Management by SMURF.

• Author: Davidson, C. Mike B.
• Position: Skill, motherhood, uncertainty, relativity, follow-through - Reprint from Directors & Boards, Spring 1984 - Putting In Place the Right Board for the 21st Century

PLANNING must recognize uncertainty. Boards don't like to, forecasters don't like to, go-getting operational managers don't like to, and all too often planners don't like to. The last is not that surprising because it's very difficult to say you're adding value when you say, "I don't know" or "Do nothing."

When I came to the U.S., the first advice I had to give a go-getting operational manager was to do nothing about a problem plant. The reason for that advice was that doing something was more likely to be worse than doing nothing. The operating chief's response was: You mean you brought this guy all the way from Europe to tell us about business planning and all he can tell us is to do nothing? It's the most difficult advice you can give. But there are times when it's the right thing to do in the presence of uncertainty.

Now what are the normal ways we recognize uncertainty? Ranged projections. Multi-outcome possibilities. Contingency plans. They're all fine and good, but personally I don't think that's the way operating managers think. They tend to think in one-point answers. Not because they don't consider alternatives, but because they've dealt with all the possibilities in building to that one-point answer, which becomes their recommendation.

Instead, I suggest two strategic responses. The first is the maintenance of strategic reserves. Every general knows he needs to maintain a strategic reserve, and he knows that when he's committed it he's thrown his last card. But most companies seem to run at the very edge -- for example, in the amount of debt they use. As a matter of fact, you even hear some senior managers talking about deliberately using up all the resources running at the edge -- so those turkeys in that division over there can't get hold of any and squander them. Every division says the same thing, of course!

There is a cost to keeping a strategic reserve. One way of looking at that cost is that it's the difference between the overall cost of capital and the specific cost of debt, if you're keeping it in terms of the unused debt capacity. But if you don't have that reserve, you've got nothing to exploit new opportunities as they arise, and nothing to cover the problems that are going to come in the next years.

The second response is flexibility building flexibility into your plans and, maybe even more important, into your organizations. Organizations must have the ability to respond when the unforeseen happens. It's not a...