Prometheus 6

Thanks for the video link P6. I sure wish someone else had conducted the interview. It would have been nice if a few more decent questions had been put to Raynor. Some of the questions were just plain time-wasting. For instance, why would anyone want to know how long it took him to write the book?

On the strategic theory side, I have a few questions about Raynor's arguments and cases/examples in the video. However, since his focus in the video was on Microsoft, Google, and Sony, software and consumer electronics industries that don't really interest me much, I'll read his book closely to determine whether his principles and analyses would help me in the industries that do interest me. I wonder how well his principles in The Strategy Paradox would help me understand the defense, aerospace, biotech, construction, food services, plastics, or manufacturing industries.

BTW: I never defended Bruce Gordon's reasoning for leaving his post after only a year and a half. His was an embarrassing, institution-weakening move that could have and should have been avoided. The NAACP Board and Gordon did a poor job of determining whether he was a good fit for the job, whether he understood the mission, the strategy, and the methods the NAACP needs to use in order to execute its mission and strategy effectively. Gordon wanted to transform the NAACP into something it should not be, in my opinion. In fact, I wrote up something about why his "personality vs. process" arguments at the State of Black America 2007 were off the mark in the thread for Dr. Lester Spence's "Bruce Gordon at the State of Black America 2007."

The NAACP Board and Gordon did a poor job of determining whether he was a good fit for the job, whether he understood the mission, the strategy, and the methods the NAACP needs to use in order to execute its mission and strategy effectively.

I agree with this. Gordon was totally on point about the need for sustainable institutions, though.

That's hard to do when you overcommit to a specific future. 

Interesting. I don't see many new ideas in this book. It is an attempt to socialize real options analysis at the qualitative level; at least it looks that way from the video. (I have done corporate planning for C-level execs in a fortune 100 company, and am writing a real options paper for a financial journal, so this is a area of passion for me.)

A mentor of mine used to say that strategy allows you to adjust to meet constantly changing reality. A good strategy allows for change; a static strategy is no strategy at all. Napoleon knew this. He was able to see the big picture, understand his opponents, but fluidly adjust his plans as circumstances adjusted. Corporate strategy is the same way. The best execs are able to see the big picture and have a clear view of the goal. Thus, surprises don't phase them. Managers that are handcuffed to a plan will fail in an uncertain environment.

This is what separates good managers from mere "supervisors". I have seen in big corporations people have the mantle of "manager", but are basically mid-level cogs that came up in a cash cow environment, where all that was required was to "keep the business running". I call these guys "supervisors". They are scared shitless when presented with uncertainty and ambiguity.

In most companies, from SMB to Fortune 500, the problem is that you have to make strategic plays and plans with a limited set of resources. Microsoft is a poor example. Few companies have the cash and resources to place multiple bets like Microsoft does. As Raynor pointed out, MS even started giving cash back to investors; this is because they didn't know what to do with it.

If you want to get a serious introduction to real options, I suggest Trigeorgis, "Strategic Investment" (lots of explanation with the quantitative kept as gentle as possible), or Dixit "Investment Under Uncertainty" (more quantitative, but has really good qualitative introduction) or Copeland's Real Options (gentle math, but you will have to scale some conceptual high hurdles to get into it).

I believe the basic results from these techniques can be applied beyond corporate strategy. But to apply them, you have to understand what is the basis of value, and be able to observe and track it. For corporations, value is based on cash flows and assets. For the NAACP, value could be based on social results.

EC,

To determine whether or not a real options approach is appropriate, you have to assess the level of risk, uncertainty inherent in the industry. How volatile are cash flows? How susceptable are players to technology advances, and competitive entry?

A good strategy allows for change; a static strategy is no strategy at all. Napoleon knew this. He was able to see the big picture, understand his opponents, but fluidly adjust his plans as circumstances adjusted.

I don't disagree with you, Keto, but good strategies can be undermined by leaders who fail to recognize and understand their own quirks, shortcomings and personal animosities. Napolean's decision, for example, to march his troops into Russia with a Russian winter coming on and stretching his supply lines out to a point that they could not provision the most forward troops and were vulnerable to "guerrilla" attacks from the Russians was an act of hubris that had grave consequences for Napolean and France. 

Managing uncertainty is an admirable leadership trait but not knowing when to retreat or when to admit defeat can be disasterous for any organization.

