Talk for Silicon Valley chapter of IEEE Technology and Engineering Management Society, April 6, 2017

1. Saving the Corvette:
a Strategic Decision Case Study.
Presented to the Silicon Valley Chapter of the
IEEE Technology and Engineering Management Society
April 6, 2017
Stephen Barrager, Ph.D.
Baker Street Publishing, LLC
steve.barrager@gmail.com

2. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Success in any enterprise consists of doing three things well.
“Decision making
is only one of the
tasks of an
executive. It
usually takes but
a small fraction of
his time. But
to make
decisions is
the specific
executive
task.”
Peter Drucker,
The Effective
Manager,
1966
Strategic
Decision
Making
Leadership
Operational
Management
(Execution)

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Expansion into new products, services or geographies
Investment in existing products, services or geographies
Building new infrastructure
Mergers and acquisitions
Maintenance of existing infrastructure
Organizational change for other reasons 21
5
11
12
15
34
A McKinsey survey of 2,327 executives from the full range
of industries, regions and functions revealed the following
goals of strategic decision making. (In percentage of total
decisions.)
From “How companies make good decisions,”
The McKinsey Quarterly, December 2008

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Eighty percent of project success is determined
by the people involved.
Core team
Experts and
stakeholders
Decision makers

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W. Edwards Deming
If you can’t describe what you are doing as a
process, you don’t know what you are doing.
Deming was the inspiration for what has become
known as the Japanese post-war economic miracle.
Japan rose from the ashes of war to become the
second most powerful economy in the world in less
than a decade founded on the ideas Deming taught.
Process is the second ingredient for success.

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Process is important for everything from crossing
the street to strategic decision making.
A friend was hit by a truck
and killed in Kenya. In Kenya
they drive on the left-hand
side of the road. My friend,
Lorita, spent her entire life
in California where
everyone drives on the
right-hand side of the road.
Lorita would be alive today
if she had followed the
process her parents taught
her --- look both ways
before you step off the curb.

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The C5 Corvette case study illustrates the
process and some of the tools used in
strategic decision making.

8. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
In the early 1990’s GM was struggling to get product planning right.
Oldsmobile Silhoutte Pontiac Trans AmChevrolet Lumina APV
Who Killed the Electric Car?
“The Dust Buster”

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In 1988, General Motors decided to develop an all new, fifth-generation Corvette.
The forth generation Corvette was flagging. Sales were way off. Quality was
poor. Japanese competitors were closing in.

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Other people in the program had a different point of view.
They thought customers might prefer a “kinder, gentler”
Corvette. One with foot room and, god forbid, a trunk.
Some of the Corvette guys wanted to build a car with “the
Right Stuff.” They wanted a Corvette that would make the
Bat Mobile look like a bus!!!

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Decision making is important because it
is the bridge between thought and action.
Decision
Making
The world
of action
The world
of thought
Source: Ron HowardThis is aVenn
diagram.

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Policy Decisions -- things we
will take as given for purposes of
this project.
Strategic Decisions --
decisions we will focus on in
this project
.
Tactical Decisions --
decisions that can wait
until the strategic
direction is set.
-There will be a fifth-generation Corvette
- The Corvette will be sold by Chevrolet
- It will be manufactured at Bowling Green
- It will be introduced in 1993
- The budget limit is $200 million
- It will target the High Sport Segment
- Power train
- Styling concept
- Body material
-Vehicle Technology
- Manufacturing technology
- Comfort and safety features
- Color palette
- Tire supplier
- Etc.
A Framing Hierarchy helps specify clearly which
decisions we want to focus on. It shows how
these decisions connect with “bigger” and
“smaller” decisions.

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A strategy table lays out the major decisions
and the choices.
Styling
350 HP
450 HP
Mid-engine
450 HP, mid-
engine with
all wheel drive
450HP, mid-
engine, all wheel
drive and all-
wheel steering.
Major face lift
Distinct but
evolutionary
Radical new
Minor changes
Lower door sill
at least 3 inches
Lower door sill
6 inches and
add more foot
room
All the above
plus a trunk.
Strategy
Theme
Key decisions
Performance
Comfort and
Convenience

14. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Styling
350 HP
450 HP
Mid-engine
450 HP, mid-
engine with
all wheel drive
450HP, mid-
engine, all wheel
drive and all-
wheel steering.
Major face lift
Distinct but
evolutionary
Radical new
Minor changes
Lower door sill
at least 3 inches
Lower door sill
6 inches and
add more foot
room
All the above
plus a trunk.
Strategy
Theme
Key decisions
Performance
Comfort and
Convenience
The Right Stuff
Some of the hard core “car guys” wanted to build a vehicle
that would guarantee “bragging rights.” They wanted a
Corvette with “the right stuff.”

15. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Styling
350 HP
450 HP
Mid-engine
450 HP, mid-
engine with
all wheel drive
450HP, mid-
engine, all wheel
drive and all-
wheel steering.
Major face lift
Distinct but
evolutionary
Radical new
Minor changes
Lower door sill
at least 3 inches
Lower door sill
6 inches and
add more foot
room
All the above
plus a trunk.
Strategy
Theme
Key decisions
Performance
Comfort and
Convenience
Improved C4
The Finance Department didn’t think it was prudent to take
money from mainstream programs to spend on the Corvette.
They wanted a strategy that minimized investment.

16. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Styling
350 HP
450 HP
Mid-engine
450 HP, mid-
engine with
all wheel drive
450HP, mid-
engine, all wheel
drive and all-
wheel steering.
Major face lift
Distinct but
evolutionary
Radical new
Minor changes
Lower door sill
at least 3 inches
Lower door sill
6 inches and
add more foot
room
All the above
plus a trunk.
Strategy
Theme
Key decisions
Performance
Comfort and
Convenience
Other people advised a “Kinder and Gentler”
Corvette, a car that would appeal to successful, older
men and women.
Kinder and
Gentler Corvette

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Together the options were all compelling and they
spanned a wide range of possibilities.
Styling
350 HP
450 HP
Mid-engine
450 HP, mid-
engine with
all wheel drive
450HP, mid-
engine, all wheel
drive and all-
wheel steering.
Major face lift
Distinct but
evolutionary
Radical new
Minor changes
Lower door sill
at least 3 inches
Lower door sill
6 inches and
add more foot
room
All the above
plus a trunk.
Strategy
Theme
Key decisions
Performance
Comfort and
Convenience
Kinder and
Gentler Corvette
Improved C4
The Right Stuff

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New Improved C4
Corvette with
the Right Stuff
Kinder, Gentler
Corvette
17
Finding value in a complicated situation is like
searching for water in a desert. The alternatives
designed by the stakeholders are metaphorically like
test wells. Their purpose is to locate areas of
potential value.

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Setting up for success in any decision begins with
getting the appropriate basis.
Frame
Adapted from Ron Howard
What we want
What we can do
What we know
Action
Information
Values
Alternatives
Action

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Value
Decision
Uncertainty
Influence
Net
Present
Value
A decision diagram captures our understanding of the
relationship between decisions and profit. Our view of the
problem is articulated -- decisions, outcomes, and the
information that connects them.
C5 Corvette
Product Strategy
Pricing
Strategy
Market Share
Quality Warranty Costs
Investment
Unit Costs
Performance
Styling
Comfort and
Convenience
Competition
High Sport
Market Size
Pricing
Strategy

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INPUT TABLE -
EXOGENOUS
VARIABLES
Description Units Low (10/90) Median (50/50)High (90/10)
Miles driven Miles per year 7000 14000 18000
Gasoline price $/gallon LOW MEDIAN HIGH
Electricity price $/KwH LOW MEDIAN HIGH
Interest rate .% 0.02 0.05 0.08
CO2 Offsets $/metric ton 2 30 50
Volt Prius
Description Units Low (10/90)Median (50/50)High (90/10)Low (10/90)Median (50/50)High (90/10)
Initial cost $ 35000 40000 42000 20000 21200 23000
Tax Credit $ 0 9500 9500 0 0 0
Sale Price (after 7
years)
$ 18000 21300 25000 9000 11900 13000
Routine
Maintenance
$/year 0 0 0 0 0 0
Mileage miles/gallon 20 30 40 45 50 55
Daily charge Kwh/day 4 5 6
Battery efficiency Kwh(out)/Kwh(in) 0.8 0.9 0.92
Electic mileage Kwh/mile 0.16 0.2 0.24
Usually a spread sheet model is appropriate.
Sometimes we have to use more computing
power to connect data bases and/or collections
of models.
• A model helps us organize what we know.
• The objective is critical thinking, communication,
learning and understanding.
• We use the model to identify the uncertainties
that could change our strategy. This guides our
information gathering efforts.

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We use precise definitions for “high,” “low,” and
“best guess.”
90%
10%
Higher than Lower than
50% 50%
10%
90%
“High” “Low”“best guess”
Probability is only10
percent that the variable is
higher than this.
The median, the 50/50
value.
Probability is only 10
percent that the value is
lower than this.

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0
Change in NPV— “Right Stuff”
Strategy
High Sport Segment Size Low High
Market share HighLow
Other A
Other B
Unit cost High Low
Development Costs
Other C Low High
Other D Low High
Competition High Low
Once a good business model is built then we can do
sensitivity analysis to prioritize the uncertainties
that affect the value of each strategy.

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Strategy
New Improved C4
Kinder & Gentler
Right Stuff
Competition
Intense
Fair
Corvette
Market
Share
High
Base
Low
High Sport
Segment size
in 1994 Other A
High
Base
Low
Other B
High
Low
Strong
Good
High
Base
Low
Base
A decision tree captures hundreds of scenarios
and the probability associated with each.

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CumulativeProbability
1.0
.9
.8
.7
.6
.5
.4
.3
.2
.1
0
–2
Net Present Value
Improved C4
–1 0 1 2 3 4 5
Kinder and GentlerRight Stuff
Once we have the profit and the probability associated
with each scenario it is straight forward to calculate the
probability distribution on profit for each option.

