STRATEGY UNDER UNCERTAINTY
create value through innovations in their products or services or through improvements in their business systems, without fundamentally changing the industry.
It is also possible to be a shaper in level one situations, but that is risky and rare, since level one shapers, hoping fundamentally to alter long-standing industry structures and conduct, increase the amount of residual uncer- tainty—for themselves and their competitors—in otherwise predictable markets. Consider the overnight delivery strategy of Federal Express. When the company entered the mail-and-package delivery industry, a stable level one business, FedEx’s strategy in effect created level three uncertainty for itself. In other words, even though the chief executive officer, Frederick W. Smith, commissioned detailed consulting reports that confirmed the feasi- bility of his business concept, only a broad range of potential demand for overnight services could be identified at the time. For the industry incum- bents, such as United Parcel Service, FedEx created level two uncertainty. FedEx’s move raised two questions for UPS: Will the overnight delivery strategy succeed? And will UPS have to offer a similar service to remain a viable competitor in the market?
Over time, the industry returned to level one stability but with a fundamen- tally new structure. FedEx’s bet paid off, forcing the rest of the industry to adapt to the new demand for overnight services.
Strategy in level two’s alternative futures
If shapers in level one try to raise uncertainty, in levels two through four they try to lower it and create order out of chaos. In level two, a shaping strategy is designed to increase the probability that a favored industry scenario will unfold. A shaper in a capital-intensive industry, such as pulp and paper, for example, wants to prevent competitors from creating excess capacity that would destroy the industry’s profitability. Consequently, shapers in such cases might commit their companies to preempting competi- tion by building new capacity far in advance of an upturn in demand, or they might consolidate the industry through mergers and acquisitions. But even the best shapers must be prepared to adapt. Consider the Microsoft Network (MSN). It began as a shaping strategy, but in the battle between proprietary and open networks, certain trigger variables—growth in the number of Internet and MSN subscribers, for example, and the activity profiles of early MSN subscribers—provided valuable insight into how the market was evolving. When it became clear that open networks would prevail, Microsoft refocused the MSN concept on the Internet. Microsoft’s shift shows that choices of strategic posture are not carved in stone and underscores the value of maintaining strategic flexibility under uncertainty.