a model for firm-specific strategic wisdom - including illustrations and 49 guiding questions
Roeland van Straten is a PhD Student in the research group Change Management & Organization Behaviour (CMOB), his Supervisors are professor Celeste Wilderom and professor Marianne Junger from the Behavioural Management and Social Sciences Faculty (BMS)
This PhD thesis provides an answer to the question ‘How may one think strategically’. It does so by presenting a new prescriptive ‘Model for Firm-Specific Strategic Wisdom’. This Model aims to guide any individual strategist in his or her thinking from a state of firm-specific ‘ignorance’ to a state of firm-specific ‘strategic wisdom’. The investigation that led to this Model rests on my conclusion that theory can very well inform the strategist, but it still cannot guide him or her in practice. This omission results from the fact that differences between firms ultimately define financial success, which renders aggregate and statistical input of limited use, and from the fact that when it comes to value creation, there are no natural laws. Hence, individual strategists are helped the most when they are taught how to actively form a coherent and justified mental model of a specific industry or firm. And, because it is also argued that the goal of strategic thinking is being prepared for strategic decision making, such a mental model need only include the information that contributes to that goal.
The proposed Model does not claim to enable the predicting of firm-specific outcomes, but it does aid the strategist in the forming of a mental model that will systematically reduce that uncertainty. The claim is that the more a strategist is able to form an accurate mental model in the prescribed manner, the better he or she will be able to judge and choose among courses of action, which reflects strategic wisdom.
As the Model presents a structure for thinking itself, it also does not prescribe what to think or conclude regarding industries or firms. Instead, it shows the strategist how to think to reach a higher and more justified level of understanding. It does so normatively, but also procedurally as it tells the strategist what piece of information to gather, when and how to make statements based on that information. To support this process, a simplified overview is provided of 49 guiding questions. These questions correspond with each of the seven identified subcategories of information for each of the seven distinguished ‘Narratives’ in the Model. Every question aims for certain propositional knowledge, being the type of knowledge that is expressed through statements. Propositional knowledge does not qualify as knowledge unless what is stated is logically true and sufficiently justified, either by evidence or argument. The idea is that the Model facilitates a consistent application of this principle when generating statements regarding an industry or firm. As a consequence, the Model provides an outline for a very particular thinking structure because it effectively demands that the strategist explicitly justifies every statement regarding what is part of one of the identified subcategories of information.
THREE PHASES
The proposed Model guides the strategist in his or her work by showing that the entire strategic thinking process consists of three phases. The first ‘Empirical Phase’ is aimed at the establishing of a foundation of facts and provable or likely causes-and-effect relations. The second ‘Sensemaking Phase’ in the Model subsequently shows how the strategist can ascribe meaning to the knowledge that was produces in the previous phase. This meaning relates to the possible impact of that knowledge for future value creation. The assumption made is that this ascription of meaning is possible only to the extent that information regarding an industry or firm is compared to information from other industries or firms. This is assumed because performance in business is fundamentally relative, meaning that in principle no information has any absolute intrinsic meaning. There is no objective norm for what is ‘good’ when it comes to value creation. Hence, information has contextual meaning only, and that context revolves around long-term value creation. The end goal of this phase effectively entails the establishing of a coherent value-creating theory for an industry or firm.
The application of that knowledge is what is central to the final ‘Envisioning Phase’ in the Model. To this end, the Model shows how the strategist can systematically use all past information and sensemaking to coherently envision the future business environment of an industry, and a firm’s relative position within that environment. That mental picture of a firm’s environment, in combination with the practical value-creating theory for a firm represent the knowledge that is needed to make sound judgments, and choose among alternative courses of action.
THE MODEL’S DESIGN
The Model’s design does not rely on observations. Instead, it was built-up like an analytic philosophical system, using a foundation of axioms, key ontological and epistemological principles, and logical inference. Based on these presumptions, the Model’s design largely entailed a theoretical investigation into the possibility for and the, either inevitable or necessary, boundaries of firm-specific strategic wisdom. The first step in the design process entailed the establishment of five axioms regarding the nature of a firm, the nature of strategic thinking, and the nature of knowledge. The second step entailed the development of a Conceptual Frame of Reference for Strategic Wisdom that could set the boundaries and canons for a model for firm-specific strategic wisdom. The third step entailed the inference of a new way of ordering all imaginable business world information. This step led to the Model’s principle building block, which is a unique onto-epistemological ‘Information Trichotomy’. This particular Information Trichotomy is mutually exclusive and collectively exhaustive for the purpose of strategic thinking and, as such, it provides a new ‘key’ to understanding the business world. The final design step entailed the synthesis of all previous steps, which resulted in the design of the Model.
The Model contributes to the field of strategic management in at least three ways. Firstly, it contributes because it attempts to map the largely uncharted field of how to become ‘strategically wise’. Secondly, by enabling the integration of all financial, non-financial and discipline based knowledge in one coherent thinking exercise, it provides a detailed answer to Herbert Simon’s famous 50 year old quest for a ‘full solution to the organizational design of a business school’. Thirdly, with the Model, students can be taught to reflect on decision making using rich, domain-specific content matter.
