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Tools for Strategic Decision- Making in Turbulent Times, US Cellular

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CSO NY 2012

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Tools for Strategic Decision- Making in Turbulent Times, US Cellular

  1. 1. A B C ? U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group Elliot Rawls, Sr. Director, Strategy & Corporate Development Dec 7, 2012 Tools for Strategic Decision-Making in Turbulent Times
  2. 2. A B C ? U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group Elliot Rawls, Sr. Director, Strategy & Corporate Development Dec 7, 2012 Tools for Strategic Decision-Making in Turbulent Times
  3. 3. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 2 1980: AT&T Hires McKinsey & Co. to forecast the long-term future demand for cell phones. Their Prediction: ‘By the year 2000, we should expect no more than 900 thousand subscribers to cellular phone service’. Actual Cell Phone Subscriber base in 2000: Over 109 million. Result: AT&T takes a pass on this ‚lackluster‛ business opportunity. McKinsey’s Prediction
  4. 4. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 3 0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Actual # of Subscribers Predicted # of Subscribers McKinsey’s Prediction US Wireless Subscriber Growth
  5. 5. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 4 0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 350,000,000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 McKinsey’s Prediction McKinsey’s Prediction US Wireless Subscriber Growth
  6. 6. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 5 What went “wrong”?
  7. 7. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 6 1. Tools to effectively describe and categorize uncertainty. 2. Tools that allow us to incorporate uncertainty into our thinking and decision-making processes (rather than ignoring it). 3. Tools that facilitate better strategic decision-making – (but first, we need to better define what good strategic decision-making is). How can we improve forecasting and decision-making when significant uncertainties exist? Part I: Dealing with Uncertainty Part II: Improving Decision Making
  8. 8. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 7 A B C A Clear Enough Future A single view of the future ? A Range of Futures A range of possible future outcomes Alternative Futures A limited set of possible future outcomes, one of which will occur True Ambiguity Not even a range of possible future outcomes Hugh Courtney’s Four Levels of Residual Uncertainty (‚20/20 Foresight‛: Hugh Courtney) Part I: A Tool for Categorizing and Describing Uncertainty (Redeeming McKinsey)
  9. 9. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 8 Categorizing Uncertainty •McDonald’s forecasting earnings for a new restaurant •Walmart or Home Depot determining store locations Forecasting demand and cost variables in stable markets with relatively stable business models ‚A Clear Enough Future‛ Examples of Level One Uncertainty Traditional Tools: •Porter’s 5 Forces •Market Research •Cost Benchmarks •SWOT analysis •Core competencies diagnostics •Discounted cash flow/NPV valuation models Tools for Level One Uncertainty Decision-making “model”:  Tools designed to produce point forecasts of key drivers.  Choose the strategy that maximizes the company’s objective (e.g., ROI).
  10. 10. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 9 Categorizing Uncertainty ‚Alternative Futures‛ Examples of Level Two Uncertainty Tools for Level Two UncertaintyA B C Traditional Tools plus: •Decision or event trees •Scenario-planning exercises •Game theory •Decision-tree Real Option Value techniques Decision-making “model”:  Tools are designed to produce a ‚MECE‛ set of scenarios and show how potential strategies change the likelihood and payoffs of each scenario.  Utilize decision analysis. •Potential regulatory, legislative or judicial changes. •Industry standards decisions. •Certain types of competitor responses – e.g., whether or not they’ll match new pricing.
  11. 11. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 10 Categorizing Uncertainty ‚A Range of Futures‛ Examples of Level Three Uncertainty Tools for Level Three Uncertainty Traditional Tools plus: •Scenario-planning exercises •Game theory •Latent demand market research techniques •Systems dynamics models •Real Option Value techniques Decision-making “model”:  Complete description of a representative set of scenarios.  Utilize qualitative decision analysis. •Demand for new products and services. •Automaker launches a new vehicle. •U.S. Cellular® investments in next- generation network equipment.
  12. 12. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 11 Categorizing Uncertainty ‚True Ambiguity‛ Examples of Level Four Uncertainty Working backward to what you would have to believe to support a given strategy. • Analogies and reference cases • Management flight simulators Tools for Level Four Uncertainty ? Decision-making “model”:  Tools designed to yield a set of ‚what you would have to believe statements‛ w/ supporting analogies, reference cases, and key indicators.  Decision-making relies upon ‚getting comfortable with what you would have to believe‛. •The outcomes of major technological, economic, or social discontinuities. •Early e-commerce investments. •Long-term investment value of alternative technologies.
