Strategic Foresight and Decision-Making

Strategies in a Disruptive World

• Disruptive technologies are a driver of leadership failure and the source of new growth opportunities.
• Incumbents nearly always win with sustaining innovations, while entrants win with disruptive technologies.
• Performance of incumbents tends to rise at a lower rate than entrants.
• Two competition strategies are:
  • Bring a better product into an established market
  • Address over-served customers with a lower-cost business model.

Multiple Disruption Typologies (Netflix case study)

• Netflix initially focused on a low-cost, DVD rental business, catering to underserved customers.
• This initial low-end disruption was later complemented by a shift to a streaming model (new-market disruption).
• Netflix disrupted Blockbuster by focusing on jobs (renting movies for customers or providing movie watching services) rather than just offering products (VHS and DVDs).
• Blockbuster's success was based on the opening of physical stores, which was a strong strategy during the fragmented industry of the 90's home video rental market.However, they failed to adapt to the emergence of DVDs, and then Netflix's streaming service, which led to the company's demise.

The Driving Forces of Disruption

• Disruptive Technologies: Disruptive technologies challenge existing market leaders.
• Disruptive Business Models: (Platforms & Crowdsourcing) Businesses create value through platforms and leverage crowdsourcing.
• Abundance: Abundant supplies of a product make products more readily available to consumers at lower prices.
• Digital Convergence: Technology integration creates new interconnected markets.

From Scarcity to Abundance (Netflix case study)

• Blockbuster, the incumbent company, initially enjoyed a 70% total rental market share from new releases.
• They used a growth strategy with 2,500 titles and 10 staff members per store, and enjoyed record levels of profitability and revenues in 2002.
• However, Blockbuster did not anticipate the arrival of Netflix or the shift to streaming.

Why Incumbents Do Not Deal Well With Disruptive Technologies

• Listening to customers may lead to focusing on the wrong technologies.
• Investing aggressively in technologies does not necessarily lead to success if not correctly prioritized.
• The focus on seeking higher margins and larger markets may lead to misallocation of resources, as markets that don't exist today will not be considered.
• Current resources, processes and values of established entities do not effectively deal with disruptive technologies.

Sustaining Innovation vs. Disruptive Innovation (Incumbents and Entrants)

• Sustaining innovation is about an improvement on an existing market, where the existing market is not overshot.
• Disruptive innovation is making a new job for customers, or making a new market.

From Scarcity to Abundance (DVD paradox)

• Netflix was conceived in 1997, and became a website in 1998.
• Netflix started as a DVD rental business, shifting to a subscription service in 1999, with 4 movies at home at once, and films arriving each month.

From Scarcity to Abundance (The US home rental video market)

• The US home rental video market was fragmented in the 1990's.
• The incumbent company Blockbuster enjoyed record levels of profitability in 2002.

Becoming an Incumbent (Building the movie library)

• In 2000 Netflix was still a small player, only having 300,000 subscribers and 100 workers.
• Netflix had minimal relationships with major studios, and relationships with small movie distributors, with minimal discounts.
• Netflix's estimated annual loss for 2000 was $57 million.

Becoming an Incumbent (The Big Convergence)

• When Netflix added subscribers, content acquisition was crucial.
• Netflix had a win-win agreement with US Postal Service, with traditional mail decreasing.
• They had a win-win agreement with lower-profile and independent film producers.
• Netflix started to acquire independent film distribution rights in 2006.

From Scarcity to Abundance (The Streaming Race)

• A streaming video service was always on Hastings’s mind, launched as an add-on to DVD-by-mail.
• Netflix took advantage of network relationships and agreements.
• Netflix's brand image and relationships with competitors like Amazon and Apple gave them an advantage in terms of movie library size and subscribers.
• Netflix made a deal with Paramount, Lionsgate, and MGM in 2010 to become a streaming service.

