Manufacturology

Successful firms do not require brilliant business models

Read­ing the ini­tial chap­ters of David Teece’s “Dynamic capa­bil­i­ties and strate­gic man­age­ment”, I can’t help get­ting the feel­ing that the author has got some­thing slightly wrong. I know my cred­i­bil­ity in case weighs lightly against the words of the dis­tin­guished pro­fes­sor Teece, but let me explain what I feel is wrong with his reasoning.

First, I must state that I agree in prin­ci­ple with the dynamic capa­bil­ity view which assumes that firms com­pete through “select­ing and devel­op­ing tech­nolo­gies and busi­ness mod­els that build com­pet­i­tive advan­tage through assem­bling and orches­trat­ing difficult-to-replicate assets, thereby shap­ing com­pe­ti­tion itself”.

Busi­ness mod­els do not come first…

My main issue with this book so far is its view of how busi­ness and inno­va­tion emerge. Teece seems to assume that a busi­ness model must come first, and that a solid busi­ness model is a pre­req­ui­site for any suc­cess­ful busi­ness. I would argue that this is not the case. Many busi­nesses suc­ceed with­out an explicit busi­ness model, although those with poor (explicit or implicit) busi­ness mod­els may even­tu­ally fail. Yet, a mediocre or even a hope­less busi­ness model (accord­ing to the exper­tise) will some­times turn out to be highly suc­cess­ful because of supe­rior oper­a­tional capa­bil­i­ties and fol­low through.

Evi­dence from Swe­den shows that most com­pa­nies are started by crafts­men and –women; peo­ple who know their trade and decide to make it on their own. In most cases inno­va­tion is based on tech­ni­cal capa­bil­i­ties and an entre­pre­neur­ial mind­set. On the con­trary, it turns out that uni­ver­sity edu­ca­tion does not sport increased entre­pre­neur­ship. Rather iron­i­cally, the con­trary seems to be the case.

Teece claims that “the func­tion of a busi­ness model is to ‘artic­u­late’ the value propo­si­tion, select the appro­pri­ate tech­nolo­gies and fea­tures, iden­tify tar­geted mar­ket seg­ments, define the struc­ture of the value chain, and esti­mate the cost struc­ture and profit poten­tial.” If this descrip­tion of the inno­va­tion process was cor­rect, it would likely have yielded an oppo­site sit­u­a­tion com­pared to what we observe in real­ity: namely that peo­ple with uni­ver­sity degrees would be more entre­pre­neur­ial than oth­ers because of their supe­rior ana­lyt­i­cal skills. In prac­tice this is not so.

…tech­no­log­i­cal inno­va­tion does

My own view is that tech­no­log­i­cal inno­va­tion comes first, and that, in most cases, busi­ness mod­els are after con­structs that are used mainly as evi­dence to con­vince inter­nal or exter­nal investors. In this respect for­mu­la­tion of an explicit busi­ness model is both use­ful and valu­able. It can also be use­ful to hone oper­a­tions in the ini­tial phases. But in prac­tice, much indus­trial inno­va­tion even in large firms take place as “skunk works” where indi­vid­ual engi­neers and/or depart­ments use their skills and imag­i­na­tion to develop prod­ucts that they think are use­ful or merely inter­est­ing. If the result is com­mer­cially viable the new tech­nol­ogy or prod­uct may become offi­cially endorsed by firm man­age­ment. The result is “emer­gent strat­egy”, which plays an immensely impor­tant role in the real world.

Judg­ing from my first impres­sions, I find it unlikely that many real indus­trial man­agers or entre­pre­neurs that I know of will read this book. Most are already fully occu­pied with turn­ing their ideas into busi­ness or improv­ing their exist­ing oper­a­tions as best as they can, and have lit­tle time to con­tem­plate their “value propo­si­tion”. Also, I believe that the style and lan­guage of this book is too com­plex. Despite that I nor­mally read Eng­lish next to flu­ently, and that I have a PhD rel­e­vant to the topic, I fre­quently find myself forced to re-read sec­tions sev­eral times before I fully com­pre­hend their mean­ing. Nor­mally this rarely hap­pens even when I read sci­en­tific arti­cles on the subject.

(A gen­er­ally accepted prej­u­dice about Swedes is that we over esti­mate our pro­fi­ciency in Eng­lish. Maybe you as native Eng­lish speak­ing find read­ing this book to be a breeze?)

That said, I still find the book inter­est­ing and will keep read­ing. Who knows, per­haps these com­ments based on my first impres­sions will prove to be hastened?

Be Socia­ble, Share!

•