Business Strategy: Managing Uncertainty, Opportunity, and Enterprise

by J.C. Spender

But there is nothing to protect until value has been created and exposed to the market.

My method, to study the firm’s language as a way of probing its BM’s uniqueness and potential, is set against the common idea that all businesses are basically similar and open to being analyzed with some general overarching theory (and rigorous language) of “the firm” or “organizations.”

To the contrary, the BM’s value-creating potential lies precisely in what is not shared or common.

But as Penrose argued (section 3.5) it is not the firm’s resources that matter; rather it is the management team’s knowledge about how to use them—and this knowledge is the source of firm’s idiosyncrasy, profit, and growth.

My core proposition is that the firm is a unique human artifact, a particular act of the entrepreneurial imagination, partially reflecting the entrepreneur’s cognitive sense of the opportunity but ultimately her/his deeply practical and tacit knowledge, so resistant to rigorous analysis but able to occupy the instant of practice.

There is nothing mystical about this. It is down-to-earth practical stuff because our language is ultimately grounded in our lived situation and its dynamism.

We understand things through the impact they have on our practice. We discuss football strategy using language grounded in what we think can be done in practice with players, pitch, ball, and rules.

As soon as strategy theorists admit to a plurality of possibly relevant models, the analysis switches from filling out the prescriptions of a favored model and towards the different task of choosing whichever seems the most useful from among those available—and to adapting it to the specifics of the situation.

So teaching strategy should be a two-step process; first (a) introduce students to a variety of useful models and then (b) help them develop the choosing and construction skills necessary to select, adapt, integrate, articulate, implement—and justify—their choice.

The second step may seem unfamiliar because the steps merge as we look at the situation, make a judgment, and then “plunge in with both feet,” plus we often ...

An analogy might help—through the multidimensioned window framed by our knowledge presences, our imagination reaches into the darkness of our knowledge absences and draws back something profoundly novel that changes our world. Value, profit, and growth are the imagination’s artifacts as it engages a framed unknown; they are not the product of rational analysis. Neither are they the product of resources, designs, or logical mechanisms that transform resources into products and services.

This is all very well, but it shuts out the strategist’s judgment or, more precisely, treats her/him as no more than a passive computer, crunching discovered facts. Strategic work is like this only when we have full information about the situation and our objective—which we never have. As we appreciate the situation is not rationally constructed, not fully describable, and not “computable,” we see the strategist’s role is active and creative. But this also means there will always be unresolved doubts about what is going on.

New value is not simply the result of better allocation of our scarce resources, moving them to where their value is higher, but results from a transformative act of human imagination, the silk purse made from a sow’s ear, a practical demonstration of humans’ limitless ingenuity, our universe’s limitless trans-formability, and, most importantly, that our lives are not bounded by Nature’s physics.

Likewise economic value cannot be grounded in a logical analysis of our physical needs.

The component being considered is not merely having an employee on the payroll with a resume that indicates the skills appropriate to the BM, but the full character of engagement that gives the doubting strategist reasonable confidence that the commitment of funds will lead to a satisfactory result.

The strategist puts the firm-level BM creation process into motion just as, as Schumpeter remarked, the entrepreneur puts the capitalist economy into motion.

In the absence of general rules the analysis must begin part-way in at the point at which the entrepreneur/strategist already has a chosen or imagined vision (Q) in mind and has begun gathering up bits and pieces (axioms or elements A through N) that make it possible to define Q.

entrepreneur’s mind must often “rest on” the challenge if the imagination is to be attracted into action. Imagination is more important than awareness.

There will always be several constraints acting in concert, plus the imagination or judgment needed to synthesize them into a viable BM.

The idea of the business model as a situation- (and actor-) specific language that goes some way to embrace three modes of knowing is useful so long as we also keep in mind the axiom that the firm is an apparatus that adds value by channeling people’s imagination in ways that bring something new into the world.

This chapter’s objective is to move beyond the constraints and axioms noted in Chapters 2 and 3, those we find in the strategic literature, and towards a more general level that allows the reader a greater degree of freedom.

But some engagement with these philosophical issues is necessary (a) to surface the nature of the constraint discovery process that leads to the strategist’s selection of constraints and their subsequent synthesis into a BM, and (b) to dig into why, if the firm is to be understood as a value-adding apparatus, it must also be seen as a practice, not merely as a statement like a computer program, or a design, or a machine, or a culture, or in the other ways we sometimes regard it.

A degree of non-computability is a fact of everyday life—organizational as well as political and personal—and the daily business of exercising judgment is the source of its value and our feelings about it.

Those that respond from principle and assert that “Any malfeasance must be punished, so we must fire this technician” ensure the general overrides the specific and sacrifices the complexity of life to the simplicity of principle.

All the BM’s terms must be “indexical,” practical, embedded in the firm’s view of its situation and practices. For employees the term “customer” is not the abstract theoretical term used in the classroom but is indexed and so generally means something rather different in different firms.

But he presumed the categories of things to be observed were given and not problematic when, in real situations, they are not “given” and must be selected or constructed.

