Business Strategy: Managing Uncertainty, Opportunity, and Enterprise

by J.C. Spender

Mainframe strengths turn out to be weaknesses when they get in the way of seeing the PC market’s new possibilities.

The insight behind SWOT was different, that human judgments are needed to make actionable sense of the firm’s strategic situation and possibilities, precisely because of the uncertainties penetrating real business situations.

Even though they lacked the quantitative analytic skills of the HQ staffers, their intuitions should be brought into the planning process rather than kept separate. The SRI team saw that most firms’ “group dynamics” were counterproductive and inhibited open communication, especially preventing “lower level” non-professional employees from suggesting the senior people had got it wrong while their staffers, looking only at the numbers and blind to the practice, were telling them they had it right.

The consultants use SWOT to generate discussion and then listen to the client to pick up those judgments the client’s management has put in place, and to surface, critique, and improve on them.

Successful strategy consultants learn to transition from data-driven discussion and to bring judgment into play—but only after a solid consultant–client relationship has been built up.

In summary, SWOT-type models offer a language for describing or mirroring the firm as a pattern of strategic judgments. These are management’s own assessments of its current resources—assets and liabilities—and current relationships—opportunities and threats, and how they might be changed and re-synthesized into a different image of the firm.

The models show how strategic imagination and judgment is necessary to arrive at a coherent picture, a sense that the firm “exists” and has unique identity, intention, and space-time context; including (a) whether any particular resource or relationship is an asset or a liability and (b) how these conclusions might be changed by moving to a new arrangement or BM.

SWOT-based models offer little sense of the firm’s value-adding processes or their clock-time. At best they suggest it might be useful to develop “snapshots” of, say, in...

Henderson argued that, so long as these productivity gains were passed through to customers as lower prices, the experience curve suggested a winning and self-reinforcing “first-mover advantage” strategy.

The learning curve applies both to the firm, and to those involved in the world beyond, as consumers and suppliers (and support personnel) get more experience of the firm’s products and activities.

The value of the learning curve is the way it highlights the impact of production-based or market-based learning on the BM. The knowledge produced in one period can be carried forward to the next period where it becomes a means of adding new value.

The change in human capital is not visible in the financials. Nor is it readily captured by rigorous scientific or accounting methods. Ironically those who urge more rigorous SWOT-based methods and metrics are actually pressing managers to identify and count those assets that can be measured, implicitly suppressing and devaluing the human and social capabilities that cannot be so measured.

resources and relationships susceptible to management’s judgments, so management is always in the best position to know what the employees do or do not know, what they can or might be able to do. Such intuitions lead on towards the notions of the “knowledge-based view” of the firm (2.10) and “dynamic capabilities” (Chapter 3).

Summarizing this section, the learning curve is strong in its implications but maddeningly vague in its application. Yes, learning by doing leads to knowledge that can be important strategically, but what is being learned, by whom, and how might we measure it, and can we do more than simply point towards it?

It also shows how the value of learning is contingent on its being both carried forward and remaining relevant in subsequent time periods.

The practice of strategic judgment can be framed as looking though one’s strategic tool-box—after adding a few other tools as a result of study, instruction, and experience—and choosing which to use in a particular situation. My book’s intent is to put some tools into the reader’s tool-box, and thereby illustrate the real nature of strategic work—but not select for the reader. In due course I shall connect choosing a tool to “doing cases.”

In general, so long as all firms have the same access to the various technologies, and the market for technology is efficient, externally provided technology cannot provide the firm with a source of strategic advantage. An internally generated technology could achieve this so long as it is not “reverse engineered” or copied by others—so long as it remains “inimitable.”

But perhaps competition does not do this, playing instead to the market’s lowest common denominator, and so on. There is no really solid reasoning available here.

The way Porter used the term “force”—as in 5-force model—was interesting precisely because its many meanings helped encompass a variety of the practical means available to firms that wished to protect their rent-stream or attack others’.

Business history shows that at least until the end of the nineteenth century US business managers mostly busied themselves with obtaining, creating, and protecting monopolistic positions.

The BCG matrix was a tool for managing a portfolio of investment opportunities whose rent-streams could not be regenerated.

Unlike the Ansoff matrix that implicitly considered how the knowledge gained from one line of business would be reapplied in another line of business, the BCG matrix was concerned only with cash flow.

benefits of local responsiveness. Bartlett and Ghoshal coined the term “transnational” to label those global firms that balanced these two growth trajectories to best strategic and economic effect.

Had they adopted the view that tacit knowledge was of a different type that could not be “converted” into explicit knowledge, their knowledge-flow argument would have collapsed.

While economists are inclined to value a resource in terms of its cost or market value, she observed there was no necessary connection between either of these and the resource’s strategic value to the firm, what she called the “services” the resource was able to supply to the firm’s process.

