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Business Policy and Strategy as a Professional Field

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c H 0 2 . Q x D 0 8 / 0 9/ 2 O O O1 0 : 0 5 A M P a s e 2 6 --v-
A

Business Policy and Stratery

as a ProfessionalField

. Spender
J.-C

This chapterhasthree sections.In the first we tracesomefeafuresof BPS's recent

development.In the second,beginning with a reconsiderationof how Chandler
reconstructedthe field, we examine deeper reasonsfor the present variety of
views. In the final section we evaluatesome of the recent progresstowards the
three-dimensionalframework of a dynamic theory of organizationalstrategy.
We have seen some changein what strategytheory is about. In the 1960swe
said it was the planning necessaryto reach the firm's goals or, in contemporary
parlance,it was the task of re-engineeringthe firm around its current objectives.
Now we realize it is not so simple. Strategy,like much of the world, seemsmore
complex. Strategy's essencemay now lie among the processesof gaining com-
petitive advantageby developing strong cultures, acquiring difficult to imitate
skills, pinpointing and explbiting others' weaknesses,innovating and appropriat-
ing economic rents, evolving and diffusing 'best practice' and organizational
routines, establishingstrategicalliances,creating businessinformation and organi-
zational learning systemsthat lead to knowledge asymmetries,or by effective
teaming of empowered employees. Such diversity is clearly confusing and
threatening.
Appropriating theory from other disciplines,our field has been pushedbeyond
yesterday'squasi-mechanicalstrategy/structuremodels into the disturbingly under-
structuredarea of idiosyncratic knowledge and skills. These developmentsare
forcing us to reconsiderthe two presuppositions,which up to now gave strategy
its meaning: (a) economicrationality and (b) the notion of the firm. The stability
of theseconceptsprovided a foundation for the term strategy.But theseconcepts'
abstractnessalso separatedthem from the firm's executive and organizational
practices, with their tacit components and creative and ethical features.
Now we seethat strategyis not merely about goal setting and mechanicalplan-
ning, it is also about creating and re-creating organizations and their culture,
morality, practices and rationalities, but we pay a stiff price for this advance.
Aside from the increasedcomplexity, we risk becoming so wedded to the new
theoretical tools that we forget the real objective, which is to help analyseand
cH02.QxD 08/09 /2000 10:05 AM pase 27

Business
Policqand Strategaas a Professional
Field 27
evaluatethe executive'spart in the creation and direction of the firm, and of the
wider socio-economyof which it is a part. As soon as we forget this strategictask
and becomeabsorbedin subsidiarytheoreticalarguments,our field splintersinto
unconnectedacademicspecializations.(See also the discussionin Chapter I by
Tom Elfring and Henk W. Volberda.)
But in this chapter we argue, on the contrary, that there are several lines of
theorizing converging on a new and powerful emerging paradigm of strategic
analysis that draws us back towards Barnard, Schumpeterand Pemose, and to
their efforts to place leadership,entrepreneurshipand economicgrowth in a truly
dynamic framework. These new models find the organization's identity and
competitive advantagein the dynamic of its idiosyncratic knowledge, skills and
practicesand its learning processes.
Recent conferenceshave been marked by vigorous discussionsabout whether
our area is distinctive and, if so, in what way. In these sessionswe display a
certain disingenuity as we confessour inability to define our field. Despite stra-
tegy specialistsbeing among the most populous in managementeducation, it
appearsthat we are still searching for a professional identity. This display is
clearly unsettling to executives,as well as to our doctoral sfudents,newly minted
PhDs and junior faculty. Such uncertainty is not new (Bower, 1982; Bracker,
1980; Schendeland Hofer,1979), indeed it is not long since doctoral students
were being actively dissuadedfrom researchingbusinesspolicy and strategy
(Taylor and Macmillan, 1973). Nor are these doubts diminishing (Ghemawat,
l99l: l; Summeret al., 1990).Schendel(1991),in particular,hascalledfor a new
set of questionsto help define our field.
Some disputesabout our field are extremely public (Ansoff, l99l; Mintzberg,
l99l). Others are played out in the varied syllabusesof individual schools.
Incredibly, many businesspolicy and strategy (BPS) professors still focus on
strategyas the processof developinga fit betweenthe organizationand its envi-
ronment. Others have moved on and focus on industry analysis,negotiation and
game theory, protecting economic rents or the managementof cultural change.
Reflecting this diversity, our field's important papers appear in at least six
different journals (MacMillan, 1989).At the sametime the marketing and finan-
cial strategistsignore our journals and professionalmeetings,and the legal and
political theorists of organizationperiodically claim our territory. Occasionally
papers appear protesting this confusion and proposing theoretical closure (for
example,Camerer,1985;Shrivastava,1987).
Practitionersalso seemincreasinglydissatisfiedand some chargeour business
schools with failing the nation. Our journals clearly serye our institutional pro-
motion and tenure processwell, but do so at the expenseof alienating this clien-
tele (Behrmanand Levin, 1984;Porterand McKibbin, 1988: 167).Much of this
criticism is directed at our inability to deal with the practical aspectsof BPS:
executiveleadership,businessethics,global competitiveness,the comm ercializa-
tion of researchand development,the social and enyironmentalresponsibilities
of corporationsand so forth. There have been piecemealresponsesfrom indivi-
dual businessschools,but there is little consensuson the nature or place of BPS
in management education, though, prior to the International Association for
c H 0 2 . Q X D 0 8 / 0 9/ 2 0 0 0 1 0 : 0 5 A M p a s e 2 8

