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Strategic
Optionality
Pathways Through Disruptive
Uncertainty
Strategic Optionality
Pathways Through Disruptive
Uncertainty
Surja Datta Tobias Kutzewski
Oxford Brookes University VU Amsterdam
Oxford, UK Amsterdam, The Netherlands
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature
Switzerland AG 2023
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
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Acknowledgement
We are able to look further because we have had the good fortune to
stand on the shoulders of giants. Isaac Newton said something similar,
and we wholeheartedly agree with him on this. We have benefited from
insights produced in diverse disciplines like cognitive science, complexity
science, anthropology and sociology. We have attempted to introduce a
new way of strategic thinking in this book, one which embraces uncer-
tainty rather than try to wish it away. To do so, we had to look for ideas
outside of the conventional strategy literature. Once on the journey, we
found plenty of gems strewn elsewhere, and we have not been hesitant to
borrow them for our endeavour. We express our gratitude to all the think-
ers who have impacted our thinking in myriad ways.
Throughout the writing of the book, we have actively shared the emer-
gent ideas with a host of entrepreneurs and industry practitioners, greatly
profiting, in the process, from those interactions. There are too many of
you to name here individually, but you know who you are, and we thank
you profusely for your time and viewpoints.
Our institutions, Oxford Brookes University and Vrije Universiteit
Amsterdam, provided us with generous research hours which greatly
v
vi Acknowledgement
facilitated the authorship of this book, and for that we are grateful
to them.
At the end, we have to acknowledge the support of our families. They
have been our rock, and without their understanding and patience, this
book would not have seen the light of the day. So, Boni, Jishnu, Henrike,
Jakob, Kolja and Alma—a big thank you to all of you.
Contents
1 I ntroduction 1
2 The
Business Landscape: Unpacking the Idea of ‘Domain
Specificity’ 9
7 O
ptionality: The Method169
8 C
onclusion183
I ndex189
vii
List of Figures
ix
x List of Figures
think of competing with the likes of Rolex. The Internet has allowed the
firm to fuse the physical and digital in an innovative way, and in doing so
it has managed to disrupt the incumbents.
Consider the disruption that Airbnb has caused to the hotel industry.
A business that was erstwhile firmly rooted in the physical world has sud-
denly migrated to the physi-digi space where things are much more fluid,
a whole lot more uncertain. Organisations that capture value in the
physi-digi space are different in nature from those that do the same in the
physical space. The competitive dynamics in the physi-digi reality are
fundamentally different from those in either pure physical or pure digital.
We explore and explain the physi-digi reality in Chap. 2.
There are no universal laws in social sciences. This is particularly true
for business management. For far too long, strategy frameworks have
been put forward as ideas that are universally applicable. The reality is
that these frameworks are like heuristics (such as rules of thumb) and less
like physical laws. Moreover, these heuristics are domain specific. Just as
a heuristic for an entrepreneur can be completely irrelevant for a salaried
person, a strategy heuristic that works brilliantly in one domain can be
redundant in another. In Chap. 2, we specify three types of business
domains—fragile, robust and long-shot. Strategies in these domains are
qualitatively different from one another.
Heightened uncertainty that characterises a large part of the business
landscape necessitates new conceptual lenses. In this book, we introduce
the idea of optionality (Chap. 4) and argue that option thinking is par-
ticularly effective in the long-shot domain. But this does not mean that
conventional strategy tools are without value. We show that traditional
strategy thinking works well in relatively stable business environments
(Chap. 3).
Conventional strategy has been preoccupied with ‘competitive advan-
tage’. Competitive advantage, in turn, has been narrowly conceptualised
as being able to generate superior profits vis-à-vis one’s rivals. In this book
we use the term competitive success which is not necessarily about gener-
ating higher profits quarter on quarter or year on year. In specific situa-
tions, surviving may be more critical for the firm than the generation of
superior profits. More interestingly, it may even be desirable for firms to
embrace losses in specific contexts. If you are a player within the
1 Introduction 5
long-shot domain (as discussed in Chap. 2), it is very likely that you will
experience losses more frequently than profits. One of the objectives of
the book is to help decision-makers be more strategic about value creation.
The rest of the book is organised in the following way. In Chap. 2, we
explain and elucidate the two main factors that are behind heightened
uncertainty in the business environment. Globalisation and digitisation
are disrupting the business landscape as never before. We use the global
flows framework (Datta et al., 2021) to explain how globalisation engen-
ders uncertainty. Digitisation has accelerated global flows, in particular,
those in goods, services and capital. We are used to thinking of the physi-
cal and digital as two separate realms. We argue in the chapter that the
time has come to think of a new physi-digi reality that has materialised
due to the physical and digital intermingling in innumerable ways. The
physi-digi reality has its own distinct competitive dynamics which we
explore in the chapter. We divide the business landscape into three
domains—fragile, robust and long-shot, each with its own competitive
dynamics. The classification system is important because it highlights the
fact that strategic thinking needs adaptation to the context. Context is
indeed king.
