Introduction
1. Charles S. Pierce, “The Logic of Abduction,” Pierce’s Essays in the Philosophy of Science ed. Vincent Tomas (New York: Liberal Arts Press, 1957), 195–205.
2. Michael Porter, “What Is Strategy?” Harvard Business Review, November–December 1996.
3. Dan Lovallo and Lenny T. Mendonca, “Strategy’s Strategist: An Interview with Richard Rumelt,” McKinsey Quarterly, August 2007.
4. Ibid.
5. Thomas J. Peters and Robert H. Waterman, Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (New York: Harper & Row, 1982).
6. John A. Byrne, “Oops! Who’s Excellent Now?” BusinessWeek, November 5, 1984.
7. James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994).
8. James C. Collins, Good to Great: Why Some Companies Make the Leap—and Others Don’t (New York: HarperBusiness, 2001).
9. Bing Cao, Bin Jiang, and Tim Koller, “Sustaining Top-Line Growth,” McKinsey Quarterly, May 2011.
Chapter 1
1. This chapter has greatly benefited from collaboration with Teppo Felin, most particularly in Teppo Felin and Todd R. Zenger, “Entrepreneurs as Theorists: On the Origins of Collective Beliefs and Novel Strategies,” Strategic Entrepreneurship Journal 3, no. 2 (2009): 127–146; and Teppo Felin and Todd R. Zenger, “Strategy, Problems, and a Theory for the Firm,” Organization Science 27, no. 1 (2016): 222–231. The chapter has also benefited from collaboration with Nick Argyres (see Nick Argyres and Todd R. Zenger, “Capabilities, Transactions Costs, and Firm Boundaries,” Organization Science 23 (2012): 1643–1657).
2. In James Burke, PBS Documentary Connections, 1979.
3. In Josh Ong, “Steve Jobs’ ‘Lost Interview:’ Design is keeping 5,000 things in your brain,” appleinsider, November 15, 2011.
4. In “The Theory of the Business” (Harvard Business Review, September–October 1994), Peter Drucker also suggests that firms have a “theory of the business,” sometimes correct and sometimes incorrect, that guides their choices.
Over the past two decades, psychologists have developed a new and increasingly influential theory of how we learn. The approach, oddly titled the theory theory, suggests that from infancy, we learn by composing and acting on theories of our surrounding world. For instance, infants acquire language by composing a theory of language and grammar, which they then use in a predictive manner to compose sentences that often bear little resemblance to any they have ever heard (Noam Chomsky, The Logical Structure of Linguistic Theory [New York: Plenum, 1975]). Thus we learn to navigate our complex world by acting much like scientists—cognitively composing theories, formulating hypotheses, and running experiments. Our theories serve to guide actions, providing unique vision and serving as filters through which we interpret our observations and update our actions. By logical extension, individuals who achieve high levels of cognitive development are enormously adept at crafting accurate theories, generating hypotheses, processing feedback, and then appropriately updating these theories.
5. The logic surrounding “insight” draws from the resource-based perspective in the strategy literature (see Jay Barney, “Firm Resources and Competitive Advantage,” Journal of Management 17, no. 1 [1991]: 99–120; Richard P. Rumelt, “Towards a Strategic Theory of the Firm,” in Competitive Strategic Management, ed. Robert B. Lamb [Englewood Cliffs, NJ: Prentice-Hall, 1984] 556–570).
6. Recorded in John Steele Gordon, The Business of America (New York: Walker & Company, 2001). On his version of the automobile, Henry Ford commented: “I invented nothing new. I simply assembled into a car the discoveries of other men behind which were centuries of work.”
