Levels of Uncertainty and Strategic Approaches That Work

[Approximate Reading Time : 4 mins]

Businesses face uncertainties in a continuously changing business environment. How organizations prepare themselves for these uncertainties shapes their future. Uncertainties can be categorized into levels, with each having a set of processes that help you understand the weightage of the decisions.

The Four Levels of Uncertainty

Level 1: Single option: The future is clear enough to prepare a strategy after some research and analysis. It is the most common level of uncertainty.

Level 2: Several options: You can predict a few alternative outcomes, but you are unsure of their occurrence. Devise a plan for every option.

Level 3: Range: The range of outcomes is identifiable with several variables that factor into the outcome.

Level 4: Uncertain: The outcomes or their variables cannot be identified. This is rare, and as the future takes shape, the level lowers to 3 or 2.

Now that the uncertainties are categorized, let us see how to tackle them.

Postures

Posture determines how the strategy leads the organization to overcome uncertainty.

Shape: The strategy creates new opportunities in the industry and shapes a future of their own. Shapers take control of the trend.

Adapt: The strategy is to be prepared for outcomes but react to the current opportunities in the market and build on them.

Reserve: The strategy is to wait till the environment is more certain while investing in ideas and structures to play the upper hand when the time comes. Reserving the right to play is a form of adaptation applicable for levels 2–4.

Moves to Implement Strategies

No regrets: A part of any strategy, these are moves that you can confidently take and not run into any losses, like gathering information about competitors and market trends, cutting costs, and improving skills.

Options: This move secures big payoffs and minimizes losses, like testing the waters before entering into new trends with limited investments and adapting as the market evolves.

Big bets: Major investments and commitments that can result in heavy profits or large losses. It is a shaping move.

Strategies

Let us discuss the strategies used for each level now.

In Level 1 situations, many are adapters who take no-regret moves. When going with shaping strategies, big bets are .

Shaping strategies with options increase the probability of a favorable outcome in Level 2. But they must be ready to adapt or reserve the right to play.

Although reserving is common in Level 3, some require adaptation with options or shapers with big bets.

Level 4 does not allow shapers to take big bets. Reserving is quite dangerous, so adapting is the safer option.

Your business can cope with uncertainties if you can identify them and plan and implement strategies that favor your growth.

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Sources:
1. https://hbr.org/1997/11/strategy-under-uncertainty.
2. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategy-under-uncertainty.