From Resource Allocation to Strategy PDF
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FROMRESOURCEALLOCATIONTOSTRATEGY This page intentionally left blank From Resource Allocation to Strategy EDITEDBY Joseph L. Bower Clark G. Gilbert 1 3 GreatClarendonStreet,Oxfordox26dp OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwidein OxfordNewYork Auckland CapeTown DaresSalaam HongKong Karachi KualaLumpur Madrid Melbourne MexicoCity Nairobi NewDelhi Shanghai Taipei Toronto Withofficesin Argentina Austria Brazil Chile CzechRepublic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore SouthKorea Switzerland Thailand Turkey Ukraine Vietnam OxfordisaregisteredtrademarkofOxfordUniversityPress intheUKandincertainothercountries PublishedintheUnitedStates byOxfordUniversityPressInc.,NewYork (cid:1)OxfordUniversityPress2005 Themoralrightsoftheauthorshavebeenasserted DatabaserightOxfordUniversityPress(maker) Firstpublished2005 Allrightsreserved.Nopartofthispublicationmaybereproduced, storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans, withoutthepriorpermissioninwritingofOxfordUniversityPress, orasexpresslypermittedbylaw,orundertermsagreedwiththeappropriate reprographicsrightsorganization.Enquiriesconcerningreproduction outsidethescopeoftheaboveshouldbesenttotheRightsDepartment, OxfordUniversityPress,attheaddressabove Youmustnotcirculatethisbookinanyotherbindingorcover andyoumustimposethesameconditiononanyacquirer BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressCataloginginPublicationData Dataavailable TypesetbySPIPublisherServices,Pondicherry,India PrintedinGreatBritain onacid-freepaperby BiddlesLtd.,King’sLynn,Norfolk. ISBN0-19-927744-3 978-0-19-927744-5 1 3 5 7 9 10 8 6 4 2 Toourwives,NancyandChristine,whoreminduswithgracethatour allocation of time to our families is the surest manifestation of our personal strategies Preface It is now commonplace that the work of economists deals with organ- izationswhosebehaviorisdeeplyembeddedinsocialphenomena.Itis alsotrue,thoughnotnearlyaswellaccepted,thatsocialorganizationis significantlyimpactedbyeconomicforces.Theseideasweretheopen- ing thoughts in a preface to the 1970 book, Managing the Resource AllocationProcess,andcontinuetoserveasthecornerstoneofthework reported here. But from a perspective 35 years later, we believe there has not been enough progress in business research explaining the interaction between organizational and economic forces. Sometimes it seemsthatresearchersineconomicsandsociology,whileacknowledg- ing the importance of the other’s subject area, seem committed to see how far one of the disciplines can be stretched to explain phenomena that seem to be the subject of the other, without compromising core assumptions of the initial discipline. This is particularly odd because professional managers have been building organizations that draw on research from both fields. Even financiers talk about the ‘social’ dimensions of a merger. The best human relations officers now sit close to top corporate management andhelpdevelopleaderswhocancraftanddeliverprofitableeconomic strategiesinbrutallycompetitivetimes.Andwhiletherehasbeensome progressintheory—wenowhaveorganizationaleconomicsandbehav- ioral finance—there is less progress than one would expect given how much we have learned about the way economic enterprise actually works. Infact,theideaforthisbookgrewoutofafrustrationwiththisslow progress. We thought that researchers might be helped if we could bringtogetheraseriesofstudiesbeginningin1970andendingjustthis year that describe how economic enterprise actually works in dealing Preface vii with strategic resources and issues. These studies have in common a multidisciplinaryapproachtothetheorythathelpsexplainandprovide a basis for improving management behavior. They share methodology as well: all involve careful field observation in multiple settings. The studies from the 1990s have been increasingly complemented by em- pirical work that confirms both the significance of the exogenous variables considered (such as changes in environmental turbulence, or the existence of discontinuous technology) and the generality of the findings. These studies point to a clear picture of how large organizations organizetomanagetheirresources.Withoutexception,theseactivities are distributed more widely across the organization than is usually imagined.Morechallengingforbothdescriptiveandnormativetheor- iesofdecisionmaking,activitieswhoseconsequencesareinterdepend- ent will typically proceed independently and simultaneously, posing hugeproblemswherecoherenceisacentralrequisiteforefficiencyand effectiveness. While it would seem that such complexity would defy the ability to usetheresearch,ithasprovidedthebasisfornumeroustools.Portfolio strategy systems were developed by consulting companies soon after weaknesses in conventional capital budgeting systems were identified. Incentive systems based on individual and team objectives (MBO systems) were built to deal with the limitations of systems built on structural symmetry. Project finance tools were developed to serve strategies whose financial demands exceeded the capabilities of re- source allocation systems built to commit internal cash flow. But again, with exceptions, management researchers have lagged in recognizingandexplainingtheprogressbeingmadeinthefield.Some- what like medicine before modern biochemistry began to provide a fine-grained picture of human functions, scientists raced to catch up andexplainwhatgreatclinicianscouldaccomplish—inthiscase,great managers. We feel sure that management researchers can do a better job of catching up with great management practitioners if they take advantage of some of the work reported here. To test that hypothesis, we asked four distinguished discipline-based researchers to consider the implications of the body of the book for their own fields. In their responses, all have developed intriguing questions for future research. Our hope is that all readers have the same experience. We present a straightforward way of looking at an organization in terms of two processes: one considering the substance of options brought forward, the other involving the choice among options. That distinction is evident in each chapter. We also consider how those choices are viii Preface made. The first chapters offer a model of the process. The second group of chapters considers how that process breaks down. The third sectionconsidersdifferentapproachestofixingthosebreakdowns,and the fourth section examines the role top management plays in dealing with these issuesin verydemandingenvironments, ranging from high technology to globalization. If our hope is fulfilled, you will become intrigued and find ways of probing deeper into the dilemmas reported. J.L.B. C.G.G. Acknowledgements TheresearchstreamthathasledtoFromResourceAllocationtoStrategy commencedatHarvardBusinessSchoolunderthelateDeanGeorgeP. Baker.Hesupportedayoungassistantprofessorwhowantedtospend two years studying one company long before ‘ethnographic studies’ acquired a certain cachet. Professors Kenneth Andrews and Roland Christensenwerewhatthisbookcallsthe‘integratinglevelmanagers’, investing their credibility as supervisors in backing the idea. Since then,DeansJohnMcArthurandKimClarkhavecontinuedtosupport faculty engaged in what has come to be called process research. We begin this acknowledgement with sincere thanks for their support. More recently, this process has played out for another young assist- antprofessorwhofeltthatthisresearchwasstillnotwellunderstoodby manyofourcolleaguesinthefieldofstrategy.Thus,weextendthanks toHarvardBusinessSchoolresearchdirectorV.KasturiRangan,who heard passion from a young scholar, saw the potential, and lent his credibilityinbackingthisprojectwhenmanyothersfeltitwastoorisky and suggested time be invested elsewhere. We also appreciate Teresa Amabile, head of the Entrepreneurial Management Unit at HBS, for her willingness to support this project by providing Clark Gilbert a teaching sabbatical that allowed the focus needed to complete this project—a resource allocation decision that most certainly reflected a strategy of commitment to junior faculty development. The work of this book was conducted in two forums: thesis and faculty research by individual authors and a series of seminars and workshops conducted during the mid and late 1990s at Harvard Busi- ness School. We are indebted to all the faculty who have provided adviceandcounsel,aswellasthemanythatattendedtheseminarsand
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