Today

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• Todays Agenda
• Key Concepts for Managing Strategic Uncertainty
• Innovation how to match firms capabilities
  with existing and latent market needs
• Speed how to make this match quickly
• Customization how to organize to meet a variety
  of market needs
• Knowledge Clusters how to access knowledge
  about emerging innovations
• Frameworks
• Residual Uncertainty and Strategic Options how
  to choose a strategy
• Time Pacing how to implement a strategy
• Case Discussion Flextronics Intl
• Guest Speaker Rich Wyckoff

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Managing Strategic Uncertainty

• Traditional Strategic Emphases Efficiency and
  control
• Works flows, job designs, control mechanisms,
  organizational structures
• Emergent Strategic Emphases Innovation and speed
• Design teams, forward and reverse supply chain
  collaboration, product technology cannibalism,
  internal venturing

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Managing Strategic Uncertainty

• Innovation
• Incremental
• Small improvements to existing products and
  operations to operate more efficiently and
  deliver increasing customer value
• Basic IdeaExploiting the Present
• Simple Example Compact Fluorescent Lights

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Managing Strategic Uncertainty

• Innovation
• Disruptive
• Radical advances that profoundly alter the basis
  for competition in an industry, often rendering
  old products or ways of working obsolete
• Basic Idea Exploring the future
• Simple Example Digital photography

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Managing Strategic Uncertainty

• Innovation

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Managing Strategic Uncertainty

• Innovation

Consider these four common organizational
structures for managing Incremental and
Disruptive Innovation
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Managing Strategic Uncertainty

• Innovation

Which one of the four produced significantly more
successful innovations than the others?
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Managing Strategic Uncertainty

• Innovation

Ambidextrous Leadership Different alignment held together through senior-team integration, common vision and values, and common senior-team rewards. Ambidextrous Leadership Different alignment held together through senior-team integration, common vision and values, and common senior-team rewards. Ambidextrous Leadership Different alignment held together through senior-team integration, common vision and values, and common senior-team rewards.
Alignment of Exploitive Business (Incremental) Exploratory Business (Disruptive)
Strategic Intent Cost, profits Innovation, growth
Critical Tasks Operations, efficiency, incremental innovation Adaptability, new products, breakthrough innovations
Competencies Operational Entrepreneurial
Controls/Rewards Margins, productivity Milestones, growth
Culture Efficiency, low risk, quality, customers Risk taking, speed, flexibility, experimentation
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Managing Strategic Uncertainty

• Speed
• It is not enough to be fast - one also has to
  achieve a better balance of speed, low cost, high
  performance, and high quality.

For example Rule of 10X - technology in question
must be 10 times better than what it is
replacing. More accurately, Consumers need to
perceive new technology to be 10 times better to
think it worth the upheaval of changing.
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Managing Strategic Uncertainty

• Speed
• Speed depends on the ability to
• 1. Initiate and manage change inside company
• 2. Use and provide leverage in market chains to
  initiate change in other companies.

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Managing Strategic Uncertainty

• Speed
• Ability to change inside the firm depends on
  ability to avoid the competence trap or
  innovators dilemma

Competence Trap/Innovators Dilemma Firms that
strive for competence/innovation within a given
strategy can become trapped in this strategy and
miss opportunities for strategic change.
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Managing Strategic Uncertainty

• Speed
• Competence trap/innovators dilemma derived from
  routines and procedures successful in past
• promotion and hiring
• incentive systems
• capital budgeting
• organizational structures
• personal commitment to status quo

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Managing Strategic Uncertainty

• Speed
• Some methods for avoiding the trap/dilemma

• Avoid organizing around strict product
  modules(Intels emergent product teams).

• Avoid complete dependence on existing customers
  and suppliers for new product service ideas
  (Microsofts multiple vendors of X-Box software).

• Focus new product development teams entirely on
  unserved markets (Nokias evolution into
  wireless home).

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Managing Strategic Uncertainty

• Customization
• Standardization starts upstream - raw materials,
  fabricating
• Customization starts downstream - special
  features services
• Key question is how far upstream in the value
  chain can or should product/service be customized?

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Managing Strategic Uncertainty

• Customization
• Standardization Strategies for Enabling
  Customization
• Part Standardization
• Common components across product line.
• Example Cars that like to share
• 1 million-unit annual volume platform.
• VW Renault-Nissan - 2 million-unit platforms by
  2008.

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Managing Strategic Uncertainty

• Customization
• Standardization Strategies for Enabling
  Customization
• Process Standardization
• Modular process
• Inventory in semi-finished form
• Customize the product according to requirements.
• Example Benetton and rethinking when to dye

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Managing Strategic Uncertainty

• Customization
• Standardization Strategies for Enabling
  Customization
• Product Standardization offer large variety of
  end products, but stock only a few in inventory.
• Make upon order
• Upward substitution
• Example Chip makers and taking higherlower...

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Managing Strategic Uncertainty

• Knowledge Clusters
• A Cluster is a critical mass of companies in a
  particular field in a particular location and
  include a group of
• Producers/assemblers,
• Suppliers,
• Firms in related and complementary industries,
• Infrastructure providers,
• Knowledge creators, and
• Collective associations.

