Why Economics Has Been Fruitful For Strategy
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Morton Article Analysis
Your Name
University
March 21, 2010
ABSTRACT:
Fiona Scott Morton offers an explanation of the impact that economics has on strategic management in her article “Why Economics Has Been Fruitful for Strategy”. The author outlines the problems that many strategic management experts have had with the concept of taking advice from economists and breaks them down into two types of advice. The positive advice of economists, and that most willingly accepted by strategic management professionals are the direct correlations between strategic management and economics. That is, they are the lessons that can clearly be drawn from economics. “The positive side, understanding how and why profits are captured by certain parties, is straightforwardly a part of economics. It is therefore very natural that economists should make substantial contributions to strategy,” (Morton).
The author goes on to explain that economists operate somewhat differently from other sciences. Rather than seeking to disprove theories by applying the theory to everyone, economists offer positive proof of their theories: that is, the economist finds a specific case in which the theory does apply and then offers it as proof that theory is correct. Furthermore, Morton also argues that the positive approach is a storyteller approach with the storyteller deliberately over simplifying the model to make the purpose of a specific strategy more clear. The positive approach also requires what Morton calls equilibrium, the idea that in a given circumstance, people will continue to act in the same manner they have always acted. Her idea relies on the concept that if the actors, goals and options remain the same, a company will always act the same way. Economists “find a positive relationship that validates the theory,” (Morton).
The normative approach “involves researchers urging companies to follow their advice
in order to earn higher profits, something which is also true of other academic disciplines like
sociology and psychology when these have been used in studying management and strategy.
The normative side is a less natural part of economics, and generates some tension between
different types of research” (Morton). Morton is very derisive toward the normative approach calling it the stuff of airport books and calling it a cookie-cutter approach to strategy. She argues that economists believe in the idea of maximizing behaviour, that is companies behave the way they do in an effort to maximize their monetary return. Instead of the telling all companies to use the same strategy to arrive at that goal, economists would argue that observing the behaviour of a particular company in its marketplace is the best way to determine how it should act in the future. The heterogeneity – diverse behaviours based on assets, culture, brand image and capabilities of a company – are vital to the company’s strategic planning, not some approach requires all companies to behave the same way.
Morton makes her argument using a series of previous articles to illustrate each point and then adopts an analogy about economists and money lying on the ground. In her analogy, neither economist picks up money lying on the ground because they believe if it were really there someone would already have picked it up. Her point, poorly made with the analogy, is that economists believe if a company looks for profitability in the same place every other company looks for profitability, the profitability will already be gone. The one exception she offers to this rule is the idea of the knowledge worker. Companies must start looking at the value of knowledge and incorporate that into their strategic planning.
Discussion
The problem with the positive approach versus the normative approach in discussing strategic management is that both fail to take into consideration all the factors which can impact a company and its decision-making processes. As Morton described the positive approach, the economist ignores factors which may or may not have played a role in the strategic planning process. By oversimplifying the problem to prove that the solutions used fit a theory, the approach differs from other social science where the theories are tested and if they do not fit a situation are discarded. Likewise, the normative approach does not often control for variable which may affect the outcome.
One of the variables that normative approaches have been unable to account for is organizational culture. Mary Jo Hatch discusses the concepts of organizational culture in her article “The Dynamics of Organizational Culture.” She attempts to define organizational culture not as something that is, but as something that develops. By concentrating on the means in which a culture develops or comes to be in an organization, Hatch offers new insight into the concepts of organizational culture and its impact on management decisions. Specifically, Hatch argues that her approach to cultural dynamics provides not only answers about organizational culture but also additional questions and research directions for the understanding of that culture. She suggests that instead of asking simply why a culture exists, her theory asks “How is culture constituted by assumptions, values, artefacts, symbols and the processes that link them?” (1993).
Hatch argues effectively that culture is not made up solely of the items of that culture, but also of the processes which lead to the use and importance of those items. The idea makes perfect sense when applied to cultures that are familiar to the researcher or the reader. For example, someone unfamiliar with religious culture would not assess a value to iconography including a cross, an altar cloth or a bottle of wine. However, when the religious process is added to the symbols then the items take on an aspect of culture that can be studied and understood more clearly than simply trying to understand the meaning of the three items without the process. Likewise, in an organization various symbols of culture might not be understood for their true meaning without a study of the processes around them. A parking spot closest to the door may mean nothing more than the driver got lucky when arriving or it may be a symbol of rank or importance within the culture. Until the researcher can identify the processes, the culture itself remains obscured. Furthermore, once an understanding of the processes develops, the informed manager may be more able to impact those processes to affect the desired change. Sadly, in the both the positive approach and the normative approach as discussed by Morton, none of these factors would be analysed.
The Hatch article is an interesting discussion of the same things that Peter Senge argues in the first chapter of his book “The Fifth Discipline”. Though the approach and the terminology are a bit different, Senge emphasizes the results of the processes that Hatch describes: a view of the organization as an interrelated system and of organizational culture as an interaction of the processes necessary to achieve understanding of that system. Combining the two theories should provide most managers with an understanding of how to improve their organizations via gradual change. Because Morton’s approach does not address the organization’s culture as a variable in the strategic management approach, it is missing some explanations of why certain approaches work within one company and fail at others.
