Why Hypothesis-Driven Strategies Help Companies Navigate Uncertainty

Forbes

2 days ago

Laureen Knudsen is CTO of Empower Consultant Group and an industry leader in Transformation, Member of Power50, Top 100 Women in Tech.
About twenty-five years ago, the software industry admitted a fundamental truth: We couldn't plan development work upfront because we didn't know what we didn't know. This realization birthed the Agile Manifesto.
Today, we face a similar challenge at the strategic level: We don't know what we don't know about how to best achieve our strategies and objectives.
Many executives have a hard time admitting that they don't know the best path forward to meet their goals. Yet, when we examine how businesses actually operate, how we place bets when funding products or projects, we must acknowledge that our annual plans rarely lead to the outcomes we anticipated.
This year presents unique challenges. With explosive AI growth and an uncertain global economy, companies must be ready to pivot at a moment's notice. Organizations must, therefore, embrace flexibility in their approach to reaching their goals.
The Opportunity Advantage
Companies with the flexibility to pivot quickly will have a competitive edge over those following fixed, long-term plans that can't adapt to change.
The era of three-year strategic plans that remain unchanged is over. Today, between the economic, technological and geopolitical disruptions over the last few years, even three-month plans may require constant adjustment.
Consider supply chain management. Companies must monitor market conditions regularly, as even a slight delay in reacting to competitors could lead to significant financial losses. While long-range planning remains necessary, they must be intentional about our objectives while assuming our methods for achieving them will evolve.
The Hypothesis-Driven Business Model
Drawing from Lean UX principles, the hypothesis-driven business operates on this belief: We know our strategies, goals and objectives, but we cannot know the best way to achieve them.
This sounds simple, but transitioning from traditional operating models to this approach requires fundamental changes in leadership and execution.
The framework requires setting clear company objectives, then checking frequently to ensure you're taking the optimal route to your goals. While planning and articulating strategies remain valuable, spending months creating detailed plans is not. Following those plans without validating that they represent the fastest path to success can leave you behind competitors.
Plans are hypotheses, best guesses for achieving outcomes. Recognizing this distinction is crucial.
Traditional approaches involved creating annual plans and strategic visions, then forgetting the strategy to focus solely on plan execution without checking if business objectives were being met.
Today's approach inverts this model. As soon as plans are complete, each team should verify whether the chosen path remains the quickest route to your goals. If not, pivot the organization toward a better path. This doesn't create chaos when proper processes and guidelines exist.
Effective processes must:
• Facilitate the seamless flow of work throughout the organization.
• Reduce bottlenecks.
• Include fast feedback loops.
• Align tightly with customers.
• Generate data naturally.
• Enable quick data interpretation and response.
The Plan-Do-Check-Act Framework
Rather than inventing new methods, you can adapt proven approaches. The Plan-Do-Check-Act (PDCA) method provides an iterative four-step management method for continuous process and product improvement.
At the executive level, PDCA, or similar frameworks like the observe, orient, decide and act (OODA) loop, helps focus on reaching goals rather than simply completing plans:
1. Plan: Teams create hypotheses to achieve objectives.
2. Do: They design experiments to test hypotheses and begin implementation.
3. Check: Assess business objective progress at regular intervals, sharing both successes and failures to identify the best path forward.
4. Act: Align on the best results and repeat the cycle.
The Mountain Summit Analogy
Consider the analogy of climbing a mountain when implementing this strategy:
1. The Summit: Your objective is a mountain peak. All teams share the goal of reaching it quickly and efficiently.
2. Guardrails: Provide constraints (e.g., "the west side offers better routes").
3. Path Selection: Teams assess their skills and choose their fastest route. Some select short but steep paths, others choose longer but less steep routes that they can navigate quickly.
4. Regular Check-Ins: Leaders meet weekly or bi-weekly to compare results, sharing what worked, what didn't and what inhibited progress.
5. Evolution: Adjust plans and guardrails based on learnings and repeat.
Real-World Application
Here's how this looks in practice:
A division targets 8% sales growth (the non-negotiable "summit"). Each product manager collaborates with their team (including engineering), sales territory manager and marketing to develop the fastest path to this goal. The hypothesis isn't the goal itself, but the method for reaching it.
Each team tests their hypothesis and tracks results. Marketing and product management monitor news, global changes and customer pressures, helping sales teams pivot quickly when new information emerges. Engineering develops new features rapidly.
Organizational leaders convene regularly to compare results, share effective strategies and modify plans based on findings. Successful teams share their methods, as do teams that have struggled. Every team uses the learnings to modify their approach, creating consistent goals while allowing each to determine their best method to success.
Moving Forward
Long-term strategic planning grows more challenging each year. Strategic planning assumptions, especially this year, may not remain valid over time. Even decisions backed by historical data can be disrupted by external factors.
While you can develop strategies effectively, determining execution paths becomes increasingly complex as world politics and economics continuously impact your approach to success. These uncertainties can paralyze planning, or you can use them as catalysts to create processes that enable you to compete effectively in the future and pivot as needed.
Hypothesis-driven business acknowledges these uncertainties and enables rapid organizational pivots. By embracing this approach, companies can transform uncertainty from a threat into a competitive advantage, staying agile enough to capitalize on opportunities while maintaining focus on their core objectives.
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