28 Rethinfting
Strategg

ManagementEducation's (AASCB) recentreforms, it had its specialplace as the

capstonecourse. General criticisms are matched by more specific complaints.
Many practitionersexpect our field to be normative, to help them develop win-
ning ways and methods,yet researchin BPS seldom carries forceful prescriptive
recommendations(Bettis, l99l). Some would say our field is about helping
managersidenti$ and think through their diffrculties, but it is clear that our col-
leaguesin economics,health care, education,psychology and politics have an
impact on executivesthat we do not. While we have provided useful terms, such
as 'competitive advantage' and 'core competencies',we have provided little
substantivetheory that strategistscan use to designtheir organizationsor forecast
businessoutcomes.So we might be excusedfor some despair,thinking the field
of such little use that, along with astrology, it should be pushed beyond the
professionalpale.

The Development of Our Field

We sometimestry to explain this sorry stateof affairs by saying that our field is
'young' (for
example,Huff, 1989: 658; Lamb, 1984: vii). This is historically
incorrect. Business policy has been a required course in American business
schoolsfor well over half a century (Schendeland Hofer,1979: v) and executive
level business education goes much further back than the founding of the
Harvard BusinessSchool in 1909 (Redlich, 1957).The real historical dynamic,
as Schendeland Hofer remind us, is the interplay of academicrigour and manage-
rial relevance(1979: 8). Prior to the 1950stherewas no recognizableacademic
field, though therewas widespreaduniversity teaching.The strategyfaculty came
from other disciplines.There were no strategyjournals, no theoretical literature,
no professionalsocietyand no BPS doctoral students.A distinctive field emerged
only as analysis replacedanecdote(Gilmore, 1970). The initial framework was
that of Learned et al. (1965). Their conceptof businessstrategyresolved a four-
way tension between what the managementwanted to do, thought it might do,
consideredit was able to do and thought it ought to do (Porter, l98l). This fram-
ing was sufficiently subtle to encompassthe ethical and political dimensionsof
businessleadership,as well as the more tangiblemattersof production,profit and
competitive position. Given such subtlety, the casemethod remained our field's
principal pedagogicaltechnique(Christensenand Hansen, 1987).

The Analytic Tradition and its Failure

In the late 1950sthe quantitativeanalytic methodsdevelopedduring World War II
swept through businessmanagement(Gilmore, 1970: 16). New computational
methods and equipment became available, Ansoff and Steiner provided the
essential seminal texts and articles, and new journals such as Management
ScienceandLong RangePlanning were started.A new professionalidentity, that
of the quantitative forecasterand strategic planner, began to take shape. But
research was difficult, requiring accessto confidential decision processesin
boardrooms and planning departments.To the few who gained accessit was
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BusinessPolicgand StrategrJ
as a Professional
Field 29

immediately obvious that the planning literature was way too prescriptive and
bore scantrelation to practice.The espousedtheoriesof rational decision-making
had little to do with the way strategizingwas actually done. While some sampled
populations of decisions and sought generalizationsthat would vault over the
detail of specific strategy decisions,the Harvard BusinessSchool (HBS) stuck
doggedly to the casemethod and 'situational analysis' (Christensenand Hansen,
1987:30). They felt the relevance-seekingpractitioner neededprotection against
academics'abstracttheory and rigorous statistics.

Strategy,Structure and the Discovery of New Categories

Chandler (1962) changedthe relationshipbetweentheoreticalrigour and practi-
cal relevance,and thereby transformed our field. Using historical methods, he
sampled70 leading American companiesand exposedgeneralrelationshipsthat
had both explanatorypower and practicalpolicy implications.He provided a way
of defining, measuring and relating the organization and its environment that was
well suited to the needsof professorsand researchers,as well as to practitioners.
BPS research flowered, especially when, following the microeconomists but
rejecting the older traditions of both the HBS casewriters and Chandler's own
painstaking historical methodology, secondary data about diversification and
financial performancebecameacceptablefor doctoral work. In the 1970s,Scott,
Wrigley, Rumelt, Thanheiser,and Channon effectively built a new version of
BPS by exploring the concepts of strategy, structure, fit and performance.
This new choice of phenomenaand method immediatelybrought the academic
work on strategycloser to industrial organization(IO) economics.But the same
manoeuverpushedcorporateethics,social responsibilityand executivejudgment
even further out of the analysis.Another potentially devastatingresult was the
training of a new generationof academicswho had neitherthe historian's passion
for detail nor the intuition and insight into executive practice that normally
resultedfrom prolonged field research(Mintzberg, 1973b).This further widened
the gap between academicstrategistsand corporateexecutives,though the gap
must also be understoodin the context of the 1959Ford and Carnegiereportsand
businessschools' strugglesfor academiclegitimacy among their academicpeers.
For many the sffategy-structure-fit paradigm still remains the main definition
of our field (Summer et al., 1990: 364). Yet, as today's attention to networking
and organizational learning reminds us, strategyand structurehave become inade-
quate concepts,and the pivotal notion of fit seemsan incomprehensiblehang-
over from microeconomic equilibrium theory (Drazin and van de Ven, 1985;
Rumelt, 1987: l4l; Rumelt, Schendeland Teece, l99l: l0; Venkatramanand
Prescoff,1990).