Using Morton’s positive approach, we would argue that because one single mother raised a man who became president (Bill Clinton), that all single mothers could raise a future president. The positive approach would also argue that if one gay man (Jeffrey Dahmer) became a serial killer all gay men would become serial killers. The application of this approach becomes ludicrous. Likewise, the normative approach makes no sense when applied to other sciences. In fact, it seems counterintuitive to human behavior. By assuming that in the same situation people will always act as they have always acted, we assume that no one learns from mistakes and that progress never happens.
(ii) A business model is a description of how company creates revenue. In the most basic terms this can be product or service. However, from there the business model gets more complicated including bait and hook, subscription and flat fee models (Hayden 2010). A bait and hook model, sometimes also called razor and blades model, offers a basic product for a low cost and then requires the use of a coordinating product that has a higher cost built in, to offset the lose taken on the first product. One great example of this that most people are familiar with are printers and ink refills. Subscription business models offer a continuing product or product updates on a regular basis for a recurring fee. World of Warcraft players and Netflix customers are prime examples of those who accept a subscription model.
(iii) Morton talks extensively about the concept of a cookie-cutter approach to business and why it is not the answer for most businesses. A cookie-cutter approach assumes that all businesses should operate in a similar manner and that if they do so, they will have similar results. The best argument against this is the car industry. Porsche has become a successful brand largely by offering only high performance automobiles and creating a demand for their product. The same approach would not work for the Ford Motor Company. One reason it would not work is that Ford does not have the reputation that Porsche had when it opened its doors. Another reason is that Ford has an entirely different corporate culture and a third is that Ford has different ties with its sub-contractors than Porsche does. The cookie cutter approach assumes that if everyone does the exact same things they will get the same results, but it fails to take into account the differences in assets, culture, brand image and capabilities of a firm (Morton).
References
Hatch, Mary Jo. (1993) “The Dynamics of Organizational Change”, Academy of Management Review, Vol. 18, No. 4. pgs. 657-693.
Henley, C.J. (2010) “Is Your Business Model Broken?”, About.com, Retrieved March 20, 2010, from http://sbinfocanada.about.com/od/businessplanning/a/bizmodelshay_2.htm.
Morton, Fiona Scott (n.d.) “Why Economics Have Been Fruitful for Strategy”.
Senge, Peter M. (2006) The Fifth Discipline, Random House, United States.
Your Name
University
March 21, 2010
ABSTRACT:
Fiona Scott Morton offers an explanation of the impact that economics has on strategic management in her article “Why Economics Has Been Fruitful for Strategy”. The author outlines the problems that many strategic management experts have had with the concept of taking advice from economists and breaks them down into two types of advice. The positive advice of economists, and that most willingly accepted by strategic management professionals are the direct correlations between strategic management and economics. That is, they are the lessons that can clearly be drawn from economics. “The positive side, understanding how and why profits are captured by certain parties, is straightforwardly a part of economics. It is therefore very natural that economists should make substantial contributions to strategy,” (Morton).
The author goes on to explain that economists operate somewhat differently from other sciences. Rather than seeking to disprove theories by applying the theory to everyone, economists offer positive proof of their theories: that is, the economist finds a specific case in which the theory does apply and then offers it as proof that theory is correct. Furthermore, Morton also argues that the positive approach is a storyteller approach with the storyteller deliberately over simplifying the model to make the purpose of a specific strategy more clear. The positive approach also requires what Morton calls equilibrium, the idea that in a given circumstance, people will continue to act in the same manner they have always acted. Her idea relies on the concept that if the actors, goals and options remain the same, a company will always act the same way. Economists “find a positive relationship that validates the theory,” (Morton).
The normative approach “involves researchers urging companies to follow their advice
in order to earn higher profits, something which is also true of other academic disciplines like
sociology and psychology when these have been used in studying management and strategy.
The normative side is a less natural part of economics, and generates some tension between
different types of research” (Morton). Morton is very derisive toward the normative approach calling it the stuff of airport books and calling it a cookie-cutter approach to strategy. She argues that economists believe in the idea of maximizing behaviour, that is companies behave the way they do in an effort to maximize their monetary return. Instead of the telling all companies to use the same strategy to arrive at that goal, economists would argue that observing the behaviour of a particular company in its marketplace is the best way to determine how it should act in the future. The heterogeneity – diverse behaviours based on assets, culture, brand image and capabilities of a company – are vital to the company’s strategic planning, not some approach requires all companies to behave the same way.
Morton makes her argument using a series of previous articles to illustrate each point and then adopts an analogy about economists and money lying on the ground. In her analogy, neither economist picks up money lying on the ground because they believe if it were really there someone would already have picked it up. Her point, poorly made with the analogy, is that economists believe if a company looks for profitability in the same place every other company looks for profitability, the profitability will already be gone. The one exception she offers to this rule is the idea of the knowledge worker. Companies must start looking at the value of knowledge and incorporate that into their strategic planning.
