MT3 – Strategies for turbulent/hyper-competitive markets

What Defensive Strategies might industry incumbents pursue in turbulent and hypercompetitive markets?

In a previous discussion, there was a fair amount of talk on how incumbents manage industry evolution or technological changes. This time around, we focus on how incumbents react to turbulent and hypercompetitive markets. Carpenter and Sanders (2008) mention complexity theories and suggest these theories involve firms being able to self-organize in such a fast-paced and ever-changing competitive environment. According to Mason (2007), these complexity theories are not totally chaotic, but rather, its systems self-organize as various decentralized parts of the system interacts (p. 12). Furthermore, Waldrop (1992), suggests that this emergence of adaptive behavior happens at the edge-of-chaos where there is enough stability to sustain existence, but enough turbulence for creativity to overcome inertia (As cited in Mason, 2007, p.12).

Carpenter and Sanders (2008) suggest that managers practice improvisation and simple rules when facing hypercompetition. Strategies should be much like jazz musicians in a sense that, there are simple rules in which these strategies should follow, however, being able to adapt to the competitive and fast-paced changes of the environment, are the best ways to survive. However, as with any good strategy, following these simple rules require conscious tradeoffs. Mason (2007) adds that there is an emergence of creative responses from the changing environments and that it happens when the system’s parameters change, leading to disorder, however it is important to keep the system at the edge-of-chaos (p.12).

Sequencing past and future is another way to help managers deal with hypercompetition. Past activities and future conditions are built on a substructure of experimentation and learning (Carpenter & Sanders, 2008). That being said, there is a constant change of activities, innovation, experimentation, and risk happening in between these times. Furthermore, tactical moves can be used as low-cost probes to test if the current strategy is working and what changes can be made to the strategy in the future.

Setting the pace and rhythm is also mentioned in hypercompetition in that, timing is important, and the staging and pace of change can help firms determine if any further experimentation or probing is needed (Carpenter & Sanders, 2008).

How can the use of Real-Options Analysis help in putting a Value on Staging and Pacing?

Real-options analysis provides managers with greater strategic flexibility in how they approach projects (Carpenter & Sanders, 2008). Real-options allows firms to be flexible and gives them some wiggle room in terms of being able to adjust strategies as needed to gain better market positioning. In addition, Carpenter and Sanders (2008) identify the purpose of real-options analysis in that it is used to uncover and quantify an initiative’s embedded options or critical decision points (p. 190).

Trigeorgis and Reuer (2017) add that real options theory emphasizes the role of uncertainty and asymmetry in payoffs arising from decisions flexibility and shifting value-chain activities across borders (p. 53). Having that flexibility and room to make decisions by a somewhat external analysis of future performance would be a great benefit for any firm.

In regard to applying these to StratSim, the text gives some great points in how to use real-options: create a decision tree incorporating all possible outcomes of future trials and all of management’s decisions in each event , calculate NPV at end state, and then analyze final yea evaluation and work backwards. Doing these should help our firm to decide whether to abandon, repeat, or proceed with any new product development (Carpenter & Sanders, 2008). My concern here is that I’d really like to be able to use this tool in StratSim to help guide us in our next move. The decisions we made last week, we thought were solid. Perhaps incorporating more of the tools to analyze our decisions would be beneficial.

References

Carpenter, M.A. & Sanders, Wm., G. (2008). Strategic management: A dynamic perspective. Upper Saddle River, NJ: Pearson Prentice Hall.

Mason, R. B. (2007). The external environment’s effect on management and strategy: A complexity theory approach.Management Decision 45(1), 10-28. Retrieved from https://search-proquest-com.library2.csumb.edu:224…

Trigeorgis, L. & Reuer, J.J. (2017). Reap options theory in strategic management. Strategic Management Journal 38, 42-63. Retrieved from http://onlinelibrary.wiley.com.library2.csumb.edu:…