New Categorles for Strategy Research

Chandler's work profoundly influenced the basic definition of our field in ways
quite separablefrom the particulars of the strategy/structureresearchparadigm.
He showed, reinforced later by the work of Bower, Mintzberg, Child and
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30 RetfrinkingStrategy

Isenberg,that executivesdo not think in the ways presumedby the older planning
and decision-making models. Assailed by so many details, senior executives
struggleto focus on a few broad topics. By identifying these,Chandler gave the
field the specific new categoriesthat openedup a new theoreticalterritory based
wholly on strategic practice. Whereas the planning paradigm treated strategy as
part of the rational decisionprocessof an economicmachine,Chandlerrelocated
strategy in the broader framework of the economic history of a society and
its organizational institutions. Even though much of the work derived from
Chandler's retreatedback into purely economic models, neglecting this broader
institutionally determinedframework, our field was pushedforward by thesenew
categoriesand intellectual frameworks. Its readinessto absorb them was a sure
sign of its intellectual vigour. But the discovery of new categoriesis an over-
looked part of the researchprocess(seealso Part 5 on the configurationalschool).
It stands dialectically opposed to the more familiar process of hypothesizing,
samplingand statisticalanalysis.For too many studentsand researchers, methodo-
logy starts and stops with hypothesis testing, though we see that far greater
progresscomeswith establishingnew categories(Daft, Griffin and Yates, 1987).
Category generationresearch,such as Chandler performed when he argued for
the distinctions betweenmultidivisional, centralizedand regional firms, remains
high risk, while hypothesistesting, using secondarydata, is a safer method that
appealsto our field's prevailing tenureand promotion pathologies.
The next crucial step forward was the move to investigatethe strategist'sidio-
syncratic categoriesand rationality (cf. Chapter 5, this volume). As soon as
researchersaccepted Simon's (1947) argument that economic rationality was
problematic,no longer pre-supposed,they were forced to develop alternatives,if
only becausethe strategist'srationality also becomesthe basisfor an explanation
of his4rer action (cf. Chapter4, this volume). In the social sciencesnew frame-
works generally come from the actorsinvolved inthe phenomenaof interest,i.e.
managers,workers, deal-makers,entrepreneurs,inventors, etc. or are borrowed
from the other social sciences.SomeBPS researchers,such as Mintzberg, remain
committed to these actors' views and intuitions, pointing out the irrelevanceof
decision-making theory (Mintzberg, 1994). In this sense Mintzberg's entire
oeuvre is a prolonged attack on our field's typically uncritical pre-suppositionof
economicrationality.In his best-knownpaper(Mintzberg,1976),Mintzbergadopts
the split brain metaphorto argue that businessstrategyis more art than science.
This critique goes to the heart of strategictheory, suggestingthat businessstra-
tegy can be distinguishedfrom all else, such as decision making, tactics,pricing
or market positioning, by being inexplicable within the framework of a priori
rationalism. For Mintzberg, strategy is the creative outcome of managerial experi-
ence,judgment and introspection,only researchablebecauseit guides practice
and thereby reveals the shape and working of the managerial or organizational
unconscious.An easier option is to borrow from the other social sciencesand
assumethe actor's rationality is relatively pre-defined, a reflection of his/her
culfure or mental D?p, whether that is located in an organization, work group,
profession,industry or nation. Starting from Simon's notion of 'bounded ratio-
nality', strategy is redefined as the process of sense-making,of creating the
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Business
Policqand Strateguas a Professional
Field ?l
local rationality or framework of analysis. The strategic process becomes the
construction and disseminationof a particular rationality. Strategic change is
not simply the redirection of the enterprise towards different product markets
or levels of performance, it may also be the displacementof one rationality
or culture (Miles and Snow, 1978) or one industry recipe (Spender, 1989) by
another.
Note that this attack on economic rationality also suggestsa framework in
which multiple actorsand multiple rationalitiesmight be active at one time. (See
also Chapters4 and 8, this volume.) Game theory begins with a two personzero-
sum game in which both actorsadopt the samerationality. Negotiation begins as
actors with divergent rationalities seek outcomesthat benefit both. In the same
way we can expect different rationalities to result from the division of interest
between a principal and his/her agent.Unless the latter is adequatelybonded or
policed, he/shewill make decisionsthat run againstthe owner's interest.Child,
Pfeffer, Pettigrew and othersmount a similar attack on rationality from political
theory. Political theory argues that competition between actors with different
rationalities may not be reconcilableunless those with power suppressthe dif-
ferences,superimposingtheir rationality on others.Under conditions of multiple
rationality the organization loses its identity and it becomesimpossible to dis-
tinguish the interestsof the organization from those of the dominant coalition.
Similar problems arise with the socio-psychological research of Hambrick,
Finkelstein, Castanias and Helfat, and others investigating top management
teams, looking at, for instance, the relationship between its members' back-
grounds and their strategic choices. Before the attack on economic rationality
many of thesedifficulties usedto be sidelinedby separatingstrategyformulation
from its implementation(Schendeland Hofer,1979: l4). The field has benefited
hugely from Simon's insights into the limitations of economic rationality by
showing that cognitive theory denies the distinction between formulation and
implementation.
Any attack on economic rationality is damaging. With one sweep it wipes
away the familiar structureof goal-orientedstrategicanalysiswhile also cuffing
the ground for analysesthat treat the organizationas the principal unit of analy-
sis. Both the individual's bounded decision making and the group's political
processesbecome crucial, and much greateraffention needsto be paid to team-
work (Alchian and Demselz, 1972).The damageis so severethat many writeres
still refuse to recognize these implications of Simon's critique. But to ignore
Simon's work is to miss the way our field has been successfullypushedthrough
these'paradigmbarriers'.No longerpresumingeconomicrationality,we ask com-
pletely new questionsabout the nafure of organizationsand their management.
The field's new answersrevolve around knowledge and skills, what managers
and employeesactually know and bring to the workplace. We puzzle over the
subtle combination of objective and tacit knowledge (Polanyi, 1962), and the
heuristicsand intuitions that were being denied by our previous presumptionof
economic rationality. Bounded rationality drives a wedge betweenrational deci-
sion making and managerialpractice, and so createsthe appropriatetheoretical
spacefor tacit knowledge as a new mode of explanation.It makes it important to
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32 Rethinfting
Strategy

