Engineering of Strategy: A General, Unified Theory of Performance and Strategic Management

Excerpt

Strategy scholars and others have long been concerned about the limited relevance and usage of strategy theories and methods by business executives and management consultants. Reflecting on many years spent designing strategy for organizations and then teaching the topic with the field’s standard frameworks and theories, it seemed that this disconnect with real-world strategic management may arise from some serious, yet basically simple problems. First, most research into the causes of enterprise performance attempts to answer the wrong question – what explains profitability differences between firms? In reality, as has been axiomatic in the Finance field since the 1970s, investors invest in firms in order to access hoped-for growth in free cash-flow (the cash flow that remains after paying interest and taxes and financing future growth plans). Secondly, the field has looked in the wrong places for the answer – twice! During its early history, it was assumed that exogenous factors largely determined the profitability firms could achieve. When it was shown that firm-specific factors were more influential (Rumelt 1991), research turned to focus on firms’ internal features but chose to neglect the tangible resources of which any enterprise consists – simple things like customers, staff, product-range, and physical capacity. Lastly, research has relied on the deployment of statistical methods (notably multi-variate regression analysis) that simply cannot handle the accumulation processes, threshold effects, interdependencies, and feedback that pervade any real-world case. …