In Chap. 3, we consolidate the key insights from the extant literature
on strategic management. The conceptual underpinnings of what we may
term as the conventional wisdom are highlighted here. As we show in the
chapter, conventional wisdom is not well equipped to deal with high
uncertainty but works quite well in stable business situations. In the
chapter, we stress-test the strategy tools under conditions of high uncer-
tainty to evaluate the extent to which they can adapt to such a situation.
Optionality is the state of having options. An option, put simply, is the
right but not the obligation to do something. Optionality works best
when you are not certain how the future will pan out. The idea of real
options is not new to strategic management, but the way it has been used
in the book is certainly novel. We think that the idea of optionality, which
is a powerful one, has been used in an unnecessarily restricted fashion
within the extant literature. The literature has been preoccupied in com-
puting options value of real assets, borrowing from the established
method of valuing financial options. Although we do not devalue the
usefulness of this approach, we suggest that the bigger payoff in using
6 S. Datta and T. Kutzewski
the geographic reality of the London Underground, yet it’s highly useful
for navigating that reality. Harry Beck designed the stylistic Underground
map in 1933 which is still in use. Before that, the original map of the
Underground was closer to the geographic reality, yet it was less useful.
Good theories are like good maps—they pare down reality to the key ele-
ments/dynamics. They do not pretend to represent reality, but at the
same time, they help us come to grips with reality. Keep this in mind, as
you navigate the multitude of theories that we cover in this book.
Reference
Datta, S., Roy, S., & Kutzewski, T. (2021). Unlocking strategic innovation:
Competitive success in a disruptive environment. Routledge.
2
The Business Landscape: Unpacking
the Idea of ‘Domain Specificity’
Globalisation
Globalisation is both old and new. It is old in the sense that people and the
ideas they carry with them have always travelled across the geographical
space ever since we evolved as a species in east Africa. It is new, however,
in the sense that nation-states are a relatively recent invention, and one
useful way to understand globalisation is to conceptualise it as a series of
global flows that circulate through nation-states (Datta et al., 2021).
Somewhat counterintuitively, globalisation and nation-states are two
interrelated constructs. When different flows cross national boundaries,
they become transnational. Before the invention of the nation-state, there
were mere flows across geographical space and time; they were not ‘global’.
So, what are global flows? Global flows are movements in capital,
goods, services and ideas that come from outside the national boundaries,
which circulate within the nation at varying velocities, and flow out of
the country and into other nation-states.1 The process takes place on a
continuous basis.
The velocity at which these flows circulate within an economy is key.
The higher the velocity of the flows, the greater the uncertainty in the envi-
ronment. The velocity of the global flows is dependent on ‘expeditors’ or
‘barriers’ which are mainly national in character (highlighting, once again,
the link between globalisation and nation-states). Expeditors facilitate
global flows consequently increasing their velocity within a specific con-
text. Barriers inhibit global flows, hence decreasing velocity. North Korea
has lots of barriers to global flows, very few expeditors, and the velocity of
global flows is very low in the country. At one level, this makes certain
things more predictable in the short to medium term. Of course, there are
consequences of cutting off global flows, and over the long term, the situa-
tion becomes even more fragile (this should not be taken as true uncer-
tainty, as we know things can go only one way which is downhill).
In contrast, consider the case of the Netherlands. The country is open
to global flows and has lots of expeditors and very few barriers. The
1
Also see Ritzer (2015) for a detailed exposition of the idea of global flows.
2 The Business Landscape: Unpacking the Idea of ‘Domain… 11
Not all global flows are equal. Economists, by and large, agree that
global flows in goods and services are welfare-enhancing.2 By this they
mean that as goods and services are exchanged across national borders,
both parties become better off due to the exchange because of specialisa-
tion of factors of production (labour and capital). Classical and neoclas-
sical trade theories place a great emphasis on this welfare-enhancing
nature of the global flows in goods and services.
Global flows in goods and services do cause uncertainty through their
circulation within the national systems. They often disrupt domestic
businesses, cause unemployment and usher in technological changes.
These flows can also reinforce status quos which may not be ideal for
some countries from the development perspective. Consider Country A
flow of goods as an example. The global inflows are mainly manufactured
goods, whilst the global outflows are mainly commodities (like rice and
oil). That is a recipe for underdevelopment in the long run as manufac-
tured goods enjoy increasing returns with increased output, whilst com-
modities experience decreasing returns with increases in the output. This
is the reason why many development economists (Krugman, 1995) advo-
cate for protectionism, to protect domestic industry against foreign com-
petition and allow it to grow to its full potential.
Notwithstanding the above critiques, overall, the consensus is strong
about the beneficial impact of global flows in goods and services. However,
that consensus breaks down when it comes to evaluating the pros and
cons of the global flows in capital.
Global flows in capital have the potential to create more disruption
than those in goods and services. There is usually a transfer of property
rights with the exchange of goods and services. When you buy a mechan-
ical watch from Switzerland, sitting in your office in London, there is a
transfer of property right from the manufacturer to yourself. The manu-
facturer cannot force you to return the watch. With transnational capital
flows, there is often no change in ownership. Your investments in the
German equity market are still owned by you. This means that capital
2
See, for example, Deardorff (1982) for an explanation of how international trade increases the
welfare of citizens of both countries that are parties to that trade.
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