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in fact, is a variant of a much older planning technique called scenario planning, which was developed by Herman Kahn of the RAND Corporation in the 1950s as an aid for cold war military strategists. The basic idea of scenario planning is to create what strategy consultant Charles Perrottet calls “detailed, speculative, well thought out narratives of ‘future history.’ ” Critically, however, scenario planners attempt to sketch out a wide range of these hypothetical futures, where the main aim is not so much to decide which of these scenarios is most likely as to challenge possibly unstated assumptions that underpin existing strategies.18

In the early 1970s, for example, the economist and strategist Pierre Wack led a team at Royal Dutch/Shell that used scenario planning to test senior management’s assumptions about the future success of oil exploration efforts, the political stability of the Middle East, and the emergence of alternative energy technologies. Although the main scenarios were constructed in the relatively placid years of energy production before the oil shocks of the 1970s and the subsequent rise of OPEC—events that definitely fall into the black swan category—Wack later claimed that the main trends had indeed been captured in one of his scenarios, and that the company was as a result better prepared both to exploit emerging opportunities and to hedge against potential pitfalls.19

Once these scenarios have been sketched out, Raynor argues that planners should formulate not one strategy, but rather a portfolio of strategies, each of which is optimized for a given scenario. In addition, one must differentiate core elements that are common to all these strategies from contingent elements that appear in only one or a few of them. Managing strategic uncertainty is then a matter of creating “strategic flexibility” by building strategies around the core elements and hedging the contingent elements through investments in various strategic options. In the Betamax case, for example, Sony expected the dominant use of VCRs would be to tape TV shows for the future, but it did have some evidence from the CTI experiment that the dominant use might instead turn out to be home movie viewing. Faced with these possibilities, Sony adopted a traditional planning approach, deciding first which of these outcomes they considered more likely, and then optimizing their strategy around that outcome. Optimizing for strategic flexibility, by contrast, would have led Sony to identify elements that would have worked no matter which version of the future played out, and then to hedge the residual uncertainty, perhaps by tasking different operating divisions to develop higher- and lower-quality models to be sold at different price points.

Raynor’s approach to managing uncertainty through strategic flexibility is certainly intriguing. However, it is also a time-consuming process—constructing scenarios, deciding what is core and what is contingent, devising strategic hedges, and so on—that necessarily diverts attention from the equally important business of running a company. According to Raynor, the problem with most companies is that their senior management, meaning the board of directors and the top executives, spends too much time managing and optimizing their existing strategies—what he calls operational management—and not enough thinking through strategic uncertainty. Instead, he argues that they should devote all their time to managing strategic uncertainty, leaving the operational planning to division heads. As he puts it, “The board of directors and CEO of an organization should not be concerned primarily with the short-term performance of the organization, but instead occupy themselves with creating strategic options for the organization’s operating divisions.”20

Raynor’s justification for this radical proposal is that the only way to deal adequately with strategic uncertainty is to manage it continuously—“Once an organization has gone through the process of building scenarios, developing optimal strategies, and identifying and acquiring