From Resource Allocation to Strategy

501 Pages·2006·1.58 MB·English

by  Joseph L. Bower

FROMRESOURCEALLOCATIONTOSTRATEGY
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From Resource Allocation to Strategy
EDITEDBY
Joseph L. Bower
Clark G. Gilbert
1
3
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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