7. A consensus has arguably emerged in the strategy literature that is consistent with Rumelt’s statement that “a firm’s competitive position is defined by a bundle of unique resources and relationships” (Richard P. Rumelt, “Towards a Strategic Theory of the Firm,” in Competitive Strategic Management, ed. Robert B. Lamb [Englewood Cliffs, NJ: Prentice-Hall, 1984], 556–570). Firms are thought to acquire positions of advantage by assembling or “organizing” sets of unique and complementary resources, activities, or assets that together form unique firm capabilities. These advantageous positions emerge through relationships among resources (or activities and assets) that are superadditive or complementary, such that combining the resources in a bundle creates more value than the sum of the values of the resources if left unbundled (for example, see Raphael Amit and Paul J. H. Shoemaker, “Specialized Assets and Organizational Rent,” Strategic Management Journal 14 (1993): 33–47; and Cynthia Montgomery and Birger Wernerfelt, “Diversification, Ricardian Rents and Tobin’s q,” Rand Journal of Economics 19 (1988): 623–633). Other scholars use terms such as “interconnectedness of asset stocks” (Ingemar Dierickx and Karel Cool, “Asset Stock Accumulation and Sustainability of Competitive Advantage,” Management Science 35, no. 12 (1989): 1504–1513) and “integrated set[s] of choices about activities” (Pankaj Ghemawat, Strategy and the Business Landscape, 2nd edition [Englewood Cliffs, NJ: Prentice Hall, 2005]) to describe the origins of these capabilities and their resulting rents.
8. Walter Isaacson, Steve Jobs (New York: Simon & Shuster, 2011), 85.
9. Ibid, 561.
10. Xerox did, of course, try to commercialize this technology itself. They introduced their own computer three years before the Macintosh, priced at $16K, targeting the word processing market. It was clunky and unsuccessful.
11. “A Brief History: Origins,” AT&T, http://www.corp.att.com/history/history1.html, accessed January 27, 2016.
12. Michael A. Noll, “The Bell Breakup @ 15 Years,” tele.com 4, no. 13 (June 21, 1999), http://www.lexisnexis.com.libproxy.wustl.edu/us/lnacademic/auth/checkbrowser.do?rand=0.39216079013306393&cookieState=0&ipcounter=1&bhcp=1.
13. The Telecommunications Act did permit AT&T to provide local service again.
14. Michael G. Rukstad, Tyrrell Levine, and Carl Johnston, “Breakup of AT&T: Project ‘Grand Slam’” case study 701127 (Boston: Harvard Business School, 2001), 5.
15. Ibid, 11.
16. Ibid.
17. Kurt Lewin, Field Theory in Social Science: Selected Theoretical Papers by Kurt Lewin (London: Tavistock, 1952), 169.
Chapter 2
1. Gary S. Becker, The Economic Approach to Human Behavior (Chicago: University of Chicago Press, 1976).
2. For discussion of empirical results on the returns to acquisitions see Jens Kengelbach and Alexander Roos, Riding the Next Wave in M&A: Where are the Opportunities to Create Value? BCG Report (2011); Michael Bradley, Anand Desai, and E. Han Kim, “Synergistic Gains from Corporate Acquisitions and Their Division Between the Stockholders of Target and Acquiring Firms,” Journal of Financial Economics 21, no. 1 (1988): 3–40; Todd Hazelkorn, Marc Zenner, and Anil Shivdasani, “Creating Value with Mergers and Acquisitions,” Journal of Applied Corporate Finance 16, no. 2–3 (2004): 81–90.
3. The winner’s curse is sometimes referred to as a Pyrrhic victory. In 280 BC, King Pyrrhus of Epirus defeated the Romans at Heraclea and then at Asculum in 279 BC, but in the process suffered tremendous casualties. These victories prompted the king to comment: “Another such victory and I come back to Epirus alone.”
4. Michael Bradley, Anand Desai, and E. Han Kim, “Synergistic Gains from Corporate Acquisitions and Their Division Between the Stockholders of Target and Acquiring Firms,” Journal of Financial Economics 21, no. 1 (1988): 3–40.
5. See Mark L. Sirower and Sumit Sahni, “Avoiding the ‘Synergy Trap’: Practical Guidance on M&A Decisions for CEOs and Boards,” Journal of Applied Corporate Finance 18, no. 3 (Summer 2006): 83–95.
6. Todd Hazelkorn, Marc Zenner, and Anil Shivdasani, “Creating Value with Mergers and Acquisitions,” Journal of Applied Corporate Finance 16, no. 2–3 (2004): 81–90.
