Editor’s note. When we published this article in April 2009, we
invited readers to take part in an online survey on changes in their
companies’ strategic planning , given today’s challenging economic
environment. See the results on page 2, and then tell us what your company is doing.
Strategic-planning season has arrived for
many companies, and it couldn’t be more different than it has been in
years past. Gone are the days of linear trend-extrapolation exercises
that produce base, upside, and downside cases. Strategists, now facing
the most profoundly uncertain times in their careers, are creating
disaster scenarios that would have been unthinkable until recently and
making the preservation of cash integral to their strategies.
Most strategists we know are avoiding the obvious mistakes, such as
planning as usual or, conversely, eliminating essential
strategy-development activities or even strategic planning itself.
Nonetheless, strategists remain deeply—and understandably—concerned
that the priorities emerging from the annual planning rituals won’t
address the demands of today’s tumultuous environment.
These are uncharted waters, and no one has a clear map for sailing
through them. It’s clear that scenario planning, a well-established
technique for coping with uncertainty, should play a critical role this
year, but executing successfully has never been as challenging as it is
now. Most companies will have to consider more variables and involve
more decision makers than they have in the past. Strategists will also
need to place a greater emphasis on measurement—the only way to
recognize when changing conditions merit quick strategic adjustments.
Finally, the focus on new or surprising scenarios shouldn’t obscure
relevant long-term trends or devalue important existing strategies.
Be realistic about scenario planning
In a highly uncertain environment, the advantages of scenario planning
are clear: since no one base case can be regarded as probable, it’s
necessary to develop plans on the assumption that several different
futures are possible and to focus attention on the underlying drivers
of uncertainty.
Today’s pervasive uncertainty complicates scenario-planning efforts:
the number of variables at play—and the range of plausible
outcomes—have exploded in the past year. Consider, for example, the
predicament of an industrial supplier that is not only heavily exposed
to commercial and residential real estate but also has many government
customers. For this company, the critical uncertainties include the
direction of the commercial-credit and mortgage markets, housing
prices, tax revenues, and government stimulus spending. Different
outcomes for each of these uncertainties produce vastly different paths
for the business. Since the heart of scenario planning—crafting a
number of strategies for different outcomes—has become significantly
more complex,1
strategists should prepare for a more demanding process of gathering
information, exploring possibilities, and plain old hard thinking.
Senior executives outside the strategic-planning group—even those
accustomed to developing scenarios—may find the diversity and
complexity of this year’s scenarios bewildering. It’s critical to bring
such executives into the process early: for example, by kicking off the
planning process with a scenario-development exercise involving the
full senior team. Similarly, as the process of reviewing business units
gets under way, a company can inculcate an appreciation of the threats
it faces and of its collective strategic response by inviting
executives from a number of divisions to participate in the
proceedings—rather than hold one-off events between the senior team and
the leader of each individual unit.
Intensify monitoring
Depending on how events unfold, the industrial supplier mentioned above
could make radically different moves. If the commercial and residential
real-estate markets stabilized, it could expect reduced sales within
those channels until the economy rebounded, but its business model
would remain fundamentally the same. If those markets softened further,
the bulk of the company’s market opportunity, for the foreseeable
future, would lie in infrastructure investments underwritten by
government stimulus spending. In that case, the company would need to
redeploy its sales resources to government-oriented business and focus
on maximizing sales there.
The company’s strategy, in short, must account for many more
contingencies than it has until recently. Since the effectiveness of
such a strategy depends on an organization’s ability to adjust rapidly
as the fog starts to lift, managers must identify and intensively
monitor key indicators suggesting which scenario might unfold. For the
industrial supplier, some of the most important indicators are sales of
new and existing homes, foreclosure rates, mortgage interest rates, new
building starts, and announcements of “shovel ready” government
projects. Of course, the company’s managers always followed such
indicators, but the strategic-planning process typically collapsed
their potential variations into average market growth forecasts. Given
the present heightened uncertainty, however, the strategy group
decomposed the average forecast into its individual elements to make
the possible outcome for each of the indicators more transparent and to
monitor them in greater detail.
There’s no occasion like the strategic-planning process to get a fix on
such indicators—a fix that should also help companies make ongoing
budget decisions in real time. That’s critical, because it makes no
sense to set each operating unit’s budget allocation at the start of
the fiscal year if cash is tight and corporate executives expect to
dole it out carefully as plans become less uncertain. What companies
need now is a dynamic “pay as you go” resource allocation process that
conserves cash and encourages adherence to the strategic road map laid
out in scenario planning.
This year’s planning process should also generate unusually specific
plans to monitor the performance of suppliers, customers, and
competitors. As we’ve seen in the past six months, the most entrenched
incumbents can plunge into financial distress with dizzying speed.
Early intelligence helps companies to recognize when they should
negotiate more favorable supply terms, line up alternatives to risky
suppliers, offer kinder credit terms to critical customers, accelerate
collections from faltering ones, or scoop up all or part of vulnerable
competitors. Leading indicators of distress include such familiar
signals as delinquent accounts payable, downgraded debt ratings, large
share price declines, late inventory deliveries, or lower-quality goods
or materials. These signs, though all too familiar to operating
managers, are typically addressed in an ad hoc way, not in the
strategic-planning process. This year is different.
Look beyond the crisis
Given the vastness of the economic change now under way, the temptation
for many planners will be to gaze, mesmerized, at the unfolding crisis.
That’s a mistake, for at least two reasons.
First, devastating as the current downturn may be, it cannot roll back
fundamental market trends—such as the aging of consumers in Europe and
North America or the continued economic development of Brazil, China,
India, and Russia—which will continue to create strategic opportunities
and threats. Managers must focus their eyes—and resources—on these
trends no matter what happens.
Second, planners who become fixated on current economic events run the
risk of overlooking a core responsibility: evaluating the effectiveness
of current strategies. Although the crisis may force companies to
suspend or redirect some of them, others will remain relevant even in
the changed environment. This year’s strategic-planning process is a
time to encourage managers to sort out which current strategies the
crisis has helped, hurt, or failed to affect and to ensure that a
system and metrics are in place to track their performance. While all
this may sound like common sense, extreme uncertainty makes it easy to
overlook.
One company that’s staying the course is McDonald’s, which has profited
in the downturn from its low-cost menu items and is enjoying its most
robust same-store sales growth in years. Meanwhile, senior management
has remained focused on longer-term strategies involving expensive
store renovations, operational overhauls, high-end coffee products, and
healthful menu options. Managers elsewhere can learn valuable lessons
from the company’s efforts to benefit from the current circumstances
while sticking to longer-term strategies and the underlying trends
(such as healthier lifestyles) that they reflect.
Despite the challenging times, this year’s strategic-planning process
need not be an exercise in anxiety or futility. Developing scenarios in
greater depth, monitoring strategies more rigorously, and remaining
focused on the long term will all help strategists boost the odds of
creating plans that can lead their companies through the turbulence. 
Editor’s note. See the results of the survey on page 2, and then let us know what you think.
About the Authors
Renée Dye is a consultant in McKinsey’s Atlanta office, where Patrick Viguerie is a director; Olivier Sibony is a director in the Paris office.
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Corporate
downsizing and business closures are leading to much higher commercial
vacancies in many U.S. metropolitan areas. Rising vacancies means many
landlords are eager to woo new tenants to their space - and small
businesses are an obvious choice right now.
