The document discusses strategy under uncertainty and describes four levels of uncertainty that companies may face: 1) A clear enough future where a single forecast is possible 2) Alternative futures with a few discrete scenarios 3) A range of possible futures defined by key variables 4) True ambiguity where no outcomes can be predicted It also presents three strategic postures for dealing with uncertainty: shaping the future, adapting to the future, and reserving the right to play. A portfolio of actions like options, big bets, and no-regrets moves can then be considered.

1. STRATEGY UNDER
UNCERTAINTY BY
BY SUNIL PRASAD

2. What is Strategy Under Uncertainty
 The traditional approach to strategy lies the
assumption that executives, by applying a set of
powerful analytic tools, can predict the future of any
business accurately enough to choose a clear strategic
direction for it. The process often involves
underestimating uncertainty in order to lay out a
vision of future events sufficiently precise to be
captured in a discounted-cash-flow (DCF) analysis.
When the future is truly uncertain, this approach is at
best marginally helpful and at worst downright
dangerous:

3.  underestimating uncertainty can lead to strategies that
neither defend a company against the threats nor take
advantage of the opportunities that higher levels of
uncertainty provide. Another danger lies at the other
extreme: if managers can't find a strategy that works
under traditional analysis, they may abandon the
analytical rigor of their planning process altogether
and base their decisions on gut instinct.

4. Four Levels of Uncertainty
 Level one: A clear enough future
 Level two: Alternative futures
 Level three: A range of futures
 Level four: True ambiguity

5. A Clear Enough Future
 The residual uncertainty is irrelevant to making
strategic decisions at clear enough future,so
managers can develop a single forecast that is a
sufficiently precise basis for their strategies. To help
generate this usefully precise prediction of the future,
managers can use the standard strategy tool kit:
market research, analyses of competitors' costs and
capacity, value chain analysis, Michael Porter's five-
forces framework, and so on.

6. A Clear-Enough Future
A Clear-Enough Future
What Can
Be Known?
Analytic Tools
Examples
• A single forecast precise enough for
determining strategy
• “Traditional” Strategy Toolkit
• Strategy against low-cost airline
entrant.

7. Alternative Futures
 The future can be described as one of a few discrete
scenarios at Alternative Futures. Analysis can't
identify which outcome will actually come to pass,
though it may help establish probabilities. Most
important, some, if not all, elements of the strategy
would change if the outcome were predictable.

8.  In Article mention that as example Many businesses
facing major regulatory or legislative change
confront level two uncertainty. Consider US long-
distance telephone providers in late 1995, as they
began developing strategies for entering local
telephone markets. Legislation that would
fundamentally deregulate the industry was pending in
Congress, and the broad form that new regulations
would take was fairly clear to most industry
observers. But whether the legislation was going to
pass and how quickly it would be implemented if it
did were still uncertain. No amount of analysis would
allow the long-distance carriers to predict those
outcomes, and the correct course of action

9. Alternate Futures
• A few discrete outcomes that define the future
•Decision analysis
•Option valuation models
•Game theory
•Long distance telephone carriers’ strategy to
enter the deregulated local-service market
•Capacity strategies for Chemical Plants
Alternate
Futures
1
2
3
What Can
Be Known?
Analytic Tools
Examples

10. A range of futures
 A range of potential futures can be identified at A
range of futures. A limited number of key variables
define that range, but the actual outcome may lie
anywhere within it. There are no natural discrete
scenarios. As in Alternative Futures , some, and
possibly all, elements of the strategy would change if
the outcome were predictable.

11. A Range of Futures
• A Range of possible outcomes, but no
natural scenarios
•Latent-demand research
•Technology Forecasting
•Scenario Planning
•Entering emerging markets, such as India
•Developing or acquiring emerging
technologies in consumer electronics
What Can
Be Known?
Analytic Tools
Examples

12. True Ambiguity
 A number of dimensions of uncertainty interact to
create an environment that is virtually impossible to
predict at level four. In contrast to level three
situations, it is impossible to identify a range of
potential outcomes, let alone scenarios within a
range. It might not even be possible to identify, much
less predict, all the relevant variables that will define
the future. Level four situations are quite rare, and
they tend to migrate toward one of the others over
time. Nevertheless, they do exist.

13.  Consider a telecommunications company
deciding where and how to compete in the
emerging consumer multimedia market. The
company will confront a number of
uncertainties concerning technology, demand,
and relations between hardware and content
providers. All of these uncertainties may
interact in ways so unpredictable that no
plausible range of scenarios can be identified.

14. Anatomy of the Residual
Uncertainty
• No basis to forecast the future
•Analogies and pattern recognition
•Non-linear dynamic models
•Entering the market for consumer multimedia
applications
•Entering the Russian Market in 1982
What Can
Be Known?
Analytic Tools
Examples

15. The Three Strategy Posture
 The shape the future
 Adopt to the future
 Reserve right to play

16. The Choice of Strategic Postures
and Moves
Shape the future
Play a leadership role
In establishing how
the
industry operates,
for example:
-Setting standards
-Creating demand
Adapt to the future
Win through speed,
agility,
and flexibility in
recognizing
and capturing
opportunities
in existing markets.
Reserve the
Right to Play
Invest sufficiently
to stay in
the game but
avoid premature
commitments.

17. Adopt to the future
 Adapting- Adapting means that choosing
where and how to compete within the current
industry structure. many telecommunications
service resellers pursue competitive
advantage through pricing and effective
execution rather than product innovation.

18. The shape the future
 The driving the industry toward a new structure
of your devising and creating new
opportunities. Hewlett Packard shifted photo
processing from store to homes by offering
high quality, low -cost photo printers.

19. Reserve right to play
 Reserving the right to play- making
incremental investments to stay in the game
without commitiong to a new strategy
prematurely. some pharmaceutical companies
reserve the right to play in gene therapy
applications by buying small biotech firms with
relevant expertise.

20. What’s in a portfolio of Actions

21. Options
 options- modest initial investments like( pilot
trials, limited joint ventures, technology
licensing) that enable you to ramp up or scale
back your investments later as the market
evolves

22. Big Bets
 big bets- major commitment like capital
investments, mergers, or acquisitions that will
generate large payoffs in some scenarios and
large losses in others.

23. No- regrets moves
 No- regrets moves- actions that pay off no
matter what happens such as cost cutting
initiatives and competitor intelligence.