Business Strategy: Managing Uncertainty, Opportunity, and Enterprise

by J.C. Spender

Turning my back on Rational Man, I also turned away from rigorous economic theorizing. Microeconomics has yet to provide us with theories of the firm that explain strategizing or the firm’s capability to generate profit or growth, or even its existence.

Strategic work is the process of bringing an entrepreneurial idea into a particular socio-economic context (where it appears as a “business model”). The entrepreneur identifies and chooses the markets, competitors, and situation s/he wishes to engage, not the other way around.

An important guide here is Carl von Clausewitz, the nineteenth-century military strategist whose concept of strategic work was constructive and dynamic bricolage.

At its core are the acts of imaginative practice that project the entrepreneurs’ ideas (and will) into the world. This calls for moral and ethical awareness and for “practical wisdom” (what the Ancient Greeks called phronesis).

The firm is an astonishing social and legal innovation precisely because it is an apparatus that can help us transform acts of imagining into socio-economic value.

Strategy only makes sense because things are unclear and difficult. What clients and students need is a workable practice for coping with knowledge absences—a handy methodology to carry with them into other uncertain times and situations. I describe and illustrate a practice, not a theory.

So strategic work is less computable, more difficult, and more humanely dimensioned than rational decision-making—one of the reasons strategy professors, researchers, and students are so tempted to retreat into abstractions, away from the factual and moral complexities of day-to-day business.

Or, turning this point around, much that is strategically important to a firm happens even when the C-level folk know little about it. All purposive activity in our uncertain world calls for strategic work—but the work of a business differs from the work we do in our private lives.

The thing common to these different contexts is strategic work’s “methodology,” how managers gain awareness of the particular aspects that call for their judging and choosing, supported by whatever theory and analysis has to offer.

Strategic work begins with finding the specific distinctions that are appropriate to help us wrap our arms around the particular collision of intention, context, and difficulty that is the firm.

The essence of the managers’ strategic work lies in the difficulties that stand in the way of satisfying their desire to make these changes. Paradoxically we have to know who we are—strategically speaking—before we can delineate the context of our goal seeking.

We are left with a number of alternative maps—and must use our goals to judge which of these maps are going to work best for us. Thus business intelligence has two facets: (a) getting the necessary data and (b) making sense of it. All of us are tempted to leave out what is not easily connected. Connecting the dots is hard work.

It positions “a strategy” as outside our lived world and in the specific world the game defines, like chess. Because of this different objective nature, game theory has grave limitations as a theory of strategy in the lived world.

My focus is on the lived world and coping with its uncertainties and knowledge absences and not with playing games in an artificial world.

The strategic or entrepreneurial answer here—which the rest of my book unpacks—is to get around the stoppage, breakdown, or impediment by acting on and changing the situation, and understanding that people can be persuaded into a different universe of action possibilities.

Much strategic practice revolves around changing others so that they become aligned with the firm’s intentions and do not introduce “indeterminacy” into the situation.

The most important change in business practice since WW2 is today’s emphasis on “market making,” on creating demand for goods and services that were not even recognized as needed in earlier times.

Later in the book I emphasize talk as managers’ principal method of generating strategically significant change in the people involved with the business.

Less considered traditional ways to manipulate consumption and production are to help the local sports team to success (a sure boost to labor productivity), engage with trade associations to promote legislation and industry-related research, create appropriate educational facilities to ensure a good supply of trained labor (as so evident in Germany), take part in the procedures that shape local legislation in land development and ecology—and many similar. All these form part of the strategic work of real firms because a great deal of their legislative and socioeconomic context is likely to be susceptible to engagement and manipulation by others. A full description of the firm’s context includes all the ways in which it can be influenced by the firm to assist its progress towards its goals. But contexts are more malleable than most strategy writers admit.

It all depends—and strategy turns on such empirical details.

Judgment is tough to define or predict, of course, but it provides a way to describe the strategist’s fundamental contribution to the business—the strategist as the person or group that provides the judgments necessary to complete the plan that theory alone would otherwise be insufficient for.

Thus when we think of a business as a logical machine we write judgment, whether that of the managers or others, out of the discussion. Yet people matter, indeed are the very core of the private sector enterprise, precisely because no firm fits into the specification of a machine. The most fundamental aspects of a business—its ability to add value and be an “engine of the economy”—lie in what cannot be calculated, what is not mechanical and predictable. Thus Paradigm B admits people and their judgment but subordinates their value to that of the plan—their judgment is needed to complete the plan. This turns out to be a very awkward option that ultimately collapses.

In Paradigm C the strategy’s core is a production/consumption idea, the entrepreneur’s idea. Strategic work surfaces that and brings it into the socio-economic world where its successful application leads to adding value and achieving goals such as profit or competitive advantage. The economic terrain here is made up of expectations rather than data or theories about economic actors’ behavior—such as buying more when prices drop. But perhaps price is seen as the indicator of quality, so the regular theory does not apply in this case.

But in Paradigm C the judgment needed is not about what is missing from what is known or knowable about a real situation (the market for 5-carat VS1 M pear-cut diamonds). Judgment is no longer subordinated to the logical plan. Rather the reverse. The strategy hinges on what people might be persuaded to think, how their expectations might be changed, and so induced to behave in a new way imagined by the entrepreneur.

The thrust of Paradigm D is that it admits the possibility of the entrepreneurs changing just as much as Paradigm C is focused on their changing others to align them to the goals chosen.

In practical terms one of the reasons why start-ups succeed—or “fail to fail”—is that they learn “strategically” to abandon their initial ideas, which they discover were not as workable or fruitful as they thought when they set up the firm.

