COVID-19: Confronting uncertainty through and beyond the crisis

For a generation of business leaders, we have been operating in and living through what we believed were uncertain times. Continual upheavals, disruptions and global shifts like digitization, technology transformation, changing geopolitics, evolving business models, and a changing consensus on globalization and trade have for decades challenged the very notion of executive decision-making.

The COVID-19 pandemic, however, is changing–or has already changed–our collective calculus of uncertainty because there is no reference case for the COVID-19 crisis in living memory. There have been flu pandemics. There was Black Monday and the 2008 financial crisis. And there have been localized threats and disasters with regional or national implications: Chernobyl, the Iraqi invasion of Kuwait, 9/11, Hurricane Katrina. But from our vantage point, the COVID-19 pandemic is more global in scope, more profoundly impactful and far-reaching, and more complex than any other crisis that today’s decision-makers have experienced or contemplated.

Typical responses to uncertainty

In uncertain times, executives aren’t spared the responsibility of critical decision-making. If anything the time frame for making choices shortens, even as the contextual uncertainty makes decision-making commensurately harder. In our experience, though, many executives and boards tend toward one of two types of response to uncertainty. The first is to recognize its existence, depth, and complexity but to become paralyzed by it. The alternative is brashness in the face of uncertainty, as though to wish away complexity.

Recent business history provides many instances of giants toppled by misunderstandings of uncertainty – whether they be financial players taken by surprise during the last financial crisis, phone manufacturers failing to anticipate the smartphone revolution and, later, the iPhone’s potential to rewrite the industry, or computer manufacturers that missed the PC market’s bullet train in the 1980s. Misinformed bullishness and complacency caused these organizations either to overlook a firm-diminishing downside or to completely miss a significant upside opportunity.

Embracing uncertainty

Acting in the face of uncertainty has been a defining theme of modern business, even within a context of macroeconomic stability and continuity. But it’s becoming harder to shock today’s executives. Potential responses to what were considered black swan events even a generation ago are today built into most strategic scenarios. By any standard, however, the COVID-19 pandemic qualifies as a true outlier.

Embracing this fundamental reframing – widely described as the “next normal” – means confronting uncertainty head-on and building it into your decision-making. Our perspectives on how to do so entail the following:

• Consider uncertainty under different time horizons
• Identify the most salient uncertainties for your industry and business
• Use the uncertainties to envision multiple different futures
• Seek diverse perspectives
• Incorporate scenarios into decision-making
• Distinguish implications of different decisions
• Make choices and monitor

Confronting uncertainty throughout the organization

For CEOs and their leadership teams, it is paramount to weigh enterprise risk and opportunity in relation to both the stress of the situation today and the different ways industries and company positions might be reshaped after COVID-19. Similarly, for CFOs and finance professionals, it’s vital to weigh liquidity, balance sheet strength, and financial forecasts through a scenario lens, while also using scenarios to provoke thinking about M&A opportunities and other offensive strategies.

For functional leaders, scenarios can help anticipate shifts in markets and input factors, providing foresight on supply chains, talent models, consumer expectations and engagement, and technology and business model evolution.

Boards play a pivotal role in helping the organizations they govern confront uncertainty. They can do so by ensuring management is alert to future possibilities and actively considering different and sufficiently divergent scenarios. They should also ensure management is considering a range of time horizons so as to weigh opportunities and risks, make difficult choices with conviction, and review and refine scenarios and strategies over time.

Exceptional circumstances, such as those of COVID-19, require a blend of courage, clarity, and humility. The biggest enemies of good decision-making in times of crisis are neither uncertainty nor ambiguity; they are, rather, over-confidence, procrastination, and incomplete or biased data. Intelligent scenario-thinking, when executed well, can mitigate the risk of falling into the trap of over-confidence when anticipating future possibilities. It can reduce or remove hesitation altogether by providing a logical structure to challenge and validate underlying assumptions. And it can mitigate the risk of incomplete and biased data by combining intuition with objectively measured qualitative data.