Friday, November 14, 2014

Shaping Strategies in Uncertain Times


I read a piece by Hugh Courtney - Making the Most of Uncertainty - in the McKinsey Quarterly (2001, no. 4, 38-47), the theme of which resonated with the post-September 11th outlook and landscape:

McKinsey found that between 1985 and 1995, 86% of the “50 stars” with the greatest sales, profit, and market capitalization growth used predominantly shaping strategies (as opposed to adapting strategies). Companies included Microsoft, Oracle, Sun Microsystems, Best Buy, Wal-Mart, and The Home Depot.

Adapting strategies rely on deep insight into the market and on the ability to act with speed and agility.  So that the company can spot opportunities quickly and turn on a dime to reorient themselves.

For example, in the 1980s, HP customized ink-jet printers for use in different non-US markets in the factory and then shipped them to its warehouses. The problem was, unpredictable fluctuations in demand from non-US markets resulted in mismatches in supply and demand. HP adapted quickly: It held off customizing the printers until after it had shipped them to the warehouses and had orders firmly in hand. This adaptation slightly increased production costs, but the net savings from a decreased stock-out and inventory-carrying costs was $3 million a month.

Shaping strategies rely on deep foresight, the ability to envision the future that the company wants to create. They require strong credibility and influence to move an industry. Scenario planning and game theory are tools to use. 

For example, Minnetonka successfully reshaped the soap market in the 1980s when it introduced Softsoap. It knew that its big competitors, such as Colgate-Palmolive, Procter & Gamble, and Unilever could act quickly in response. So in anticipation of this, aggressively “locked up” suppliers of key parts for the liquid soap. At the time, only two companies made plastic pumps, so Minnetonka ordered 100 million of the pumps to support its national rollout for Softsoap. It took competitors 18 to 24 months to make a full-scale entry into this market.

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