7. Sirower and Sahni, “Avoiding the ‘Synergy Trap.’”
8. Hazelkorn, Zenner, and Shivdasani, “Creating Value with Mergers and Acquisitions.”
9. Lubomir P. Litov and Todd Zenger, “Do Investors Value Uniqueness in Markets for Strategy? Evidence from Mergers and Acquisitions,” University of Utah working paper (2014).
Chapter 3
1. The ideas expressed in this chapter have benefitted from collaborations with Lubomir Litov, Mary Benner, and Patrick Moreton. See Lubomir Litov, Patrick Moreton, and Todd Zenger, “Corporate Strategy, Analyst Coverage, and the Uniqueness Discount,” Management Science 58, no. 10 (2012): 1797–1815; Mary Benner and Todd Zenger, “The Lemons Problem in Markets for Strategy,” Strategy Science, forthcoming.
2. David Lieberman and Matt Krantz, “Is Kraft’s 19B takeover of Cadbury a Sweet Deal? Warren Buffet has Doubts,” USA Today, January 20, 2010.
3. See “Kraft Split to Unlock Value but Stock Stuck for Now,” Forbes, December 9, 2011.
4. See Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (1945): 519–530.
5. James Surowiecki’s best-selling The Wisdom of Crowds (New York: Doubleday, 2004) makes a compelling case for the superiority of crowds in guiding behavior.
6. Michael C. Jensen and William Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3, no. 4 (1976): 305–360.
7. Akerlof shared this award with Michael Spence and Joseph Stiglitz, who also substantially contributed to the early development of information economics.
8. George Akerlof, “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84 (1970): 488–500.
9. Brett Trueman, M. H. Franco Wong, and Xiao-Jun Zhang, “The Eyeballs Have It: Searching for the Value in Internet Stocks,” in “Studies on Accounting Information and the Economics of the Firm,” supplement, Journal of Accounting Research 38 (2000): 137–162.
10. Jeffrey Chaffkin, PaineWebber Research Note on Monsanto Corporation, November 2, 1999.
11. Harrison Hong, Terence Lim, and Jeremy C. Stein, J. “Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies,” Journal of Finance 55, no. 1 (2000): 265–295; Pieter T. Elgers, May H. Lo, and Ray J. Pfeiffer, “Delayed Security Price Adjustments to Financial Analysts’ Forecasts of Annual Earnings,” Accounting Review 76, no. 4 (2001): 613–623.
12. Richard M. Frankel, S. P. Kothari, and Joseph Weber, “Determinants of the Informativeness of Analyst Research,” MIT Sloan Working Paper No. 4243-02, (2003), http://dx.doi.org/10.2139/ssrn.304483; Thomas Lys and Sunkyu Sohn, “The Association Between Revisions of Financial Analysts’ Earnings Forecasts and Security-Price Changes,” Journal of Accounting and Economics 13, no. 4 (1990): 341–363. As Jensen and Meckling argue: “The benefits of the security analysis activity [are] reflected in the higher capitalized value of the ownership claims to corporations … ” (“Theory of the Firm”).
13. Lubomir Litov, Patrick Moreton, and Todd Zenger, “Corporate Strategy, Analyst Coverage, and the Uniqueness Discount,” Management Science 58, no. 10 (2012): 1797–1815.
14. Ezra W. Zuckerman, “Focusing the Corporate Product: Securities Analysts and De-Diversification,” Administrative Science Quarterly 45, no. 3 (2000): 591–619.
15. Ravi Bhushan, “Firm Characteristics and Analyst Following,” Journal of Accounting and Economics 11, nos. 2–3 (1989): 255–274. Yet another study found that when managers unbundle their conglomerates through spin-offs and carve-outs in response to capital market pressure, the aggregate level of analyst coverage increases, as does the accuracy of analysis (i.e., the capacity to accurately predict future performance); see Stuart C. Gilson, Paul M. Healy, Christopher F. Noe, and Krishna G. Palepu, “Analyst Specialization and Conglomerate Stock Breakups,” Journal of Accounting Research 39 (December 2001): 565–582.
