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RAPPORT

Getting from there to here

Stress-testing today’s capital agenda with tomorrow’s scenarios

Stress-testing today’s capital agenda with tomorrow’s scenarios

This is about imagining the future. What are your hypotheses about the future? And given those hypotheses, what are the opportunities you can create?” - Vijay Govindarajan, Coxe Distinguished Professor at Dartmouth College's Tuck School of Business and Marvin Bower Fellow at Harvard Business School.

No matter how much they try, corporate executives can’t help but remain all too aware of how vulnerable their companies have become. Brand-name disruptors ranging from Airbnb to Netflix to Uber are constant reminders of how digitally-enabled upstarts can win over users, deftly dethroning industry leaders and leaving them foraging for market share.

Constraints that formerly served as barriers to entry have diminished or disappeared altogether. Increasing global connectivity, fragmenting demographics, hyper-fast financial flows and the accelerating pace of disruptive innovation mean that disturbances shaking one part of the economy—consider, for example, broadband’s entry into the music industry—set off rumbles in others almost immediately. And the rise of activist shareholders means companies need to be ever more mindful of shareholder scrutiny.

In this volatile environment, where the price of a barrel of oil can plummet by 70% in less than a year, or a new competitor can reshape a market seemingly overnight, companies need to stress-test their strategic options rigorously and continually—especially as they relate to deploying capital.

Managers need to build in the flexibility to pivot as necessary to meet sudden unexpected changes. In effect, they need to prepare not just for one future, but for many.

The question is: how?

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