(FORTUNE Magazine) – ONE YEAR into the Nineties and this is shaping up as the decade in which we came, we saw, and we ran for cover. The economy is wobbling, the Germanys are merging, and the entire world is being held hostage by a desert dictator. Foreign competitors are becoming tougher. Workers, many aging and underskilled, are clamoring to be empowered. And customers are demanding the highest quality, latest technology, and speediest delivery -- all at the lowest cost. Says Walker Lewis, head of Strategic Planning Associates, a Washington, D.C., consulting firm: ''This may be a time of immense uncertainty, but it is a certainty that Western companies are in for ten years of competitive hell.'' Facing this inferno, how can companies possibly prepare for the future? How can they plot strategies when the shape of the battlefield keeps changing? The old methods won't do. At too many companies strategic planning has become overly bureaucratic, absurdly quantitative, and largely irrelevant. In executive suites across America, countless five-year plans, updated annually and solemnly clad in three-ring binders, are gathering dust -- their impossibly specific prognostications about costs, prices, and market share long forgotten. Asks John Walter, CEO of R.R. Donnelley & Sons, America's largest printer: ''Do I have the books in my closet with all the numbers in them? Yes. Do I look at them? No.'' That doesn't mean Walter and other CEOs have abandoned themselves to the Fates and the Furies. They have, instead, begun to forge companies that think and act strategically -- not just once a year but every day. The term ''strategic planning,'' popularized in the Sixties, no longer accurately describes what they do. The phrase gaining currency is ''strategic thinking.'' Executives use it to describe what a company does in becoming smart, targeted, and nimble enough to prosper in an era of constant change. William Lawrence, executive vice president for planning, technology, and government affairs at TRW, speaks for many when he says, ''The key words for the Nineties are 'focus' and 'flexibility.' '' Focus means figuring out, and building on, what the company does best. It means identifying the evolving needs of your customers, then developing the key skills -- often called the core competencies -- critical to serving them. It means setting a clear, realistic mission and then working tirelessly to make sure everyone -- from the chairman to the middle manager to the hourly employee -- understands it. Such self-assessment led Cleveland-based TRW, once a loosely knit agglomeration of 80 businesses, to shed nearly half its units and grab early leadership in the burgeoning market for automotive air bags. It led Chicago- based Donnelley to become a high-tech global communications company that adds value not just by putting ink on paper (that's only 5% of the equation) but also by transmitting, customizing, and packaging information. Flexibility means sketching rough scenarios of the future -- what General Electric Chairman Jack Welch calls bands of possibilities -- then being ready to pounce on opportunities as they arise. Says Welch: ''I'm no guru. I'm not here to predict the world. I'm here to be sure I've got a company that is strong enough to respond to whatever happens.'' GE was once the corporate citadel of quantitative forecasting. The 350-member planning staff churned out voluminous reports, meticulously detailed and exquisitely packaged. Now GE has but a score of full-time planners. Called business development specialists, they are there only to advise line managers, who have the prime responsibility for formulating strategy. The heads of GE's 13 businesses each year develop five one-page ''charts,'' memos that alert them to possible opportunities and obstacles in their industries over the next 24 months. When Hungary opened its doors to foreign ownership in state-run companies, GE needed just 60 days to cut a deal for 50% of Tungsram, the country's leading lighting company. Tungsram had been on GE's charts for years.

