Business Strategy: Managing Uncertainty, Opportunity, and Enterprise

by J.C. Spender

This metaphor works in an uncertain context, so for me the firm is best seen as a knowledge-creating and learning apparatus that shapes and thereby harnesses value-creating activity.

The firm is bounded by what is legitimate in that specific situation. Turning this around we see the private sector firm is a child of the political and cultural processes that open up and demarcate an opportunity space lying within socially legitimated constraints. Entrepreneurs are given the freedom to inhabit this space as they attempt to generate economic value by engaging its uncertainties. In a capitalist democracy, the economic value created, especially the taxes generated and the spillovers that occur, helps legitimate the apparatus that is also, of course, impelled by private gain and the entrepreneur’s desire.

Note the other metaphors for the firm—machine, rent-seeking apparatus, or self-contained system—do nothing to help us understand why the private sector came into existence or the nature of the entrepreneur’s contribution. Capitalist democracy and the private sector firm are intertwined with uncertainty, mutually defining and supporting their value-adding. The planning, design, or machine models belong in a centrally controlled politics. The rent-seeking apparatus belongs in a feudal system. Conversely, an appreciation for the political context of private sector business is germane to effective strategizing.

It also explores the dynamic interplay of public and private sectors, thus of government’s role in capitalist society. This is the subject of great debate today as capitalist democracies pull back from the rising burdens of defense, welfare, and other “entitlements.”

We certainly live technologically structured and penetrated lives and new technologies have created huge universes of opportunity for the private sector, even if they were initially opened up by military or publicly funded research.

Strategists appreciate technology from within their context and intention rather than something defined objectively, through the prism of their BM.

A technology’s strategic relevance can only be viewed through the BM where it appears as a constraint, like a theory, but of the practical world rather than that of ideas.

Again the strategic question is not the existence of a technology but how it might be incorporated into the BM’s interplay of constraint and control. For those seeking innovation new search and communication technologies have revolutionized the knowledge resources at their disposal.

But technological developments have also transformed surveillance and the possibilities for employee control and monitoring discussed in principal-agent theory (section 3.2).

This middle ground is what most managers mean by technology, where they have choices and can evaluate the strategic implications of changing from one technology to another.

Professionalism is a white-collar term for what blue-collar workers see as craft. Ways in which professional work can be shaped parallel ways in which craftwork is shaped. Getting an architecture degree is much like the apprentice cabinet-maker’s process of producing his “masterpiece.”

My emphasis on language throws up additional ideas, that the language that members have to know to be guided by and contribute to its knowledge base marks the profession.

In the same way that Penrose destabilized the economic notion of resource, so the profession’s knowledge base is impotent without the judgments that bring it into the world of practice.

The firm’s use of professional knowledge always lies in the middle ground—as in (b) above—creating tensions between those processes fully aligned to the firm’s objectives and those to which professionals hew by virtue of their membership of the profession.

When the firm relies on professionalized knowledge the imagination and judgment that drives craftwork and makes it valuable test the boundaries to its business model.

Its coherence and identity is always tentative, present only in these practices, for added value arises from people’s imagination, not from their obedience to instruction.

The fact that the firm exists “at law” or as a set of accounts with their corresponding lists of assets and obligations, or as an organization chart, has little relevance to the firm’s strategists or entrepreneurs.

Thus the firm’s nature hinges on the capacities that cannot be coordinated in this way, as Coase suggested. So in many respects the firm grows out of the strategic responses to and exploitation of both market and instruction failures.

Earlier I suggested the demarcating characteristics of the modern private sector firm might be (a) its democratic political circumstance, with its pervasive uncertainties, or (b) its particular legal constitution, such as limited liability, or (c) its strategic capacity to bring technologies into the business model.

Work is purposive activity and when collaborative is tied up with subordination. But there are always two questions: (a) who or what determines the work’s purpose, subordinating others, and (b) to what extent does it call for judgment as opposed to mere instruction-following?

The more powerful notion is of labor as instruction following, when there is no call for the employee to exercise judgment.

The control dimension of a technology can be used to structure work in ways that “deskill” workers, turning them into laborers.

Many humanist writers take up an ethical position here, suggesting that work is more ethically defensible or psychologically satisfying than labor—that work is “enriching” and can lead to human “flourishing.”

At the same time, because we are intermediaries, the question of who determines the work’s objective remains analytically intractable.

Clearly we need an ethics of private sector management, but there might a more fruitful discussion if we appreciated more of the Western firm’s history. Its demarcating characteristic is its rhetorically intensive mode of governance.

There it became the emerging private sector firm’s dominant mode of collaboration, leading to what some economic historians label the “first modern economy”.

The story, then, is that the demarcating characteristic of the modern firm—what sets strategizing’s true nature—is not the private sector’s politics, nor the development of bureaucracy and rational administration, nor the firm’s ability to absorb technology to enhance productivity and control, nor more scientific understanding of the market’s demands, but the entrepreneur’s ability to draw skilled, independent, free-thinking people into aligning their imaginative capacity with her/his freely chosen and then delegated uncertainties.

Summarizing, the implications of my book’s approach for management education are (a) to be less adamant that data are everything and admit to the Knightian uncertainties that underpin democratic capitalism, firms’ existence, and their value-creation potential, (b) to establish a more appropriate balance between teaching judgment and analysis, (c) to follow von Clausewitz and teach synthesizing as a practice, and (d) to restore rhetoric to the curriculum, for management is a talking game.

The creativity that leads to added value begins with personal growth, the Sophoclean struggle to get beyond the passive imperative to “know thyself” as a stable discoverable entity and to achieve a greater measure of one’s potential. In our capitalist democracy business offers many of the leading opportunities to do this.

Everything I have done is to stand all available theory on its head to show what it does not do.

We can only access the managers’ view of the firm through the language they use. It becomes meaningful only through participation in the indexical practices that are going on within the firm all the time.