How leaders cope with uncertainty

Uncertainty is always there. The degree of uncertainty can rise and fall.

Leaders, being human, also have difficulty coping with uncertainty. When they receive confusing information, they tend to react in predictable ways that are not always constructive. They also use judgment shortcuts to make decisions.

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During periods of heightened uncertainty, leaders reflexively reduce investment, stop hiring, slash marketing, refrain from entering new markets, or stop making decisions.

Although understandable, acting in a pro-cyclical manner can be counterproductive. It can leave companies poorly positioned to benefit from the next stage of the cycle.

Organizations should be inclined toward action. As a baseline, companies must strive to be fit for growth. This can be done by aligning costs with priorities and strategy, investing in varied capabilities, and using traditional and digital levers to execute.

They must regularly engage in scenario planning with an array of options. They must build the capacity to be agile. They must learn to become more resilient to withstand strong external forces and quickly recover from setbacks.

When the environment is highly uncertain, a strategy has to be:

  • Defined: Using big data and machine learning allows for defining a set of plausible futures. 
  • Tested: Pilots can test selected moves in the real world and identify the reinforcing factors and dynamics that drive differentiation.
  • Tweaked: Continually monitoring performance provides real-time feedback. As the environment changes, the process of market sensing and testing begins again. 

In times of uncertainty, if companies reduce headcount and leave positions open, they can miss out on filling critical needs and areas.

  • Companies must invest in efforts to ensure their workforce has the new skills required by the digital world.
  • Companies should recognize the potential of longtime employees. Their experience and capacity to learn are valuable assets.
  • Companies can build resilience by making their workforce more flexible as some prefer to work on a contingency basis. It means companies have access to needed talent and skills.

Companies can act on the options they create only if their operations can support the execution.
It means understanding which operations and capabilities give a competitive advantage, and ensure the company owns them and invests in them.

Uncertainty tends to paralyze deal-making or push companies into transactions that are defensive and reactive.
In evaluating deal opportunities, companies that are reasonably agile to execute transactions when they have to will find that deals present occasions to boost growth and pull ahead of rivals. Companies that invest now, regardless of economic conditions, may be best suited to ride the next technological wave.

Many organizations have found that volatile shifts in tax and regulation impact their industry, their specific markets and the general environment for business.

  • In order to be resilient, companies must get ahead and work with industry peers and the government to improve outcomes.
  • Companies should embrace technological solutions to help manage compliance issues while they assess the longer-term impact of other changes.

Finance has its own heuristics in a time of uncertainty.

  • Commercial organizations are often slow to react to changes to their forecasts.
  • Working capital often increases, consuming cash and restricting liquidity.
  • Companies often become motivated sellers when asset prices are low.

Companies should use data and information technologies to regularly run scenarios to review and challenge economic, business, and sales projections.

If organizations can stop being so defensive and assume a more aggressive stance, they have a better chance of maintaining their balance and shaping their future.
It will take a lot of courage, but companies should consciously lean into changes and counterintuitive activities when it is least comfortable, or when forces of inertia are pushing them toward a predictable outcome.

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As we can see most of our interactions, learnings and commercial transactions moving into online and virtual models, many other aspects of our daily lives will have to be reimagined and the leaders who have better insight and foresight will succeed. Many industries will have their existing business models completely disrupted, revealing vulnerabilities and new opportunities.

Luxurious but unessential items may have to change their business models or shut shop.

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A joint effort of commitment and communication is essential for a thorough approach to automation and has to be led by top management.

Apart from IT, all stakeholder groups like HR, Operations, Business Units have to be engaged, and communicate consistently.

The biggest risk is not taking any risk. In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.

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