The classic approach to corporate strategy starts with a presumption: that with sufficient analytical rigor and an adequate assessment of the probabilities, strategists can pave a predictable path to the future from the matter of the past. In this world, they make reasonable assumptions about the evolution of product markets, capital markets, technology, and government regulation and, in effect, "assume away" most risk. Chief executive officers articulate strategy every few years, often in the context of a change in top management.

Such traditional strategy formulation often pays lip service to the perspectives of the capital markets, to changing industry structures, and to the forces at work in the environment. But in reality, a "visionary" corporate strategy is often an internally driven reflection of what the company wants the world to look like.

But suppose we no longer believe that the future is foreseeable. What if defining and achieving an enduring competitive advantage is really just a conceit that must be abandoned? What if the outstanding fact of business, as John Maynard Keynes once described it, is the "extreme precariousness of the basis of knowledge"? What if it is no longer possible to block out the "noise" of the world's messy reality in order to rationalize a plan to achieve predetermined outcomes?

In fact, this is the confusing, complex, and uncertain environment that corporate leaders now face. Globalization and technology are sweeping away the market and industry structures that have historically defined the nature of competition. Although the pace of change continues to accelerate, the fundamental transformations under way in the global economy have only just started. The variables that can profoundly influence success and failure are too numerous to count. That makes it impossible to predict, with any confidence, which markets a company will be serving or how its industry will be structured -- even a few years hence.

The result is an economic environment that is rich in opportunity but also marked by a substantial increase in awareness of risk and aversion to it -- a phenomenon reflected in the rise of risk premiums throughout the world even while the risk-free cost of capital remains low.

A New Approach

Strategy today has to align itself to the fluid nature of this external environment. It must be flexible enough to change constantly and to adapt to outside and internal conditions even as the aspiration to deliver favorable outcomes for shareholders remains constant.

An analogy may help. Consider the management problem of moving supplies and ships across the Pacific Ocean during World War II. The starting point for the strategist was to recognize that controlling the environment -- the weather in the Pacific -- was beyond anyone's power but that risks could be minimized and schedules roughly set through the study of weather patterns and the use of navigational aids. But the real challenge was to consider factors beyond natural forces -- factors such as enemy submarines, other enemy ships, and air attacks, analogous to corporate competitors with unknown capabilities and plans.

The strategist's answer was to deploy whole convoys with a mix of aircraft carriers, battleships, destroyers, escort ships, troop ships, and supply ships. Convoys improved the ability of each ship to cross the ocean and, crucially, helped to ensure, through "portfolio effects," that sufficient supplies made it across the ocean even when some ships didn't. The strategist couldn't know where battles might occur or which ships would be lost to enemy action. Yet the probability of success for individual vessels and the mission as a whole could be increased.

Likewise, a CEO can think about corporate strategy not as a "portfolio of businesses" but as a "portfolio of initiatives" aimed at achieving favorable outcomes for the entire enterprise. Usually, these initiatives will be organized around themes -- "convoys" if you please -- focused on achieving particular aspirations, such as increasing the global reach of the enterprise, entering a new but related industry, or achieving the industry's lowest marginal cost of production. Portfolio effects increase the likelihood that some of these aspirations will be achieved even if many others fail.

Like a more traditional strategy, such an effort is best led by the corporate center and an activist CEO, making use of his or her command over talent and resources. Beyond that, however, most executives will find this approach more deductive, adaptive, and fluid than any they have used before.