understandhow managersand work groups fashion intendedlyrational decisions

from their tacit knowledge, and this brings their morality, ethics and leadership
back into the analysis.

To a Different Level of Analysis

The attack on economicrationality also threatensour conceptof the firm. It is not
that the firm is a-rational,without a rationality. It is that its rationality, boundaries
and integrity must now be explained if we are to identify the firm, for we can no
longer presumeits nature.Political theoristsdo this by equatingthe organization
with its dominant coalition. Cognitive theorists equatethe organizationwith its
cognitive frame or organizationalculture. These are alternative sourcesof the
actor's rationality and the theorist's explanation.But the searchfor an alternative
organizationalrationality can still be side-steppedby retaining the presumption
of economic rationality at some other level above or below that of the firm, i.e.
at the industry or strategicgroup level, or at the sub-unit,transactionor divisional
level. Reactionarytheorists,such as the transactioncost economists,who wish to
remain true to the neo-economictradition, retreat from the level being attacked.
They find it is no longer necessaryto have a clear notion of the organization 'as
a whole', as the object of their analytic affention.
Industrial organizationeconomicsshifts the analytic level upwards.The indus-
try or strategicgroup becomesthe principal unit of analysis;the firm is simply a
member of that group. There is a complementaryshift in the economic approach.
Given interfirm competition, the group's stability needs to be explained. This
might arise becausean industry or strategicgroup recipe is the primary source
of its member firms' rationality (Spender, 1989). It might also arise in ways
describedby Chamberlin's(1933) theory of monopolisticcompetition,in which
the industry emergesas a set of institutionalized behaviours that create both
stableinterhrm differentiationand collective market power. The initial interestin
IO was to generatemethodsof measuringthe industry's market power, so that gov-
ernmentcould act to eliminatethe collusive restraintson competition,which Bain
(1968) dubbed 'barriers to entry' (Conner, l99l). Porter (1980) turned Bain's
framework upside down, suggestingthat individual firms could equally well dis-
cover thesebarriers for themselvesand either manipulatethem or reposition the
firm to take advantageof them. The firm is defined as a group member and its
strategicdecision is limited to deciding which industry or strategicgroup to join
and which barriers to erect.
While IO shifts the level of analysisupwards,ffansactioncost analysis(TCA)
shifts it downwards, below the level of the firm or even the operating unit, to that
of the individual economic transaction.The firm's sffategic decision is now to
choose each transaction's mode of governance or, in everyday language, to
choose whether to make or buy. When the firm can do things more cheaply than
they can be done elsewhere,it has a competitive advantageconceptuallyidenti-
cal to that of being 'behind' an entry barrier. But uncertainty and opportunism
also lead to costs. So Williamson (1975) arguesthat transactionsare better per-
formed within the firm when they are too 'impacted' by these cost-increasing
factors to organize acrossthe market place. Strategy is then about minimizing
c H O 2 . Q X D 0 8 / 0 9 / 2 0 0 0L 0 : 0 5 A M P a g e 3 3 A
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Business
Policyand StrategAas a Professional
Field 77

the costs at the transactionlevel wherever these can be determined.Where they

cannot, it is about minimizing the firm's exposureto opportunism and its costs.
While not a comprehensivetheory of the firm, TCA is a suggestiveheuristic so
'bundle' of transactionsor a
long as the firm is treatedas a loosely constrained
'nexus' of the conffactsgoverning those transactions.

Progress,Rich Confusion or Fragmentation?

