Lecture Notes - ALL PDF

Preview

Summary

Megachange: The World in 2050 Megachange  Change on a grand scale, happening at remarkable speed Megatrends    A large, social, economic, political, environmental or technological change that is slow to form and driven by deeply rooted cases Megatrends are the underlying forces that drive trends...

Description

Megachange: The World in 2050 Megachange 

Change on a grand scale, happening at remarkable speed

Megatrends   

A large, social, economic, political, environmental or technological change that is slow to form and driven by deeply rooted cases Megatrends are the underlying forces that drive trends Megatrends gives knowledge about the probable future

Trend is an emerging pattern of change likely to impact society “Black Swans”  

Unpredictable developments E.g. 9/11, Global recession, Fukushima

Complicated vs Complex  

Complicated – Can be broken down to understand Complex – Cannot be broken down to understand because it may be affected by other factor

Strategy Under Uncertainty Uncertainty   



Present threats or opportunities People view the world as completely certain – Open to precise predictions about the future Or people view the world as completely uncertain – Completely unpredictable, managers abandon the analytical rigor of their traditional planning processes and base strategic decisions primarily on gut instinct Types of uncertainty o Clear Trends o Unknown but knowable o Level 1: A Clear-Enough Future o Level 2: Alternate Futures o Level 3: A Range of Futures o Level 4: True Ambiguity

A Clear-Enough Future  

Managers can develop a single forecast of the future that is precise enough for strategy development Information is known or possible to know through market research

Alternate Futures    

Future described as one of a few alternate outcomes, or discrete scenarios Possible outcomes are discrete and clear, but difficult to predict which one will occur and best strategy depends on which one does occur Analysis cannot identify which outcome will occur but may establish probabilities E.g. Major regulatory or legislative change/Strategy depending on competitor’s strategies

A Range of Futures 



Range of potential futures can be identified, range defined by a limited number of key variables, but actual outcome may lie along a continuum bounded by that range E.g. Companies in emerging industries/Entering new geographic markets

True Ambiguity   

Multiple dimensions of uncertainty interact to create an environment that is virtually impossible to predict Range of potential outcomes cannot be identified Might not even be possible to identify nor predict relevant variables that will define the future

Strategy 





Level 1 o Standard strategy tool kit – Market research, analyses of competitors’ costs and capacity, value chain analysis, Michael Porter’s five forces framework Level 2 o Develop a set of discrete scenarios based on understanding of how the key residual uncertainties might play out o High priority should be given to getting information that helps establish the relative probabilities of the alternative outcomes o Classic decision-analysis framework is used to evaluate the risks and returns inherent in alternative strategies Level 3 o Set of scenarios should be identified o Analysis should focus on the trigger events signalling the market is moving toward one or another scenario o Rule 1. Develop on a limited number of alternative scenarios – 4-5

2. Avoid developing redundant scenarios that have no unique implications for strategic decision making 3. Develop a set of scenarios that collectively account for the probable range of future outcomes and not necessarily the entire possible range 

Level 4 o Catalogue systematically what they know and what is possible to know o Identify patterns indicating possible ways the market may evolve by studying how analogous markets developed in other level 4 situations o Identify key attributes of the winners and losers in those situations and identifying the strategies they employed

Strategic postures – Intent of strategy relative to the current and future state of an industry 





Shaping o Drive their industries toward a new structure of their own devising o Strategies about creating new opportunities in a market o Shaking up relative stable level 1 industries or taking control the direction of the market in industries with higher levels of uncertainty Adapting o Take current industry structure and future evolution as given and react to the opportunities the market offers o Environment with little uncertainty – Choose a strategic position, where and how to compete e.g. price and effective execution o Higher level of uncertainty – Recognise and respond quickly to market developments Reserving the right to play o Special form of adapting o Incremental investments through superior information, cost structures or relationships between customers and supplier o Allow company to wait until environment becomes less uncertain before formulating a strategy

Portfolio actions

of 

Big bets





o Large commitments o E.g. Major capital investments or acquisitions, that will result in large payoffs in some scenarios and large losses in others o Typically for shaping strategies Options o Secure the big payoffs of the best-case scenario while minimizing losses in the worst-case scenario o Involve making modest initial investments that will allow companies to ramp up or scale back the investments later as the market evolves o Typically for reserve the right to play o Shapers use them too when shaping an emerging uncertain market or to hedge their big bets No regrets moves o Moves that will pay off no matter what happens

Strategy in Level 1     

Adapters – Predict an industry’s future landscape Strategy involves making positioning choices about where and how to compete No-regret moves Typically create value through innovations of products and services/improvement in their business systems that does not fundamentally change the industry Shapers – Risky and rare, creating uncertainty in an otherwise predictable market

