This blog first appeared as Steve Wunker’s piece for Forbes
By: Steve Wunker
A Donald Trump presidency throws many business plans into disarray. Consider the example of a medical technology company where I spent the day after the election. Our medtech client has spent years adapting both its products and commercial model to the Affordable Care Act and now…who knows?
Trump spelled out very little about his healthcare plans, as with policies affecting many industries, and it’s impossible to say what will really happen. But dramatic change is certainly possible.
What is this company to do? Should it ratchet back long-term spending and just try to milk profits in the short-term? Should it go full-steam ahead? The right answer, for this company and for ones in many other industries, is twofold. These principles apply for any type of uncertainty, not just those involving government policy, but the lessons are particularly pertinent now.
First, it’s folly to focus myopically on just the next few quarters. Nothing has altered the time it takes to build a business, run a clinical trial, or develop a new medical treatment. Nor has the potential for technological disruptions diminished – they have and will continue to materialize at incumbent-vaporizing speed. If firms don’t invest for their long-term health, they may die a medium-term death. There is no reason to alter the proportion of revenues spent on investment for the future. The future has not gone away.
Second, the type of investment to make probably does change. For several years, conventional wisdom has held that companies should be sponsoring fewer, bigger projects. It’s likely time for the pendulum to move back from that extreme. Think about your retirement portfolio as an analogy; when times are uncertain, you don’t want to own just a handful of stocks or a few asset types. Diversity provides a hedge, as does the flexibility to wind down investments quickly.
How should a company act on these principles? Begin by developing scenarios. For our healthcare client, it needs to look at situations such as what happens if millions of Americans lose insurance coverage, or new reimbursement models falter, or states begin to forge wildly different healthcare systems. Focus the scenarios on just a handful of changing variables; this makes them simpler to plan for and communicate. You’re not trying to predict the future with laser accuracy, but rather to force thorough consideration of what happens when really critical factors adjust.
Next, develop options on how the company can thrive in each scenario. Don’t gravitate to just one option, but think of several potential right answers. After all, it’s certain that your competitors won’t all do exactly the same thing as the world shifts. By all means, prioritize the options, but do so knowing that you’ve generated a full set to choose among.
Then cultivate ways to exploit the priority options without locking your company into positions that are difficult to exit. For our medtech client, this could include venture investments in promising technologies rather than funding costly internal development efforts. The firm can also run several commercial pilots accommodating different reimbursement schemes, not knowing exactly how healthcare will be paid for in the future. The company would likely partner more readily, sharing risks and avoiding bets that may be hard to undo.
As events unfold, stay flexible. Consider venture capital-style governance for some investments, featuring very regular touchpoints with senior management but lots of latitude between those meetings for managers to make quick decisions. Beware of locking in approaches through fixed financial templates in annual operating plans; they may look great on paper, but they can bring peril in a turbulent world.
Uncertain times may be ahead. But the pace of business change will not slow down. It’s still critical to invest for the future – just do so in different ways.
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