In the sections above we touched on several theories drawn from disciplines
previously peripheral to strategictheory. We argued that they enabled our field to
push through trvo major theoreticalbarriers,and thereby take us beyond the 'fit
and performance' model. The first breakthroughwas the rejection of universal
economic rationality, the second the rejection of the organization as an unprob-
lematic unit of analysis.The first forces us to focus-on the diverse knowledge,
skills and heuristics that organizationalactors adopt under conditions of uncer-
tainty. The secondforcesus to questionour analytical level or, more importantly,
our analytical sffategy.Must we considereach transactionor actor separatelyor
should we generalize at the level of the work group, the professional's back-
ground, the organization,the strategicgroup, the industry or the national culture?
With hindsight we see strategy was previously limited to the questions sur-
rounding the direction of an existing enterprise,and was never about its creation
or the reasonsfor its integrity or persistenceunder conditions of uncertainty.
Given BPS's recent progress,we can no longer take the organization,its bound-
aries, integrity or rationality for granted.By drawing in theories from other dis-
ciplines the strategicagendahas been enrichedand extended- and pushedmuch
closer to the strategicconcernsof practisingmanagers.In today's turbulent times,
with mergersand acquisitionsbooming, and global hypercompetition,managers
are no longer able to kick back and presumethe existenceand persistenceof their
firm. They appreciatethat it must be continually restructuredand re-engineered
aroundthe new circumstancesit confronts.The simplicity has gone.The comfort-
able and easily taught strategy/structure-fitlerformance and strategy-industry
conduct-performanceparadigmshave been pushedaside.
At the sametime we seethat BPS is in dangerof being reducedto a seriesof
specializedsub-fieldsthat find it increasinglydifficult to communicatewith each
other. Languageand methodologiesdivergeas someanalystspursuecases,or use
ethnographic,semiotic or deconstructionistmethods,while otherspursueincreas-
ingly sophisticatedquantitativeanalysesor game theory. The levels of analysis
vary widely, too. Some work with individual decisions,some with autonomous
work groups, others with industries and nations. To cover contemporary BPS
researchwe would have to touch on all of the following, providing each with an
assessmentof its researchmethodologiesand findings, and its relationship to
organizational perforrnance:

. planning, implementation,accountingand information systems

. strategy/structure,fit
o growth stagesand life cycles
. horizontal and vertical integration and outsourcing
cH02. QXD 08/09 /2000 10:05 AM page 34

34 Rethinking
Strategg
. joint venfures,mergers,acquisitionsand portfolio management
. top, middle managementand workplace teamwork
o gslno theory, bargainingand co-operation
. industrial organization, strategic groups and oligopoly
. instifutional and transactioncost economics
o agency theory, property rights and corporate control
. technology strategy,developingand protecting intangible assets
. skills, tacit knowledge and organizationallearning
' organizationalculfure, symbolism, communicationand changemanagement
o interorganizationalnetworking and strategicalliances
. globalization, localization and internationalcompetitiveness.

Though this list is not exhaustive,it seemsa forbidding menu of ways for think-
ing about why one firm performs beffer than another or about why firms differ
(Schendel,1991).At its worst it is little more than a laundry list of fashionable
'strategic
lenses',but even then its scopeimplies how rich is the strategytheory
we now seek,how great is the progressmade since the 1960s.

Toward a Dynamic Theory of Organizational Strategy

In this final sectionwe arguethat our field's fragmentationis more apparentthan

real. Far from dividing into discipline-orientedsub-fields,BPS is actually cohe-
rent and in an energetic phase of progressive critical science. The preceding
sectionsshow that the field has advancedto the point where strategyis still about
organizations,but its scopehasbeensignificantly increased.We have madeprob-
lematic what was previously taken for grantedabout the creation,persistenceand
performance of organizationsunder conditions of bounded rationality, internal
heterogeneityand internal and externaluncertainty.The persistenceoi the field,
given the onslaught from these other disciplineg is also an expressionof our
faith in its ability to capture management's strategic contributions. Strategy
remains distinct from economics, psychology, political theory, operational
research,mathematicsand the other fields from which its bono*., oniy so long
as it capturesand reflects management'sagency,intuitions, tacit knowledg. und
creativity, and thereby appropriatestheseother disciplines' categoriesto its own
purposes.
The familiar parts of BPS, planning, implementation,control, market analysis,
environmental assessment,fit, competitive activity and the application of new
technology, are riddled with genuine theoretical.problems.Yet we cannot let
managerialpractice be subordinatedto purely 'academic' concerns.If we have
trouble with the TCA, biased decision, and game theory approaches,and think
they are going to split our field, it is only becausewe have too little intuition
about how these can be used to illuminate managerial practice. Ghemawat's
(1991) descriptionsof the use of game theory in oil leasebids, Burgelman's
(1991) analysisof technologychoice at Intel, or Dutton and Dukerich's (1991)
analysis of image managementat the NY Port Authority, are reminders of the
absolute necessity to stick close to the actors who develop these intuitions.
cH02. QxD 0e / 09 / 2000 10 : 05 AM pase 3 5

