Simple Rules, Active Waiting and Avoiding Overload

Technology Strategy Toyota and the Prius Toyota Motor Corporation: Launching Prius • How has the car industry evolved and changed? • How do you anticipate that it will evolve over the medium to longterm, the next two or three product and platform generations? • As a result, what are the worthwhile demand opportunities that may emerge? • How has Toyota made the decision to invest in full hybrid electric vehicles? • What are the key decisions so far that have shaped the Prius program, and how do they differ from typical programs? • How does Toyota go about making decisions? • So, what do you think Toyota should do about the Prius launch decision? Effective decision-making involves conflict challenging leads to better decisions • Incomplete and ambiguous information • Uncertainty – how customers will respond – innovation trajectories – how co-opetition will play out • Limited time • Wide range of options • “Management teams whose members challenge one another’s thinking develop a more complete understanding of the choices, create a richer range of options, and ultimately make the kinds of effective decisions necessary in today’s competitive environments” How can you make good decisions, when conflict is likely? Common goals • collaborative problem solving • inquiry rather than advocacy Context Balanced power • value diversity • cultivate minority views • fair process • leverage expert counsel Focus on issues • not a slow regular (annual) cycle • not by organizational (business) unit Agenda Debate and decide • not review and approve • facts, options and choices • More, rather than less, objective and timely information, focus on the facts • Consider several (>2 ➔ ~4-5) options together • Make sure strategic decisions consistent with one another and with execution Make it fun! • inject humor into the process Outcome Resolution without consensus • collective ownership • dissent and revisit As a key part of focusing on the facts, recognize and embrace uncertainty A range of possibilities • sensitivity analysis • Monte Carlo Clear future • single point forecast Increasing uncertainty A1 A A2 B B A few discrete scenarios • real options • game theory True ambiguity Banana Discrete scenarios • • • • • • Does it work? Does anyone buy it? Competitor entry Collaborator partnership Patent litigation Standards battles A range of possibilities • Innovation trajectories – performance – cost – timing • Pricing • Adoption rates and ultimate penetration Three basic types of decision, with increasing risks and levels of commitment No-regrets No-regrets moves moves (Real) (Real) options options Big Big bets bets •• worth worth doing doing anyway anyway •• positive positive payoffs payoffs in in most scenarios most scenarios •• positive positive payoff payoff in in some some outcomes outcomes •• otherwise, otherwise, small small cost cost to to play play •• parallel parallel or or sequential sequential •• work work in in some some scenarios scenarios •• high high cost, cost, negative negative effects in other effects in other cases cases X Y A1 ✓✓ ✓ A1 A A A2 B B ✓ ✓ A2 ✓ ✓✓ B Increasing Increasing risk risk Increasing Increasing investment investment and and commitment commitment B $£€¥ What you do about real options, and when depends on value to cost, and on volatility >1 Value to cost Now Maybe now Likely later 1.0 How much things can change • variance • time horizon Maybe later Never Likely never 0.0 Volatility Low High Active management management Active Net present value, taking into account time value of being able to postpone the decision For high-tech businesses, timing - and hence (active) waiting - is critical to success • High-tech involves volatility – innovation – diffusion – co-evolution • Steady stream of small and medium-size opportunities • A few golden opportunities or lifeand-death threats • Anticipate – analyze – reconnoiter • Prepare – build resources – create options • Commit – make the big bet Interestingly, one of the key facets of Toyota’s product creation is postponing design decisions • Acknowledged leadership in manufacturing • Apparent leadership in product creation – shorter lead-times in design – higher productivity – superior designs • Albeit slowly evolving demand opportunity, stable technical architecture and business ecosystem • Focus of recent study by National Center for Manufacturing Sciences – different paradigm • Five articles in Harvard Business Review and MIT Sloan Management Review Three key facets: deadline-driven optimization; set-based development; rapid low-cost iterations 1 2 3 4 5 The team defines a set of solutions at the system level, rather than a single solution It defines sets of possible solutions for various sub-systems It explores these possible sub-systems in parallel, using analysis, design rules and experiments to characterize a set of possible solutions It uses the analysis to gradually narrow the set of solutions, converging slowly towards a single solution Once the team establishes the single solution for any part of the design, it does not change it unless absolutely necessary The Second Toyota Paradox: How Delaying Decisions Can Make Better Cars Faster Marketing Concept Styling Product Design Component A Component B Manufacturi ng System Design Set Narrowing Phase Problem-Correction Phase