Scenario-based portfolio model for building robust and proactive strategies

In order to address major changes in the operational environment, companies can (i) define scenarios that characterize different alternatives for this environment, (ii) assign probabilities to these scenarios, (iii) evaluate the performance of strategic actions across the scenarios, and (iv) choose those actions that are expected to perform best. In this paper, we develop a portfolio model to support the selection of such strategic actions when the information about scenario probabilities is possibly incomplete and may depend on the selected actions. This model helps build a strategy that is robust in that it performs relatively well in view of all available probability information, and proactive in that it can help steer the future as reflected by the scenarios toward the desired direction. We also report a case study in which the model helped a group of Nordic, globally operating steel and engineering companies build a platform ecosystem strategy that accounts for uncertainties related to markets, politics, and technological development.