Duke Research Advantage

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Duke Strategy Professors Arie Lewin and Marco Huesch urge managers to invoke ancient wisdom when responding to the current economic crisis.

In these tumultuous economic times, even the most modern business strategists may benefit from the (literally) stoic calm of an ancient leader like Marcus Aurelius. “Never let the future disturb you,” he advised, “You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”

Let’s take those weapons of reason out and sharpen them for a moment.

On the one hand, if your firm is on the verge of being selected out during the most challenging business environment in recent memory, there may well be little that can be done. Preserving one’s reputation as a calm and considerate leader shows both honor and smarts. Cycles come and go, and access to future entrepreneurial opportunities, capital and labor will not be hurt by a measured winding down of today’s activities.

On the other hand, as our colleagues have advised elsewhere on this thread, very well-capitalized firms with enduring leadership positions may choose to either conserve cash or strategically invest in the broad eco-system their firm co-exists in.

Some companies on the verge of being selected out – as Richard D’Aveni suggests – can be expected to try ‘Hail Mary’ strategies since they have nothing to lose. Watch the more panicked versions of this carefully for spillover effects on your firm, but as Aurelius counsels, “to refrain from imitation is the best revenge.” Yet don’t hesitate to be an early adopter of business models innovated by other more resource-poor and weaker firms.

More interesting is the counter-intuitive possibility that some firms may benefit from deliberate anti-cyclical experimentation with alternative business models, and possibly even new competency destroying products and services. In our courses at Fuqua we already stress the on-going imperative of innovation, of imagining, creating and harnessing the ‘Blue Oceans’ of uncontested new markets.

Why can such experimentation now, of all times, benefit your well capitalized strong cash position firm? Your staff, suppliers’ and creditors’ interests in your success have never been more strongly aligned. Harness this cooperation. Your direct costs of experimentation reflect this and may be substantially lower during this point in the cycle. Suppose your experimentation extends to using slack resources to acquire new entrants with new business models. Your indirect costs may be lower too: cheaper valuations on small entrepreneurial firms struggling to find credit.

The expected benefits are likely to be higher too. All things being equal, the real option value embedded in strategic experiments today is positively correlated with the heightened volatility of future cash flows. The demand for new technologies and new products and services in domains such as alternative energy, Web 2.0, domestic healthcare, ‘green’ services is also clear. The pent-up consumer demand for these and other innovations will be just that 2 years down the road: pent-up.

Details of an example will follow tomorrow…