In the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan to position their company to win in this future state. That worked well when markets were more stable and the primary factors influencing future growth and profitability were easier to forecast. But the world is now changing so quickly that no business can plan for every eventuality. And fewer than a quarter of large organizations employ the most notable tools and frameworks for strategy development under uncertainty: scenario planning, Monte Carlo simulation, and real options analysis. Executives say that those tools require data that is impractical to gather and analysis that is too expensive to execute routinely and that their output can be counterintuitive and complicated to explain to senior leadership and the board. In this article the authors offer a new approach and mindset for making strategic decisions, along with a new model for managing strategy development and performance monitoring. They describe what it takes to produce great results in uncertain times and propose a practical model for strategy development that they have seen succeed at several leading companies.

Incoming CEOs and general managers don't have much time to show what they can do to improve a business's performance. (In 2006, for instance, about 40% of CEOs who left their jobs had lasted an average of just 1.8 years - and many of them were ushered out the door.) Within a few months at most, leaders must find ways to boost profitability, increase market share, overtake a competitor - whatever the key tasks may be. But they can't map out specific objectives and initiatives until they have accurately assessed their companies' distinctive strengths and weaknesses and the particular threats and opportunities they face. In this article, Bain consultants Gottfredson, Schaubert, and Saenz provide a diagnostic template to help organizations figure all that out so they can decide which goals are reasonable and where to focus performance-improvement efforts. The template is built on four widely accepted principles. First, costs and prices almost always decline; second, your competitive position determines your options; third, customers and profit pools don't stand still; and fourth, simplicity gets results. Along with each principle, the authors offer diagnostic questions and analytic tools. Of course, each manager will emphasize certain elements of the template and de-emphasize others, based on his or her business situation. This process will show incoming CEOs and general managers where they are starting from (their point of departure) and help them establish their performance objectives (their point of arrival) as well as the change initiatives that will take them where they want to go.

What's the number of product or service offerings that would optimize both your revenues and your profits? For most firms, it's considerably lower than the number they offer today. The fact is, companies have strong incentives to be overly innovative in new product development. But continual launches of new products and line extensions add complexity throughout a company's operations, and as the costs of managing that complexity multiply, margins shrink. To maximize profit potential, a company needs to identify its innovation fulcrum--the point at which an additional offering destroys more value than it creates. The usual antidotes to complexity miss their mark because they treat the problem on the factory floor rather than at its source: in the product line. Mark Gottfredson and Keith Aspinall of Bain & Co. present an approach that goes beyond the typical Six Sigma or lean-operations program to root out complexity hidden in the value chain. The first step is to ask, What would our company look like if it made and sold only a single product or service? For Starbucks, it might be a medium-size cup of coffee; for a bank, a simple checking account. Then determine the cost of producing that baseline offering. Next, add variety back into the business system, product by product, and carefully forecast the resulting impact on sales as well as the cost implications across the value chain. When the analysis shows the costs beginning to overwhelm the added revenues, you've found your innovation fulcrum. By deconstructing their companies to a zero-complexity baseline, managers can break through organizational resistance and deeply entrenched ways of thinking to find the right balance between innovation and complexity.

As globalization changes the basis of competition, sourcing is moving from the periphery of corporate functions to the core. Always important in terms of costs, sourcing is becoming a strategic opportunity. But few companies are ready for this shift. Outsourcing has grown so sophisticated that even critical functions like engineering, R&D, manufacturing, and marketing can--and often should--be moved outside. And that, in turn, is changing the way companies think about their organizations, their value chains, and their competitive positions. Already, a handful of vanguard companies are transforming what used to be purely internal corporate functions into entirely new industries. Companies like UPS, Solectron, and Hewitt have created new business models by concentrating scale and skill within a single function. As these and other function-based companies grow, so does the potential value of outsourcing to all companies. Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone. But all companies need to reassess rigorously each of their functions as possible outsourcing candidates. This article presents a simple three-step process to identify which functions your company needs to own and protect, which can be best performed by what kinds of partners, and which could be turned into new business opportunities. The result of such an analysis is a comprehensive capabilities-sourcing strategy. As a detailed examination of 7-Eleven's experience shows, the success of the strategy often hinges on the creativity with which partnerships are organized and managed. But only by first taking a broad, strategic view of capabilities sourcing can your company gain the greatest benefit from all of its sourcing choices.