The Fundamental Questions of Strategy: Are They (Still) the Same?
Posted: October 17, 2011 Filed under: bleg, competitive advantage 3 Comments
I was recently thumbing through the book Fundamental Issues of Strategy: A Research Agenda (1994, edited by Rumelt, Schendel and Teece). The book features essays by a diverse group of scholars (from various disciplines: economics, strategy, sociology, political science, psychology): Kahneman, Camerer, Krugman, Barney, Nelson, Carroll, Porter, Williamson, Schleifer, and strategyprofs.net’s own Steve Postrel (an essay on game theory) and others.
The book was framed as an attempt to provide an “intellectual backbone” for the field of strategy. I won’t get into the book itself (which indeed has many interesting essays), but Rumelt et al say that the goal of the book is to “define the field” and its “fundamental questions.” Their four fundamental questions of strategy are as follows:
- How do firms behave?
- Why are firms different?
- What is the function of, or value added by, the headquarters unit in a multibusiness firm?
- What determines the success or failure of the firm in international competition?
So, my question is, are the fundamental questions of strategy still the same? I don’t know what agreement there might of been about these specific questions back then, but it seems that the field of strategy is now wildy more heterogeneous than the above questions suggest. Well, for better or worse.
I think organizational difference or heterogeneity certainly remains at the core of strategy – differential performance and competitive advantage. But related to that, there are additional questions that I think are important:
- What about organizational boundaries and capabilities? The market-hierarchy nexus. It seems that economists have given up on the Williamsonian program, so it remains for strategists to do this important, comparative work.
- What should be strategy’s unit of analysis? There are many questions about whether firm-level advantages are even meaningful – should we focus on lower levels of analysis (individuals) or even higher (alliances) and higher ones (society)? So, what do we mean by competitive advantage? Who’s advantage?
- How do we aggregate? Firms are often treated as singular decision-makers though naturally there are important aggregational questions about how the firm’s expectations, strategies etc arise? There certainly seems to be a trend to study the “psychology” of strategy.
- What about decision-making? How do insights from the psychology of decision-making need to be adapted in the context of firms and organizations? There is lots of (I think sloppy) borrowing from other disciplines, but I think the more careful theoretical work of specifying how the organizational context changes these borrowed constructs is rarely done.
- What about organizational design and strategy? For example, what are the implications of open innovation on strategy?
- What about technology-related issues? Where do they fit in?
Well, the list of questions could probably be long – uncomfortably long. I suppose any set of “fundamental” questions depends on how abstract versus specific we would like to get. So, should and does the field of strategy have “fundamental” questions? Any thoughts would be great.
StrategyProfs.net 
I don’t think economists have abandoned the firm boundary question, but the Grossman-Hart and related approaches are their go-to tools for attacking it, not Williamson’s framework.
The unit of analysis question as posed is more about purpose than substance. There is a substantive question about whether firms empirically explain rent or profit distribution. One could state this as whether or not within-firm stakeholder payments are correlated more than between firms. I’m not sure this is “fundamental.”
The aggregation question again seems to me a pragmatic rather than fundamental issue. For some purposes, the unitary actor model is adequate, for others it’s not. Given the vast econ literature on agency models and team theory, this is not a distinctive topic for strategy.
Decision-making seems to fall under the “how do firms behave?” question from Rumelt et al.
Organizational design is certainly an important issue, especially as it relates to getting the organization and the strategy to match. I’m not sure that’s a fundamental question, but it’s certainly an important one. Don’t you have some other blog where this also is discussed?
“Technology-related issues” is too broad to be a fundamental question. Our TIMS friends might not like us poaching, but it’s impossible to cabin off strategy from these issues.
[…] recently asked us whether the fundamental questions of strategy have changed since Rumelt, Schendel & Teece’s classic work. Relatedly, Mike wondered if strategy has […]
How about ‘how to deal with change?’ as a fundamental question. If there is anything that you can be sure about is that the future is going to be different from the present yet strategy research has not really engaged with this. Sure there is the notion of ‘dynamic capability’ but this occurs to me as inventing a construct that is taken to explain something – the ability to deal with change – but then getting stuck because empirically there is little to match this concept with. Could it be that this is because most theorizing here takes on the form of defining what it is that needs to be achieved and is not based on investigations how this actually is happening?