7. Building Future Capabilities Flashcards
The Need for Planning
- predictions are hard to make and are often wrong
- need to create an options portfolio (understanding self an environment, strategic foresight, exploration of possible futures and a vision for the future path to take
- shift mental model from a single forecast to multiple options
- planning parameters: diverse and pluralistic
- postures and moves
- new windows of opportunity (open unplanning horizons, combinations, visions of the future)
Options [PICS]
- creation of possibilities if the future demands new behaviour
- a form of investment
- has a cost with no immediate returns (cost of creating, maintaining and exercising the option)
- to exercise strategic flexibility and opens the window of opportunities
Building a Portfolio of Future Options [4 Steps - HPOPO]
- Uncover Hidden Constraints
- Establish processes for building new strategic options
- Optimising the portfolio of strategic options
- Combining planning and opportunism
- Uncover hidden constraints
market knowledge: trader position if you have no capabilities
firm capabilities: prisoner position if you have no market knowledge since you lack alternative options to use capabilities
example: Woolworth (narrow capabilities and knowledge base)
- did not understand customers
- did not have the capabilities to compete with established rivals
- too focused on strategies in a niche market
solutions: build new capabilities, expand market knowledge on new segments and customer based; create options (adjacent markets, related markets)
- considerations:
- creating value by expanding the company’s knowledge of alternative segments and creating new value proposition within the company
- Establish processes for building new strategic options
minimise the cost of options building: knowing what to learn since not all options are used
cost effective methods of expanding knowledge
- forming networks and ecosystems
- leverage customers’ and suppliers’ knowledge; market research
- learn from mavericks
building capabilities
- problem solving: double loop learning
- experimentation
- importing knowledge
- implementing and integrating new capabilities: find the best combination; being at the right place at the right time (opportunism)
- Optimising the portfolio of strategic options
Right for the future?
- alternative capabilities that can profitably meet probable customer needs
- find potential future markets, new customer base
techniques needed to develop alternative capabilities, understand market behaviour
- scenario planning
issues of cost
- cost of creating and maintaining the option
- probability that the company will exercise the options
- probability that creating the option will itself spawn future options
- Combining Planning and Opportunism
bounded opportunism
- keep within the bounds of the company’s overall direction
weed vs flower
- weed: distractions from long term goals
- flower: accelerates long term goals
being updated about market development
- build bounded opportunism by removing expiring ones and adding new ones
Scenario Planning
- disciplined method for imagining possible futures that companies have applied to a great range of issues
- describe genetically different futures rather than variations of the same theme
- time consuming
When scenario planning is needed
to imagine how the future unfolds and how the probable futures affect the company
- high uncertainty relative to predictive ability
- too many costly surprises have occurred in the past
- company does not perceive or generate new opportunities
- quality of strategic thinking is low
- industry has experienced significant change or is about to
- company wants a common language and framework yet also be diverse
- when there is strong differences in opinion, all having merit
Importance of Scenario Planning [K-TIP] + [SAGE]
Divides knowledge into 2 parts
- known-knowns (generating base line scenarios)
- known-unknowns (to craft plausible scenarios and develop strategies for these future worlds)
Tool for organisations to create alternate strategies to manage futures
Scenarios are imagined futures and not predictions
Not to come up with forecasts or predictions, but to create multiple perspectives and be prepared for alternatives
SAGE:
- Identify early warning Signals
- Assess robustness of core competencies
- Generate strategic options
- Evaluate risks and returns
Stages of Scenario Planning [5 Stages - OESCI]
- Orientation: identify key issues and challenges to understand focal issues
- Exploration: research to deepen understanding of driving forces and uncertainties
- Scenarios and Narrative Creation: believable yet compelling situations to stimulate thinking
- identify extreme worlds, a cluster of possible outcomes and select the top few issues - Options Consideration: generate implications for scenarios and how the futures will affect the company
- Integrate scenarios into current management processes: to generate conversations among managers
- scenarios are warning systems and guides for evaluating strategic choices
Practical Scenario Planning
Start with external drivers
- divide into trends and uncertainties
Build broad and diverse scenarios
- find major themes
- build a matrix of uncertainties
- use the outcomes to build likely scenarios
Do Scenarios Work?
Widen the confidence interval of predictions
But there is bias (over or under confident in trends they believed beforehand
- need to have diverse opinions
Broadens vision of the future
