SCORECARDING AND HEAT MAPPING: TOOLS AND CONCEPTS FOR ASSESSING STRATEGIC UNCERTAINTY

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SCORECARDING AND HEAT MAPPING TOOLS AND
CONCEPTS FOR ASSESSING STRATEGIC UNCERTAINTY 

• Joshua D. Detre, Brian C. Briggeman,
• Michael Boehlje, and Allan W. Gray
• Purdue University
• Department of Agriculture Economics
• Selected paper
• 2005 IAMA meetings in Chicago, IL

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INTRODUCTION 

• Industrialization of agriculture
• Created uncertainties that differ from
  traditional uncertainties (price, cost, etc)
• Strategic uncertainty
• Sensitivity of the firms value to strategic
  decisions
• Creates
• Potential
• Exposure

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INTRODUCTION 

• Major challenge for agribusiness managers
• Quantify the frequency of occurrence
• Quantify magnitude of the potential and exposure
  of the strategic uncertainty

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OBJECTIVE

• Methodology to understand, assess, evaluate, and
  manage strategic uncertainty
• Mental model
• Assessment of strategic uncertainty from a
  potential and exposure perspective
• Tools to assess and manage strategic uncertainty

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CONCEPTS

• Strategic uncertainty is not just exposure to
  losses but also potential for benefits
• Focusing only on avoidance
• Firms overlook opportunities to create value

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PROCESS FOR ASSESSING STRATEGIC UNCERTAINTY

• Strategic Uncertainty Assessment Scorecard
• Interpretation of the Consensus Scorecard
• Joint Heat Map Assessment of Potential and
  Exposure
• Generic Strategy and Response

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Potential and Exposure for Strategic Uncertainty
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Strategic Uncertainty Assessment Scorecard 

• Scorecarding is a way to quantify the
  potential/likelihood and exposure/likelihood of
  the strategic uncertainty
•  
• Each strategic uncertainty is ranked relative to
  the firm and their respective industry
•  
• Management teams complete a consensus scorecard
  by averaging and discussing all individual scores

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Strategic Uncertainty Assessment Scorecard 
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Interpretation of the Consensus Scorecard

• Map the consensus scorecard
• Map potential/likelihood score first,
  then
  exposure/likelihood score
• Average score gt 3 ? High
• Average score 3 ? Low

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Interpretation of the Consensus Scorecard
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Interpretation of the Consensus Scorecard
Likelihood/Potential Graph
Likelihood/Exposure Graph
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Joint Heat Map Assessment of Potential and
Exposure

• Superimpose the map for the likelihood/exposure
  graph into the correct quadrant of the
  likelihood/potential graph
• Joint heat map indicates one or more of the six
  generic strategies for managing the uncertainty

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Generic Strategy and Response
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Generic Strategy and Response
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Beta Test

• Concepts and assessment tools were used with a
  set of executives at the American Seed Trade
  Association Advanced Management Forum - February
  2005

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Participants analyzed the following vignette

• Regional Midwestern Seed Firm
• Products with latest technology
• Direct sales to customers
• Market share around 8
• Technology purchased under license agreements
• 10,000,000 in Assets
• Debt-to-Asset Ratio of 50
• Return on Equity averaging 8-10 last 5 years

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Resulting Heat Map and Generic Strategies
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Proposed Participant Strategies

• Sell-off distribution and bagging facilities
• Economies of Scale
• Use profits to pay down high cost debt
• Debt-to-Asset Ratio of 30-35
• Become a Deal-making Firm
• Create needed products with customers and
  technology suppliers

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Comments From Executive Participants 

• Focusing on potential first is unique and
  beneficial
• Consensus scorecard motivates group
  discussion on the important strategic
  uncertainties
• Heat map visually communicates potential and
  exposure
• Generic strategies filter to specific strategies
• Succinct and time effective compared to
  traditional strategy tools

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Conclusions

• Scorecard and heat mapping tools
• Effective and systematic method for analyzing as
  well as communicating the strategic uncertainties
  faced by the firm
• Further development and testing is necessary and
  underway
• Preliminary results suggest that the methodology
  is useful in understanding, analyzing, and
  communicating the potential as well as the
  exposure of strategic uncertainty