Strategy as Options on the Future

Sirikanya Buranabunpot (Peggy)Huiyuan DingHsiu-Ying ShenWannaporn Srinives (Rainy)

By Peter J. Williamson

Why a portfolio of strategic options is important?

• Inaccurate forecast• “Hopeless” strategy due to

forecast errors• Flexibility to dynamic market

Required investments for strategic options

• Developing new capabilities• Learning about new, potential mar

kets

4 Steps to Build Strategic Options

1. Uncover the hidden constraints

2. Establish processes

3. Optimize the portfolio

4. Combine planning and opportunism

Step 1 Uncover the Hidden Constraints

• Create a profit-generating engine – Capabilities– Knowledge of new potential markets

• Narrow capabilities and market knowledge– Example: Frank Winfield Woolworth

Knowledge of New Potential Markets

Existing

Strategy Ambitions

Capabilities

Step 1 Uncover the Hidden Constraints

• The Trader– Knowing valuable market information

but no capability to explicit and create value

• Need to systemically to expand its value-creating capability

Knowledge of New Potential Markets

Trader

Capabilities

Step 1 Uncover the Hidden Constraints

• The Prisoner– Strong capabilities but are prisoner

of their lack of market knowledge

• Need to build its knowledge base of the market

Knowledge of Markets

Prisoner

Capabilities

Global Supply

Variety

Service

Cost Control

Quality

Technology

Step 2 Establish Processes

• Cost-effective methods of expanding knowledge and building new capabilities– Leveraging customers’ and suppliers’ knowledge– Learning from maverick competitors and related i

ndustries. – Partnership with leading-edge suppliers– Exchange of technical information– Purchase of minority equity stakes in suppliers wi

th potentially innovative technologies

Step 2 Establish Processes- ACER

• Tap into US markets to explore its potential global competitiveness

• Concentrate on understanding the Asian consumers

• Partner with local companies when enter a new market• Minimize the costs of unexercised options

Knowledge of

New Markets

Capabilities

Localization

Global Logistics

Lead Technology

Brand Building

Cost and Flexibility

Asia, US Latin America Europe

Creating New Strategic Options

Step 3 Optimize the portfolio

• Two driving factors– Alternative capabilities might profitably meet

probable customers’ needs– Potential future market characteristics and c

ustomer behaviors

Step 3 Optimize the portfolio

• Scenario planning processes1. Create a table of main alternatives2. Identify the technically feasible options3. Decide whether to add that particular option

into the strategic portfolio

• 3 considerations– Costs of creation and maintaining the options– Estimated probability to exercise the options– Probability to spawn future options

Step 3 Optimize the portfolio

• The cost of creating an option• The cost of exercising that option• Decisions depends on trade-off betwe

en the estimated value of an option and the cost of creating it, not the cost of exercising it.

Scenario Planning Process

Cost of Creating an option

Cost of Exercising the option

Scaling up into a profit-generating

business

Step 4 Combine planning and opportunism

• Through timely opportunism, turn an unexpected opportunity to company’s advantage

• Through bounded opportunism, rule out the options wandering from its long-term mission

“Is it a weed or a flower?”

Recap of Strategic Options

• Traditional strategic planning draws from imprecise forecasts

• The importance of developing new capabilities and knowledge of new market segments

• Four steps to establish a portfolio of future options

• Optimize a portfolio of strategic options to gain sustained competitive advantages

Questions?

Disney’s Article

• Pushing a mandate for the digital age– Consumers must be able to use Disney content

whenever they want it• Technology changes• Sell episodes of ABC hits online—Portable

video devices, iPod, etc.• Plan to deliver entertainment over

cellphones• Game for mature players• Has to worry more about the growing

problem of unauthorized digital copies

HSBC’s Article

• Climate change is one of the biggest environmental challenge in this century—working together for future generation

• Bank and greenhouse gas emissions—carbon

• 643,000 tonnes of emission• HSBC would become carbon neutral

by the start of 2006—carbon management plan

How to forecast sales—IBP!!!

• Estimating and making educated guesses

• Step1: Breaking your business into units—estimate the pieces and add up to the whole—price * units

• Example: restaurant—seats, peak hours, average consumption per person

• Search for expert forecasts in the industry area to help breaking down

Recommend Reading

Sun Tzu: The Art of War• The strategies can be

applied in business and everyday use

• Cover all from planning to intelligence

• Easy and short!