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Strategy as Options on the Future

April 15, 1999 | Peter J. Williamson | Strategy

Traditional strategic planning draws from forecasts of parameters like market growth, prices, exchange rates, and input costs that managers are unable to predict five or ten years in advance with any accuracy. Nevertheless, some firms meticulously construct strategic plans on the basis of forecasting that, in all probability, will be wrong. These companies tend to overinvest in building assets and capabilities that are highly specific to a particular strategy, relative to what would be optimal if planning explicitly acknowledged that forecasts would likely be off the mark.

While companies may focus on executing a single strategy at any particular time, they must also build and maintain a portfolio of strategic options on the future. They must invest in developing new capabilities and learning about new, potential markets. By establishing a set of strategic options, a company can reposition itself faster than competitors that have focused on "doing more of the same."

Williamson discusses a strategy that embodies a coherent portfolio of options, sketches a process managers can use to develop this kind of strategy, and explains how planning and management opportunism can reinforce each other. Creating a portfolio of future options involves:

-- Uncovering the hidden constraints on a company's future -- both capability constraints and market-knowledge constraints.

-- Establishing processes to minimize the costs of building and maintaining the portfolio.

-- Optimizing the portfolio by considering (1) alternative capabilities that could profitably meet customer needs and (2) future markets or new customer behaviors.

-- Combining planning and opportunism, both of which are essential to the proactive creation of strategic options.

Williamson cautions that a company must keep tactical opportunism within the bounds of its overall direction, ruling out options that might cause it to deviate from its long-term mission. Short-term opportunism must determine which precise option a company chooses to exercise.

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