Strategy in Level 2    

Try to lower uncertainty and create order out of chaos Shaping – Increasing probability that a favoured industry scenario will occur E.g. Building new capacity far in advance of an upturn in demand/Consolidate industry through M&A Can also be adapt or reserve the right to play – Because trigger variables are often relatively simple to monitor

Strategy in Level 3

  

Shapers try to move the market in a general direction because they can identify only a range of possible outcomes Adapter uses options through investments in organisational capabilities – Flexible organisational structures Reserving the right to play – Incremental investments

Strategy in Level 4   

Best for shapers – Higher returns and lower risk as compared to level 2 or 3 Reserving right to play – Common but dangerous Adapter – Making investments in organisational capabilities

Putting Organisational Complexity In Its Place Institutional complexity 

Number of countries the company operates in or the number of brands or people they manage

Individual complexity 

Complexity faced by employees – Poor processes, confusing role definitions or unclear accountabilities

Strategy  

Removing complexity that doesn’t add value Channelling what’s left to employees who can handle it naturally or be trained to cope with it

What to do? 







Survey the scene o Surveys, structured interviews or focus groups o Collect useful information about intensity of complexity and qualitative information on what drives it o Avoid sampling subsets Draw a map of what’s really going on o Construct “heat maps” to pinpoint where and why complexity was causing trouble for employees o Each map showed a particular breakdown, a region or function, and how complexity of various kinds was occurring there as well as the level of coping skills employees possessed Reduce and redirect complexity o Type of complexity  Imposed complexity  Laws, industry regulations and interventions by NGOs – Not typically manageable by companies  Inherent complexity – Intrinsic to the business and can only be jettisoned by exiting a portion of the business  Designed complexity – Results from choices about where the business operates, what it sells, to whom and how. Companies can remove it but this could mean simplifying valuable wrinkles in their business model  Unnecessary complexity – Growing misalignment between the needs of the organisation and the processes supporting it. Easily managed once identified Bolster skills where needed 1. Locate the pockets of individual strength and weakness 2. Channelling complexity to those who can deal with complexity innately or those that can be trained to develop “ambidextrous” capabilities

Adaptability: The New Competitive Advantage First-order capabilities (No longer competitive advantage – Only for stable environment)  

Sustainable competitive advantage – Position, scale Being really good at doing some particular thing

Second-order capabilities (New competitive advantage)  

Organisational capabilities that foster rapid adaptation Being really good at learning how to do new things

Strategy 







Ability to read and act on signals 1. Company must be tuned to signals of change, decode them and quickly act to refine or reinvent its business model and reshape the information landscape of its industry 2. Rely on sophisticated point-of-sales systems to ensure that they acquire the right information + Apply advanced data-mining technologies to recognise relevant patterns in it Ability to experiment 1. Those that cannot be deduced or forecast can be discovered through experimentation 2. Research based on consumers’ perceptions is often a poor predictor of success 3. Adaptive companies use an array of new approaches and technologies – Virtual environment 4. Companies also need to broaden the scope of their experimentation – No longer just focusing on new products and services, but also business models, strategies and routines 5. Adaptive companies are also very tolerant of failure Ability to manage complex multicompany systems 1. Work more closely and smartly with customers and suppliers 2. Creating effective strategies at the network or system level – Adaptive companies learn how to push activities outside the company without benefiting the competitors and how to design and evolve strategies for networks without necessarily being able to rely on strong control mechanisms 3. E.g. EBay’s system of seller ratings and online payment systems to support the online marketplace 4. E.g. Nokia lost because Apple was able to incorporate adaptive system of suppliers, telecom partnerships and numerous independent application developers, created to support the iPhone Ability to mobilise 1. Creating environments that encourage knowledge flow, diversity autonomy, risk taking, sharing and flexibility for adaptation to move from local to global

2. Flexible structure and dispersal of decision rights  Increase adaptability 3. Weak or competing power structures and a culture of constructive conflict and dissent to reinforce this framework Challenge for Big Businesses 





 

Look at the mavericks  Shift focus from traditional competitors’ move to what the new players are doing  Think of ways to insure your company against this new competition or neutralise its effect Identify and address the uncertainties  Put aside traditional single-business forecast and examine the risks and uncertainties that could significantly affect the company  Distinguish between “false knowns” (questionable but firmly held assumptions), “underexploited knowns” (megatrends you may recognise and perhaps even acted on, but without sufficient speed or emphasis) and “unknown unknowns” (intrinsic uncertainties that you can prepare for only by hedging your bets) Put an initiative on every risk  Every significant source of uncertainty should be addressed with an initiative  E.g. Responding to a neglected business trend, creating options for responding to it down the line or learning more about it Examine multiple alternatives  Requiring every change proposal be accompanied by several alternative Increase the clock speed  Accelerate change by making annual planning processes lighter and more frequent

