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by Sayan Chatterjee
Wharton School Publishing © 2005, 284 pages, $26.95 (ISBN 0-13101111-1).
Profit and Grow From Risks That Others Avoid
Taking risks, navigating around risks, and reducing risks are skills that CEOs and managers alike must learn to master if they want to capture the rewards that prompted the risk-taking in the first place. In Failsafe Strategies, Professor of Management Policy at the Whitehead School of Management at Case Western Reserve University Dr. Sayan Chatterjee develops a set of concepts that allow readers to design business models that show where risks can be reduced to reasonable levels. By describing how executives and managers can identify high-risk, high-return opportunities, and then systematically mitigate those risks early in the process, Chatterjee helps them safely pursue the giant opportunities that others miss.
Chatterjee explains that risks in any business come from not understanding demand, not appreciating competitor threat, and not having the right capabilities. To reduce risk, Chatterjee writes, you need to have clarity regarding where the risks reside and create choices in tackling those risks. The concepts he develops throughout Failsafe Strategies show readers how to quickly visualize successful strategies and avoid the dangers of risky ventures.
The Space Pen
Failsafe Strategies starts with a chapter that describes better ways to identify choices when formulating a successful strategy. As a classic illustration of the inherent risks in being focused on your existing competencies, Chatterjee offers the case of “The Space Pen.” When NASA first sent astronauts into space, it discovered that ballpoint pens did not work in zero gravity. To combat the problem, NASA commissioned the development of a pen that would write in zero gravity, upside down, underwater, on almost any surface, and at temperatures ranging from below freezing to 300 C. As a counterpoint, he explains that the Soviets simply used a pencil.
Chatterjee writes that NASA’s inside-out view of strategy precluded other options that could have delivered the desired goal more efficiently. He notes that the lesson from the NASA story is that “just because you have the resources available to develop a space pen does not mean that it is the optimal strategy.” He writes that inside-out is the wrong way to think about strategy.
An Outcome-Focused Approach
Instead of devising a perfect pen, Chatterjee writes, NASA could have rephrased the original desired outcome as “recording information.” This outcome-focused approach would have helped NASA scientists deliver the outcome without undertaking the costly investment of the space pen. Instead, a pencil or a tape recorder could have delivered the desired outcome at far less expense.
Offering numerous models and approaches to developing multiple alternative objectives for delivering value to customers, Failsafe Strategies presents thinking styles that can be applied to just about any situation where you can benefit from identifying multiple options. By showing organizations how to avoid costly resource-intensive solutions, Chatterjee opens the door to greater operational efficiency. “By focusing on outcomes,” Chatterjee writes, “you can improve the quality of the questions you ask as you design a strategy.”
Designing a Low-Risk Strategy
According to Chatterjee, avoiding risks depends on knowing where risks hide, understanding their true nature, and finding out what you can do to control them. He explains that there are three categories of risk:
1. Demand Risk. This represents the risk that customers will not buy a company’s product or service at the expected level.
2. Competitive Risk. This is the risk that competitors can imitate what your company does and take your customers away.
3. Capability Risk. This represents the risk that your company may not be able to deliver the value to customers and capture some of it for shareholders.
Chatterjee offers a process to help companies identify and mitigate these three risks when designing a strategy. Using examples from Southwest Airlines, Continental, JetBlue, Cisco, Eli Lilly, and many others, he shows firms how they can identify multiple capability configurations and use them to design strategies with lower capability risks. He also presents chapters that address how critical capabilities can be made more efficient without succumbing to demand risk — creating a buffer against competitive risks even when competitors try to imitate a company’s business model.
The rest of Failsafe Strategies describes the risks in growth and diversification strategy and develops frameworks for understanding the risks in growing a company’s core business or entering new markets. ~
Why We Like This Book
Failsafe Strategies offers companies straightforward models for focusing on risk and strategy while keeping basic principles of clarity and choice at the forefront of the discussion. By making predictions about the strategies of many of today’s best companies, Chatterjee tests his frameworks by looking beyond the case studies of the past. ~