  13. 13. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 12 When a wireless carrier like U.S. Cellular® evaluates a next-generation technology investment, it must address the following key risks and uncertainties: Can’t adequately address all of these uncertainties using only level one tools. • Likely technology decisions of competitors; • Device evolution and associated customer demand; • Future bandwidth requirements and the likelihood of being able to acquire it; • Content evolution (i.e., new applications) along with associated customer demand; • Associated capital and opex costs for all of the above.
  14. 14. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 13 Expanded Mindset and Enhanced Perspective …..that is, a better understanding of the challenge along with its potential risks leading to better preparation and/or solutions . (even more likely and arguably, more important) What are the benefits of using this expanded set of tools? Improved Analytical Accuracy (likely)
  15. 15. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 14 A B C ? Where was McKinsey’s focus when they were providing AT&T with a future forecast of wireless devices? Mindset Prediction
  16. 16. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 15 What if McKinsey’s prediction had gone like this: “Our best forecast suggests 900,000 customers by 2000.” Suggesting level one uncertainty “But, that’s from a range of between 250,000 and 10,000,0000 customers.” Suggesting level three uncertainty
  17. 17. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 16 Part II: How does identifying uncertainty help me make the right decision? So what is a good decision and how do we know we’ve made one? The “right” decision versus a “good” decision.
  18. 18. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 17 What Makes a Decision a Good Decision? Bob spends his monthly paycheck on Lotto instead of paying his mortgage…then he hits the jackpot. Laura, in an effort to improve her cardiovascular health, goes out for a jog. 5 minutes into her run, she sprains her ankle. Example 1: Example 2: ……good decision or bad decision? ……good decision or bad decision?
  19. 19. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 18 Decisions Versus Outcomes Decision Good Bad GoodBad Outcome Bob spends his monthly paycheck on Lotto instead of paying his mortgage…then he hits the jackpot. Laura, in an effort to improve her cardiovascular health, goes out for a jog. 5 minutes into her run, she sprains her ankle. Good decisions don’t guarantee good outcomes…but they increase their likelihood. Bad outcomes don’t invalidate good decisions. Good decision-making isn’t actually about the outcome – it’s about the quality of the decision.
  20. 20. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 19 What Makes a Decision a Good Decision? The more we tend to judge decisions by outcomes, the more we remain in “Prediction Mode” i.e., using your time and resources in an effort to validate a likely outcome. But high uncertainty requires that you devote appropriate time and resources to “Strategic Decision Mode” i.e., how to ensure good decision-making given high uncertainty.
  21. 21. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 20 What Makes a Decision a Good Decision? Prediction Mode tends to keep you here …… when your focus may need to shift this way A B C ?
  22. 22. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 21 What Makes a Decision a Good Decision? So if outcomes are not what you focus on to ensure a good decision, what do you focus on?
  23. 23. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 22 1. Appropriate Frame 3. Meaningful, Rel iable Information 4. Clear Values & Trade-offs 5. Logically Correct Reasoning 2. Creative, D oable Alternatives 6. Commitment to Action Decision Quality Strategic Decision Group’s Decision Quality Checklist
  24. 24. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 23 Decision Quality Checklist Achieving quality in each of these six elements produces quality in the overall decision. 1. Appropriate Frame • Clear Purpose; Defined Scope; Conscious Perspective. Critical for building confidence throughout the rest of the process. 2. Creative, Doable Alternatives • Creative; Achievable; Significantly Different; Coherent; Compelling; Complete – has value-creation potential been fully explored? 3. Meaningful, Reliable Information • Judge the quality of available information before plunging into evaluation. 4. Clear Values and trade-offs • Trade-off between long-term and short-term results; Trade-off between risk and return. Is there a shared understanding of what we want? – Must be clear on strategic objectives, company values, etc. 5. Logically Correct Reasoning • Judging the quality of the reasoning indicates whether the evaluation should be refined. – Opportunities to evaluate risk. 6. Commitment to Action • Judging the quality of commitment to action reveals the effectiveness of the decision- making process.
  25. 25. ABC U.S. Cellular® Proprietary and Confidential – Strategic Analysis Group 24 End

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