16. Litov, Moreton, and Zenger, “Corporate Strategy, Analyst Coverage, and the Uniqueness Discount.”
17. Gilson et al., “Analyst Specialization and Conglomerate Stock Breakups.”
18. Ezra W. Zuckerman, “Focusing the Corporate Product: Securities Analysts and De-Diversification,” Administrative Science Quarterly 45, no. 3 (2000): 591–619.
19. For a discussion of the usefulness of this type of analyst coverage see Bruce K. Billings, William L. Buslepp, and G. Ryan Huston, “Worth the Hype? The Relevance of Paid-for Analyst Research for the Buy-and-Hold Investor,” The Accounting Review 89 (2014): 903–931.
20. Dan Roberts, “Georgia Pacific decides to leave the spotlight,” The Financial Times, November 15, 2005, 29.
21. Admittedly, there is growing research in finance examining the temporal horizon of executive pay. However, in practice, CEO rewards remain quite focused on increasing the present or short-term value of the enterprise as reflected in capital markets.
Chapter 4
1. The ideas in this chapter have particularly benefitted from collaborations with Nick Argyres, Jackson Nickerson, Teppo Felin, and Lyda Bigelow.
2. See Otto Friedrich, Decline and Fall: The Struggle for Power at a Great American Magazine (New York: Harper and Row, 1970).
3. See Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (1945): 519–530.
4. See Oliver Williamson, The Economic Institutions of Capitalism (New York: Simon and Schuster, 1985); Benjamin Klein, Robert Crawford, and Armen Alchian, “Vertical Integration, Appropriable Quasi-Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21, no. 2 (1978): 297–326.
5. D. H. Robertson, quoted in Ronald Coase, “The Nature of the Firm,” Economica 4, no. 16 (1937): 386–405.
6. This is a paraphrase of MIT’s Robert Gibbons statement: “the cost of control is the loss of initiative.” See Robert Gibbons, “Four (Formalizable) Theories of the Firm, Journal of Economic Behavior and Organization, 58 (2005): 206.
7. For a discussion of this argument and supporting research see Jack A. Nickerson and Todd R. Zenger, “Envy, Comparison Costs, and the Economic Theory of the Firm,” Strategic Management Journal 29, no. 13 (2008): 1429–1449.
8. See Paul Milgrom and John Roberts, “An Economic Approach to Influence Activities in Organizations,” American Journal of Sociology 94 Supplement (1988): S154–S179.
9. “John Harvard’s Journal: ‘Extraordinary Bonuses,’” Harvard Magazine 106, no. 4 (2004): 69–73.
Chapter 5
1. Friedrich Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (1945): 519–530.
2. In 1987, Japan’s MITI commented the simple declaration that “Japanese manufacturing owes its competitive advantage and strength to its subcontracting structure.” Quoted in Jeffrey H. Dyer and William G. Ouchi, “Japanese-Style Partnerships: Giving Companies a Competitive Edge,” MIT Sloan Management Review 35 (Fall 1993).
3. For a more complete discussion see Dyer and Ouchi, “Japanese-Style Partnerships.”
4. Michael A. Cusumano and Akira Takeishi, “Supplier Relations and Management: A Survey of Japanese, Japanese-Transplant, and U.S. Auto Plants,” Strategic Management Journal 12, no. 8 (1991): 563–588.
5. EIU Global Executive Survey, Anderson Consulting.
6. Michael Gerlach, Alliance Capitalism: The Social Organization of Japanese Business (Berkeley: University of California Press, 1992); Jeffrey H. Dyer and Harbir Singh, “The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage,” Academy of Management Review 23, no. 4 (1998): 660–679.
7. See Internet World Stats: Usage and Population Statistics, www.internetworldstats.com.
8. Mark Doms, “The Boom and Bust in Information Technology Investment,” FRBSF Economic Review (2004): 19–34.
9. For instance, in a study I jointly conducted with Dan Elfenbein examining one of the largest users of these reverse procurement auctions, the lowest bidder was selected only about half of the time.
10. An AT Kearney consulting report claimed that while standard procurement methods enabled buyers to interact with about 25 percent of key suppliers in a field, e-procurement provided access to 98 percent. See Olivia Korostelina, “Online Reverse Auctions: A Cost-Saving Inspiration for Businesses,” Dartmouth Business Journal (March 2012).
