Business Strategy: Managing Uncertainty, Opportunity, and Enterprise

by J.C. Spender

My view is that there are no strategic generalizations—it is a contradiction in terms—and that the whole point of building the BM is to escape the uniformity or homogeneity that nullifies the possibility of profit and growth.

But it approaches an understanding of the synthesis of its identity, intentions, and context more closely than a universal or formal language can. Theory has its place but only as a component of the firm’s natural language.

It reaches behind Coase’s questions to consider why a freely choosing person would ever contribute her/his judgment and creativity to the firm and so to the profit of others.

A firm can only exist because people have been persuaded to act in the interest of others rather than solely in their own interest.

My focus is on helping the private sector entrepreneur. I see strategizing as the practice of synthesizing as many of the available facts as possible, together with personal judgments when facts are not available. It is not an implementation of scientific theory and rigorous analysis.

Even the sole proprietor must work out how to get others involved (customers, suppliers, and a landlord, perhaps). In the modern situation employees cannot normally be drawn into the value-adding process simply by offering them economic incentives or by terrorizing them into obeying orders, but by the processes of seeking and securing their help, especially by securing their creative judgment.

The switch to persuasion takes us into the heart of the “trick” the previous chapters have been moving towards. Here it is. It is one thing to engage others in an exchange relationship—you do this, I pay you that—quite another to say: “I do not know how to do X, please do it for me. And I’ll pay you Y even though you realize that Y is less than X.”

Note it is not possible to understand this trick in the abstract; a business model is always something specific that follows from a creative interpretation of the specifics.

But these are not explanations of how the value-adding and work-providing apparatus comes into being or how collaboration produces economic value.

First, the instructor has a thorough grasp of the resulting action and its consequences; second, the hearer has the ability to relate the instruction to her/his understanding of the action options; third, the hearer has the capacity to act in the way instructed.

This way of looking at the situation suits those who regard a strategy as a plan to be communicated to others to execute. Unfortunately, as the reader knows already, real situations are riddled with knowledge absences arising from misinformation, bounded rationality, or whatever.

Thus whenever strategizing is necessary the communications that lead towards implementation cannot be instruction-like. We must shift gear from instruction to persuasion.

As the instructors confront their inability to grasp the action situation and to choose and use the right tool, they put themselves in the hands of the other actors who know what they do not.

Instruction “disrespects” until those being instructed have been persuaded into accepting instruction, a point Barnard made central to his analysis of managing.

Key is getting to grips with the specific knowledge absences and constraints that make the situation unique and so shape the judgments to be applied. It follows the practice of communicating the results of the strategizing process must turn on these details too.

Most real work, if not all, requires subordinates to contribute personal judgment because managers are never able to deal with the full range of knowledge absences that arise in the execution of the instructions they give.

Managers might issue them but subordinates have to adjust them to the particularities of the action situation through the exercise of their own professional judgment.

At the conclusion of this chapter we see again what has been obvious all along, the process of strategizing is intimately tied up with creating the organization and it is counter-productive to try to separate them, they are different facets of the purposive activity that is as close as we can get to defining a firm.

Managers are challenged to shape this by melding their powers of analysis and judgment.

Strategizing is the continuous reinvention of collaborative activity.

The business’s purpose, of course, goes beyond creating collaboration, however interesting that seems. Its real purpose is to ensure the activity results in added value measured in the multiple ways that impel our des...

So strategizing managers need a communications approach that engages the implementers and others in the strategizing process actively and draws them into it, rather than an approach that treats their hearers as dumb cogs in a mechanical system designed to achieve their plans.

So different implementers know, say, and do different things.

Messages do not contain their own meaning, yet we cannot get at the knowledge contained in a message without knowing what it means. Hence the business person’s frequent response to news—“What does it mean for us?” The communication engineer’s analogy conflates the object (signal/letter/data packet) with its knowledge content, ignoring the distinction between message and meaning.

Computers have their own way of distinguishing between a message’s data and its meaning, the first deals with a transmissible bit-coded statement such as “0087” in binary. The second deals with managing data categories; the data structure that knows “0087” is a flight number while “1507” is the EST takeoff time. Before there are data there must be data structures, and these set the data’s meaning. Human communicators say they “understand” something when they get the categories right.

Both have to “know” or understand something, such as the categories, before they can process anything. In short, communication only works when the active agents knows something already.

Then the strategy is not communicated as a “fait accompli” but as a leader-shaped context in which subordinates do their own strategizing as they bump into their own unforeseen knowledge absences.

Clearly science is a powerful mode of human knowing, the rigorous distillation of our empirical experience of the physical. But it is not the only mode of our knowing. We know psychologically about what it means to be alive, have a private life, and deal with an uncertain existence. We also have social knowledge of what it means to be in a community of others—with their own private lives and objectives, even as both the psychological and social are embedded in and penetrated by the physical (technological). Because computers do not live our lives they cannot ever “think” or “imagine” as humans do—they will probably never “feel” as we do, but that is peripheral. Our ability to deal with uncertainty comes from our imagination. Communicating the result of strategic work means engaging our three modes of knowing, and there is nothing complicated about it. It is perfectly familiar. It turns out there is no need to invent a new process or methodology for strategic communication. It is well studied and has a huge literature—which we shall now plunder. It is rhetoric.