There is no neat, patentable formula for managing in times of uncertainty. Says Michael Porter, Harvard business school professor and acclaimed authority on strategy: ''The state of practice in this area is very primitive.'' For the typical large American corporation, diversified into a hodgepodge of enterprises and involved in manufacturing, marketing, distribution, and myriad other activities, just determining what it does for a living -- how it adds value -- is no easy task. Says Benjamin Tregoe, chairman of Kepner-Tregoe, a Princeton, New Jersey, consulting firm: ''Everyone talks about sticking to the knitting, but a lot of companies don't know what their knitting is.'' An outfit that lost sight of its knitting -- and then rediscovered it -- is Northern Trust Corp., an asset management and bank holding company based in Chicago. Long expert at ministering to the private banking needs of affluent Illinoisans, Northern aggressively expanded into such areas as energy and real estate lending in the late Seventies and early Eighties. But the bank was outgunned by bigger, richer, more seasoned competitors. A string of bad loans to Third World countries forced it to take a $179 million write-off in 1987 and post the only loss in its history. Says senior vice president Frederick Waddell: ''We found out that we were only marginal players in these areas.'' So last spring the 13 members of Northern's policy committee, accompanied by a senior vice president of Boston Consulting Group, ensconced themselves in a hotel in Lake Bluff, north of Chicago. During three days of suburban soul- searching, the managers assessed the company's strengths and weaknesses and hammered out a ten-page vision for the next decade. Northern decided to refocus on its core skills -- asset management, private banking, and targeted commercial lending mainly for local midsize companies. Capitalizing on its expertise in serving wealthy customers, Northern has been expanding into Florida, Texas, Arizona, and California and has its eye on the Northeast. The bank has also exported its operational excellence to London, becoming a leader in cash management and custodial services for international pension funds. Recognizing that its key asset is people, Northern has beefed up management training programs and -- thinking even further ahead -- has donated $1 million to a Chicago community group to help improve preschool, elementary, and secondary education. While other banks founder, Northern -- one of only four U.S. financial institutions that derive more income from fees than from interest -- looks to be on course for another year of record earnings. IT OFTEN TAKES a crisis to jar companies into thinking realistically about the future. At Trinova, a Maumee, Ohio, manufacturer of engineered components and systems, the catalyst was would-be corporate raiders who wanted to break up the company and sell off pieces. Trinova -- you may remember it as Libbey- Owens-Ford -- was until recently a loose confederation of three businesses with no clear mandate. Admits CEO Darryl Allen: ''We didn't really have a good understanding of what we were, let alone what we wanted to be.''

Figuring those things out took Allen and his senior managers six years. They decided that Trinova's glass business was too capital-intensive and too dependent on the notoriously cyclical automotive industry, so they sold it to Pilkington Bros., a leading British glassmaker. In a world awash with forecasts, opinions, theories, seminars, consultants, and concepts, many companies have come to the conclusion that the only oracles worth listening to are their customers. Trinova asked itself what kinds of products and services its customers would likely need 15 years down the road and what kind of core competencies the company would have to develop to serve them. Its Vickers division, for example, was already a global leader in hydraulic components (such as pumps and valves) for airplanes. But Vickers's customers were thinking about enhancing or replacing some of their hydraulic components with electric, electromechanical, and electronic parts and systems. So Vickers resolved to master those new technologies through acquisitions, joint ventures, licensing agreements, and its own R&D. Says Allen, an accountant and Star Trek freak: ''I've got to have these capabilities. We never want to lose a customer because we don't have the technology.'' Trinova doesn't know exactly what Boeing and McDonnell Douglas will be ordering in 2005, but it is confident that it has the skills and flexibility to meet their evolving needs. MANY companies have trouble mustering such farsightedness. That's because, in most organizations, the future doesn't have a lobbying group. Managers are preoccupied with -- and rewarded for -- the critical present-day tasks of boosting sales, increasing market share, and enhancing profit margins. Says C. K. Prahalad, professor of corporate strategy and international business at the University of Michigan and an adviser to Trinova and other large multinationals: ''In most American companies the urgent has driven out the important.'' The traditional building block of American corporations, the semiautonomous strategic business unit, can actually impede a company's ability to focus on the future. Most companies, Prahalad argues, still use rigid financial formulas for deciding whether they should invest in, milk, or dump individual units -- an approach