Policgand Strateguas a professional

Business Field ?,
Insisting on this attachmentis Mintzberg's enduring contribution to our field.
So long as we retain good intuition about the organizationand its strategicprob-
lems we will be able to make use of many new categorysystems.We suffer frag-
mentation only when we get taken up with these other disciplines' theoretical
disputes.Interfunctionalcapstonecoursesno longer carry the clout they once did,
even at HBS, and no-onegetstenurenow for teachingor writing cases.But if our
field abandonsits commitment to managerialpractice and no longer troubles to
discover the strategicpractitioner's core intuitions and heuristics,it will become
a dry husk, ready to be ripped apart and subordinatedto theseother disciplines.
One look at our history shows this tension is not new; it came with the territory
(Redlich, 1957) and is an unavoidableconsequenceof applying the abstractions
of scienceto the rich complexity of human affairs. The tension is always poten-
tially damaging,but it is also the principal sourceof our discipline's dynamism.
In the preceding sectionswe have arguedthat the field has been extendedin
two directions: (a) to a richer understandingof the multiple rationalities behind
strategicactivity and (b) to multiple levels, so embracingthe systemicstructures
and processesabove and below the firm. These alternative analysesare well
understoodby practitioners.Their intuitions about managingthe limits of ration-
ality have been obvious in their attachmentto political theories of the firm and,
more recently, their ready adoption of organizationalculture and its analysis.
Their familiarity with multiple levels has been evident in their use of both cost
accounting and total quality management(TQM) at the transactionlevel and of
the industry analysis in Porter's model. In short, we could argue that managers
are used to working with a two-dimensional analytical matrix. One dimension
dealswith rationalities,from the universalprofit maximizing of economicsto the
arbitrary and idiosyncratic (such as the founding entrepreneur's).The other
dimensiondealswith alternativelevels of analysis,from the elementalactivity of
work study through the transactionand organizationallevels, up to the industry,
national and global levels.Practitionersare able to meld thesedimensionsso long
as they maintain a strong senseof the relationshipbetweentheir praxis and the
organization'spurposes.As they ask 'what does it mean for us?' they seek to
transform the abstractionsof the analysiswith their intuitive senseof the organi-
zation's ontology, i.e. what really maffersto the firm. Academics often lack this
senseof the organization's identity and so conclude our field is fragmenting. In
the next sectionwe suggestthat the organization'sidentity emergesfrom its prac-
tices. This opens up a third dimension of analysis,one that enablesus to move
towards a truly dynamic framework that narrows the gap between theory and
practiceeven further. (Seealso the discussionon synthesizingschoolsChapter l.)
It will, of course,causemany in academiato see further fragmentation.

The Dynamicsof Organization:Knowledge,Routines,

Learningand Heuristics
The discussionsof tacit knowledge, intangible firm-specific assets,learning by
doing and creative destructionsuggesta new phaseof strategictheorizing as we
move towards the knowledge-basedtheory of the firm. The focus on organiza-
tional knowledge and learning shows a new convergencebetween instifutional
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36 Rethinking
Strategg

economics,political theory, game theory and cognitive theory, especially in the

technology strategy area (Grant, 1995, 1996; Itami, 1987; Kogut and Zander,
1992; Leonard-Barton,1995;Nelson and Winter,1982; Nonaka, 1990b;Nonaka
and Takeuchi, 1995; Spender,1996;Teece, 1987;Weick, 1995;Winter, 1987).
Despite the many levels at which these conceptsare applied, there is growing
agreementthat, in a reasonablyefficient and competitive market economy, knowl-
edgeand skills are the principal sourcesof sustainedcompetitiveadvantage.Yet,
as Connerpoints out, this kind of analysisis perilously closeto being tautologous
(1991: 145).Somenew categorizingschemeis requiredif this line of theorizing
is to progress.At one level it will be necessaryto distinguish whether a firm is
simply reducibleto its definableresources,as the resource-based view implies, or
whether it also comprises'non-resources'such as culfure, trust, commitment or
esprit de corps.
The key question becomes,'How do we acquire, protect, apply and sustain
theseintangible resources?'and it moves us away from the static categoriesand
frameworks that are boundedby the laws of physics, the conservationof matter
and the second law of thermodynamics.We escapethe zero-sum and open the
way to a dynamic Schumpeterianor Penrosiantheory of businessstrategy,of the
growth of the firm, its resourcesand the economy.But our field still strugglesto
fit such dynamic notions into its familiar static structures(see Frans van den
Bosch on dynamic theories,Chapter6). If the firm's knowledge is idiosyncratic,
scarceand the sourceof sustainablecompetitiveadvantage,it is being considered
a tangible but essentially static asset.Theories grounded in the immobility or
'unimitability'
of core skills are attempts to quash the dynamic and save the
staticconceptsof traditionaleconomicthought(Lippman and Rumelt, 1982).They
delay the time at which the field commits to a more dynamic theory and methodo-
logy. But strategicpractitionersare telling us that that time has arrived.
Theoriesof organizationlearningabound(Cohen and Sproull,1996; Healy and
Bourne, 1995; Moingeon and Edmondson, 1996; von Krogh and Roos, 1996).
Despite their seeming diversity, these theories actually converge on the criteria
that BPS researchersneed in order to capfurethe recentcontributions from other
fields. For instance,transactioncost economicstells us to look at the effect of
conflicting individual rationalitiesand opportunismunder impactedinformation.
The strategist'sresponseis neither the economist'snor the political theorist's.
While economists look to agency theory and perforrnancebonds and political
theoristslook to power, strategistslook to the kind of organizationallearning that
resffains moral hazard and generatestrust (Fukuyama, 1995). Political theory
tells us that individuals struggle to protect their own interests,but society exists
and functions becausetheseindividuals also learn that it is in their own interests
to accept political and social institutions. Likewise, indusffial organization eco-
nomics tells us to look at mobility barriers, but switching costs,product differ-
entiation and customer loyalty are individual learning institutionalized into
economic behaviours. Game theory now informs us about the possibility of
individual learning, which, institutionalized, becomes group co-operation
(Axelrod, 1984; Shapiro,1989;Taylor, 1987).Such learningleadsus to look at
the institutional structures that bind diverse and competing economic actors
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BusinessPolicyand Strategr!as a professional

