Week 8: Evaluate this firm’s decision
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Refer to the strategic situation below and evaluate this company’s (lower right hand quadrant) decision using the ADR framework. Hint: Do not change the question, or add new facts,just evaluate the decision from an ADR model perspective. Use the expectancy-valence logic to discuss this strategic move. Do you agree or disagree with the decision given the strategic context (aka strategic situation)?
When a company with low Relative Strength in a high Stakes market decides to increase resource commitment (i.e. attack), this is referred to as a “strategic bet” in the language of ADR. Strategic bets are “doubling down on a weak hand” with only moderate motivation to act. The strategist is attacking (applying effort, resources etc.) while weak, which strategically is not strongly recommended. The lower (higher) the Relative Strength, the greater (lesser) the strategic bet.
Why place this bet; why attack and not retreat given the low relative strength? The answer is, companies take such strategic bets when either (1) they misread the strategic situation and believe they have higher Relative Strength than they do; or (2) they believe the additional resource commitment will increase their overall Relative Strength in the given battle, and thus they will be in a better position to take a larger slice of the pie in the future. These firms, though weak in this particular market, are not ready to retreat as the stakes remain high, so they accept the risk of additional investment. This often means new product design and development, additional capacity, marketing, distribution etc. But it remains a bet because the outcome is not easily predictable. Compared to committing additional resources when relatively strong and confidence is high, a strategic bet is highly risky and needs to be viewed as such.