we to move toward the Intent.
Customers are who we serve.
These starting points should be somewhat static. The greatest potential for change is in the Mission and the evolving needs of Customers. We can use these to remove options which don’t fit. For example: if the purpose is to “enable and protect people in hazardous environments” then the mission cannot include “making 31 flavours of ice cream”.
With the purpose above, the group won’t be making ice cream. But it’s possible it will sell or make fire extinguishers. The ice-cream mission will not move the group toward the desired future.
Capability versus Intent
Another strategy lens that helps is also simple: capability versus intent.
A group has current capabilities that deliver benefits today. But achieving an intent may only be possible with future capabilities. Future capabilities aren’t possessed today. The group’s ambition might mean the group must develop or acquire capability enhancements. Capability enhancements close capability gaps (or vulnerabilities) that matter in a competitive environment.
Or, the group might choose to reduce ambition to focus on what is achievable with current capabilities.
Note: This is also where innovation as strategy is relevant, but we’ll tackle that later.
Predicting futures
Strategy and prediction require foresight. We’re all biased, but the value is that we each bring different perspectives to the challenge.
The value is in the diversity of perspectives.
Strategic foresight is about describing futures: possible, probable, desirable. And it also requires relating these to a succinct and realistic future Intent. One way to think of strategic foresight is a group of nested arcs which extend from today into the future. Inside the arcs are things which have a probability of occurring. The probability can change based upon your strategy and things beyond your control.
Note: Foresight and prediction is much more complex than described here. This is the entry level to the concept.
Placing bets
Possibilities are wonderful, but it’s better to deal with probable outcomes. And development of intent and possible, probable, and desirable futures should always follow the first rule: be humble.
Prediction is about confidence. It may be a mathematical exercise finding statistical probabilities for different events. It could also be a qualitative approach without numbers. Confidence is essential to strategy and building plans to progress despite uncertainty. Prediction helps build confidence, but the danger is hubris. Hubris can sneak in without diverse perspectives or someone taking the role of the devil’s advocate. True confidence is when we understand payoffs (consequences) in the context of probabilities (likelihoods).
We need to understand and assess risk in the range of possible bets we could make:
- we want to capture upside risk (positive outcomes)
- we want to protect against downside risk (negative outcomes)
- we must be very effective managers of risk to achieve the desired intent
Some bets are easy to make. They’re “cheap” – low time, cash and resources, and the payoffs are worth it. Other bets have a wonderful upside, but the downside risks are difficult or expensive to mitigate. They may also be too expensive, presenting existential risks.
Placing bets collapses our decision set. The best decisions lead to more optionality in future, and better value options. They expand our “luck surface area” and can let serendipity into our lives. The best decisions mitigate risks and capture upside. They also create new possibilities that aren’t predicted when the bets are made.
But place bets, leaders must.