Strategic planning and uncertainty intertwine in a realistic framework where companies and organizations are bounded to develop and compete in a world dominated by complexity, ambiguity, and uncertainty in which unpredictable, unstoppable and, sometimes, meaningless circumstances may have a direct impact on the expected outcomes. In this scenario, formal planning systems are criticized by a number of academics, who argue that conventional methods, based on classic analytical tools (market research, value chain analysis, assessment of rivals), fail to shape a strategy that can adjust to the changing market and enhance the competitiveness of each business unit, which is the basic principle of a competitive business strategy. Strategy planning systems are supposed to produce the best approaches to concretize long-term objectives. However, since strategy deals with the upcoming future, the strategic context of an organization will always be uncertain, therefore the first choice an organisation has to make is when to act; acting now or when the uncertainty has been resolved.
The recognition of uncertainty supposes a dilemma for strategists: in predicting the future they are likely to be wrong and may fall into overconfidence, but on the other hand they risk clouding rational foundations for decision making. Therefore, when building a strategy, it is vital to use analytic tools based on the level of uncertainty the organization is facing (decision analysis, scenario planning, alternative futures), this will enable the organization to identify the origin and the nature of the uncertainty and act upon it.
The fallacy of prediction
According to strategic planning premises, the world is supposed to hold still while strategy is being developed and stay in the foreseen trajectory while said strategy is being executed. In the organizational world companies plan their annual strategy and they are approved the first of June by the boards of directors. However, competitors do not act according to that proposed schedule or based on that planned strategy, neither do they wait for the board's approval. Therefore, companies can not predict the period, nor the scenario in which their predictions may be accurate. While, certain repetitive patterns, such as seasons may be predictable, the forecasting of discontinuities as technological innovation or price variation is, technically, impossible.
Nature of uncertainty
The first step to develop a competitive strategy is to understand the nature of the uncertainty the firm is facing and some of its most important characteristics. As established by Birger Wernerfelt and Aneel Karnani in their article "Competitive Strategy Under Uncertainty", there are four different kinds of sources: demand structure, supply structure, competitors and externalities.
Demand uncertainty
This refers to the uncertainty revolving around the size of the market and the projection of the demand, which is a basic question in every industry. The size of the different market segments may be uncertain, the channels of distribution can be uncertain, the design of the product to be introduced may be uncertain, and in the first stages of the industry life, even the dominant design may not have been created yet. For example, in the American corn wet milling industry, demand projections made in 1972, ranged from 2.5 billion pounds to 10 billion pounds, which directly affected production mechanisms.
Supply uncertainty
When it comes to supplies, uncertainty can be found in the internal operations of the organization or in the external development of technology. There may be uncertainty regarding the best technological process, or when a superior technology may be invented. Furthermore, external uncertainty can be influenced by powerful firms which can establish standards for product specifications while small firms have to adjust to this. Finally, uncertainty can arise from within the firm as well. Key executive can leave and accidents can occur.
Competitive uncertainty and externalities
It makes references to unpredictable circumstances inside organizations, it also approaches the nature of the major competitors, their strategies and their response to the environment. It revolves around competitors' identities and their aggressiveness.