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Industry Scenarios and Competitive Strategy Under Uncertainty
Industry Scenarios and Competitive Strategy Under Uncertainty
Introduction
How does a firm choose a competitive strategy when it faces major uncertainties about the future The sources of uncertainty are numerous and originate both within the industry band in the industrys broader environment Uncertainty has recently incred+ased dramatically due to flucuating oil and other raw material prices, swing in financial and currency markets, deregulation, financial and economic crises, electronic revolution, globalization etc. Strategies are frequently based on the assumotion that the history will repeat itself, or on managers own implicit forecasts about the most probable future of an industry
Industry scenario
Scenarios allow a firm to move away from dangerous single-point forecast of the future, in the instarnces when the future cannot be predicted In competitive strategy the appropriate unit for analysis of mscenarios is the industry, those are called industry scenarios. By focusing on the industry macroscenarios also make sense An industry scenario is not a forecast but one possible future sructure
Cont.
Independent uncerta9inties are the scenario variables on which scenarios are based. Only independent uncertainties are an appropriate basis for constructing scenario because they are the true sources of uncertainty Separating uncertain elements of industry structure into those that are scenario variables and those that are independent requires determination and identification of causal factors The uncertainty around the causal factors of each scenario variables leads to scenarios. Assumption about scenario variables will determine the outcome of dependent uncertainties. Then predetermined and constant elements are added to the picture to complete the profile
Consistency of assumptions
Internal consistency of scenarios is partly ensured by separating scenario variables from dependent ones. Another critical requirement is the consistency of the assumptions made about each scenario variable with each other Often scenario variables affect one another and thus some combinations of assumptions about them are not internally consistent
Analyzing scenarios
The nnext step is to analyze the implications of each scenario. The analysis of a scenario involves the following: - Determining future industry structure under the scenario - Developing the implications of the scenario for industry strucutural attractiveness - Identifying the nimplications of the scenario for the sources of competitive advantage An importnant part of analyzing a scenario is determining when it will become clear that the particular scenario has come to pass
Final thought
The industry scenario is not a sufficient tool for strategy formulation, but is a necessary condition and provides a framework for formulating strategy under conditions of uncertainty