Article SummaryStrategy Under Uncertaintyby Hugh Courtney, Jane Kirkland and Patrick Viguerie

Group 4Erika Brag (20200) Anna Ohlsson (20313) Xin Guo (70397) Liang Wang (70404)

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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

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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

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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:

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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

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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

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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

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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

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(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

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