that not only focuses on current market conditions but also makes it easy for competitors to guess what a company will do with a particular business. Why did American companies pull out of the color TV business? Because traditional strategic analysis said it was a ''mature'' industry. The remaining players, who now compete in the robust markets for VCRs and video cameras, and will likely get into such new products as high- definition TV, thought otherwise. ! The division into strategic business units can also interfere with a company's ability to identify its core competencies -- and key people. Says Walker Lewis of Strategic Planning Associates: ''Core skills often have nothing to do with the way the company is organized.'' At GE, Jack Welch is trying to create what he calls a boundaryless organization in which technology, information, managers, and management practices flow freely from one division to another. When inspectors at the aircraft engine division check the integrity of metal parts, for example, they use X-ray technology developed by the medical systems unit. Focusing on the future needs of customers has prompted R.R. Donnelley to reinvent not just itself but its competition as well. CEO John Walter, who is 43 and has the mediagenic countenance of a political candidate, believes his company's prime rivals aren't other printing companies but televisions, radios, telephones, computers -- any medium of communication that can lure his customers away from print. To keep current customers and win new ones, Donnelley has invested heavily in advanced technology and has stepped up expansion overseas. Using satellites, the company can print a securities prospectus simultaneously in the U.S., Europe, and Japan. When a computer manufacturer wants a new user manual, Donnelley can use digital technology to do the job on glossy paper, magnetic disk, compact disc, or all three. What's next? Perhaps customized yellow pages (each would encompass a circular geographic area with the consumer's house at the center) or college textbooks tailor-made for a professor's class. Says Walter: ''Probably 50% of our revenues by 1995 or 2000 will come from businesses that we weren't in ten years ago.'' As chief executives strive to get their companies to think strategically, they are rediscovering the importance of their line managers, especially their middle managers. That's right, middle managers -- the Rodney Dangerfields of corporate America. Reshuffled, depowered, and pensioned off during the past decade, they are reemerging as the missing link in the drive to turn visions into realities. Says Jeanie Duck, a vice president at Boston Consulting Group in Chicago: ''I am frankly amazed at the number of companies I see where people don't know what the strategies are. The CEOs have ennobled the worker. Now they're asking, 'What about the middle manager?' '' Andrew Grove, the plucky Ph.D. who is CEO of Intel, the Santa Clara, ! California, semiconductor giant, has recently come to a somewhat humbling conclusion about his own role in plotting strategy. He believes that the most important strategic decisions get made in the trenches, not in the cloistered precincts of the executive suite or the VDT-lit aeries of the professional planners. Says he: ''People formulate strategy with their fingertips. Day in and day out they respond to things, by virtue of the products they promote, the price concessions they make, the distribution channels they choose.'' The Hungarian-born Grove worries that the vision and mission statements that issue from on high often bear only scant relation to reality: ''You look at corporate strategy statements, and a lot of them are such pap. You know how they go: 'We're going to be worldclass this and a leader in that, and we're going to keep all our customers smiling.' '' Grove believes that such a statement can be valuable (Intel has one of its own), but only if used as a constant guide for the actions of managers and workers. The acid test of a statement's effectiveness, Grove says, is how well it ''helps a manager who is earning $60,000 or $80,000 a year actually do what he does.'' A prime example of strategic delusion, says Grove, was Intel's stated plan in the early Eighties to be a major player in both memory chips and microprocessors. Intel pulled out of the dynamic random access memory (DRAM) business in 1985 -- and focused its energies almost exclusively on microprocessors -- after the company suffered heavy losses at the hands of Japanese competitors. Grove, who teaches case studies about the DRAM decision at Harvard and Stanford, says it is now clear to him that the company had already ''decided'' to retreat from memory chips, perhaps as early as 1983, by dint of its marketing, pricing, and investment choices. Says he: ''We were fooled by our own strategic rhetoric.'' Grove believes Intel's current mission, ''to become the premier building block supplier to the new computer industry,'' is more realistic. The company intends to keep concentrating on microprocessors, such as its hugely successful 386 chip, the brains of the IBM personal computer and many others. But Intel has also begun, on a small scale, to make personal computers that are sold by customers (including AT&T and Unisys) under their own names. Says Grove: ''I have to invest in capabilities. Should there be a shift in the marketplace by our customers to increasingly buy finished or semifinished