IBM Executive strategy report - When the butterfly flaps its wings: Adapting to chaos and uncertainty in the electronics industry

In Brazil, a butterfly flaps its wings, setting off a chain of events that ends with a tornado in Texas.¹ In layman's terms, chaos theory states that the most unpredictable and seemingly inconsequential events, such as a butterfly flapping its wings, can have a reverberating and unpredictable impact on the most seemingly unconnected systems, such as hemispheric weather patterns. Seemingly random and unrelated events are having similar reverberations in the electronics industry during a period when a fundamental structural shift is muddying the once black-and-white mantra of electronics -- "innovate for value." Events like the worldwide outbreak of SARS (severe acute respiratory syndrome), the terrorist attacks of September 11, 2001, geopolitical upheaval in countries like India or China, earthquakes or blizzards near factories or distribution centers -- not to mention the "mundane" worries about such things as demand and earnings volatility -- can shake globally dispersed electronics companies' operations and top-line performance. Investors have turned sour since losing US$4 trillion in shareholder value during the technology bust. Traditional avenues of innovation -- the former hallmark of the electronics industry -- are now commodities. Just creating a faster processor no longer thrills. Neither do claims of new killer apps and solutions. Over the past 40 years, technology has held business in a trance, with its quest for success. Technology has not delivered the value. And now it is business' turn to call the shots.

How do you create organizations that are resilient to chaos when you cannot predict the moment that the butterfly will flap its wings, or know where the butterfly is or what the impact could be? Electronics companies need to create new business models and networks that can flex with the unknown and the unpredictable -- resulting in an ability to manage earnings volatility in a quarter. This means building more resilient and autonomic capabilities for globally dispersed operations. We call this e-business on demand.

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