Mert Kaygusuz

N00989248
Due Date: 07.30.2009

STRATEGY UNDER UNCERTAINTY

By Hugh Courtney, Jane Kirkland, and Patrick Viguerie

In highly uncertain business markets, creating an efficient and effective strategy is a huge
challenge. Some large companies with great financial and structural abilities may use a serious
portion of their income to analyze their competitors’ managerial options. HP and Kodak can be
considered as accurate examples to this subject.

The commonly used management style, which is risk averse management focuses on
making small portions of investments in order to minimize the rate of risk in each strategic
operation.

Certain means all the future process of specific events is exactly known. However,
uncertain defends that each single event in the forthcoming period of time is changeable. While
making strategic decisions, the manager has to consider the fact that what level of uncertainty that
the company can handle. In other words, it is essential for a strategist to comprehend the very
essence of the organizational priorities in order to forecast the future scenarios.

It is very important for a company aiming to be successful in every sense, to be familiar

with the existing trends and to analyze the market conditions. However, after all possible analyses
have been accomplished; there is still a certain amount of “uncertainty” which has not been
satisfied yet. That kind of an uncertainty is called “the residual uncertainty”.

Four Levels of Uncertainty

- A Clear Enough Future: In this level, the manager does not consider the effect of the
residual uncertainty; and concentrate on one single prediction.
- Alternative Future: Although this level does not mention the exact outcomes, it helps the
managerial structure to compose consistent scenarios which can be used as a reference
while making a strategic decision.
 - A Range of Future: In this part, the manager creates a range of alternative projections
which are shaped by detailed variables.
- True Ambiguity: This level can be regarded as a rare dimension of the uncertainty
theories, but its existence is still possible. In this level, there are numerous alternative
options so that the uncertainty portion is quite large.

Furthermore, it is very important to shape all these four levels with other useful
marketing tools. In level 1, managers can use market research, value chain analysis, Porter’s five-
forces etc. In addition, executives have to generate discrete scenarios and form all these
alternative circumstances by using decision analysis. In some cases such as in level 3; it is hard to
predict the outcomes. Because of that reason, the management team has to analyze deeply the
development process of forecasts.

Shapers try to influence their markets in the direction of a new formation of their own
plans. On the other hand, adapters understand the changing environment easily and find a way to
settle in to that variable atmosphere. The third strategic posture, reserving the right to play is an
adaptation style consisting high levels of incremental investments.

Big bets provide a large commitment, so that the range of profit and loss is huge. In some
scenarios, it is possible to earn a large amount of money. In other scenarios, it is also probable to
lose very much. Options assure big payoffs or diminished losses. Moreover, no-regrets moves are
typically used in highly uncertain environments. In no regret moves there is a payoff under any
circumstance.

The method that has been highlighted in this text provides the managers a level of
knowledge for thinking carefully about uncertainty. From one perspective, this information is
very useful for companies while making decisions at different levels of uncertainty. From a
broader perspective, this text can be regarded as a helpful guide that is used in order to solve most
difficult decisions executives have to make. As a result, without perceiving the real meaning of
the uncertainty, it is almost impossible for a manager to compose superior operational strategies.