Field 37
together into economic systems and, in so doing, provide their rationality.
Increasingly,as leaming seemsthe key to the emergingstrategicparadigm,these
institutional structuresbecome the real focus of strategicanalysis in our expan-
ded theoretical agenda.The effect is to shift the emphasisonto how the firm's
executivesinfluence thesestructuresand therebymanagethe processesof indivi-
dual and organizational learning, and how these processesinter relate as indivi-
duals coalesce into an institutionalized community-of-practice (Brown and
Duguid, l99l). The knowledge generatedis both diffused around the organiza-
tion, the essenceof Nonaka and Takeuchi's (1995) analysis,and institution alized
in the organization'sroutines(Nelson and Winter, 1982).

Dealingwith Practice
To break through into a truly dynamic knowledge-basedparadigm we need to
addressthe conceptsof organizationaland individual practice.Practicelies at the
core of the discussion of tacit knowledge and skills, and it opens up a third
'action'
dimensionof the emergingframework of strategictheorizing.To the two
previous dimensions of strategicanalysis,the need to deal with multiple ratio-
nalities and levels of analysis,we add the distinction between reasonedanalysis
and human action. We argue that human action cannot be fully analysedas the
unproblematic consequenceof reasoneddecision making. Some action may be
ffeated this way, but much cannot, especially that which is sffategic and per-
formed under conditions of uncertainty(Spender,1989:a\. By introducing this
third dimension we suggestthat much of the executive creativity that results in
strategicadvantageemergesonly through action, and as we delve into the notion
of practicewe shall seethat our field's notions of rationality and levels of analy-
sis also change.
Polanyi's (1962) discussion of tacit knowledge is often summarized in the
maxim 'we know more than we can tell', the point being that much of human
knowledge is embeddedin practice and cannot be readily articulated using the
abstractionsof language.Strategistshave recently taken up the taciVexplicit dis-
tinction, recognizingthat the firm's tacit knowledge,embeddedin organizational
routines,is likely to be inimitable and so the sourceof persistenteconomic rents.
But the distinction may be more profound than this. For us, tacit knowledge is not
simply an under-articulatedform of explicit organizationalor individual know-
ing. It also suggeststhat the ability to engageskilfully (and heedfully) in organi-
zational practice is a form of knowing that differs from the explicit form of
knowing associatedwith managerial decision making. The point is not lan-
guage's inability to grasp what some people reveal in their practice, rather that
the knowledge capturedby languageis itself not in the 'world' of organizational
activity. This is most obviously true when we build theoretical models that are
deliberately absffacted and generalized away from'the world we experience.
Practice,by definition, is immediate,in the world and contextualized,and beyond
being wholly capturedin linguistic generalities.
The implication is that to grasp organizationalpractice fully we may have to
move away from the idea of generality.Action is always in context,and strategic
advantage is always in the world. Thus theorists are forced to make strategic
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I Y

3E Rethinft.ingstrategq

judgments about the 'local-ness' or contexfuality of their general analyses,

trading off the particular againstthe applicableelsewhere.Every context has its
own rationality so theorists must pay close attention to the boundaries around
the activities being analysed.Far from moving into the era of 'boundary-less'
organizationsheraldedby someacademictheorists,practisingbusinessstrategists
are already showing us, through their affention to empowerment, teamwork,
strategicalliancesand networking,that they are continually redefiningthe bound-
aries around the organizationalpracticesthey manage.In general,managershave
been far quicker to reconceptualizethe new objects of attention than have the
academics.As a result managersare becoming less concernedwith the firm's
tangible assetsand their ownership, the basis of a microeconomic theory, than
with the pattern of economic activities that they can influence to produce appro-
priable consequences.
This shift of attention presents us with severe methodological challenges
because(a) our establishedtradition of focusing on abstract models may no
longer be appropriateto this new action-orientedresearchobjective and (b) the
abstractionsof languagemay not be able to capturethe immediacy of the skilful
practiceson which this new approachto strategyis focused.Strategyresearchers
must, therefore, work out new questions- and new strategiesfor generating
answers.One strategy,analogousto the researchinto managerialcognition which
avoided pre-supposing the actor's rationality and, following Simon (1976),
looked for its sources,is to look indirectly at the sourcesof skilful practice.Here,
institutional theory might be of considerablehelp. Those who have analysedthe
professions,such as Abboff (1988), show how newcomersare socializedinto the
institutional frameworksthat define skilled practice.As Cassell(1991) illustrates,
the expert's theoretical learning often shapesprofessionalpractice less than the
institr"rtionalstructuresof the world into which thosepracticesmust be fitted. We
also know that professional institutions are extraordinarily sensitive about the
boundariesaround the activities they wish to influence,and this provides us with
a metaphor for strategic managementof the orgafiization as a system of profes-
sional practice. Identifying the boundariesaround the system give us a way of
speakingabout practice,which avoids sacrificing its immediacy and contextual-
ity. Brown and Duguid (1991) lull us into acceptingthe boundary around Orr's
community of photocopier techniciansas a way of identifying both the explicit
and the implicit elementsof the body of knowledge articulatedin their practice.
This achievesthe complex double objective of giving us a senseof (a) the knowl-
edge shared among the photocopier technicians and (b) the story telling that
results in an institutional fabric that holds together the heterogeneity of indivi-
dual experience,skill and interestevident in the tebhnicians'group. The latter, of
course,is the result of the technicians' commitment to their ongoing system of
practice.
Since thesesystemsor communitiesof professionalpracticeare 'in the world',
they can never be designed in the abstract in the way that organization theory
pre-supposesorganizationscan be designed.Organizationsare, instead,partially
emergent and quasi-autonomous systems of organic order, in many respects
more like the informal system that we know infuses every affempt to design an
l""or.q*o o 0 : 0 5 A l " r p a g e3 9
og/og/2oo1 A
I

