Kodak is widely viewed as the classic case of an industry leader that failed to see the digital future coming. In fact, Kodak developed a digital camera prototype in the 1970s and launched its first commercial digital product in 1991. Its strong brand and ample market power should have made it a force to be reckoned with. Instead, it walked into a set of traps common to large companies trying to come to grips with uncertainty: Its initial moves were small-scale and scattershot. It was unwilling to invest in a business that would cannibalize a highly profitable, but rapidly eroding core until it was too late. A last-gasp big bet was the wrong onea failed joint venture with Hewlett-Packard to create photo-developing kiosks. Kodak knew which way the earth was shifting, but its strategy committed the company to a future that looked very much like the past. At a time when uncertainty and turbulence have come to characterize most global markets, a growing number of companies are struggling to avoid their own Kodak moments. Thats often because traditional approaches to strategyanalyzing trends, making forecasts and committing to only the best course of actionarent calibrated for the high degree of instability many companies face. Theres only one thing we know about making projections: that they will be wrong. Companies using a traditional strategy process to cope with uncertainty may find themselves playing catch-up with more nimble competitors. Even worse, these linear processes can commit a company to a single course of action, and it may be the wrong one. In uncertainty, both the strategy process and the strategy itself need to change. The most effective leadership teams focus on the vital few uncertainties that matter, understand the possible scenarios that could develop and identify the critical trigger points that signal a swing to one scenario or anotherwe call these signposts. This leads to a clear and actionable portfolio of strategic actions that balance commitment with flexibility. And the process shifts from an exercise defined by conditions at a discrete point in time to a cycle of execute, monitor and adapt, redirecting the company toward the best opportunities over time. Companies that mobilize quickly around the right choices arent somehow better at predicting the future. It just seems that way. Thats because leadership has proactively prepared the company for a range of futures by: Defining which uncertainties, the company faces and cutting through the noise by separating them into those that matter and those that dont. Creating a set of probable scenarios for how the future might unfold and discussing the threats and opportunities that these scenarios present. Devising a specific set of strategic options that balance commitment to a course of action with the flexibility to adjust and thrive amid different future scenarios. Identifying a clear set of signposts that will signal important changes in the marketplace and trigger a set of actions already foreseen during the scenario-planning process. This is very different from what many call sensitivity analysis. Its about creating a coherent set of scenarios across all critical variables in an analytically rigorous fashion. That helps leadership teams address a number of key questions: What are the most likely possible scenarios to emerge from the major uncertainties the company faces and what should it look like to thrive in each one? How could the world evolve in a way that could either disrupt current strategy or create new opportunities? How can the company act quickly depending on which possible future unfolds? The goal is to prod leadership to monitor change on a regular basis and move ahead of competitors as future states begin to take shape. Rather than adopting a wait-and-see approach to planning and investment, leadership is aligned and precommitted to take specific action under different circumstances. If the world is evolving toward scenario X, the company has already laid plans to roll out strategy Y. For one of the largest industrial companies in India, switching to a scenariobased planning process proved to be game changing in how leadership approached strategy development. Based largely on the experience of the recent past, the company had unconsciously pegged its strategy to more of the same assumptions across most key factors in the external environment. This guided most strategic choicescapacity additions, supply-chain decisions, capability investments, etc.and the outcome would have been fine as long as external conditions didnt change much. But faced with increasing levels of uncertainty around ore-price inputs, economic growth and demand, the company reexamined its assumptions about the external environment and developed a set of scenarios that represented significant differences in demand levels and Indias supply context. That provided options that could be exercised depending on which scenario (or combination of scenarios) was emerging. The new approach has produced significant benefits. It has led the company to develop solid business cases for multiple strategic options, which it would not have anticipated under the old, single-track process. Many of these moves require heavy capital investment and lengthy planning. By developing a clear set of plans before the scenarios come to pass, the company will shorten the decision-making cycle considerably, giving it a head start when the time is right. Acting to embrace the future The object of strategy in uncertainty isnt to stray far from the companys core strengths or long-term vision. On the contrary, researchers have suggested that those strengths and values provide the best compass for adapting to changing circumstances. Consider the case of Macys, which, like Kodak, faced a profound shift in technology and consumer preferences that threatened its core operations. With online retailing gaining altitude in the early 2000s, many of Macys bricks-and-mortar rivals had outsourced their digital showrooms to a more experienced online firm. In essence, these companies were creating options for the future without committing the heavy investment involved in building a world-class online platform. But the leadership of Macys placed a different bet. They looked at a future world where the key uncertainty centered on when, not if, online retailing would be significant. And unlike Kodaks leaders, they envisioned a flexible strategy to allow the company to win in that future world. Owning the customer experience, they reasoned, was (and is) a core element of the strategy, whether that experience takes place in a store or in cyberspace. Outsourcing might be less risky in the short term, but under all futures, Macys eventually had to learn how to bring its merchandising prowess online. The company had no way of predicting what the online retailing revolution would bring. But building a platform of its own allowed Macys to both control the customer experience and learn from it in real time. Macys could adapt its online strategy intelligently and build a crucial capability that has become a direct extension of its core. The bet clearly paid off: Macys doesnt break out online sales anymore but as of 2013, research firm L2 Think Tank reported that Web-based revenue was $3.1 billion, or 11% of the companys total. It was growing at around 40%, according to company reports. There was a time when turbulence and uncertainty were most prevalent in industries like technology or pharmaceuticals, where innovation and disruption present daily challenges. Or disruption was episodica temporary supply shock or a cyclical lull in the economy. But increasingly, finding a way to sustain profits and reach full potential amid a constantly shifting landscape is the central challenge in every market. The companies that make the futurenot just take it as it comeswill be those that can embrace uncertainty and turn it to their advantage. Source: (Toner, Ohja and Paepe, 2021)

1.5 In the context Kodak, advise on whether risk assessment decisions should be made based on intuition or rationality. Comment on your response using relevant examples. (20 Marks)