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Agrimarketing : May 2015
Insights from Purdue University OPTIONS VERSUS CHOICES T by Allan W. Gray here was a time when strategic decision making for a company was about identifying a sustainable competitive advantage. A decision-making team would apply the tools of a PEST model, Porter’s Five Forces, SWOT analysis, and identification of core competencies to arrive at a competitive advantage and then they would milk the profits for many years. The idea of creating a sustainable competitive advantage is under fire. The boundaries of competition are changing rapidly, entry and exit into markets is now happening more frequently, and the rise of digitization has created an instantaneous flow of information. This set of forces has taken what once was a relatively stable environment with long periods of disruption to one where disruptions are coming closer together. This creates a competitive environment in perpetual motion. Rita GuntherMcGrath, in her book The End of Competitive Advantage, identifies this shift in strategy dynamics from relatively stable to perpetual motion. She acknowledges this isn’t really a new phenomenon but that more and more industries are now facing this dynamic. The agricultural industry is experiencing the very dynamics McGrath has pointed out. Globalization has changed the nature of who we might define as our Upcoming Agribusiness SEMINARS Strategic Decision Making June 23-25, 2015 Agribusiness Finance for Non-Finance Managers August 11-14, 2015 Learn more at www.agribusiness.purdue.edu Center for Food and Agricultural Business 52 Agri Marketing s May 2015 competition. We are not just talking about countries like Brazil as competitors to U.S. farmers — companies such as JBS SA, a Brazilian company, now a major player in the U.S. meat industry. We also see digitization creating significant waves in the agronomic advice marketplace that for so long has been the purview of the agricultural retailer. It is difficult for any decision- maker to make choices in this environment because of the large amounts of uncertainty. Questions abound in this environment, including: What technologies will prevail? What critical elements of your products or services will be relevant to customers? What resources will competitors bring to this marketplace? A decision-maker has to resist the temptation to make a “big bet,” hoping their assumptions are correct. Instead, good strategic decision-makers will look to build skills to create flexibility in the choices they make. What can be done to improve the skills to create flexibility in this dynamic environment? Learning to identify opportunities and creating flexibility in your decision-making is key. A natural response to increased dynamism and uncertainty in the marketplace is to say, “we will adapt.” But, Michael Raynor, in his book The Strategy Paradox, points out there are limitations to adaptation. Adaptation is a strategy that only AN EIGHT-STEP APPROACH TO STRATEGIC DECISIONS 1. Clearly define the issue, or problem, you need to solve 2. Identify the potential uncertainties the marketplace is creating 3. Construct and describe scenarios that help visualize the potential outcomes 4. Identify potential strategies for each of the identified scenarios 5. Determine the parts of your strategies that are robust across multiple scenarios and begin to implement 6. Identify elements of your strategy that are contingent on which future scenario comes to fruition. 7. Create options to remain flexible and nimble for the future 8. Identify the information and learning that must be observed that will indicate when options should be fully exercised or abandoned. AM works for a narrow set of alternatives leaving us vulnerable to surprises. The reactionary nature of adaptation can quickly place a company behind the competition. Instead, the key is to structure your decision making processes to enhance your flexibility. Flexibility takes a proactive approach to the uncertainty created in the marketplace and pushes decision-makers to think about making decisions that create options rather than make choices. Developing the skills to be an options creator rather than a choice maker requires discipline and practice. At Purdue, we have combined our own experiences with those of great scholars such as McGrath and Raynor to create an eight step approach to strategic decisions. We believe companies that have human resources with the skills to create a culture that accepts change, embraces flexibility, and focuses on identifying opportunities rather than defending the status quo will be the companies that thrive in a marketplace that is in perpetual motion. Attend Strategic Decision Making at Purdue University. Learn more at: http://agribusiness.purdue. edu/seminars-and-events. AM Allan Gray is a professor at Purdue University, where he is director of the Center for Food and Agricultural Business and the Land O’Lakes Chair in Food and Agribusiness. You can reach him at firstname.lastname@example.org.