today’s agenda: a.key concepts for managing strategic uncertainty 1.innovation – how to match...

Today’s Agenda:A. Key Concepts for Managing Strategic

Uncertainty1. Innovation – how to match firm’s capabilities

with existing and latent market needs2. Speed – how to make this match quickly3. Customization – how to organize to meet a

variety of market needs4. Knowledge Clusters – how to access knowledge

about emerging innovationsB. Frameworks

1. Residual Uncertainty and Strategic Options – how to choose a strategy

2. Time Pacing – how to implement a strategyC. Case Discussion: Flextronics Int’lD. Guest Speaker: Rich Wyckoff

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


InnovationIncremental:

Small improvements to existing products and operations to operate more efficiently and deliver increasing customer valueBasic Idea…“Exploiting the Present”Simple Example: Compact Fluorescent Lights


InnovationDisruptive:

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


Incremental

Disruptive

LowViability

HighViability

MP3 PlayersLaser Disc

HybridTechnology

cars

‘New’ Coke

How can you ensure aninnovation strategy that

keeps your company‘playing’ in this space?

Innovation

Following Material from O'Reilly et al (2004) Harvard Business Review


Functional:integrate project teams

into the existingorganizational and

management structure.

General Manager

Mfg Sales R&D

General Manager

Mfg Sales R&D

Cross-Functional:operate within establishedorganization but outsidethe existing management

hierarchy

Emerging Business

Consider these four common organizational structures for managing Incremental and Disruptive Innovation…

Innovation


General Manager

Ambidextrous:establish project teams

that are structurallyindependent units, each

having its own processes,structures, and cultures,but are integrated intoexisting management

hierarchy.

Mfg Sales R&D

ExistingBusiness

Mfg Sales R&D

NewBusiness

General Manager

Mfg Sales R&D

Unsupported Teams:integrate project teams

into the existingorganizational and

management structure.

EmergingBusiness

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

Innovation


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

Innovation


SpeedIt 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.


Speed

Speed depends on the ability to:1. Initiate and manage change inside

company2. Use and provide leverage in market

chains to initiate change in other companies.


Speed

Ability to change inside the firm depends on ability to avoid the “competence

trap” or “innovator’s dilemma”

Competence Trap/Innovator’s Dilemma Firms that strive for

competence/innovation within a given strategy can become trapped in this strategy and miss opportunities for

strategic change.


Speed

Competence trap/innovator’s dilemma derived from routines and procedures successful in past:

promotion and hiring incentive systems capital budgeting organizational structures personal commitment to status quo


SpeedSome methods for avoiding the

trap/dilemma:Avoid organizing around strict product “modules”(Intel’s emergent product teams).Avoid complete dependence on existing customers and suppliers for new product & service ideas (Microsoft’s multiple vendors of X-Box software).Focus new product development teams entirely on unserved markets (Nokia’s evolution into “wireless home”).


Customization

Standardization starts upstream - raw materials, fabricatingCustomization starts downstream - special features & services

Key question is how far upstream in the value chain can or should product/service be customized?


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.

Managing Strategic UncertaintyCustomization


Process Standardization: Modular processInventory in semi-finished formCustomize the product according to requirements.

Example: Benetton and rethinking when to dye…

Managing Strategic UncertaintyCustomization


Product Standardization: offer large variety of end products, but stock only a few in inventory.

Make upon orderUpward substitution

Example: Chip makers and taking higher…lower...


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.


Knowledge Clusters

Clusters improve productivity by providing access to specialized inputs and information, facilitating complementarities among cluster participants,improving performance measurementimproving rate and success of innovationlowering barriers to entry

Managing Strategic UncertaintyKnowledge Clusters

Clusters and Global Strategya firm must harness advantages of spreading activities across locations but also capture the innovation advantages of home baseoutsourcing reduces locational disadvantages, but limits access to cluster-associated resourceslocating in cluster may reduce overall costs


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.)


Knowledge Clusters

Examples of Emerging Clusters in Nanotechnology:

SwitzerlandNetherlandsTexasJapanScotland


Strategy Under Uncertainty (Courtney et al, 1997)

KnowableMarket Segment Demographics, Marketplace Offerings, Past Technology Trends, Competitiveness.

Unknown but KnowableFirm’s and its competitors’ Capabilities, Performance attributes of current technologies, Demand elasticities for different products, Competitors’ general technology and product commitments.

Residual UncertaintyPerformance attributes of new technology, Outcomes of regulatory issues, New competitive entry from unrelated industry.



Residual UncertaintyLevel 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.



Residual UncertaintyLevel 2: Alternative Futures: Residual Uncertainty can be classified into discrete scenarios with approximate probabilities.

Example: EC’s WEEE legislation, Digital Photography

NO

YES

ProductTakeback

Requirementsin EC

2004

2008

Analytical Tools: Decision analysis, option valuation models, game theory



Residual UncertaintyLevel 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.

Integration of HomeElectronics and

Appliances

PC-Based

TV-Based

Analytical Tools: Latent demand research, technology forecasting, scenario planning



Residual UncertaintyLevel 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

Future ofEngine

Technology

Hybrid

Biodiesel

Hydrogen

Sugar

Petroleum

Gravity

Solar


Nissan and Ford and Adapting to theFuture of Engine Technology

HybridSystem

StandardsSet

HybridSystem

Introduced

Fuel CellSystem

Introduced

TransitionHybrid toFuel Cell

Fuel CellStandards

Set

Ford &NissanlicenseHybridSystem


Residual Uncertainty

Level 4: True Ambiguity:

Toyota and Honda and Shaping theFuture of Engine Technology

HybridSystem

StandardsSet

HybridSystem

IntroducedFuel CellSystem

Introduced


Fuel CellStandards

Set

Hybrid sales

Fuel Cell s

ales



Residual Uncertainty

Level 4: True Ambiguity:

GM and DC and Reserving the rightto play in Engine Technology

HybridSystem

StandardsSet

HybridSystem

IntroducedFuel CellSystem

Introduced


Fuel CellStandards

Set

Hybrid sales

Fuel Cell s

ales

GM & DCcome out

with Hybrid

GM & DCthroughalliancesinvest infuel cellresearch



Strategic Postures: Shapers – set standardsAdapters – react through speed and flexibilityReserving the Right to Play – invest to play later

Portfolio of Actions - Payoffs: Big Bets – Positive in some, negative in other scenariosOptions – Positive in many scenarios, Small Negative in some scenariosNo-Regrets – Positive under any scenario


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

org’l 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

org’l capabilities.

Create vision amongst key players

in the industry.


Time Pacing (Eisenhardt & Brown, 1998)

Based on a rhythm for creating… new products or services, launching new businesses, or entering new markets

Requires not (just) SPEED, but…

…synchronizing SPEED and INTENSITY OF EFFORT.

And, gaining momentum for corporate transitions, leading to:

Enhancing capabilities for creating new products, launching new business, and entering new markets.

Dynamic!



Psychological/Cultural impact:Sense of urgency in meeting deadlinesFocus on individual and team goals.

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



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.


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?

today’s agenda: a.key concepts for managing strategic uncertainty 1.innovation – how to match...

Documents

strategic options

residual uncertainty

rich wyckoff slide

internal venturing slide

digital photography

better balance of speed

speed design teams

new products