Thanks, keto. That's better than I expected when I posted the clip. I was looking for a repackaging of rules of thumb. If it's a popularization of an existing field you've saved me a whole level of inquiry's worth of effort.

You know what, though...I think Microsoft is a very good example because I have the view of watching it develop from MSDOS1. Its single smartest move was licensing its OS to IBM on terms that allowed them to give it away...maybe because it wasn't the child of Gates' brain he could do that. We could just as easily all be running CP/M-64. But, foot in the door, MS has done as much reacting as shaping.

The Microsoft that literally has more money than it knows what to deal with is a poor example, though. 

PT: One can overcommit to one's ego too. That's not a strategy thing, its an execution thing.

I enjoyed reading your comments. I think you are absolutely on target about Gordon's fallacy. Thanks.

PT, I don't disagree with you. Napoleon at his worst was certainly a disaster. But at his best, he was a master strategist, exceeding by far his contemporaries and setting a new standard for warfare.

Managing uncertainty is an admirable leadership trait but not knowing when to retreat or when to admit defeat can be disasterous for any organization.

I think we are in agreement, but haven't levelset on terminology. Managing uncertainty includes knowing when to delay, retreat, abandon, and engage in the face of changing reality. That is one goal of real options analysis; to give managers the optimum time to invest, for example, in the face of a volatile market or volatile internal organization.

was a good businessman, obviously. To me, his licensing approach to his OS fits within the realm of reaching his goal by unconventional (at the time and in the industry) means.

Yeah, Bill gets marketing and management props rather than technical props.

I checked the three books you suggested at Amazon...pricey stuff. Might have to wait a bit. The excerpt from Real Options looks interesting though, plus it's the cheapest.

Google: "real options .pdf"

Plenty of material on real options for free on the web. Try the "get real" link.

Also, for the latest in academic and practitioner papers (posted for free) try www.realoptions.org

But at his best, he was a master strategist, exceeding by far his contemporaries and setting a new standard for warfare.

The problem was that Napolean was at the height of his powers both militarily and intellectually when he launched the disasterous campaign against the Russians.  My point is that these failures can and will occur at anytime.

Google: "real options .pdf"

Hm. Left out the ".pfd".  Thanks for the hint.

You guys have got me pulling out the war movies: Patton, 3 Kingdoms, etc. Anyone recommend any war movies?

Star Wars.

Seriously, that's all I got.

Hey P6!

It's been a while, but I'm back on the block. Hopefully I'll be around a bit more if I don't get involved in some other project.

Great discussion going on here regarding the Raynor video. Thought I'd chime in with a few words. First, I agree with you on the applicability of the author's ideas to other scenarios.

I think the main point of Raynor’s message suggests that companies should build a portfolio of options and manage it rather than pursue strategic commitments as their only option. The rest of the book presents various ideas and a tool-set that leaders can use to mitigate the risk inherent with high-return strategies. This certainly isn't a five-step program to business success but a well researched approach coupled with rigorous logic.

Building a strategy is a learning process and each investment in a strategy, is in effect a test of an hypothesis. "The Strategy Paradox" simply recognizes the uncertainties that surround decision making and reframes the factors that influence the creation of strategic and economic value.

-Ray Garraud

keto:

Thanks for the book recommendations. I am only familiar with Copeland's Real Options. I'll ask one of my management professor buddies which of the other works you recommend might strengthen my skill set.

Welcome back Ray. I saw when you came back online, but you don't post much.

Building a strategy is a learning process and each investment in a strategy, is in effect a test of an hypothesis. "The Strategy Paradox" simply recognizes the uncertainties that surround decision making and reframes the factors that influence the creation of strategic and economic value.

To be honest, the reframing is interesting to me independent of real option theory, which I have to understand well enough to recognize what is knowledge and what is framing. If he can convince people to deal in probabilities instead of totally defined certainties, I want to know how he does it.

Raynor did some other work on managing risk which led to his writing of The Strategy Paradox. Some of his original research papers include “managing amid uncertainty” in which Raynor proposes a strategic flexibility framework that provides a model for managing risk vs returns. This research also bridges his theories of requisite uncertainty with a workable tool-set that can inform managers of new ways to effectively manage their options. Reading the book along with some of the research leading up to the book truly sheds light on Raynor’s logic.

Have a good weekend.