McKinsey: 10 ways to test your business strategy (Part II)

by Vault Consulting Editors | January 11, 2011

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Test 6: Does your strategy embrace uncertainty?

The choices companies make now will only pay off in the future—an environment "we cannot fully know or control," say McKinsey consultants. How does a company plan for possibilities, ambiguity? McKinsey has identified four "levels of uncertainty", a spectrum of probabilities that range from "reasonably clear view of the future" (level one) to "total ambiguity" (level four). Companies cannot simply assume that they're operating at the first level; it's important for leadership to plan carefully for specific degrees of uncertainty, the authors suggest.

Test 7: Does your strategy balance commitment and flexibility?

All things in moderation. Commitment and flexibility have an inverse relationship with one another, the authors state. That relationship results in a "tension" that represents one of the "core challenges of strategy." Don't take stupid risks; don't commit too early, but don't hesitate too much, they suggest. Your strategy should make room for three key moves: "big bets," or commitments that seek to grab major advantages, "no-regrets moves," or safer bets, and "real options," low-cost and low-commitment options to keep in the back pocket. Balance is the goal.

Test 8: Is your strategy contaminated by bias?

Don't underestimate the perils of human error. Citing behavioral economists, the McKinsey-ites note that the everyday trappings of the human brain often translate to major business mistakes. Common tendencies like "over-optimism", "loss aversion" (the opposite of over-optimism), "herding" and others cloud the ability to make sound decisions for the future. To avoid these pitfalls, the authors suggest setting objective agendas and allowing for the possibility of wrongness; the development of multiple hypotheses and models can also result in a more objective best-option choice, rather than the stick-to-your-guns approach many companies adopot regarding their plans for the future.

Test 9: Is there conviction to act on your strategy?

"Many good strategies fall short in implementation because of an absence of conviction in the organization," the authors write, "particularly among the top team, where just one or two nonbelievers can strangle strategic change at birth." It's the job of the strategy's believers to not only get the ball rolling, but to make believers out of their colleagues as well. The entire team needs to embrace a strategy wholesale if it's going to fulfill its potential.

Test 10: Have you translated your strategy into an action plan?

The final test is something of a no-brainer: make sure you have all the mechanisms in place to make the strategy come to life. Every detail of the transition your strategy is facilitating should be mapped out, with executives leading the charge and taking accountability along the way. Be both near and longsighted; consider the potential pitfalls (ex. budget shortages) and avoid them with good planning.

And, decompress!

That's a lot of McKinsey for a Tuesday. There's a wealth of valuable information (er…proprietary insight) to be found amongst these ten challenges, but the authors urge readers to cast a wider net before putting their newfound awareness to use. As ever, further research, detailed analysis, and intelligent insight is required to make decisions worthy of McKinsey's strategy prowess.

For more information:
McKinsey Quarterly

Filed Under: Consulting

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