Companies get into trouble when they stop developing scenarios and plan to succeed by merely Defending & Extending what they’ve always done.  In the last few weeks we saw Bear Stearns and Lehman Brothers disappear because they did not prepare for market shifts.  Merrill Lynch almost followed them, and may still if Bank of America (chart here) decides to change the name (now that Merrill is becoming a wholly owned subsidiary of BofA).  Another example popped up today when we learned the Las Vegas Sands (chart here) is on the brink of failure (read article here).  As Sands management ran up the debt, it failed to consider scenarios which could have caused people to not gamble – like a recession!  When you aren’t looking at the range of possible shifts, it’s easy to be blindsided. In the last year, the Sands stock price has declined from $120/share to $8.  That’s an amazing $40billion loss of value!  And all because it forgot to plan for market shifts.

On the other hand, let’s look at Apple (see chart here).  Apple is highly dependent upon computer chips for all its devices, from the Mac to the iPhone.  Originally the company was built on microprocessors from Motorola.  But that changed years ago as the company adopted chips from IBM.  Now Apple is using chips from Intel.  In its phone products, Apple once used IBM chips but now licenses its chips designs from ARM holdings and modifies them for its own use.  And recently Apple hired the former IBM chip head to a new position managing device hardware engineering (read article here).

Wow, Apple looks to be all over the board.  Some accuse Apple of being a lousy partner with is chip suppliers.  Or accuse CEO Jobs of being a control freak who is trying to get into the chip business.  But think again:

• Apple is  highly dependent on chips.  If they guess wrong on the chips, and over-commit, they could end up suddenly behind competitors and in big trouble.
• How is Apple to know if its vendors will remain on top of the technology curve?  If the partner slips, Apple could slip with it.
• Competitors are all around Apple with new products, including Google with its new phone and Motorola with its new commitment to the same software Google is using.  They are trying different technology solutions with the hope of eclipsing Apple.

What we see is Apple looking forward, and seeing a range of potential scenarios.  Any of these vendors could be dominant, or could be a flop.  Additionally, Apple itself has some ideas about what could create market leading product that might eclipse the vendors.  What we see is a company that is keeping its options open.  Apple is using scenario planning to identify a range of potential outcomes, and it is trying its best to keep itself positioned to win regardless of which outcome occurs.  It is obsessing about competitors, and keeping itself flexible to move quickly with market shifts should a competitor take an action which could jump it into the lead.

Making big bets is NOT the job of management.  That’s a fool’s folley.  Good leaders use scenario planning to identify a wide range of options, and work hard to keep their options open to win regardless of which scenario develops.  You have to marvel at how clever CEO Steve Jobs is to position Apple for future success, and how good it is for investors that he would add someone to his top staff who can help keep all options open.  This is a very good sign for Apple investors, employees and customers that Apple will remain a strong, viable competitor into the future – even as the shifts of technology threaten to whipsaw the market.