systems, I want to be able to respond to it.'' Grove now recognizes that keeping his generals and his troops marching in the same direction requires constant cajoling and quarreling up and down the ranks, over everything from capital allocations to marketing campaigns to geographic priorities. Says the plain-speaking CEO: ''It is not a pretty sight.'' But without such disputation, top management might end up with all the strategic sway of Napoleon during the retreat from Moscow. The French leader, to quote Tolstoy, ''was like a child holding on to the straps inside a carriage and imagining that he is driving it.'' AT THE MICRO SWITCH division of Honeywell, general manager Ramon Alvarez uses his office as a bully pulpit for declaiming the virtues of strategic thinking. Alvarez, who became head of the Freeport, Illinois, operation four years ago, says the company's prior approach to strategy was elitist and academic: ''We got so enamored of the process and the final book that we forgot about execution.'' Now he holds open forums, publishes newsletters, and makes videotapes. Every Friday afternoon, Alvarez or one of his senior managers sets aside 3 1/2 hours of telephone time to field questions and complaints from any of the company's 5,000 employees. Alvarez's message to his workers is unvarying: If Micro Switch wants to maintain its position as one of the world's top three switch and sensor suppliers, high product quality alone won't do it. The company must continuously improve productivity, technology, and customer service. Still, even the most focused, customer-oriented, boundaryless company can be tripped up by external surprises. The managers of Southern California Edison, an electric utility serving 3.9 million customers in central and southern California, came to the mind-numbing realization four years ago that their strategic planning system was a bad joke. Every long-range plan they had painstakingly constructed over the past two decades had been rendered virtually useless by unexpected events -- from OPEC price-fixing to new restrictions on sulfur emissions to accidents at Three Mile Island and Chernobyl. Says Vikram Budhraja, manager of electrical systems planning: ''These were events that no one could have foreseen, but they had a dramatic impact on our business.'' So Edison adopted a technique known as scenario planning. Looking ahead ten years, the utility came up with 12 possible versions of the future & -- incorporating an economic boom, a Middle East oil crisis, expanded environmentalism, and other developments. Each scenario carries implications for how much power Edison would need to generate, from 5,000 megawatts more to 5,000 megawatts less than the 15,000 megawatts it was producing in 1987. To cope with such radical variations in demand, Edison has built flexibility into its system. It can repower or depower oil-and-gas generating plants, buy juice from other utilities, and intensify or diminish its campaign to help customers use less electricity. Edison is stepping up conservation in response to new state regulations that reward utilities for encouraging reduced consumption. Says Vikram Budhraja: ''We couldn't have done this as well if we hadn't planned for this possibility.'' Royal Dutch/Shell, which has been doing scenario planning for 19 years and is widely regarded as the master of the craft, currently has two 20-year scenarios in place. The first, called ''Sustainable World,'' predicts increased concern about global warming trends and an expanded emphasis on conservation, recycling, and emissions controls. The second scenario, ominously entitled ''Mercantilist World,'' postulates an increase in protectionism, a slump in world growth, and a de-emphasis of environmentalism. Group planning coordinator Peter Hadfield believes that scenario planning has helped Shell be better prepared than its competitors for external shocks. In the early Eighties, for example, while most forecasters were predicting a steadily increasing price for crude oil, Shell, in one of its scenarios, had entertained the possibility that the price would slide to $15 a barrel. As a hedge against such an eventuality, the company began looking into cost-saving exploration technologies. When the slump hit, Shell was able to sustain a higher level of drilling activity than many of its competitors. Shell realizes that its two scenarios don't encompass everything that might happen in the future, and that neither will be a perfect predictor. Says Hadfield: ''They're there to condition the organization to think.'' WHILE constructing alternative visions of the future can be helpful, it can also carry a price. Says Harvard business school's Michael Porter: ''If you try to be flexible and be ready for everything, you could end up raising your costs and not being good at anything.'' Managers ultimately have to make choices, as Grove and his colleagues learned the hard way at Intel. Says he: ''I'd rather have all my eggs in one basket and spend my time worrying about whether that's the right basket, than try to put one egg in every basket. Because then you have no upside.'' When it comes to thinking and acting strategically, managers still have to depend, to some degree, on a few devilishly unquantifiable factors, like experience, instinct, guesswork, and luck. Has the future got you down? Don't fret about it. Focus your company, listen to your customers, empower your managers, and follow your gut.