Part two of our series shows how utility companies can manage, but never eliminate, strategic risk.
David L. Bodde is on the board of directors Great Plains Energy and is a professor, of Entrepreneurship and Engineering at Clemson University. Contact him at email@example.com.
The consequences of a flawed strategic choice unfold slowly, but they carry great weight. Consider IBM, which in 1980 chose to outsource to Intel the 16-bit processor needed for its entry into the personal computer market. The Intel chip, however, could not use the operating system that IBM had designed for its older 8-bit processors. And so the company had to outsource the operating system as well as the chip—to a startup company called Microsoft.
The decision made strategic sense at the time. IBM had entered the personal computer (PC) race late, and needed to establish a market position quickly. The company achieved that goal, introducing the IBM PC in August of 1981 and rapidly gaining over 40 percent of the market. That success, however, contained the seeds of strategic failure, because IBM had outsourced the crown jewels of the business. The “Wintel” duopoly soon captured the value-added from IBM and its fellow PC-makers, who were left competing on price at the commodity end of the business. In 2005, IBM sold its PC business and left that market entirely.