From Scarcity to Abundance (How Netflix changed entertainment)

• Showed the decline of Blockbuster in contrast to the growth of Netflix and other online streaming services.
• Data on Blockbuster store decline, and Netflix subscribers growth, with graphs.

What's Next?

• What can Netflix do to prevent being disrupted?
• What are the important lessons from Netflix being the CEO, and what would be some useful tips?

What's Next? (Netflix's past was brilliant)

• What has happened to the industry structure since they moved to streaming?
• What are new threats for Netflix now?
• What should Netflix do next?

Strategies in a Disruptive World (Module IV - Confronting Disruption & Strategic Foresight)

• Managing uncertainty.
• A future in motion.
• Deconstructing exponential transformation.
• Foresight and strategy.

A Foresight Focus

• Foresight.
• Foresight is an approach to thinking about the future.
• Foresight is used to gain an idea of plausible futures.
• Foresight is used to help with decision-making today.
• Foresight involves understanding the current and future strategic operating environment.

Understanding Factors and Trends (Formulating strategy)

• Understanding factors and trends to shape the future for strategic strategies.
• Strategic approaches are needed to understand how the future might be.
• Foresight is not prediction, but rather gaining an idea of how the future might look.
• Alternative ‘histories’ are needed.

Classifications, Uncertainties and Levels

• Strategies under uncertainty.
• Decision-making context according to uncertainty.
• Different levels of uncertainty impacting strategy.

Scenario Planning

• Scenario planning for an uncertain future.
• Scenarios are not projections, but coherent and credible alternatives.
• Scenarios force companies to challenge assumptions about the future.
• Scenario planning methodology- steps from the central question, PESTEL, Issue Prioritization to scenarios.

Amazon

• What factors drove Amazon's early success?
• Advantages and risks of opening a retail platform?
• The logic behind Amazon Prime, eBooks, Prime Video; Amazon Web Services and other offerings
• Is Amazon a technology, e-commerce, consumer electronics, marketplace, media and entertainment or a IT infrastructure (cloud computing) company?
• Key traits of the Amazon virtuous loop including selection, lower costs, lower prices, the customer experience, and traffic.
• Why moving to a networked platform is important to Amazon's strategic value.
• Sources of competitive advantage are covered.

Multi-Sided Platform (MSP) Concept

• A MSP exists when a company connects two or more distinct customer groups who need each other.
• Examples include Google, iTunes, eBay, and others.
• MSPs generate value through "indirect network effects" between different groups like customers and content creators or platforms.
• Key for growth is attracting all sides without requiring a specific group.

Multi-Sided Platform (Module V)

• Multi-sided business models and diversification.
• Google case study and Alphabet case study.

Google Platform Strategy

• Discussion topics.
• Google's strategy: advertising, search, and technology.
• Corporate values and innovation management.

Platform Strategy

• Main concepts, critical assets, and methods of competition.
• How platforms transform business, and the valuable firms that are platforms are listed.

Platform Strategy (How platforms are reshaping business)

• Key points for successful platforms, including the creation of an industry ecosystem greater than the sum of its parts.

Strategies In A Disruptive World (Module IV - AirBnB)

• Creating abundance in the hospitality industry.
• AirBnB case group discussions: Vision, purpose, platform, competitors, potential competitive advantages, and recommendations for CEO.
• What's Next: Where can AirBnB expand now?

The three horizons framework

• A framework to manage strategy based on research.
• The framework looks at current performance while maximizing future opportunities for growth; investments should be across three horizons.

Other

• Disruptive trends in various fields (e.g., mobile AI, automation, data wallets).
• Technological singularity.
• Moore's law, and the exponential growth of computing power.
• Internet connectivity.
• The long tail and the economics of abundance.

This quiz explores the concepts of strategic foresight, its importance in decision-making, and the various strategies employed in navigating uncertainty. Participants will assess their understanding of how to formulate strategies that address future possibilities and the characteristics of different strategic approaches.