The 2008 economic crisis, as well as the subsequent Great Recession that followed, did not just cause a lot of anxiety about the future that the economy around the globe is heading. They shook the confidence among many executives regarding their ability to anticipate the future clearly enough to take decisive action.
It’s not like executives don’t know how to make sound decisions under Uncertainty. The most effective tool employed to do this is called scenario building. Scenarios are a potent tool for the strategist’s arsenal. They can be accommodating in creating strategies to deal with the kind of events that we’ve witnessed recently in the global economy. Scenarios allow the strategist to navigate between the unreliable certainty of one single forecast and the confusion that can occur in turbulent times. These strategies are precious in the current climate of uncertainty, and many well-run businesses have adopted them in the past in areas such as capital budgeting. The process of generating scenarios gives a greater understanding of the driving forces behind changes. Scenarios require companies to consider, “What would have to be the case for the next outcome to occur?” In the end, they test various theories that involve changes to every driver involved. They find out which drivers are relevant and which ones don’t-and what is going to affect the ones which are significant enough to alter the current situation. Rapid increases in the cost of raw materials and unexpected price declines major technological advancements-any one of these could devastate several large companies. Businesses can’t incorporate every possible scenario into their scenario and shouldn’t spend too much time thinking about the most unlikely scenarios. However, they should be confident that they can withstand high-severity events. Therefore, such scenarios must be identified and put on a list to be watched.
The analysis produced by the scenario building process or any other methods is not sufficient. The most important thing is making decisions at the moment that is right and prior to any competitors. What the CEO should accomplish is to establish goals that are viewed as a solid plan even in times of recession but without being overly optimistic. He should provide leadership that is inspirational and clearly communicate a singular objective.
It is essential to have creative strategies for achieving the goal. This can be achieved by having senior management together. The smaller the group of senior leaders, the less likely to achieve the level of interaction required to make crucial decisions effectively and efficiently. However, it is essential that the group size be sufficient so that those responsible for decision-making are able to access the complete range of information contained in the people of a company and in its relations with other companies. The skills, knowledge, and expertise of executives will enable them to be better equipped than others to take action quickly when the moment is appropriate. They are also provided to build the organizational capacity required to address critical issues quickly and use the additional time to gather information as well as conduct needed analyses and then debate the consequences. This will require a more fluid management style, which is a change from rigid, calendar-based methods to planning and budgeting. This will mean collectively significant changes in their operational procedures.
Because deciding what to do in times of uncertain circumstances usually requires careful debate between a variety of people in the whole company, There are processes and procedures to define how questions are addressed as well as the method of deliberation and the way the decisions are taken. It is also essential to determine the responsibilities of managers once the discussions and decision making is over, to place their entire effort into making the decisions efficient.
Just-in-time (JIT) decision making:
A large part of decision-making in uncertainty is making sure you are timing your decision correctly. If you wait too long, the opportunity cost could rise as investment costs can increase, and losses could mount up. But, making crucial decisions too late could lead to poor choices or unnecessary risks. A timely decision is critical to the prompt identification of potential threats and opportunities arising from external forces over which the company is not in control. That includes fluctuations in demand, technological microeconomics, the value of the currency, changes in rates of interest, etc. If a problem is identified in the early stages, there’s usually enough time to employ tested methods for problem-solving to make decisions in the face of uncertainty.
The structure of the decisions:
A decision tree helps managers to think about the structure and sequence of their choices. Probabilistic modeling is helpful in understanding the economic implications of the possible outcomes. Breaking big decisions down into smaller, well-ordered findings can help organizations make progress without taking unnecessary risks. Find and implement decisions that are applicable in all scenarios as early as possible.
Innovative and innovative solutions that are cherished by the customers provide competitive advantages and create shareholder value. This must be supported and accomplished through Operational and customer excellence. Exceeding expectations of the customer from the business as well as its products, brands, and services is a 3-step procedure. Three steps: Understand the customer, be an a-customer and provide assistance to customers.
The above method of innovation and excellence allows the business to grow even during an economic downturn. Maruti, MARICO, and Whirlpool are examples of companies that have performed above average even in the midst of a downturn. The process of enthralling all its customers. It is essential to understand the fundamentals of what it is to be an effective leader. In the end, clever words and concepts are not required. The key is, to Be honest, aware, and fair. Be human, have a balanced mind, and be mature. Be ethical, and be inclusive. Be honest, and be accountable. Learn about yourself, be aware of others, and know the things that matter and what’s not.
Encourage people to provide the highest quality contribution to your business and the larger society. This involves sharing information, power as well as responsibility, and of course, rewarding them. The leaders must ensure that every person gets a voice and the opportunity to participate.
Effectiveness in the management of external risks is the key to survival and success in uncertain times. An organization that has reliable methods for identifying and taking corrective actions in response to threats from outside is the one that will last in uncertain times. When the economy is down, it is beneficial to promote high-end brands that will bring greater profits even with smaller volumes. In the same way, an organization that is able to identify opportunities that arise out of external influences will enjoy an above-average return for all of its participants.
Below is a quote from an announcement made to Castrol India Ltd’s Management at the moment of the information of Q3FY09’s results. The statement clearly highlights threats and opportunities and takes necessary steps.
The company’s performance is due to the consistent implementation of our long-term strategy and is supported by our “in-year focus” on margins, fighting cost inefficiencies, and reducing working capital. We have maintained volumes during the last quarter, demonstrating the strength of our plan and its intrinsic power in the brand that allowed us to take advantage of the first signs of a resurgence in the economic outlook. Despite the challenging economic environment, the company increased its marketing investments in its most prominent brands. This quarter saw the debut of a new 360-degree marketing campaign for Castrol Activ – the market’s top-selling four-stroke motorcycle oil and comes with all-around protection. The brand was received well by the public, and sales for the brand have experienced significant growth”.’