A Simple Framework to Develop Deep Strategic Understanding in Uncertain Environments

In a previous article, we discussed how, when facing an uncertain situation, a deep understanding of the present beats prediction about the future. One tool that Milo and I developed for strategists to think in detail about the present – in other words to answer the pretty basic strategic question “What is going on?” –  is a refinement of a framework developed by the historian Ernest May and political scientist Richard Neustadt.  We call it the “KPUU framework”.  It demands strategists answer and drive towards discussion (and perhaps agreement about) four simple questions about a situation.

These four questions are:

• What do we know for sure – What is Known (K)? In particular, one of the things you want to look at is the origin of the issue: when and how did it start?  When did it become an issue for you? If the information is about a new technology or a scientific discovery, ask what is really known, not what seems to be known. Agreement even about what one actually knows can prove surprisingly difficult to achieve, in particular if you read a breaking news story.
• What can we safely Presume (P)? These are the assumptions that we can safely make about the issue. We presume competitor X will sue us for patent infringement if we introduce our product. We presume there is strong customer demand for the product.
• What is Unknown (U1)? These things that are unknown by us but are “knowable” in a real sense by someone.  They may be  secrets that somebody is potentially trying to hide from us (We don’t know if competitor X will introduce their own version of product Y), or simply some category of expert knowledge (can our product be produced with a 3D printer?)  You can unveil these by finding the right person or source.
• What is Unknowable (U2)? These are the mysteries which nobody can know how they will evolve, e.g. consumer acceptance of chemically-enhanced language learning, China next year’s GDP, or a the decision of a monetary policy committee next week.  This is a particularly critical area to explore with regards to market uncertainties. No amount of market research can tell us whether consumers will indeed adopt chemically-enhanced language learning, because this has never existed in the past and market research is essentially backward-looking. Here the difficulty is not that we cannot find information, or that someone is trying to keep that information from us, but that information simply doesn’t exist. It is called true uncertainty in a reference to the work of Nobel Prize winner Frank Knight.  They are the “known unknowns” (though you will always find apostles of false certainty).

An open debate about what data goes in each column – especially what is Unknown versus what is simply Unknowable at this moment – uncovers a huge number of assumptions and also exposes strategists’ differing rules of evidence.  In our experience with students and clients, the most productive debate often occurs about the Known column, which is in theory the easiest to pin down.  This effort to understand more deeply the present is, in our view, more valuable than most efforts to plumb the depths of uncertain futures. It is extremely important at this stage to make all assumptions explicit. Any time “lost” at this stage will be recouped later when decision time comes and doubts surface.

But the KPUU framework is more than a process or tool for thinking.  It also creates an audit trail, an explicit, shared inventory of knowledge about the present, including embedded assumptions.  As you work with KPUU, you’ll realize that people disagree about what goes in each column, and that’s OK! In fact, the value of creating the framework also lies in the discussion that takes place among the team. The idea is not to strive for perfection, for that is an elusive goal, but, again, to have an explicit process for sharing of knowledge, including on things the team disagrees about. In fact, we recommend that people first do their own draft KPUU entries alone and then compare and debate their entries among the team.

The framework also elicits suggestions and initiates actions to “Drive data to the left”, in other words move things from the Presumed, and Unknown columns into the Known columns. You can also try to move things from Unknowable to Known by breaking information into smaller bits. For instance, consumer-acceptance of chemically-enhanced language learning might be unknowable, but laws related to the issue might be known or knowable.  We are always surprised by how often people from different disciplines (e.g. Engineers versus Finance versus Marketing) can collaborate to think of ways to make the “Unknowable” at least “Unknown” and to nail down stuff that starts as “Presumed” into “Known”.

Where to go from here, then? Once you’ve filled the table, here is how you can look at the result.

• For the Known information, ask the following question: what does it mean to me? For instance, you know that competitor X has hired an expert in a particular technology. When trying to gauge competitors’ motives based on available information, make sure your don’t fall prey to identity bias:  take the competitor’s perspective, not yours. Understanding how a fact is likely to impact you can be very complex, as it requires you to establish lines of causality on several levels. How would your business be affected by a major earthquake in Istanbul? By a tripling of the price of aluminum? By exploding piracy in the strait of Malacca?
• For the Presumed information, which really is a set of assumptions, ask: how do we go about examining these assumptions? This should not be conceived of purely as an intellectual exercise:  part of how you test assumptions is about taking action. For instance, run a market trial, develop a prototype, study analog situations, etc. More generally, one should be very careful and make assumptions explicit.
• For the Unknown information, assess if it is important to you, and if so, ask how to discover it:  who has the answer? How can you get to them? Note that your values are important in defining what you are prepared, and not prepared to do in the case of secrets.  For instance, would you be comfortable in engaging in illegal espionage or bribing to find out what the “opposition” is up to for this secret?  In the world of intelligence analysis, any method of collection is valid, but in business this is obviously not the case.  Just ask the former Chairman of McKinsey.
  

  Rajat Gupta knows now that some things are better left Unknown

• For the Unknowable information, you may decide to either work around or to actively shape the situation. For instance, the rise of social networks is a mystery in the sense that nobody knows where it’s going, but it is nevertheless affecting of millions of people’s actions. Hence the question is not to ‘discover’ the secret about social network, but to determine how you fit in this process and how you can influence its evolution to your advantage (or at the very least work around its effects if it is harming your business). In other cases, such as so-called Emerging Markets, nobody knows where they are going, the option is to actively shape them. That is where strategists can learn from entrepreneurs:  entrepreneurs deal with uncertain environments by shaping them through a logic called ‘effectuation’: they take their available means and create ties with stakeholders to control where the environment is going. Hence, taking a cue from entrepreneurs, you might think of working through unknowable environments by tying up with partners. For instance, instead of trying to guess whether electric cars will finally take off for good (they’ve been around and trying since 1838), work with a partner who has a national network, say a supermarket, to make charging stations available.

What the steps above suggest is that the KPUU framework, despite its simplicity, will move you towards combining thinking and action. Indeed, KPUU is really strategic thinking in action. Instead of seeing strategy as a sequential process of thinking, then acting, it sees thinking and acting as interwoven.  Assumptions and embedded hypotheses are being tested through action. Unknown information triggers action to learn. Unknowable information leads to design activities to shape the environment. These actions generate information and feed the framework back in return. And it is social: The KPUU works best as a team effort, especially with a diverse team.

In our view, only when one can clearly answer in detail “What is going on?”, followed by the question “What does it mean?” can the various options for “What should we do?” be considered.  What we often see is immense efforts put into prediction instead of a detailed understanding of the present.

Finally, note that the only forward-looking question in this framework for non-predictive strategy is the final one, and it is focused internally:  ”What should we do?”, not “What will happen?” or  ”What will the world be like?”, etc.

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