She argued the connection was mediated by the management team’s knowledge of how to extract economic value from the resource.

This redefined the firm’s identity as a body of managerial knowledge about how to transform resources into added value—in contrast with regarding the firm as a bundle of identifiable resources (such as those on the books)...

Such knowledge is often less costly and more likely to be a powerful driver of growth than any tangible resource. Penrose’s focus on learning made it the core of the firm’s nature—the firm as a learning management apparatus—with major implications for managing.

Throughout this book my emphasis is on strategizing as the process of language construction, for I see the firm as activity shaped by a language constructed specifically to engage selected contextual uncertainties.

So, second, it provides senior management, as a discussion group, with a way to structure their talk more “democratically” in the sense that prevents the dominance or preferment of any single theory or language.

The BS’s history is that it provided a way for managers to push back against the rhetorical power of financial language that threatened to define the firm as a purely backward-looking financial entity and so shut out the possibilities of surprise and profit.

But strategic judgment, not some external source or rule, must always determine wh...

But—uniquely—the BS addresses the firm’s “internal politics” and focuses on the firm’s (management’s) language’s rhetorical functionality and richness.

A firm is clearly disadvantaged when its internal strategic conversation is poorly managed, enabling or encouraging some positions or ideas to dominance to the detriment of others that might well serve the firm better, insufficient “voices” to be heard. The BS helps characterize the firm’s strategic work as a conversation between four classes of executive, each representing a specific interest group.

This is the conversation from which the firm’s strategy and strategic language emerges—always attended by strategic dou...

The academic intuition is to seek empirical support for each tool, presuming there is a relationship between the tool chosen and the resulting performance, but this may not be too helpful to the managers doing the strategic work of keeping the firm’s practices moving.

The chapter illustrates the strategic work necessary to bring human judgment into the world of real economic activity where value is added and profit may result.

To enquire into strategic work the researcher must abandon the objectified “etic” approach exemplified by the dominant management research journals and switch to a subjective “emic” approach that turns on bringing the entrepreneur’s imagination and judgment into play.

Ultimately strategic work focuses on the managerial task of constructing the firm’s identity, intention, and context—addressing the questions “who are we, who do we want to be, what do we want to achieve, when, and where?”

There is little consistency among these tools beyond being alternative ways to describe the firm’s chosen knowledge presences and knowledge absences, the questions the entrepreneur must answer to bring the business to life.

The middle territory between market equilibrium and self-organizing evolution arises when there is no closure without strategic judgments—and these make profit possible. Real firms are structured towards their goals and populated by individuals who project or commit their judgment to the firm’s activities. They are not self-organizing, nor are they perfectly designed machines, nor do “perfect

market” forces determine their behavior.

There is no single theory of the firm. Thus strategic judgment still determines the adoption of one theory rather than another and further judgment is required to fit it to the situation’s specifics. More importantly, the chapter explores the interplay of judging and learning, and shows how learning must be brought into the analysis as the source of the strategic judgment necessary to negotiate the residual knowledge absences.

Judgment begins with deciding what to pay attention to, choosing what to label.

This is a crucial point. Compare Kovesi on the formal element of language.

Chapter 2 models is that strategizing does not require close attention to people, just attention to the external and internal facts as the tool frames them. Many see the tools as proto-theories. But strategic judgment, and the possibility of profit, arises precisely and only because the situation is uncertain and beyond being captured by theory. Under such conditions practice calls for the idiosyncratic personal inputs that generate varied answers.

This chapter shows that, while many of the academic models prefer rationality and avoid any discussion of judgment, they can still be interpreted as important ways to constrain or frame business uncertainties and, thereby, the strategic judgments needed. Where these theories fail to achieve closure they leave space open for strategic judgment—and value creation.

Smith’s key concepts (with regard to the enterprise) were (1) division of labor, (2) specialization, (3) practical work, (4) learning, (5) coordination—leading to (6) economic growth. He paid less attention to (5) than modern theorists do. But his work helps entrepreneurs discern the different aspects of the value-adding process and judge how to bring them together into a viable enterprise.

The strategic work implied included creating (a) a “horizontal” value-adding apparatus, the “value-chain,” and (b) a “vertical” administrative structure and process—and then populating the resulting structure of work roles with appropriately trained and resourced specialists. Technology, and its evolution, mattered to both horizontal and vertical arrangements because it shaped tasks and their administration.

The point here is that the creation of the enterprise is shaped by the existence or absence of markets for the supplies needed and the people and firms who constitute the demand that reconverts finished goods and services back into revenue and the prospect of profit.

The representative firm, from my point of view, has no heterogeneity. Its strategizing has been reduced to responding rationally to the dictates of the knowable markets, as in Marshall’s famous picture of crossed supply and demand curves.