What remains fixed is the entrepreneurial urge to action that adds value, a fundamental “primitive” desire underpinning strategic practice as a manifestation of our purposiveness, like the fundamental human desire that underpins the production of art. Thus the entrepreneurial process creates and shapes all three aspects—identity, intention, and context. The firm arises at their intersection—from a specific desire and at a specific moment.

If we knew everything there was to know about how to reach an objective it would be because we understand the world really is the determined clockwork-like mechanism some tell us it is.

They contribute ignorance, incommensurability, and indeterminacy to ensure no human situation can be fully grasped by logical planning. This is what makes strategizing so interesting, so difficult, and so fundamental to the human condition. It lies at the very core of business and the managerial task.

Prior to that time the dominant idea was to match the firm’s processes and resources to the market’s demands.

Efficiency mattered less than being able to control the firm’s market engagements and exposures so that its profits were secured against the competitive activities of others (and government regulators). The technical term here is “economic rent,” meaning above-normal profit, a return greater than that earned with a “risk-free” investment in, for instance, “gilts” or Treasury Bonds.

The 1980s strategy theorists’ shift towards “rent-seeking” or the pursuit of monopoly-based strategic advantage displaced the earlier focus on efficiency. It showed there was little future in pursuing efficiency if there were rents to be had. Rather the real strategic objective was to secure the rents to be derived from sustained monopolistic positions—such as Apple’s dominance in the tablet business.

The fundamental question military strategizing must address is to grasp the battle’s details and possibilities and so see through the fog of war to develop and sustain the confidence appropriate to the commitment of blood and treasure.

As von Clausewitz noted famously, all military strategizing was embedded in military service to the State, and war was an instrument of politics, another of its means. In a similar way business action, while very different from military action, is an instrument of the entrepreneur’s freedom and desire.

Also, when it comes to leadership and the distinctions between “leader” and “led” it is useful to distinguish between being a “leader of men,” as they used to say, a notion that applies equally to business, church, military, and politics, versus focusing narrowly on private sector managers’ thought and talk as they persuade others to act towards the firm’s goals. Put differently, business leadership is contextualized strategizing.

In many respects strategizing is as much about coordinating internal differentiation and divergence as it is about dealing with external divergences and uncertainties, such as competitors and grouchy customers.

I prioritize the last as a description of the communication task in the context of the firm—to find (a) a way of looking at the situation or “meaning” that opens up potential for value-adding, and (b) communicating that meaning to others in ways that persuade them to collaborate. This process is ancient, and so is its study. Like strategy, the literature on persuasive communication goes back to the Greeks and is the study of “rhetoric.” Chapter 5 explores how the study of rhetoric can inform strategizing today.

Strategizing in pursuit of profit therefore begins with analyzing the relevant uncertainties and goes on to analyzing engaging them, thereby going beyond merely asserting, as Knight does, uncertainty’s central place in profit-making. Profit arises from the creative ways strategists engage selected uncertainties and manage the resulting practice. Weston unpacked the uncertainty theory of profit in a series of papers about how firms might be uncertain and the implications for these strategists.21

The work is specific rather than general and the outcome is practical language—phronesis—rather than an appeal to covering theory and rational choice.

This achieves three things. First, those using the tools are reassured that strategic work calls for the application of judgment, which they intuit—correctly—is strategy’s defining characteristic. Second, the nature and scope of the judgment required is radically narrowed and made attachable to the firm’s context. Third, the strategic tool provides a language the participants in the strategy process can use to describe and debate the judgment to be applied.

Leaving judgment out of the picture, as most strategy texts do, puts discussion of these three issues beyond the strategic process, and so provides the people engaged with no means to deal with the uncertainties that can only be resolved by the exercise of their judgment.

The list lets me re-emphasize my book’s underlying assumption—that strategic work is the exercise of managerial imagination and judgment in under-determined business situations. Preparation means extending one’s thinking and inventory of ideas by learning what to pay attention to—through close and critical observation, talking with others, reading, researching, and reflecting on one’s experience.

It identifies and characterizes a situation and thereby the specific “collision” of identity, intention, and context discussed in Chapter 1. It implies elements or axioms with connections and relations, and its structure goes some way to “explain” what happens, how the situation will be changed, corrected, or transformed by the strategy-directed business activity that follows the actors’ commitment of resources, energy, and emotion.

Rather it is an attempt to grasp enough about the resources, aspects, and constraints of the situation to illuminate some relevant particularities and singularities, to give one a sense of how one BM (such as Coca-Cola’s) differs from that another (such as Google’s).

The change we have in mind is a reflection of (a) our view of the situation as changeable through our practice, and (b) our choice of how and when to make the change—which acts reveal us and our intentions.

Put differently, we can only change a situation that is open to being changed, and the change we make is inevitably a reflection of us and our feelings about the world.

There is no point in attending to someone else’s evaluation—especially the anonymous people who comprise the market. If they knew what we know about extracting value from the resources they sell us, they would not sell.

In spite of its simplicity, SWOT is a tool of considerable sophistication because its focus is the judgments the strategists make about their external and internal situation, and their resources. As these judgments bring SWOT together it provides a picture of the firm as a pattern of strategic judgment.

Thinking of SWOT as a causal analysis of the external determinants of the firm’s future hands the strategic initiative over to the “business environment.” Such a passive “objective” reading abandons both the creative dimension of strategic work and the managerial responsibility for the judgment the firm needs if it is to create added value in an under-determined situation.

Second, SWOT moves into an exploration of what happens if we make changes to ameliorate the current strategy’s unsatisfactoriness or open up some beneficial impacts.