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Future Imperfect II: Managing Strategic Risk In the Age of Uncertainty

Part two of our series shows how utility companies can manage, but never eliminate, strategic risk.

Fortnightly Magazine - February 2007

and lower cost than the factory-to-dealer-to-customer channels then in practice. But a killer business model kills no one unless it can be implemented, and Dell’s highly focused culture of execution enabled this relatively complex strategy to provide a wide moat against competitors.

But the moat proved transient. The business environment was changing, and Dell was slow to recognize the emerging differences. First, rivals finally succeeded in duplicating Dell’s supply chain efficiency, which became merely the entry ticket to the industry and not a source of distinct advantage. Second, sales growth increasingly came from consumers and from developing countries, while Dell had focused on industrial sales. And third, rival chip makers began to duplicate the quality of Intel, used exclusively by Dell, at a lower cost. Thus, a culture based chiefly on execution became a liability as the future unfolded in ways unexpected by Dell. And in the third quarter of 2006, Hewlett-Packard reclaimed from Dell leadership in worldwide computer shipments.

And so a culture based on learning and open inquiry eventually will prove superior to one rigidly tuned to the needs of the moment. Consider Western Union once again, the story in last month’s Public Utilities Fortnightly with which we began our exploration of strategic risk. Did some unappreciated technologist deep within the organization come to understand the long-term potential of telephone technology? Did that person attempt to convey that idea to strategic management? Was anybody listening? Of course, we have no way of knowing. But we can say with certainty that an open culture that rewards initiative, inquiry, and learning is more likely to benefit from such a person than a culture without these attributes. Whatever management tools a company employs to guide the bets it must place on an unknowable future, an effective culture provides the foundation for wise strategic choice.

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