Strategic Optionality: Managing Assets Portfolio for Achieving Growth and Longevity in Turbulent Environments
Year: 2021

The current paper proposes a practice oriented framework of corporate strategic optionality (a realization of the antifragility principle) allowing the companies to grow and thrive under the uncertain, multi scenario future. The findings from the study provide practical guidance for corporate strategic leaders (board members and senior executives) with respect to getting ready to take advantage of environmental jolts (e.g. pandemics, crises, disruptions in the marketplace) The proposed framework complements the traditional risk management approaches, allowing to move from protecting from the downside towards thriving on the upside of strategic uncertainty.  The ongoing global economic recession caused by the COVID 19 outbreak has accelerated the destructive trends that have been developing in our business environments for decades. The root causes of today's business stagnation and bankruptcies go well beyond the COVID 19 shock. Of course, pandemic lockdown is a catalyst for global disruption, but its foundations have been in the making well before, such as rising debt in Western economies, weak leadership and government at all levels, nationalist sentiments challenging the international trade and division of labor, and the inability of market leaders to adjust to the digital transformation of conventional industries and business models. Success under these circumstances requires the companies to develop strategic optionality (a Strategic Optionality Rutgers Business Review Vol. 6, No. 1 25 mechanism for the basic principle of "antifragility")1, or the ability to grow and thrive under the uncertain, multi scenario future. The need for strategic optionality is both wide and deep. Yet, COVID 19 shock revealed that most market leaders still live in a single scenario world. Although all details of the post COVID 19 world are still not clear, the business environment is going to face future disruptions and surprises at the accelerating pace. What can you do now to prepare your business for a turbulent future? How can you build in strategic resiliency, which would allow thriving on future disruptions? These broad questions set the stage for our article, intended to help the business leaders who aspire for an antifragility and readiness for multi scenario future. Alas, most strategic management tools and processes currently available are suited for onescenario battles only. To overcome this challenge, in this article we propose four main contributions: (1) making a translation of the abstract antifragility concept into practical strategic management logic, to help companies embrace the growth agenda amidst turbulence and decline in their core markets; (2) clarification of a notion of strategic uncertainty as a key scenariodriving phenomenon. The novelty here lies in highlighting a significant difference between embracing shifts in value creation mechanisms (as sources of future growth and prosperity) and protecting current business models with routine risk management techniques; (3) introducing the concept of strategic optionality, and its distinction from adaptability and flexibility, as a critical prerequisite for successfully shaping assets portfolio and incorporating opportunities based growth management approach; (4) development of the strategic optionality matrix as an introductory tool for enacting the antifragile growth agenda, managing and allocating assets, resources, capabilities, and competencies to take advantage of inevitable turbulences in the core markets and disruptions in the business models. This practical managerial decision making tool allows business leaders to incorporate the strategic uncertainty into their planning processes. Strategic Uncertainty Dilemma The corporate unpreparedness for COVID 19 shock reveals the lack of skills and systems for managing the strategic uncertainty in our business environment. The term strategic uncertainty refers to the inability to predict the crucial features of the future business environment and the consequences of the firm's actions.2 How can we embrace the strategic uncertainty and thrive, regardless of how this uncertainty is actually resolved? How can we prepare for the future without being able to predict it sufficiently accurately Strategic Optionality 26 Rutgers Business Review Spring 2021 to conduct comprehensive strategic planning? These are crucial questions for business leaders who aim at achieving and preserving the prosperous longevity of their companies. Researchers, thought leaders and popular business media have been agonizing over these issues for decades, offering diverse valuable frameworks, such as antifragility,3 scenario planning,4,5 and strategic flexibility perspective.6 Unfortunately, these tools have been gaining attention only in the aftermaths of crises, which negates their whole purpose and suggests the need to offer a simpler, practical and powerful approach for managing the strategic uncertainty. For this, we unite the common elements of the existing frameworks in a simple yet comprehensive three step process for dealing with strategic uncertainty (see Box 1) Our approach distinguishes the notions of strategic flexibility (prominent in Michael Raynor's ideas of breaking the strategy paradox) and strategic optionality. We argue that these terms are related yet distinct. Let us imagine a situation in that COVID 19 destroyed your company's premium market position on a local market. Let us also imagine that you were able to adapt, successfully moving to other, non premium niches. This move demonstrates strategic flexibility and adaptability; you adjusted to the shift in the basic scenario, but you still remained within its boundaries. Strategic optionality, on the other hand, means being able to move beyond the basic scenario. These steps could be exemplified, for example, by finding the wholly new market segments or geographical regions that were not accessible and even conceivable in the pre COVID 19 times. In these cases, the pivot relies on the high optionality assets, enabling the competitive advantage outside the basic scenario. In other words, strategic flexibility and adaptability allow to adjust to the disruption in the baseline scenario; yet, it is the strategic optionality that allows to successfully break away from it. These high optionality assets represent strategic options, and their well developed portfolio is a prerequisite for growth in an uncertain future. Box 1. Dealing with Strategic Uncertainty: A three step process Step 1. Identifying the sources of strategic uncertainty List future events that are not under your direct control AND if materialized will dramatically shape your company's strategic value creation mechanisms Step 2. Conceiving the future scenarios Develop a limited set (4 6) of realistic future scenarios based on uncertainties Step 3. Forming the opportunity set Develop a map of opportunities for growth for all scenarios Strategic Optionality Rutgers Business Review Vol. 6, No. 1 27 1. Identifying the sources of strategic uncertainty The first step in managing strategic uncertainty is in identifying its key sources. For this, you must list those future events in your firm's environment (based, e.g. on major economic, political, regulatory, social, and technological trends) which are not under your direct control AND if materialized will dramatically shape your company's strategic value creation mechanisms. These mechanisms are defining the way your company creates and captures value:7,8 (1) Value proposition (What exactly does the company offer to its customers and how they value this offering vis a vis alternatives? (2) Value targeting (Who exactly is the primary customer? (3) Value delivery (How exactly does the company deliver on the promises of the value proposition: supply chain management, operations, service, etc. (4) Value appropriation (What exactly is the source of the company's competitive advantage that allows charging the price above the level of the costs, without customers switching to competitors? The quality of the list of identified uncertainties can be assessed by the availability of the most critical scenario creating factors in it. These sources reflect the changing consumption patterns among your primary customers: e.g. switch to online, unbundling, renting rather than owning, stress on environmental/social responsibility of producers. Such changes can be triggered by many diverse and unpredictable events, ranging from pandemics or corporate scandals to emerging IT solutions. Hence, it is important to concentrate on the way these triggers will affect our core business model through new ways of consuming. In other words, first, start with listing all strategically important possible future events that might dramatically change your company's strategic position and resulting business model. From these, select out the events that can be insured against these fall under the risk category (as opposed to strategic uncertainty) and the properly functioning enterprise risk management system must take care of them. Examples of insurable risks include failures of critical suppliers, collapsing demand in the home country, or environmental disasters caused by equipment malfunctioning. The focus of our study is on another group of possible future events, those that cannot be managed by this system the real sources of strategic uncertainty. These include, for example, a total worldwide collapse of the airline industry during the COVID 19 pandemics (something that cannot be insured against through international diversification) the possible fast shift Strategic Optionality 28 Rutgers Business Review Spring 2021 of universities towards online education models, or the shift from mass production in Southeast Asia towards the localization of manufacturing worldwide enabled by the Fourth Industrial Revolution. All these manifest the sources of strategic unc