Discussion
The problem with the positive approach versus the normative approach in discussing strategic management is that both fail to take into consideration all the factors which can impact a company and its decision-making processes. As Morton described the positive approach, the economist ignores factors which may or may not have played a role in the strategic planning process. By oversimplifying the problem to prove that the solutions used fit a theory, the approach differs from other social science where the theories are tested and if they do not fit a situation are discarded. Likewise, the normative approach does not often control for variable which may affect the outcome.
One of the variables that normative approaches have been unable to account for is organizational culture. Mary Jo Hatch discusses the concepts of organizational culture in her article “The Dynamics of Organizational Culture.” She attempts to define organizational culture not as something that is, but as something that develops. By concentrating on the means in which a culture develops or comes to be in an organization, Hatch offers new insight into the concepts of organizational culture and its impact on management decisions. Specifically, Hatch argues that her approach to cultural dynamics provides not only answers about organizational culture but also additional questions and research directions for the understanding of that culture. She suggests that instead of asking simply why a culture exists, her theory asks “How is culture constituted by assumptions, values, artefacts, symbols and the processes that link them?” (1993).
Hatch argues effectively that culture is not made up solely of the items of that culture, but also of the processes which lead to the use and importance of those items. The idea makes perfect sense when applied to cultures that are familiar to the researcher or the reader. For example, someone unfamiliar with religious culture would not assess a value to iconography including a cross, an altar cloth or a bottle of wine. However, when the religious process is added to the symbols then the items take on an aspect of culture that can be studied and understood more clearly than simply trying to understand the meaning of the three items without the process. Likewise, in an organization various symbols of culture might not be understood for their true meaning without a study of the processes around them. A parking spot closest to the door may mean nothing more than the driver got lucky when arriving or it may be a symbol of rank or importance within the culture. Until the researcher can identify the processes, the culture itself remains obscured. Furthermore, once an understanding of the processes develops, the informed manager may be more able to impact those processes to affect the desired change. Sadly, in the both the positive approach and the normative approach as discussed by Morton, none of these factors would be analysed.
The Hatch article is an interesting discussion of the same things that Peter Senge argues in the first chapter of his book “The Fifth Discipline”. Though the approach and the terminology are a bit different, Senge emphasizes the results of the processes that Hatch describes: a view of the organization as an interrelated system and of organizational culture as an interaction of the processes necessary to achieve understanding of that system. Combining the two theories should provide most managers with an understanding of how to improve their organizations via gradual change. Because Morton’s approach does not address the organization’s culture as a variable in the strategic management approach, it is missing some explanations of why certain approaches work within one company and fail at others.
Using Morton’s positive approach, we would argue that because one single mother raised a man who became president (Bill Clinton), that all single mothers could raise a future president. The positive approach would also argue that if one gay man (Jeffrey Dahmer) became a serial killer all gay men would become serial killers. The application of this approach becomes ludicrous. Likewise, the normative approach makes no sense when applied to other sciences. In fact, it seems counterintuitive to human behavior. By assuming that in the same situation people will always act as they have always acted, we assume that no one learns from mistakes and that progress never happens.
(ii) A business model is a description of how company creates revenue. In the most basic terms this can be product or service. However, from there the business model gets more complicated including bait and hook, subscription and flat fee models (Hayden 2010). A bait and hook model, sometimes also called razor and blades model, offers a basic product for a low cost and then requires the use of a coordinating product that has a higher cost built in, to offset the lose taken on the first product. One great example of this that most people are familiar with are printers and ink refills. Subscription business models offer a continuing product or product updates on a regular basis for a recurring fee. World of Warcraft players and Netflix customers are prime examples of those who accept a subscription model.
(iii) Morton talks extensively about the concept of a cookie-cutter approach to business and why it is not the answer for most businesses. A cookie-cutter approach assumes that all businesses should operate in a similar manner and that if they do so, they will have similar results. The best argument against this is the car industry. Porsche has become a successful brand largely by offering only high performance automobiles and creating a demand for their product. The same approach would not work for the Ford Motor Company. One reason it would not work is that Ford does not have the reputation that Porsche had when it opened its doors. Another reason is that Ford has an entirely different corporate culture and a third is that Ford has different ties with its sub-contractors than Porsche does. The cookie cutter approach assumes that if everyone does the exact same things they will get the same results, but it fails to take into account the differences in assets, culture, brand image and capabilities of a firm (Morton).
References
Hatch, Mary Jo. (1993) “The Dynamics of Organizational Change”, Academy of Management Review, Vol. 18, No. 4. pgs. 657-693.
Henley, C.J. (2010) “Is Your Business Model Broken?”, About.com, Retrieved March 20, 2010, from http://sbinfocanada.about.com/od/businessplanning/a/bizmodelshay_2.htm.
Morton, Fiona Scott (n.d.) “Why Economics Have Been Fruitful for Strategy”.
Senge, Peter M. (2006) The Fifth Discipline, Random House, United States.