For many years, Walmart has been using weather forecasts to guide the placement of products and advertisements in its stores. Clear and sunny conditions with light winds, for instance, have proven to be the perfect conditions for selling berries. When it gets a bit hotter, however, stores demote the berries and foreground salads.
As extreme weather events have become more common, the company has also realised that there is more that it can do with the information it gets from staff meteorologists. It has turned the uncertainty of climate change into a competitive advantage.
“If they see something like a hurricane coming, they take a couple of steps,” explains Hans Kuipers, managing director and partner at Boston Consulting Group. “First, they take all their trucks out of the path of the storm. If a truck is stuck, they cannot resupply their stores, so one of their first strategic responses is take their trucks out.
“Secondly, they have a specific inventory of goods that they dispatch to that area, because they know those are the things people will need an in emergency,” Kuipers adds. “So while everyone else might run out of water or matches because they didn’t plan in the same way and lost the ability to restock because their trucks were out of action, Walmart is able to get an advantage.”
Taking a gap
This example is noteworthy because uncertainty in business is often thought of as toxic. Investors and management teams are supposed to desire certainty above all else when it comes to allocating capital.
However, while certainty is obviously desirable in many respects, it’s extremely difficult to make outsized returns in a predictable environment.
If everybody has the same clarity, then companies have to fight for small advantages.
It is where the future is uncertain that the opportunity for enormous gains is possible. Naspers’s investment into Tencent is a good example of this. It was far from clear that technology in China would explode the way it has.
Another example from the local market is MTN’s investment in Nigeria. Although it has recently run into difficulties, it was a massively profitable move for many years.
“MTN bought the telco licence in Nigeria for $285 million 20 years ago, which was super cheap,” Kuipers notes. “They got that advantage because they were willing and able to take the risk and they took a long term view on Nigeria. Now, Nigerians are upset that they got it so cheap, but at the same time MTN was part of a limited group willing to take that risk. So sometimes by understanding and making educated, well-informed bets you can get a longer term advantage.”
Seeing around corners
There is of course a great deal of luck involved in both of these examples, but they illustrate how uncertainty does create opportunities.
“If you are in a situation where there is uncertainty, but the uncertainty also applies to other actors, then there is the possibility to get advantage out of that,” Kuipers explains.
“The uncertainty itself does not necessarily have to be detrimental to your business.”
What is important is to try to understand how uncertainties may play out.
“If you can actually get a better understanding of what the uncertainty is, and the trends and developments playing out, you can build scenarios around what the possible outcomes of that uncertainty could be,” Kuipers says. “Using those scenarios you can definitely get a head-start over others.”
The local challenge
For South African businesses, this is something worth thinking about in the current environment. There is a great deal of political and economic uncertainty in the country, which has led many companies to halt investment entirely.
In some cases, this may be warranted. Policy uncertainty does make it impossible to plan, because if the rules and regulations are going to change in ways that a business can’t anticipate, it cannot commit capital. However, companies can consider how they respond to other forms of uncertainty that are not necessarily fatal.
“A strategic response to uncertainty can be we don’t act while others do act because we want to understand better how things play out,” says Kuipers. “So I don’t think not acting is necessarily a bad response.
“What is important, though, is whether this is a conscious decision, or an emotional one,” he adds.
“If I say, because there is uncertainty I cannot get my head around it and therefore my best next action is to do nothing, I don’t think that’s a particularly smart approach.”
While it may be impossible to anticipate the outcomes of many of the uncertainties South Africa faces, this is not universally the case.
There are a number of examples of small businesses in particular taking advantage of opportunities that bigger firms feel are too risky to take.
Facing uncertainty should not be an excuse for standing still. It should rather be a motivation to discover new avenues for success.
“Maybe people are a bit too cautious,” says Kuipers, “but if you have the guts to be a little bit less concerned and you have a positive outlook on an industry, then I think longer term you can always make returns.”