Policyand StrategAas a professional

Business Field 39
organization.The strategicmanager'srole is redefinedas helping to shapethese
systemsin the light of the historical, socio-economic,technologicaland institu-
tional contexts in which they are embedded.To grasp organizationsas quasi-
autonomous systems of professional practice, strategy theory must, therefore,
abandonthe mechanisticnotion of organizationdesignerand pay greater atten-
tion to the 'affordances' (Norman, 1989: 9) or the means and 'levers' through
which managers might influence such systems. The idea that sffategists are
attempting to influence systemsof practice containing diverse rationalities and
multiple levels of action, as individuals, groups, organizations,institutions and
interestsinteract, is richly illustrated in Latour's (1996) extendedanalysisof the
history of the Aramis personalrapid transit project. In so far as this gives us a
senseof what the new knowledge-basedparadigm of strategictheorizing might
be like, we might see severalcharacteristicfeaturesemerging. We are no longer
abstract theorists trying to give managersthe universal laws of an economic
process 'out there' that they then use to design their firms. Instead we have to
becomeprofessionalpractitioners,dependingon our intuitions, as well as on the
data, as we offer practical advice about how managersmight more effectively
influence the specific systemsof which they are part. We offer heuristicssuch as
(a) look for the system's affordancesor levers,(b) get a senseof the heterogene-
ity of the actors' rationalities or the system's 'interpretive flexibility' (Bijker,
Hughesand Pinch,1987:4), (c) probe the dynamicsof institutional structuresand
learning processesthat hold the diversity togetherand result in the senseof iden-
tity emerging among the actors and (d) think through how the emerging bound-
ariescan be managed,extendedwith alliancesto draw in more activity or reduced
by 'outsourcing' and 'downsizing'. Thesemay seemsmall steps,but they consti-
tute significant movementtowards a completelynew paradigmof strategicanaly-
sis that treats the firm as a real system of dynamic knowledge processes,
contextualizedand 'in the world'.

Conclusion

In this chapter we explored recent changesin the field of businesspolicy and

strategy. Over the last decadethere has been a vast increasein the variety of
methodsand conceptsbeing applied.It is especiallyobvious that the field's tradi-
tional tendency to borrow from other disciplines has accelerated.Industrial
anthropology and cognitive theory opened up the analysis of organizational
culture and employee rationality. Economics, both'the industrial organization
(IO) and the transactioncost analysis(TCA) varieties,made major new impacts.
Game theory helped us develop complex rigorous models of interfirm competi-
tion. International business theorists pursue ever more eclectic models. As a
result many writers consider BPS to be fragmented,bordering on the chaotic. We
arguethat this is typical of a field developingrapidly through a period of critical
science.Within BPS the questionsnow being consideredare richer and more fun-
damental than ever before. With the benefit of hindsight, we can see that stra-
tegic analysisused to be only about the direction of an extant enterprisetowards
objectives given by the owners or their agents.We'understood little about the
 | ""0, .o*o 0 8 / 0 9/ 2 o o o j - 0 :0 5 A M p a q e 4 0 A
I

40 Rethinfting
Strategy

competitive, cognitive and market constraintsover these goals. These became

clearer after (a) Chandler (1962) reshapedthe field around the internal srructur-
ing and market engagementsof firms and (b) Simon (19 ) drew our attention to
boundedrationality. Now, after Porter (1980), Williamson (1975) and Nelson
and Winter (1982) we seethat strategicanalysisis also about the creation of the
enterprise,the resolution of divergent interestsand rationalities, the choice of
governancemode and of conduct towards competitors,and the managementof the
firm's body of intangible and hard-to-imitateknowledge. We now inkoduce the
notion of practice, in particular the idea of communitiesand systemsof practice,
as a third dimension of the emerging strategicanalysis.This allows us to draw
attentionto the institutionalstructuresand practicesthat hold diverserationalities
and interests together long enough for a sense of organizational identity to
emerge. We concluded with suggestionsabout how managersmight influence
these systems of practice, offering four types of heuristic for looking at the
system's (a) affordances,(b) interpretiveflexibility, (c) institutional identity and
(d) boundary management.

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