George Stalk, Jr.

Ashish Iyer

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <h5>The Problem</h5>
  <p>To cope with uncertainty and volatility, companies try to improve their forecasting and increase their agility. But these tactics have limitations. Forecasts quickly become obsolete, and perfect flexibility is costly to achieve—if not impossible.</p>
  <h5>The Solution</h5>
  <p>Complement your efforts with “strategic options” that serve as a hedge against uncertainty. These include temporary organizations, exploratory acquisitions, and disposable or modular factories.</p>
  <h5>Implementation Challenges</h5>
  <p>Persuading employees that the long-term benefits of options outweigh their high short-term costs. Building skills—for instance, in acquiring and integrating acquisitions. Changing the forecasting culture and focusing more on understanding risks.</p>
 </div>
</article-ideainbrief><p>To cope with growing uncertainty and volatility, most companies try to improve their forecasting and increase their agility. While important, both tactics have limitations. In times of rapid change, forecasts become obsolete almost as soon as the ink dries on them. And though responding quickly to market shifts is crucial, “perfect” flexibility and agility are costly to achieve—if not impossible.</p>

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<p>Today companies grapple constantly with the unexpected: disruptive advances in technology, the rise of new markets, sudden swings in demand, surprise moves by competitors. To cope, firms try to improve their forecasting and their agility, but those efforts take them only so far. A complementary&#8212;and perhaps more effective&#8212;approach is to use &#8220;strategic options.&#8221; These are small bets that allow businesses to test the waters and build their experience. If they fail, they&#8217;re easy to unwind, but if they succeed, they position organizations to capitalize on valuable opportunities.</p>
<p>In this article, two BCG consultants detail three kinds of strategic options: <em>Temporary organizations,</em> which are staffed by consultants and contractors, help firms ramp up operations quickly and yet avoid massive layoffs if an initiative fails. Small <em>exploratory acquisitions</em> allow firms to get a foothold in a new business&#8212;without the costs and headaches of large-scale deals. <em>Disposable factories</em> are a good solution to uncertain demand; they can be set up (and taken down) quickly, be sited closer to demand, and provide early data on costs and capacity that informs the construction of permanent facilities.</p>
<p>Executives often resist strategic options because they seem expensive in the near term. But when a payoff is far in the future and risk is high, they may be the best way to go.</p>

How to Hedge Your Strategic Bets

Today companies grapple constantly with the unexpected: disruptive advances in technology, the rise of new markets, sudden swings in demand, surprise moves by competitors. To cope, firms try to improve their forecasting and their agility, but those efforts take them only so far. A complementary—and perhaps more effective—approach is to use “strategic options.” These are small bets that allow businesses to test the waters and build their experience. If they fail, they’re easy to unwind, but if they succeed, they position organizations to capitalize on valuable opportunities. In this article, two BCG consultants detail three kinds of strategic options: Temporary organizations, which are staffed by consultants and contractors, help firms ramp up operations quickly and yet avoid massive layoffs if an initiative fails. Small exploratory acquisitions allow firms to get a foothold in a new business—without the costs and headaches of large-scale deals. Disposable factories are a good solution to uncertain demand; they can be set up (and taken down) quickly, be sited closer to demand, and provide early data on costs and capacity that informs the construction of permanent facilities. Executives often resist strategic options because they seem expensive in the near term. But when a payoff is far in the future and risk is high, they may be the best way to go.

How to Hedge Your Strategic Bets

Summary.

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