By Ramon Casadesus-Masanell,
assistant professor at Harvard Business School.

Another interesting book by Paul J. H. Schoemaker, written in collaboration with Robert E. Gunther, “Profiting from Uncertainty” advises managers to be pro-active in tackling uncertainty, that is to confront uncertainty by anticipating the many possible futures that could occur and working now to develop the skill sets and strategies that will ensure their success “no matter what the future brings.” Based on a series of mini case studies and anecdotes, Schoemaker contends that firms that apply scenario planning in turbulent environments fare much better than those that do not.

Although I would not regard “Profiting from Uncertainty” as groundbreaking, this book is interesting. Its conceptual underpinnings can be traced quite directly to earlier work by Schoemaker and others. The novelty is in the illustration of how to apply the method, through the many colorful examples and illustrations sprinkled throughout the text to support the author's assertions. Schoemaker argues that scenario planning is the best tool to manage uncertainty. At points, the book reads more like a sales pitch than a method to educate managers in the art of navigating uncertainty. In fact, it is somewhat paradoxical that in the increasingly uncertain world described by Schoemaker, scenario planning could unequivocally guarantee success.

Nonetheless, I strongly agree with the idea that firms need to make a genuine effort to avoid unforeseen contingencies. In this respect, scenario planning is a welcome attempt at a solution. Yet, I would advise managers to be aware of an important risk, and avoid elaborating strategies for too many futures, because they might lose sight of the search for a sustained competitive advantage. Indeed, the source of such an advantage is to be found in the tradeoffs that the firm carries out in terms of the activities it chooses to perform and, most importantly, the ones it does not (which customer segments it serves and which it does not, which technologies it employs and which it does not, which needs are fulfilled and which are not, etcetera). On occasion, scenario planning may blur tradeoffs that are at the very core of competitive advantage. Should a retail brokerage such as Edward Jones have jumped on the on-line trading bandwagon? Scenario analysis performed in the late nineties might have suggested such a move. However, this would have had devastating consequences since Edward Jones’s advantage is based on tailoring every activity to serve customers with low churn patterns who prefer to trade systematically through a broker.

“Profiting from Uncertainty” could also have greatly benefited from the analysis of business situations where scenario analysis has led to the deterioration of competitive advantage. There is probably more to be learned from an in-depth analysis of a few misapplications of a method, however useful that method may be, than from a long catalog of success episodes. Only those firms with a profound understanding of their competitive advantage and the tradeoffs upon which such advantage is based will truly “Profit from Uncertainty.”

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