Corporate boards that are trying to keep investors happy, or at least calm, will sometimes deploy an unusual turn of phrase to disguise the fact that they do not know what is going on. “We lack visibility going forward” is a classic example.
In truth there should be no shame in admitting that the future is uncertain. It is a cliché in management, but a valid one, that you can never have “perfect information”. Decisions have to be taken before you can be completely confident about the likely outcome, otherwise opportunities may be lost.
Dealing with uncertainty is arguably as much about developing an outlook or mentality as it is about market research or the unending quest for better data. General (later US President) Eisenhower summed up this tension well. “In preparing for battle,” he said, “I have always found that plans are useless, but planning is indispensable.”
Why are plans useless? Clearly situations change. Competitors innovate or pitch their products at aggressive new price points. Wars break out causing commodity prices to rise. Governments introduce new legislation that changes the game. Formerly free and open markets get hit with tariffs.
Lessons in Leadership
This article is part of a series examining common management challenges and featuring two case studies of executives who have encountered them, in the past and present
So why is planning indispensable? The discipline of trying to anticipate what could happen is valuable in itself. This helps develop the much-prized “agility” that so many corporate leaders want their organisations to display. An extreme version of this planning approach is to carry out a “pre-mortem” ahead of the launch of any new project or initiative. This involves imagining a time in the future when the project has failed. What is it that will have gone wrong? Which misguided assumptions did you make? Which bit of bad data led you astray?
Jim Collins, the management guru, encourages leaders to “confront the brutal facts” of the current situation. Pre-mortems go one step further: inflict imagined brutal facts on yourself to test your thinking and preparedness. (Of course, a thorough post-mortem should always be carried out when things have gone wrong so that lessons can be learned. Russ Ackoff, the systems thinker, said that managers should make a note not only of actions that are taken but also those not taken. There can be mistakes of commission and omission.)
Any chief executive can look good in a buoyant economy where demand remains strong or when interest rates are low. You look even better if the competition is weak or distracted. But, as they say in Sweden, “Rough waters are truer tests of leadership. In calm water, every ship has a good captain.”
Planning can help you get ready for an uncertain business environment. But the final word of warning has to be the timeless observation made by the boxer Mike Tyson. “Everyone has a plan,” he said, “until they get punched in the mouth.”
Lesson from the past: how Toyota dealt with supply chain shocks
The Tohoku earthquake of March 2011, leading to the tsunami which battered north-eastern Japan and took out the Fukushima nuclear plant, also dealt a huge blow to Toyota, the carmaker. The company halted production for two weeks, and it took another three months before normal output could resume.
But it was not Toyota’s actual production line that was directly affected. Rather, it was its supply of semiconductors that was completely interrupted. This was a radical and transformative experience for the company, which had grown to become the world’s leading carmaker on the back of its famous lean, low (or zero) waste, “just-in-time” production methods.
Suddenly, larger inventories and built-in “inefficiency” seemed like a good idea. The company decided to go from a just-in-time to a “just-in-case” approach, as Ben Chu explains in his new book Exile Economics.
And when Covid struck in 2020, once again upending some car manufacturers’ supply of semiconductors, Toyota was sitting relatively pretty. It had built a database of all its suppliers, and their suppliers. It went “ten firms deep and covered around 400,000 separate components,” Chu writes.
Kenta Kon, the then chief financial officer at Toyota, explained on an analysts’ call in 2021 how the company had altered its approach. “After the great East Japan earthquake, and after efforts to reduce [and] mitigate the impact of disasters, we are now able to make assessments of alternative products in a speedy manner,” Kon explained. “And this was one of the factors behind us being able to mitigate the impact of semiconductor supply . . . We looked into multiple tiers of our suppliers and created a system that enables us to find out which suppliers and what parts are at risk in the early stage of a crisis.”
Toyota calls this its “business continuity plan”. It requires suppliers to hold between two and six extra months of inventory. In 2021, while other competitors struggled to secure the chips they needed, Toyota had one to four months of inventory for semiconductors as part of the plan.
The company is not immune to today’s challenges, of course. At the end of May Toyota announced it would increase its production levels in the UK to provide more flexibility in the new tariff-affected era.
Today’s challenge: dealing with the fallout from Trump’s tariffs
April 2 this year was hailed by US President Donald Trump as “liberation day”, but it seems unlikely that many executives globally were rejoicing. Rather, some labelled the arrival of widespread tariffs — or at least the threat of widespread tariffs — as another Covid-style shock to the world economy.
This situation once again raised the now traditional question of whether Trump has to be taken literally or seriously, or both. “I think with Donald Trump you have to plan for it to happen, and then expect it may not,” says Andrew Dimitriou, global chief client and growth officer at Dept, a digital marketing agency headquartered in Amsterdam. Whatever you made of it, the announcement was plain. “It was a wake-up call for everybody to say — we need to plan for something,” Dimitriou says.
Dept had already been advising its clients on the question of price sensitivity among those clients’ consumers, running proprietary research. But now there was a need for greater speed, and action. The company set up a team of “strategic navigators”.
“This combined business strategists and brand strategists, media and communications strategists,” Dimitriou says.
These navigators have been looking closely at core markets internationally. But different approaches are needed in different countries. “What’s resonating inside America is very different from what’s resonating inside Germany, which is very different from what’s resonating inside the UK at the moment,” Dimitriou says.
Dept advises clients on their marketing approach. “There are no tariffs on airlines,” Dimitriou says. “However, tourism numbers in the US have fallen off a cliff. So we’re counselling our airline clients on what routes should we be marketing more of, what are the different loyalty incentives we can use to fill up planes instead of sending empty planes to the US.”
He says there are three main lessons to learn at a time like this. First, make sure you have a plan in place. “What does it mean for your business? And what does that mean for the consumer? And how are you going to execute on that?”
Second, you need speed and agility to execute. “You can’t change a whole supply chain overnight,” Dimitriou says. But there may be a case for building up inventory, or working on a gradual plan to increase prices. You have to move quickly and decisively on that.
His third suggestion is “to have a pulse in the market where you can interact really quickly, again and again. Because the consumer demand is changing all the time. You need to have those signals coming back to you from the market.”
It seems that Dept is taking the threat of tariffs seriously and, sometimes, literally as well.