The key distinction lies between reporting facts and telling an engaging story, or between instructing and persuading, or between delivering a finished strategy to be implemented mechanically versus harnessing others to fill the strategy’s gaps to the point of commitment and action. Thus many authors recite rhetoric’s canons or list of to-dos without revealing them as part of a fully articulated communicative tradition. Others flip back to Aristotle’s triad of logos, ethos, and pathos without addressing “Why three?” or “Why do we need rhetoric?” or “So what?”

I feel a connection between Barnard’s executive thinking and classical rhetoric’s rhetorical practice. Barnard’s three modes of human knowing are those of Aristotle’s modes re-expressed in modern language. Ethos is the domain of the social, the recognition that there is something beyond the Self that counter-balances the Self’s goals against communitarian goals. Logos is the domain of physics and mathematics (formal language), the belief that things are constructed logically, that cause and effect can be related rigorously. Pathos is the domain of psychology, of feelings, emotion, and ultimately action. Barnard argued the executive had to develop a good understanding of the social, physical, and psychological subsystems to prepare for the synthesizing act that would bring the organizational system into being.

Leadership is changing people into those who can then bring new things about. The strategist’s fundamental task is not to simply to create the BM and thus the firm, but to create the people who can bring it to life.

In this section we turn to the “canons” of rhetoric and what they have to say about how to construct a persuasive bridge between what everyone in the firm knows and the particular constraints that are made the basis of the firm’s idiosyncratic language and business model.

The peroration is an opportunity to step off the story and excite the audience directly, bring the story home to the situation.

Today the division of labor is driven less by time limitations than by capability limitations, the entrepreneur’s desire to reach a goal that goes beyond what s/he knows how to do. Delegation is fundamental.

Given that most people’s skills cover only part of the modern firm’s BM, collaborative imagination is crucial if the strategist’s intentions are to be translated into effective practice.

The key to the modern firm is that it goes beyond the coordination of what can be explicated, so defining the firm as a logically designable machine. Strategic leadership engages what remains uncertain and can only be achieved through collaborative acts of imagination.

Thus managerial rhetoric has little to do with superior modes of instruction or more effective communication of what the senior executives know. Senior managers do not and cannot know everything essential about their firm.

In part strategizing is the intensely practical process of making the complicated world clear enough to generate confidence and justify practical action to all involved.

It leads on to thinking of managing as creating and using knowledge to shape human practice. It is a practical form of philosophizing so managing is applied philosophy.

Rather it is focused on the firm’s people and the reality they choose to create—as Apple Inc. chose to create a world that needed the iPad, and then set about making it theirs, or the Wrigley Company inadvertently created a world that needed chewing gum.

Of course the success of these products ultimately depended on the entrepreneurs connecting with some deep human desire to work with information or to chew because, at bottom, all commerce is driven by human desires. But the full range of these is forever unknown, and the strategic and economic implications of such basic needs are normally impossible to determine ex ante.

Entrepreneurship is seen as applied philosophizing, creating new language to make sense of particular aspects of the world in ways that can be (a) discussed and so opened to debate and (b) transformed into economic value.

There is no reason to think, as many academics do, that philosophizing is too complicated to be part of managing; the contrary is the case.

The deeply philosophic nature of managerial work is meat and potatoes to those with responsibilities for the acti...

Ironically, even with the best of intentions, the academics’ pursuit of rigorous models becomes their chosen way to get out of philosophizing management....

The effective strategists’ most crucial capabilities are philosophic, the doubting and critical faculties that enable them to bring imagination and judgment into contact with the world of action and persuade others.

The context in which the firm’s goal is pursued, and the outcomes of its actions, seem less certain. Ultimately the BM connects the firm to external politics and the processes creating and sustaining social stability. A capitalist democracy stands on the political processes of legitimating the creation and occupation of a socioeconomic space in which private sector entrepreneurs are left free to choose their own goals, bet their own funds and property, and engage others in their pursuit. This view of strategizing stands against the literature that presumes strategy decision-making is a deterministic analysis of a knowable economic situation. It takes place within a real political system. Capitalist democracy offers us places in which to make our own choices and succeed or fail thereby. It leaves us free to have our own view, to make our own knowledge and then check it out against what we do not know about our situation until we act and discover it. This constrained freedom is the essence of private sector business.

The resulting economic rents, if any, arise from the different knowledge created, not properties acquired from others by chance.

No innate judging capability has been found other than that of the creative individuals engaged in the firm. Dismissing the three metaphors noted above—the firm as money-making machine, or arm of government, or system—my conclusion is that a firm’s strategic capabilities are always grounded in and limited to the capabilities of the particular individuals who participate in it, who bring it to life and sustain it.

In short, a firm cannot have capabilities that are not brought to it by its participants. Its capabilities are limited to those these individuals have, which include their capacity to imagine and reason logically and to remember. They also provide its moral, ethical, and aesthetic judgment, additional capabilities real strategists work to bring to bear on the firm’s practices.