The Changing Nature of Strategy

By Tuck Communications
Published Aug 24, 2010

By  Constance E. Helfat
J. Brian Quinn Professor in Technology and Strategy

When strategy—or business policy, as we used to call it-began, it was based on case studies. Researchers mainly looked at individual firms and individual managers, not at whole industries. The process of how managers make strategic decisions was emphasized, and one of the leaders in this still important area of work was Tuck Professor J. Brian Quinn.

In the 1970s, the field began to use social science-based statistical methods in addition to the earlier case study research. The business context, and in particular the industry within which a firm operated, became an important focus of academic research. Michael Porter of the Harvard Business School typified this approach to strategy in his well-known book Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980). Porter took a branch of economics—called industrial organization economics—and applied it to the question of what makes some firms more successful than others. Economists had used this branch of economics to ask such questions as, Why are some industries more competitive than others? Business strategists turned the theory on its head and asked, How can businesses make more money? One answer was that the industry you belong to matters.

In the last 15 to 20 years, the focus of attention has shifted back to where the field began, to looking within the firm. We now focus heavily on understanding how internal assets and capabilities can make some firms more successful than others. This area of research is called the "resource-based view of the firm." The field has become even more social science-based. Most research is interdisciplinary. Along with economics, strategy research has a strong base in organizational sociology and in issues related to industrial psychology.

We now focus heavily on understanding how internal assets and capabilities can make some firms more successful than others.

You still see case studies in academic journals, but most field research now involves multiple case studies, not single cases. Statistics based on larger samples of firms also help us to draw broader conclusions. We can generalize, which is more useful to managers. If managers want to know what sorts of things are working—or not working—they have a broader base of information.

One paper that shaped the current direction of the field was "Does Industry Matter?" by Richard Rumelt of UCLA (1991). Rumelt was able to show statistically that the difference between firms' profitability was influenced far more by factors within business units of firms than by factors associated with the industry within which firms operated. He didn't say that the industry was unimportant, only that other factors were much more important.

Tuck Professor Margaret Peteraf published another important paper, "The Cornerstones of Competitive Advantage" (1993) laid out the economic logic that underpins the resource-based view of the firm. Another resource-based argument appears in a well-known paper by C. K. Prahalad of the University of Michigan and his co-author Gary Hamel. "The Core Competence of the Corporation" (1990), argued that capabilities internal to the firm formed the basis for the competitive advantage of multi-business firms.

Recently, strategy research on internal firm resources and capabilities has become more focused on what are called "dynamic capabilities," on what enables firms to adapt to industry and technological changes. My own research is strongly in the dynamic capabilities area, with a focus on technological innovation and strategic change. The chair I hold, the J. Brian Quinn Professorship in Technology and Strategy, was named for the renowned Tuck professor who was one of the earliest business academics to study strategy and technology together. Now, in addition to Peteraf, other colleagues in the Tuck Strategy group—Richard D'Aveni, Sydney Finkelstein, Vijay Govindarajan, Andrew King, and Alva Taylor—are doing research on strategic change.

We still don't know the full answer to why some firms are more successful than others, but we know more than we did before. We have additional theory to help us, as well as more data and sophisticated empirical methods, which gives us a more general understanding of the root causes of strategic success and failure. Because the world keeps changing, we can never completely answer the question of why some firms are more successful than others. But the value of a business school is that academic research can help people stand back and identify approaches that can be effective in dealing with strategic issues.

Some businesses are aware of these changes in the strategy field, but not all are. For this reason I think executive programs in strategy have real value. Case studies are often still the vehicle for teaching. But it's much more analytical. We use the same pedagogical approach in the MBA classroom. Instead of having to depend wholly on your own work experience and intuition, you can combine that with analytical frameworks to deal with the underlying strategic issues. These frameworks are derived from academic research, including research on resources and dynamic capabilities. One value of the new more analytical approach lies in its greater precision. It's always hard to deal with fuzziness. If you can make the fuzziness more precise, it helps inform your judgment.

Constance Helfat is the J. Brian Quinn Professor in Technology and Strategy at the Tuck School of Business.
 






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