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Managing Strategic Uncertainty

• Knowledge Clusters
• Clusters improve productivity by
• providing access to specialized inputs and
  information,
• facilitating complementarities among cluster
  participants,
• improving performance measurement
• improving rate and success of innovation
• lowering barriers to entry

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Managing Strategic Uncertainty

• Knowledge Clusters
• Clusters and Global Strategy
• a firm must harness advantages of spreading
  activities across locations but also capture the
  innovation advantages of home base
• outsourcing reduces locational disadvantages, but
  limits access to cluster-associated resources
• locating in cluster may reduce overall costs

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Managing Strategic Uncertainty

• Knowledge Clusters
• It's a very interesting paradox. In a global
  economy where it's easy to move goods and
  information around the world, these things become
  givens available to any enterprise. As a result,
  they are no longer a source of competitive
  advantage. The decisive, enduring advantages,
  therefore, become unique local centers of
  innovation for the likes of mutual funds, venture
  capital, and biotechnology in Greater Boston or
  aircraft equipment and design, boat and
  shipbuilding, and metal fabrication in Seattle.
  (Porter being interviewed about recent book.)

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Managing Strategic Uncertainty

• Knowledge Clusters
• Examples of Emerging Clusters in Nanotechnology
• Switzerland
• Netherlands
• Texas
• Japan
• Scotland

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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Knowable
• Market Segment Demographics, Marketplace
  Offerings, Past Technology Trends,
  Competitiveness.
• Unknown but Knowable
• Firms and its competitors Capabilities,
  Performance attributes of current technologies,
  Demand elasticities for different products,
  Competitors general technology and product
  commitments.
• Residual Uncertainty
• Performance attributes of new technology,
  Outcomes of regulatory issues, New competitive
  entry from unrelated industry.

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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 1 A Clear-Enough Future If the unknown
  but knowable is sufficiently researched,
  residual uncertainty is sufficiently small that
  strategy may proceed.
• Example Major airlines have finally figured out
  if and how to compete with Southwest.

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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 2 Alternative Futures Residual
  Uncertainty can be classified into discrete
  scenarios with approximate probabilities.
• Example ECs WEEE legislation, Digital
  Photography

Analytical Tools Decision analysis, option
valuation models, game theory
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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 3 A Range of Futures Numerous potential
  futures are possible, defined by a limited number
  of market, technology, and competitive variables.
  However, actual outcome may lie anywhere along
  the continuum.

Analytical Tools Latent demand research,
technology forecasting, scenario planning
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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 4 True Ambiguity No basis for future
  forecast Rare and tends to migrate towards other
  Levels.

Analytical Tools Analogies and pattern
recognition, nonlinear dynamic models
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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 4 True Ambiguity

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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Residual Uncertainty
• Level 4 True Ambiguity

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Managing Strategic Uncertainty

• Strategy Under Uncertainty (Courtney et al, 1997)
• Strategic Postures
• Shapers set standards
• Adapters react through speed and flexibility
• Reserving the Right to Play invest to play
  later
• Portfolio of Actions - Payoffs
• Big Bets Positive in some, negative in other
  scenarios
• Options Positive in many scenarios, Small
  Negative in some scenarios
• No-Regrets Positive under any scenario

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Managing Strategic Uncertainty
Reserve Right to Play Adapters Shapers
Clear Enough Future Not really a competitive option. Create value through innovation in products services. Will cause higher levels of uncertainty, and try to change industry.
Alternate Futures Invest in understanding options and players. Build capabilities related to discrete strategic options. Try to reduce uncertainty by setting standards for a certain alternative.
Range of Futures Send trial balloons so ready to go if industry moves. Maintain flexibility and speed, as well as investments in orgl capabilities. Make big bets and move industry and market in certain direction.
True Ambiguity Generally a poor posture. Maintain flexibility and speed, as well as investments in orgl capabilities. Create vision amongst key players in the industry.
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Managing Strategic Uncertainty

• Time Pacing (Eisenhardt Brown, 1998)
• Based on a rhythm for creating
• new products or services,
• launching new businesses, or
• entering new markets

Dynamic!

• And, gaining momentum for corporate transitions,
  leading to
• Enhancing capabilities for creating new products,
  launching new business, and entering new markets.

Requires not (just) SPEED, but synchronizing
SPEED and INTENSITY OF EFFORT.
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Managing Strategic Uncertainty

• Time Pacing (Eisenhardt Brown, 1998)

• Psychological/Cultural impact
• Sense of urgency in meeting deadlines
• Focus on individual and team goals.

• Process/Operational impact
• Managing transitions from one activity to next.
• Managing rhythms of corporate change.

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Managing Strategic Uncertainty

• Time Pacing (Eisenhardt Brown, 1998)
• Strategic Aspects of Transition and Rhythm
• Transition capable of moving into new products,
  businesses, markets, acquisitions, mergers, etc.
• During transitions, existing capabilities are
  enhanced and new capabilities are acquired.
• Rhythm internal capabilities in sync with
  external cycles/agents customers, suppliers,
  competitors, and even regulators.

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Managing Strategic Uncertainty

• Case Discussion Flextronics International
• For the management of Flextronics, what is
  knowable, not known but knowable and residual
  uncertainty? Why do you think so?
• If you found any strategic issues to be residual
  uncertainty, is it Level 1, 2, 3 or 4? Why do
  you believe so? How would you graphically present
  the residual uncertainty?
• Are you able to determine any sense of rhythm
  in Flextronics strategic actions? If so, describe
  this rhythm. Are there ways that you believe
  Flextronics could achieve a better rhythm? How?
• What future strategic transitions do you believe
  Flextronics will/should undertake? What will be
  important for Flextronics to consider in these
  future transitions in terms of enhancing
  existing capabilities and obtaining new
  capabilities?