The BM is an art form, perhaps democratic capitalist society’s most important. Few writers dare to engage art, though Frank Knight had the courage to write about business as an art form.5

Recycling into new language involves moving a term from one semantic context to another by attaching new qualities—which is precisely what is happening as the new BM is being constructed using borrowed terms.

Suppliers must be persuaded to sell, pay on time, not reverse engineer and enter into competition, not sell to those who would damage the company or the nation, and so

Most importantly language is essential to creating the collaboration necessary to initiate and sustain the firm’s value-adding processes, and this is where the special jargon leads to highly efficient discussion.

But the price of this ease is that the logical and mechanical aspects of the firm come to the fore and the value-adding aspects get pushed into the background. The nature of the entrepreneurial judgment—and why the firm exists—gets ignored. Yet the point of strategizing is to create a value-adding BM, not a logical model.

There should be no legitimate language for selling junk credit-default swaps or Ninja Loans—which means that the entrepreneur’s most fundamental task is both to construct the firm’s language but also control how it evolves through practice so that it does not evolve sub-jargons that legitimate behaviors beyond the pale.

At issue is the strategic attitude to the practices embedded in and enabled by the firm’s language, not the adoption of some holier-than-thou principle that outlaws malfeasance, an attempt to import ethical language that cannot be attached to the firm’s practices.

For instance, one of the more compelling research findings relating to Chandler’s strategy and structure ideas was Burns and Stalker’s8 assertion that in stable market conditions strategists should focus on administrative efficiency, but in dynamic market conditions on loosening up the structure and allowing “organic” responses. This is a synthetic statement that perhaps anticipates a theory.

The analysis can be pointed towards the future, towards innovation and added value, by shifting the language’s semantic content. Synthesizing axiomatically distinct or incompatible languages leverages us into an entirely different language game that captures something previously unexpressed lying in the space between statements and experience.

in. The process begins with considering how the interplay of identity, intention, and context is grounded in some fact/s of the situation—perhaps a specific goal chosen, or some specific resource available, or some specific customer to be served.

The process outlined above is (1) identify the constraints to the entrepreneur’s strategic judgments (including identity and intention), (2) identify the nature of the knowledge absences the constraints indicate, (3) assess the potential to change, move, or transform the constraints that matter, (4) create closure on a functional language, and then (5) act.

Practice is often presumed to be the implementation of theory. But theories are always constructed with simplifications, excluding some features while attending to others. Thus no theory can embrace all the issues a practice engages.

A book on strategy must avoid the cop-out of presuming practice is no more than rigorous theory actualized.

Von Clausewitz argued no theory should be presumed relevant without first identifying its antitheses, the opposing ideas or critique, and then second, appreciating that choosing between the opposing ideas was the very essence of strategic work, a judgment-call that lay outside any of the theories being judged.

In other more philosophical terms, until we have the long-sought theory of everything (and no uncertainty remains), there can be no theory of applying theory. There is no theory about when to adopt or reject a theory—a point made by both Gödel and Wittgenstein.

The educational implications were that students should learn all the theories available and then be taught to factor them into the strategizing process—but, most of all, taught never to subordinate their judgment to any particular theory.

First, there can be no theory of strategizing. Indeed strategizing is about dealing with situations that cannot be theorized. I presume business situations are shot-through and fraught with uncertainty and knowledge absences to the point that no theory can be applied without considerable doubt and danger that things are not what they seem.

Second, theory comes into the strategizing process as a constraint on the strategist’s choices, never more or less significant than another kind of constraint. It carries no special authority and von Clausewitz’s main critique of academics was their assumption that theory was a superior form of human knowing. To the contrary, it stands pari passu with facts, intentions, heuristics, emotions, and intuitions, not above them. Anticipating human action, the strategist must deal with constraints of many types—legal, normative, cultural, financial, technological, historical, motivational, and so on—but the emphasis is always on the synthesizing. Practice is what matters, not theory.

Third, with this view of theory von Clausewitz resolved or avoided entirely what academics call the rigor–relevance problem, the frequent criticism that business school curricula, for example, fail to deal with matters relevant to business people.

Fourth, von Clausewitz showed the practical relevance of historical analysis.

So von Clausewitz regarded historical studies as crucial to educating young officers about how they might make things happen by studying how specific others—generals, platoon leaders, rulers, prisoners, rebels—had acted and changed situations in the past.

Studying history brings complementary ways of thinking into the analysis. Von Clau-sewitz’s objective was dialectical as always, to present the strategist with alternatives of both fact and method within which to frame and then exercise her/his unique judgment.

Finally, fifth, von Clausewitz regarded the study of theory and history as essential to supplying actors with the language they need to grasp and do their strategic work, both individually and collectively. Historical analysis helps uncover the languages actors used in the past to frame what they saw as their strategic options.

Overall, we can see that von Clausewitz’s methodology resolves the tension between theory and practice by treating theory as no more than a constraint to the practice that follows the application of judgment, a constraint like any other—a goal chosen, legal rule, ethical norm, resource constraint, etc.