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Flying bars and e-values are a good way to compare
options and show profit uncertainty.
Net Present Value
0
Key
10% 90%
e -Value
Strategy Theme
Improved C4
Kinder and Gentler
Right Stuff

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NRDC
Alternative
Corvette with
the Right Stuff
Kinder, Gentler
Corvette
Hybrid
Strategy
18
New Improved C4
The “hybrid” strategy captures what we
learn from studying the “test wells.” It is a
synthesis of what is good about each.

28. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Hydro formed
tube frame
drops sill way
down for easy
entry
Transm
ission
here
creates
m
ore
foot
room
in
cockpit
Once the “car guys” understood there was
significant value in comfort and convenience,
they figured out how to get more of it at lower
cost.

29. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Net Present Value
0
Key
10% 90%
e -Value
The Corvette team developed a “hybrid” strategy that
had better profitability and lower downside than any of
the strategies initially advocated by the stakeholders.
Strategy Theme
Improved C4
Kinder and Gentler
Right Stuff
“Hybrid”

30. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Time,April 14, 1997
“An almost perfect car,” says Automobile magazine editor.
“A big boy’s toy that First Wives’ club may co-opt.”

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Without an effective process GM would have had an expensive
marketing disaster. Instead, they had mutual learning, a good
strategy …. and a good outcome. The Bowling Green
manufacturing plant is sold out.
In March, 2000, the Society of Automotive Engineers selected
the C5 Corvette “the best engineered car of the 20th
Century.”

32. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Net Present Value
0
Key
10% 90%
e -Value
Strategy Theme
Improved C4
Kinder and Gentler
Right Stuff
“Hybrid”
Studies of scores of corporate decisions reveal that
typically a “Hybrid” strategy is worth 30 to 60 percent
more than the best “test” strategy. Sometimes it’s
worth twice as much.

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Stakeholders and ExpertsFraming
Alternative
Generation Analysis Synthesis ACT
Decision Makers
Stakeholders and experts
There are four phases to designing a strategy.

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Framing is a key element of any design process.
Inappropriate framing is the root cause of most
bad strategic decisions.
Framing SynthesisAnalysis
Alternative
Generation
Do we have the right people involved?
Have we set our boundaries too narrowly?
What systems are we considering?
What assumptions are we making about reality?
Are we using the appropriate values?

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The process combines advocacy and inquiry
with analysis and synthesis.
Framing SynthesisAnalysis
System modeling and
information gathering
are the focus here.
Here’s where we put
it all together.
Alternative
Generation
Creativity and
Advocacy have a
strong role here.

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The process facilitates a balance of analysis and
synthesis. It is about learning where the value is and
figuring out how to get more of it.
Framing SynthesisAnalysis
Alternative
Generation
Hybrid
Generating alternatives and
analyzing them is like drilling
test wells.
Synthesis is about taking what
we learn from the test wells
and deciding where to drill the
production well.

37. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Strategy
Competition
Market Share
Comfort and
Convenience
Styling
Unit Costs
Investment
High Sport
Market Size
Performance
Quality
Warranty Costs
Pricing
Strategy
Net Present
Value
Decision and Framing hierarchies --- Which decisions
are we working on? How do they fit with other decisions? What
are the givens.
Strategy tables --- How do alternative strategies differ?
Do they cover the range of possibilities?
Decision Diagrams --- What issues are relevant to the strategy?
How do issues influence each other?
Dynamic System Simulation and Optimization Models ---
Have we captured the complexities and dynamics logically?
Sensitivity Analysis --- What are the important uncertainties?
Where should we focus our attention?
Probability assessment techniques --- How do we express
what we don’t know? How do we deal with cognitive biases?
Bayesian updating of information --- How do probabilities
change as we learn more? What is the value of better
information?
Policy
Strategy
Tactics
A B C
1
2
3
4
5
Decision engineers rely on a rich tool kit.

38. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
The Collaborative Design process brings together the
important ways of thinking about strategic decisions.
Decision
Theory
Probability
Theory
Systems
Analysis
Framing Design
Mutual Learning

39. © 2017 Baker Street Publishing, LLC. All Rights Reserved.
Check these places for more information about
decision engineering and collaborative design.
• A New Engineering Profession is Emerging: Decision Coach
Most strategic decisions are made by teams.Teams need coaches.This article from IEEE
Engineering Management Review focuses on the new coaching role.
• Coach’s Guide to the Collaborative Design Process
This slidedoc provides an overview of this powerful, common sense process for team
decision making.
• Coach’s Guide to the Decision Analysis Process
This tutorial uses the choice between two energy efficient cars (Volt or Prius) to illustrate the
phases of the Decision Analysis Process. This is decision analysis as performed by professional
decision engineers.
• Baker Street Publishing Blog
Regular posts of interest to decision coaches and strategy professionals.
• Foundations of Decision Analysis, Ron Howard and Ali Abbas, Pearson
Publishing
This is the text for Professor Howard’s renowned Stanford class in decision engineering.