Time Pacing: Competing in Markets that Won’t Stand Still Event pacing   



Companies change in response to events (Reactive and often erratic strategy) Changes in response to competition, shifts in technology, poor financial performance, or new customer demands. Creating new product when a promising technology comes out of the R&D lab, entering a new market in response to a move by competitors, making an acquisition because an attractive target becomes available. Opportunistic and effective way to deal with change in stable markets

Time pacing    

 

Scheduling change at predictable time intervals (Regular, rhythmic and proactive) Creating new products or services, launching new businesses, or entering new markets according to the calendar Time pacing help managers anticipate change and perhaps set the pace for change Disciplines managers to excel at two critical processes  Managing transitions (Sustain momentum)  Managing rhythm (Creating momentum) Setting regular pace for change helps managers avoid becoming locked into old patterns and habits Time pacing help organisations resist the extreme of changing too often caused by the rapidly changing environment (Using event pacing may cause company to change too often)

Managing transitions      





E.g. Shift from one product-development project, advertising campaign, or season of merchandise to the next Transitions sustain an organisation’s momentum Many managers simply ignore transitions When transitions are poor, business lose position, stumble and fall behind Companies that manage by time pacing learn to choreograph important transitions and shorten the time it takes to execute them Where transitions matter most  Fast-changing markets – Require fast and smooth transition process  Constantly shifting opportunities  Companies that attempt to grow quickly through acquisitions – Postmerger integration process is a critical transition Best transitions  Uses transitions to learn, reflect, change direction and accomplish other goals Effectively managed transitions – All employees have clear, choreographed processes that all understand

Managing Rhythms

 





Rhythms that managers set create momentum, helping people plan ahead and synchronise their activities Get in step with the market  Effective time pacing have rhythm that are aligned with important rhythms in the marketplace, such as seasons, suppliers’ product development cycles, or swings in customer spending General management has its rhythm too - Create a rhythm for annual planning and review cycle  Short product development time and product life cycles – 6-month review cycle e.g. Electronic components  Product life cycles between one and three years – Stayed with an annual review e.g. Home appliances  Businesses with longer cycles – 18-month reviews e.g. Heavy industrial equipment Choose a manageable pace  Companies can only time-pace as fast as their internal capabilities will allow them to move

Meeting the Challenge of Disruptive Change Where capabilities reside? 



When thinking about what sorts of innovations their organisation will be able to embrace, managers need to assess how each of these factors affect their capacity to change Resources, Processes, Values

Resources   

Tangible – People, equipment, technologies, cash Intangible – Designs, information, brands and relationships with stakeholders Abundant high quality resource increase chance of coping with changes

Processes 

   

Processes – Patterns of interaction, coordination, communication, and decision making employees use to transform resources into products and services of greater worth Formal – Product development, manufacturing and budgeting Informal – Routines or ways of working that evolve over time Being good at one process for a certain task means bad in completing another task Most serious disabilities in coping with change resides in the less visible, informal processes

Values 

  

Standards by which employees set priorities that enable them to judge whether an order is attractive or unattractive, whether a customer is important or less important, whether an idea for a new product is attractive or marginal Important to train employees to make independent decisions about priorities that are consistent with the strategic direction and business model of the company First value – Dictates the way the company judges acceptable gross margin Second value – How big a business opportunity has to be before it can be interesting

Migration of Capabilities    

Start-up stages – Attributed to resources, people in particular As people address recurrent tasks, processes become defined As business model takes shape and it becomes clear what types of business need to be accorded highest priority, values coalesce Once employees begin to follow processes and decide priorities by assumption rather than by conscious choice, both processes and values come to constitute an organisation’s culture

Sustain innovation (Innovations that make a product or services perform better in ways that customers in the mainstream market already value) 

Evolutionary changes in market



Easy to respond to sustain innovation

Disruptive innovation (Create an entirely new market through the introduction of a new kind of product or service, one that’s actually worse, initially, as judged by the performance metrics that mainstream customers value)      

Revolutionary change Difficult to respond to disruptive innovation They do not address the next-generation needs of leading customers in existing markets But they do have other attributes to create a new market Disruptive innovation will ultimately improve so quickly until they could address the needs of customers in the mainstream of the market Established companies typically not able to succeed at disruptive innovation despite having enough resources because  Their values do not embrace small markets  Cost structure cannot accommodate low margins Every decision need to be backed by careful market research and analysis and careful resource allocation processes

Creating capabilities to cope with change – Processes and values are inflexible, hence managers need create a new organisational space where new capabilities, processes and values, can develop   

Create new organisational structures within corporate boundaries in which new processes can be developed Spin out an independent organisation from the existing organisation and develop within it the new processes and values required to solve the new problem Acquire a different organisation whose processes and values closely match the requirements of the new task

Creating new capabilities internally  

Managers need to pull relevant people out of existing organisation and draw a new boundary around a new group New team boundaries facilitate new patterns of working together that ultimately can coalesce as new processes

Creating capabilities through a spinout organisation  



Spin out as n...