Sunday, September 19, 2010

The Imaginative Strategist

By Dr. Suhaib Riaz.

Here’s something you won’t find in the typical strategy textbook: Strategy is all about human imagination and creativity. Strategy is about being human. 

I have been pondering over the these aspects for a while, and now comes a paper taking another look at the dominant strategy theory out there, the resource-based view (RBV) [Kraaijenbrink, Spender & Groen: Journal of Management, 2010]:

"The key differences here from the current RBV are that in environments that are not highly predictable and mature, the primary locus of value creation may lie within the firm, within the imaginative and creative capabilities of the people involved in it, rather than in the market and the prices of the resources they obtain (Denrell, Fang, & Winter, 2003; Romer, 1990). By “the people involved” we imply both the employees and those many not conventionally considered to be members of the firm, such as “lead users” (von Hippel, 1986) and those who materially shape its infrastructure, such as government regulators. Hence, although we agree with Penrose (1959/1995), N. J. Foss et al. (2008), Kor and Mahoney (2004), and Mahoney (1995) that the entrepreneurial or managerial team plays a pivotal role in recognizing and creating value, our conception of the people involved is even more inclusive. Locating the source of value creation within the imagination of those networked provides room for radical, disruptive innovation and a dynamic view of value..."

There are of course shades of C.K. Prahalad's "co-creation of value" ideas in here. Which takes us forward on why this should mean studying Practice as a starting point for strategy research is key: 
"The role of the entrepreneurs cannot be limited to imagining value that others do not see. Rather, it must embrace bringing the resources together in such a way that the value they imagine is delivered. This imagining of value and the bringing together of resources can be considered a process of mutual interaction in which resources partially shape people’s mental models, and these enable them to find value in the resources (N. J. Foss et al., 2008; Mahoney, 1995). Thus, value must be discovered and created through practice that is anticipated and reflected on imaginatively and subjectively."

Some of their main suggestions, that I found interesting, are outlined in brief as follows: 
  • Bring human imagination into the center of the RBV: (a) Investigate the value assessment processes by which new ways to create and capture novel value are conceived. (b) Study whether and how human ideas ignite revolutionary modes of value creation.
  • Study the social influence mechanisms through which entrepreneurs create value by convincing others of the value of their products. 
  • Focus theorizing about “value” in the RBV on the socially recognized rights of action associated with resources rather than on some abstract objective value of the resources themselves. 
  • Develop a resource-based explanation of SCA (Sustained Competitive Advantage) that focuses on the differences in people’s capacities to identify or imagine and judge the potential risks and benefits associated with the ownership of resources.

Oh, wait. There’s a role for the wider institutional environment as well, which has so often been ignored in resource-based theorizing:

"The idiosyncratic nature of resource value is further shaped by the specific institutional context of a particular firm. The value of resources in the RBV may therefore also be better understood as it incorporates insights from legal, institutional, and property rights theorizing."

Perhaps the main thought one can have on the above points is: what took us so long to figure this out, much of which is fairly intuitively obvious to anyone in the practice of strategy.

There is no equilibrium in the neoclassical economics sense – non-equilibrium is the nature of the world we live in. Instead of trying to fight the reality with unrealistic assumptions, should we not accept it and develop theory and methods to study it and tell it as it is?

In sum, the resource-based view (and its extensions into capabilities etc.), which has been the dominant strategy theory for a while, necessarily needs to reconnect with industry practice to shape its future development. Such engagement will hopefully bring back people, with their creativity, imagination and subjectivity, centrestage in strategy – many in industry practice know about this intuitively and remain puzzled by the lack of such concepts in academic work in the field. I’ve been collecting my own thoughts on this topic for long – but this paper said most of it well.

Perhaps it is apt to end by mentioning that BusinessWeek, in a tribute to C.K. Prahalad, noted“Among Prahalad’s last works was a column in the April Harvard Business Review. It concluded with this thought: ‘Executives are constrained not by resources but by their imagination.’” 

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