Ch. 8: Flexibility – Real Options Analysis Under Risk and Uncertainty

Defining Flexibility and Options

Face masks but make it fashion, right? I mean who would’ve ever thought we would live in a world where runway models are sporting personal protective equipment. As it turns out, surgical face masks are no longer just for nurses and doctors.

In the midst of the historical COVID-19 pandemic, safer-at-home orders and other federal government regulations forced a shutdown of Nordstrom stores all across the United States and Canada. But in the face of risk and uncertainty, choices made by a company in response can either make or break their future for success. Whether or not a company has the resources to be flexible can also play a large part in a company’s reaction to times of risk and uncertainty.

Types of Flexibility

The flexibility of a firm can take make forms. We will discuss briefly some of the most important types of flexibility that a firm can possess and what type of flexibility Nordstrom has implemented during these uncertain times. Types of flexibility include the option to defer, to grow, to contract, to shut down and restart, to abandon, and to expand. Nordstrom’s response included the opportunity to expand. The option to expand provides a firm with choices that enhances its ability to expand its strategy beyond its current boundaries.

Even though stores across the U.S. and Canada were closed, Nordstrom utilized its workforce of seamstresses (the largest in the North America) to contribute to the public health crisis by partnering with Kaas Tailored and having their alterations teams in Washington, Texas, Oregon, and California sew more than 100,000 face masks to be distributed to Providence Health & Services. Furthermore, Nordstrom has also continued to support partners like Seattle Foundation, YouthCare, and Hetrix-Martin Institute to assist in combatting hunger, homelessness, and other serious impacts to local communities.

While this may not be what you think of in terms of traditional strategic expansion of a firm, whether it be financially or not, this type of expansion through community partnership in response to a global health crisis demonstrates Nordstrom’s commitment to its customers whether it be inside the store or outside in the community which in turn will create valuable goodwill for the company as a whole.