Defining level of uncertainty in Business environment and consequent strategy formulation to tackle the condition and achieve the intended by the Senior management of the various organization in various scenarios.

2.  Definition: Uncertainty is the situation which involves
imperfect and/or unknown information
 E.g. If it is unknown whether or not it will rain tomorrow

3.  It has been classified into FOUR levels
•A clear enough FutureLevel 1
•Alternate FutureLevel 2
•A Range of FuturesLevel 3
•True AmbiguityLevel 4

4.  At this level managers can develop a single forecast of the future
that is precise enough for strategy development
 In other words, the residual uncertainty is irrelevant to making
strategic decision
 Example: A major airline trying to develop a strategic response to
the entry of a low cost, no frill competitor into one of its hub
airports.
 Should it respond with a low cost service of its own? OR
 Should it cede the low-cost niche segment to the new entrant? OR
 Should it compete aggressively on price and service in an attempt to
drive the entrant out of the market?
 Solution may be obtained by a market research on the size of
different customer segments, response of each segment, cost the
competitor to serve, capacity of the competitor for each route.

5.  Future can be defined as one of a few alternate outcomes, or
discrete scenarios and analysis can identify which outcome will
occur.
 Many businesses facing major regulatory or legislative change
confront to level 2 uncertainty
 Example: U.S. long-distance telephone providers in late 1995, as
they began developing strategies for entering the local telephone
market. Legislation that would fundamentally deregulate the
industry was pending in congress and the broad form that new
regulation would take fairly clear to most industry observers
 Whether or not regulation is going to pass?
 How quickly it would be implemented in the event it did pass were not
certain
 No amount of analysis would allow the long distance carrier to
predict above mentioned outcomes and correct course of action

6.  A range of potential futures can be identified and the range
can be defined by a limited number of key variable, but the
actual outcome may lie anywhere along a long continuum
bounded by that range.
 Companies in emerging industries or entering in new
geographic markets often this level of uncertainty
 Example: Consider a European consumer goods company
deciding to introduce its product to the Indian market.
 The best possible market research might identify only a broad
range of potential customer penetration rates – say from 10% to
30% and there would be no obvious scenario within that range
 Company may follow a very different and more aggressive
entry strategy if it knew for certain that its customer
penetration rates would be closer to 30% than to 10%

7.  Multiple dimensions of uncertainty interact to create an
environment that is virtually impossible to predict.
 These situation are quit rare, and they trend to migrate
toward one of other levels over time. Most importantly they do
exist.
 Example: Companies considering making major entry
investment in post-Communist Russia in 1992
 They could not outline the potential laws or regulations that would
govern property rights and transactions
 It had additional uncertainty over the viability of supply chain and
demand for previously unavailable consumer goods and services
 But greater political and regulatory stability has turned
decisions about whether to enter Russian markets into level 3
problems for majority of the industry today

8. A clear
enough
Futures
Alternate
Future
A Range of
Futures
True
Ambiguity
What Can be
Known
• A single forecast
precise enough
for determining
strategy
• A few discrete
outcomes that
defines the future
• A range of possible
outcomes, but no
natural scenarios
• No basis to
forecast the
future
Analytic Tools • Traditional
strategy tool kit
• Decision Analysis
• Option valuation
models
• Game theory
• Latent-demand
research
• Technology
forecasting
• Scenario
Forecasting
• Analogies and
pattern
recognition
• Non Linear
dynamic models

9.  There are three strategic postures a company can choose to
take vis-à-vis uncertainty
Shape the Future
•Play a leadership role
in establishing how the
industry operates, for
e.g.
•Setting Standards
•Creating Demands
Adapt to the
Future
•Win through speed,
agility, and flexibility
in recognizing and
capturing opportunities
in existing market
Reserve the right
to play
•Invest sufficiently to
stay in the game but
avoid premature
commitment

10.  Shapers, it aims to drive their industries toward a new structure
of their own devising
 Kodak’s investment in digital photography, is pursuing a shaping
strategy in an effort to maintain the leadership position, a new
technology supersede the one currently generating most of its earnings
 Adapters, take the current industry structure and its future
evolution as givens, and they react to opportunities the market
offers
 In the highly volatile telecommunication-service industry, for e.g.
service resellers are adapters. They buy and resell the latest product
and services offered by the major telecom providers
 Reserving the right to play, it involves making incremental
investments today that put a company in a privileged position
 Many pharmaceutical companies are reserving the right to play in the
market for gene therapy applications by acquiring or allying with
small biotech firms that have relevant expertise. This has lower cost
compared with building a proprietary, internal gene-therapy R&D
program.

11.  There are three types of moves that are relevant to
implementing strategy under conditions of uncertainty
No-regrets Moves
- Strategic decisions
that have positive
playoffs in any
scenario
Options
- Decisions that
yield a significant
positive payoff in
some outcomes and
a (small) negative
effect in others
Big Bets
- Focused strategies
with positive payoffs
in one or more
scenarios but a
negative effect in
others

12.  No-regrets Moves, moves that will pay off no matter what
happens
 Options, these are designed to secure the big pay offs of the
best-case scenario while minimizing losses in the worst-case
scenario
 Conducting pilot trials before the full scale introduction of new
product OR entering into limited joint ventures for distribution to
minimize the risk of breaking into new markets
 Big Bets, these are large investments, such as major capital
investment or acquisitions, that will result in large payoffs in
some scenarios and large losses in others

13.  Strategy in Level 1’s Clear-Enough Future
 Analysis is designed to predict an industry’s future landscape, and
strategy involves making positioning choices about where and how
to compete
 Strategy in Level 2’s Alternate Futures
 A shaper in a capital-intensive industry like steel or any other
metal wants to prevent competitors from creating excess capacity
that would destroy the industry’s profitability.
 Consequently, shapers in such case might commit their companies
to building new capacity far in advance of an upturn in demand to
preempt the competition, or they might consolidate the industry
through mergers and acquisition

14.  Strategy in Level 3’s Range of Futures
 They try to move the market in a general direction because they
can identify only a range of possible outcomes
 E.g. Standards for electronic cash transactions, since one can
define a range of potential product and services that fall between
purely paper based
 Strategy in Level 4’s True Ambiguity
 Even though level 4 situation contain the greater uncertainty, they
may offer higher return and involve lower risk for companies
seeking to shape the market than in situations in either level 2 or
3.
 E.g. Indian prime minister, trying to shape the future of the
multimedia industry in Asian Pacific Rim. As the products are
undefined, as are the players, the level of customer demand and
technological standards, among other factors.

15. Thank You