Download - Sse Courtney Group4
Article SummaryStrategy Under Uncertaintyby Hugh Courtney, Jane Kirkland and Patrick Viguerie
Group 4Erika Brag (20200) Anna Ohlsson (20313) Xin Guo (70397) Liang Wang (70404)
2
Strategy decisions are dependent on the level of uncertainty that the firm faces
- Managers tend to define risk as either existing or non-existing- Courtney et. al. defines four levels of risk:
Level 1A Clear-Enough
Future
• A single forecast precise enough for determining strategy
• Analytical Tools• Traditional
strategy tool kit
Level 2Alternate Futures
• A few discrete outcomes that define the future
• Analytical Tools• Decision analysis• Option valuation
models• Game theory
Level 3A Range of Futures
• A range of possible outcomes, but no natural discrete scenarios
• Analytical Tools• Latent-demand
research• Technology
forecasting• Scenario planning
Level 4True Ambiguity
• No basis to forecast the future
• Analytical Tools• Analogies and
pattern recognition
• Nonlinear dynamic models
Three strategic postures can be taken vis-á-vis uncertainty
3
Shape the future
• Play a leadership role in establish how the industry operates, e.g. setting standards, creating demand
Adapt to the future
• Win through speed, agility and flexibility in recognizing and capturing opportunities in existing markets
Reserve the right to play
• Invest sufficiently to stay in the game but avoid premature commitments
Three types of moves can be taken to achieve these intents
4
No-regrets moves
• Strategic decisions that have positive payoffs in any scenario
Options
• Decisions that yield a significant positive payoff in some outcomes and a (small) negative effect in others
Big bets
• Focused strategies that positive payoffs in one or more scenarios but a negative effect in others
Courtney et. al.'s four-level division of uncertainty can be used to clarify the practical implications of the strategic postures and actions:
5
Strategy in Level 1
A Clear-Enough Future
Strategy in Level 2
Alternate Futures
Strategy in Level 3
A Range of Futures
Strategy in Level 4
True Ambiguity
Strategic postures and actions in Level 1’s Clear-Enough Future
Most companies are adapters Strategies are made up of a no-
regrets moves “Shape the future" strategy create
uncertainty in an otherwise predictable market
6
Strategic postures and actions in Level 2’s Alternate Futures
Adapter strategy can be formed based on the identifies discrete futures
Small, up-front, commitments give a firm a privileged position, but no obligation, to ramp or alternatively discontinue development as the future becomes clearer
“Shape the future" strategy attempts to lower uncertainty by increasing the probability that a desired industry scenario will occur
Shaping moves should be created with options in case they fail
“Shapers" too, must be able to adapt
7
Strategic postures and actions in Level 3’s Range of Futures
Adapter strategy achieved through investments in organizational capabilities enabling quick reactions
“Shape the future" strategy attempts to move market in a certain direction rather than create a discrete outcome
“Reserving the right to play" is a common strategy achieved through investments
8
Strategic postures and actions in Level 4’s True Ambiguity
The difficulty of managing options leads to many firms taking adapter postures, often through investments in organizational capabilities
Although this situation entails the greatest uncertainty, it may offer high returns and low risks for companies with a "shape the future" strategy because it is transitional by nature
No player knows the best strategy. the "shaper's" role is to provide an industry vision that coordinates other players' strategies
“Reserving the right to play" is a common strategy, but dangerous since outcomes are so uncertain
9
(1) Key areas of uncertainty:- How customer prefrence in regard to online vs. paper-copy will develop, and how fast- Whether other newspapers will distribute news for free online- How attitude towards online Ads will develop- How prices of online Ads will develop
In regard to the first point above, the newspaper faces level 1 uncertainty to some extent, but it also faces level 3 & 4 uncertainty in other areas
(1)Identify nature and
extent of uncertainty
(2)Choose strategic
posture
(3)Decide actions
(4)Actively manage the
strategy
Example: How a newspaper confronts the uncertainties posed by the growth of online news distribution
(2) Objectives: - Maintain current customer base & revenue - Develop online offer = Capture new business opportunities
The newspaper should choose a shaping as well as adaptive posture to attempt to coordinate a creation of a favorable industry structure, and adapt to the actual development
(3) No-regrets moves - Continously develop Web page (e.g. collaborate with video makers) and AD offers to meet increasing customer demand -Options Offer charged online distribution -Big bets Complete focus on online distribution i.e. abandon paper copy production
10