Betting on the Future without a Plan B?

The world may be unpredictable, but CEOs can’t avoid making predictions. Every move a company makes—or doesn’t—is a bet, long or short, on the future. Success depends on clearly understanding how confident you are about those bets and accepting that you’ll be wrong some of the time. That means being ready and able to change course—to adapt—as needed. And where adaptability is truly difficult, companies need to pay the price for resilience instead. Think of resilience as expensive insurance for the worst cases, such as building a backup domestic supply chain in a world of shifting trade barriers.

Yet if prediction, adaptability, and resilience are essential to navigating an increasingly volatile world, our latest survey of CEOs finds fewer than half feel that their companies have those abilities. That’s a lot of companies that seem unprepared to respond when the world moves in unexpected ways.

The good news? These capabilities can be built. But, as we discussed in a Harvard Business Review article, they require bold, targeted investments. Leaders can determine how they allocate their resources with the following steps:

• Map your exposures. Examine your long positions—concentrations of revenue, direct costs, and suppliers in your current business. And examine where you are short: Should you make smaller strategic bets, or is the winning move not to play?
• Develop scenarios. Decide which exposures—typically no more than 8 to 10—merit strategic debate because of uncertainty or potential financial impact. What are the extreme but plausible scenarios? Devise a plan of action for those scenarios across three options: “no regrets” moves that can be made with a high degree of confidence and applied across all scenarios, options and hedges to mitigate risks and capture emerging opportunities, and big bets that are going to reposition your company for the future.
• Allocate capital. Those options will help you decide where to invest in adaptability and resilience—and you’ll quickly be reminded that resilience can be expensive.
• Track signals. Are you among the half of CEOs who doubt their company’s market-sensing mechanisms? The ability to monitor potential disruptions and opportunities is critical. Some will result from macroeconomic changes; others will be industry specific. Know who monitors these, what your data sources are, and above all, make sure these signals actually will trigger quick, confident action. And don’t forget about M&A—acquisition can be a powerful way to adapt the business and balance overall exposure.

No one likes unpredictability. But the era of volatility isn’t going away. Leaders who prioritize prediction, adaptability, and resilience will be best prepared to act. And that’s always a winning strategy.