Strategic Organizing

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When share prices fall, CEOs often lose their jobs. The best way to keep share prices high is to produce economic rents—defined as profits above the industry average. Traditionally corporate strategy theorists advised CEOs in terms of economists’ theory of the firm—CEOs invest capital and then order labor, as muscle, to carry out those tasks that cannot be turned over to machines—and aimed firms at the low cost or high differentiation parts of the efficiency curve. Now, hitting the efficiency curve is not seen as a guarantee of sustained rents; these come from staying ahead of the curve. To accomplish this, CEOs are advised to add human and social capital to the production function. Prusak narrows this down to rapid, new knowledge acquisition:

The only thing that gives an organisation a competitive edge—the only thing that is sustainable—is what it knows, how it uses what it knows, and how fast it can know something new!

In high velocity environments Eisenhardt says that rate of corporate learning is critical. It follows that improving rate of learning requires greater collective corporate brainpower. Allee, citing the American Heritage Dictionary, defines intelligence as “the capacity to acquire and apply knowledge,” noting also that the Latin root, intelligere, means “to choose between.” Here, knowledge refers to the facts, logic, and wisdom held by human agents; intelligence refers to effective acquisition and use of knowledge; and IQ is simply a measure of amount of knowledge held and rate of acquisition and use.

Zohar titles her book ReWiring the Corporate Brain. “ReWiring” emphasises the alteration of the connections among people—substituting for neurons—in the corporate brain. I refer to this—the corporate brain—as distributed intelligence (DI) in firms. DI is a function of strategically relevant human and social capital assets—the networked intellectual capabilities of human agents. Mindful of the conditions imposed in the opening paragraph, my purpose in the complexity-oriented papers listed below is to suggest ways managers may enhance the IQ of their corporate brain. This means speeding up the rate at which it absorbs new knowledge, develops new insights, and uses knowledge to solve environmentally posed problems, all in the context of choice in terms of Porter’s trade-offs and other constraints imposed by the competitive context.

But how should CEOs lead firms toward speedier human and social capital appreciation, that is, improve corporate IQ? Jack Welch realizes that aggressive command-and-control leaders do not work well in the modern world because their top-down management style shuts down the emergent intelligence and social networking of their employees. Current leadership theory does not respond to this problem. Warren Bennis and other leadership theorists focus on the “heroic visionary leader” atop a firm’s command-and-control structure. Not only does this approach put all of the rent-seeking “eggs” in one visionary basket, the charisma of the heroic visionary leader may bring human and social capital appreciation among lower-level participants to a standstill, as Jack Welch realizes, and opposite what modern strategic thinking calls for. Most leadership theorists focus on lower level group or dyadic relations and hence are irrelevant to firm-wide CEO leadership. This is why the rate of CEO churning has risen in the past few years.

Meg Wheatley’s New Science leadership theory proposes an alternative, “New Science” being a popularized application of chaos/complexity theory to management. New Science authors typically couple the emergent structure aspect of complexity theory with leadership theories aimed at enhancing motivation via employee empowerment. In contrast to empowering managerially defined groups or teams by giving them increased responsibility or self-leadership, I focus on how to foster and speed up the emergence of distributed intelligence (DI) in firms. DI is a function of strategically relevant human and social capital assets—the networked intellectual capabilities of human agents.

My focus in some papers is on the use of agent-based models to explore the relation between strategic issues and emergent order—#s 4 and 7, and on how to speed up the function of the corporate brain—#s 13 and 14. One paper, #15, worries about how managers should deal with the coevolutionary dynamics particularly prone to emerge in knowledge-based organizations competing in high-velocity environments. Earlier papers deal with aspects of the resource-based view of rent generation.