11. MIT’s Eric von Hippel has been the most vocal proponent of this position.
12. Kevin J. Boudreau Karim R. Lakhani, “Using the Crowd as an Innovation Partner,” Harvard Business Review, April 2013.
13. Hayek, “The Use of Knowledge in Society.”
14. See Daniel Elfenbein and Todd Zenger, “Creating and Capturing Value in Repeated Exchange Relationships: Managing a Second Paradox of Embeddedness,” Olin Business School Working Paper, 2016.
15. Ibid.
Chapter 6
1. The ideas in this chapter have particularly benefitted from a long standing academic collaboration with Jackson Nickerson at Washington University in St. Louis. See Jack A. Nickerson and Todd R. Zenger “Being Efficiently Fickle: A Dynamic Theory of Organizational Choice.” Organization Science 13 (2002): 547–566; and Peter Boumgarden, Jack A. Nickerson, and Todd R. Zenger, “Ambidexterity, Vacillation, and Organizational Performance,” Strategic Management Journal 33 (2012): 587–610.
2. Hewlett-Packard. 1998. Annual Report. Thompson Research. Available at: http://research.thomsonib.com/.
3. Eyal Ophir, Clifford Nass, and Anthony D. Wagner, “Cognitive Control in Media Multitaskers,” Proceedings of the National Academy of Sciences of the United States of America 106, no. 37 (2009): 15583–15587.
4. Sylvain Charron and Etienne Koechlin, “Divided Representation of Concurrent Goals in the Human Frontal Lobes,” Science 328, no. 360 (2010): 360–363.
5. Interestingly, in Hoshin Kanri, the Japanese predecessor to Balanced Scorecard, high-level initiatives are restricted to one or two at any given time (cited in Sendil K. Ethiraj and Daniel A. Levinthal, “Hoping for A to Z While Rewarding Only A: Complex Organizations and Multiple Goals,” Organization Science 20, no. 1 (2009): 4–21.
6. Michael Jensen more precisely remarked that it is “logically impossible to maximize in more than one dimension at the same time unless dimensions are what are known as monotonic transformations of one another” (Michael C. Jensen, Foundations of Organizational Strategy [Cambridge, MA: Harvard University Press, 2001]).
7. And then formally modeled as a multitasking problem by economists Bengt Holmstrom and Paul Milgrom. See Bengt Holmstrom and Paul Milgrom, “Multi-task Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design,” Journal of Law, Economics, and Organization 7 Special Issue (1991): 24–52.
8. Ethiraj and Levinthal, “Hoping for A to Z.”
Chapter 7
1. Robert Kabocoff, “Develop Strategic Thinkers Throughout Your Organization,” Harvard Business Review, February 7, 2014, https://hbr.org/2014/02/develop-strategic-thinkers-throughout-your-organization.
2. Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (New York: Crown Publishing Group, 2011).
3. Popper made this comment in a 1991 lecture, and this also became the title of a posthumously published compilation of his essays. See Karl Popper, All Life is Problem Solving (New York: Routlege, 1999).
4. Interestingly, the Nobel Prize–winning economist Herbert Simon describes strategies as “problem representations.” See Herbert Simon, “Bounded Rationality and Organizational Learning,” Organization Science 2, no. 1 (1991): 125–134.
5. Quoted in Dwayne Spradlin, “Are You Solving the Right Problem?” Harvard Business Review, September 2012, https://hbr.org/2012/09/are-you-solving-the-right-problem.
6. Ben Horowitz in an interview on the Product Hunt. This quote and others can be found at “Ben Horowitz’s Best Startup Advice,” Product Hunt, September 10, 2015, https://www.producthunt.com/live/ben-horowitz.
7. For a discussion see Serge Moscovici, Social Influence and Social Change (London: Academic Press, 1976); and Serge Moscovici, “Toward a Theory of Conversion Behavior,” Advances in experimental social psychology (ed. L. Berkowitz) 13 (1980): 209–239.
8. Jay Conger, “The Necessary Art of Persuasion,” Harvard Business Review, May–June 1988.
9. Quoted in Peter Quantrill, “Hammer of the Gods,” Gramophone, January 2008.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.