Not Considering the Cost of Exploration

Misjudged Harshness

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Historical Case

Marie Curie

What Are the Hidden Costs of Exploration?

Thoroughness in her research led Marie Curie to the discovery of the new elements polonium and radium, eventually earning her the Nobel Prize. But her research was meagerly funded, and most of her work was carried out in a converted shed. The radiation in this make-do research environment severely affected her health and eventually caused her death. Only after that unfortunate outcome did researchers make it a priority to protect themselves against radiation.

“You must spend money to make money.”

— Titus Maccius Plautus

Business Case

A Flight in Harsh Conditions: Pan American World Airways

Pan American World Airways was in a great spot in 1968: a pioneer in using jet planes, it had scheduled connections to 86 countries across all major continents. Operations were profitable, and the airline had accumulated cash reserves totaling $1 billion. But as the economy worsened during the 1973 oil crisis, the company failed to respond to the increasingly harsh environment with an adequate cost-reduction drive. Pan Am’s heterogeneous fleet and decentralized infrastructure became liabilities, incurring high overhead and operating costs. Repeated attempts to restructure and reposition the airline came too late, and in 1991, Pan Am had to declare bankruptcy.

Explore Frugally in Harsh Environments

Sirens

Warning Signs to Heed

  • Rising costs of evaluating new markets and options
  • Losses from commercial operations while R&D budgets are maintained
  • A fixation on bold strategic goals without considering the adequacy of cash flows and reserves

Lighthouses

Beacons to Navigate By

  • Effective detection and assessment of changing market and competitive conditions
  • A refocusing on core operations to secure short-term viability, only then growing long-term options
  • Stress testing of current setup with adverse scenarios, resilience-building measures, buffers, and contingency plans