Uncertainty business strategy by bhawani nandan prasad iim calcutta
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Uncertainty business strategy by bhawani nandan prasad iim calcutta
- 1. Risk, Uncertainty and Business Strategy Atanu Mukherjee 1st November, 2011 Dastur Business & Technology Consulting
- 2. 2 The Business Environment Today > Globalization > Volatility > Macroeconomic instability > Environmental constraints > Changing demography > Resource and energy limitations > Accelerated boom-bust cycles
- 3. Oil Price Volatility (1985 -2005) 3 15 20 25 30 35 40 45 50 1985 1990 1995 2000 Data/Source: World Oil Prices (current $ / Barrel)- EIA Office of Integration Analysis and Forecasting Forecast Forecast Forecast Forecast Forecast Forecast Forecast Actual Actual Actual Actual Actual Actual Actual 10-yr Forecast Error 5-yr Forecast Error
- 4. 4 Commodity demand collapse ? http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm Baltic Exchange Dry Index Commodity Research Bureau Index
- 5. Turbulence in financial markets (VIX index) Housing BubbleInternet Mania
- 7. Aging population in the West
- 8. 2010 2020 2030 2040 2050 TonsofCO2Equivalent OECD Per Capita World Per Capita India Per Capita Carbon consumption regulations..
- 10. 0 200 400 600 800 1000 1200 1400 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 150 250 350 450 550 650 750 850 950 1050 Internet Traffic Morgan Stanley High Technology Index Terabytes MorganStanleyHigh TechnologyIndex The dot com bubbleâŠ
- 11. âŠAnd then the housing bubble
- 12. Turbulence Ahead! âŠ& dramatic wealth creation âŠas opportunities in uncertainty abound
- 13. âŠbut fear of failure cripples thinking âŠSo how do we formulate business strategy in turbulent times ?
- 14. The Building Blocks of Strategy
- 15. Creating Value in Uncertainty â Disruptive Innovation Performance Time Established technology Mainstream customer needs Niche customer needs Invasive Technology
- 16. 16
- 17. 17 âș Cement that sequesters CO2, instead of emitting it! Calera
- 18. 18 Biocrude Crude oil Refinery Kior: âbiocrudeâ replaces crude Millions of Years
- 19. How not to: Financial tools: DCF, NPV, IRR Stage gate development Top down market analysis Decisions based on customer wish list 19
- 20. How to: Tackle hard problems Imagine what could be Let technology lead market Fail often, fail early, keep trying Find the best people, who disagree with you 20
- 21. âIt is not because things are difficult that we do not dare, it is because we do not dare that they are difficult.â - Seneca âTry and fail, but don't fail to try.â - Stephen Kaggwa âCourage is doing what you're afraid to do. There can be no courage unless you're scared.â - Eddie Rickenbacker âOnly those who dare fail greatly can achieve greatly.â - Robert F. Kennedy âYou will face many defeats in your life, but never let yourself be defeated.â - Maya Angelou The willingness to fail gives us the freedom to succeed 21
- 22. When did it fail? Evaluating âFailuresâ HOW DO I DO IT BETTER NEXT TIME?? Iteration is key Why did it fail? Causal vs. experiential reasoning Assumptions change vs. Environments change 22
- 23. âTried that before and it doesnât workâ Accumulated experience restrains/constrains thinking Assumptions change all the time Reexamine everything 23
- 24. Innovation culture reward failure plan without planning (evolve thru iteration) ignore IRR calculations don't listen to customers too closely 24
- 25. 25 Source: Clay Christenson âUntangling Skill and Luckâ (7/15/2010); Michael Mauboussin, Legg Mason Capital Management; Steven Johnson disruptive innovation & disruptors Low-End Segment Strategy Create a new market⊠Amazon.com / Netflix⊠Google / iPhone / iPad / Facebook Twitter⊠Invent the marketDisrupt the market âŠmove up market with lower cost New- Consumption Strategy Create a new experience iPod / iTunes/Kindle/ Netfllix Online Invent by design Re-invent Consumption Strategy introduce a low-end loss leader⊠a product that hasnât existed use design to re- invent product
- 26. 26
- 27. The mini-mill disruption in the US steel industry 27
- 28. âŠârelevant costâ âŠârelevant scaleâ âŠârelevant adoptionâ But diffusion of innovation requires
- 29. âŠthe adoption risk financial, consumer acceptance, market entry
- 30. adoption risk - $2,500 nano Internal combustion engine or Hydrogen / electric?
- 31. âŠthe scaling model brute force or exponential, distributedâŠ
- 32. But how do we evaluate solutions�
- 33. key criteria âș Trajectory: âWhat isâ or âWhat Can Beâ âș Scalability Trajectory âș Cost Trajectory âș Adoption Risk âș Capital Formation âș Optionality
- 34. âŠcost and tech trajectory
- 35. cost: driving down the cost curve Source: âThe Carbon Productivity Challengeâ, McKinsey â Original from UC Berkely Energy Resource Group, Navigant Consulting
- 36. 2010 2015 2020 2025 2030 2035 Cost(Normalized) 2010 2015 2020 2025 2030 2035 Cost(Normalized) 2010 2015 2020 2025 2030 2035 Cost(Normalized) cost: not all technology curves are the same 2010 2015 2020 2025 2030 2035 Cost(Normalized) Cheapest now does not mean cheapest later! Trajectory Matters!Solar PV Wind Coal
- 37. 37 declining technology cost⊠Crystalline Silicon Amorphous Silicon Thin-Film Thin-Film Multi-Junction Generations of Solar PhotovoltaicsâŠ
- 38. but tech cost decline isnât enough⊠2010 2015 2020 2025 2030 2035 2040 Cost(Normalized) Construction Cost Inputs (Feedstock/Land) Technology Cost Total Cost Total cost decline is based on relative proportion of cost âtypesââŠ
- 39. Legacy technologies can have large scale advantage Infeasible
- 41. âș Short Innovation Cycles (3-5 years) âș Short investor return cycles âș Mitigate technical & market risk cheaply âș Unsubsidized market competition Private money will flow to ventures that return investment in 3-5 year cycles! capital formation
- 42. But be vary of irrational ideasâŠ.
- 43. irrational ideas: eat kangaroos, not cows! Source â http://www.reuters.com/article/environmentNews/idUSSYD8867720080808 âSYDNEY (Reuters) - Farming kangaroos instead of sheep and cattle in Australia could cut by almost a quarter the greenhouse gases produced by grazing livestock, which account for 11 percent of the nation's annual emissions, said a new study.â
- 44. irrational ideas: toilet paper I propose a limitation be put on how many sqares [sic] of toilet paper can be used in any one sitting. Now, I don't want to rob any law-abiding American of his or her God-given rights, but I think we are an industrious enough people that we can make it work with only one square per restroom visit, except, of course, on those pesky occasions where 2 to 3 could be required. - Sheryl Crow âą Source - http://blogs.usatoday.com/ondeadline/2007/04/singer_turned_a.html
- 45. irrational ideas: âgreen bikinisâ âą Source - http://www.alternativeconsumer.com/2008/07/29/eco-bikini-from-niksters/
- 46. 46 irrational ideas: zero-emission buses? 3-year Oakland pilot : zero-emission hydrogen fuel cell buses diesel @ $1.61/mile vs. hydrogen @ $51.66/mile! Source: ABC News - http://abclocal.go.com/kgo/story?section=news/local&id=5984013 solutions must make economic sense!
- 47. Thank You E :atanu.mukherjee@dasturco.com M:(91) 983.027.0019