WEBVTT NOTE The 'Austrian' School of Strategy: A Stock-Taking 1 00:00:00.000 --> 00:00:08.000 In this paper, what I'm looking at is what the Austrian School has to offer in strategic management, specifically. 2 00:00:08.000 --> 00:00:15.000 I wouldn't say it fits very well under the headline for this session, New Frontiers, 3 00:00:15.000 --> 00:00:22.000 because it has been done before. I think Peter Klein has been working in this area for 40 some years or so. 4 00:00:22.000 --> 00:00:29.000 But what I'm doing in this paper is looking at the trends over the past couple of decades. 5 00:00:29.000 --> 00:00:39.000 If the Austrian School is actually having more influence, if it's having less influence, or what is going on. 6 00:00:39.000 --> 00:00:47.000 So what is strategic management? Just to start with some sort of summary of what that is actually about. 7 00:00:47.000 --> 00:00:52.000 Well, it is a study for how organizations can earn profits in the market. 8 00:00:52.000 --> 00:01:03.000 So it is kind of a way of analyzing why firms can earn above normal profits in certain industries. 9 00:01:03.000 --> 00:01:17.000 So they study primarily how to use their capabilities in terms of resources in order to make these profits and sustainable profits. 10 00:01:17.000 --> 00:01:29.600 So it's really an industrial organization turned on its head, rather than saying that the market is efficient and that's the way it should be and then just talk about how the market works. 11 00:01:29.600 --> 00:01:45.440 We look at the specific firm and we use the same reasoning but the other way around, saying how can this firm break out of perfect competition, how can this firm use what it has or acquire more resources 12 00:01:45.440 --> 00:01:50.440 and become unique in the sense that they make more profits than everybody else. 13 00:01:52.440 --> 00:01:59.440 So, about 20 years ago, there was an article published that was called the Austrian School of Strategy. 14 00:01:59.440 --> 00:02:05.440 Now, I wouldn't say there is such a school, but this particular author, Jacobson, 15 00:02:05.440 --> 00:02:14.440 he claimed that a lot of the research going on in strategic management is distinctly Austrian in nature, already in 92. 16 00:02:14.440 --> 00:02:21.960 1992 and that they together can be seen as an Austrian school of strategy. 17 00:02:21.960 --> 00:02:27.880 The point he was making was that a lot of Austrian concepts are already used in strategic 18 00:02:27.880 --> 00:02:36.600 management and what is missing is using these consciously and contextualize them in an Austrian 19 00:02:36.600 --> 00:02:40.840 way that is using the Austrian framework in order to understand them better. 20 00:02:40.840 --> 00:02:45.600 So you have these concepts that are injected in strategic management research but they 21 00:02:45.600 --> 00:02:50.920 don't really understand how to use them or how to use them all the way. 22 00:02:50.920 --> 00:02:53.200 So they are missing out on the value. 23 00:02:53.200 --> 00:02:59.640 So they are not using Austrian economics strategically you could say. 24 00:02:59.640 --> 00:03:06.920 So in his paper what he does is he looks at four aspects or four dimensions where he contrasts 25 00:03:06.920 --> 00:03:11.160 the Austrian School with neoclassical industrial organization 26 00:03:11.160 --> 00:03:14.560 and how that is used in strategic management. 27 00:03:14.560 --> 00:03:17.080 Now you look specifically at strategic objective, 28 00:03:17.080 --> 00:03:19.560 market conditions, profitability, modeling, 29 00:03:19.560 --> 00:03:21.960 and the success factors. 30 00:03:21.960 --> 00:03:24.280 What is the nature of the success factors? 31 00:03:24.280 --> 00:03:28.280 So in common neoclassical industrial organization, 32 00:03:28.280 --> 00:03:30.880 we'll look at competitive forces in the market, 33 00:03:30.880 --> 00:03:32.920 it's an equilibrium view. 34 00:03:32.920 --> 00:03:35.160 We look at regularities and so forth 35 00:03:35.160 --> 00:03:37.160 and we only look what is measurable. 36 00:03:38.320 --> 00:03:41.200 In the Austrian's version of this instead, 37 00:03:41.200 --> 00:03:42.840 we would look at entrepreneurial discovery 38 00:03:42.840 --> 00:03:46.200 rather than the forces in the market. 39 00:03:46.200 --> 00:03:49.080 We would adopt a disequilibrium view. 40 00:03:49.080 --> 00:03:52.160 We would focus on the heterogeneity of resources 41 00:03:52.160 --> 00:03:55.560 rather than just capital K and capital L. 42 00:03:55.560 --> 00:04:00.560 And Austrian's, he said, look into unobservable factors 43 00:04:01.520 --> 00:04:04.680 and recognize that they have a real effect. 44 00:04:04.680 --> 00:04:09.240 and unobservable factors could be stuff like knowledge and culture and things like that. 45 00:04:09.240 --> 00:04:13.080 And of course, it's more important to us than it is to neoclassicals. 46 00:04:13.080 --> 00:04:21.360 So in this paper, what I do is I survey the top five journals in management to see what impact 47 00:04:21.360 --> 00:04:26.400 or what influence does Austrian economics have according to these four dimensions. 48 00:04:26.400 --> 00:04:33.560 And this is just a listing of those journals and I have no idea why this column is yellow. 49 00:04:33.560 --> 00:04:39.560 Hello, I think it's just a way of me subconsciously telling you that I went through a lot of articles. 50 00:04:39.560 --> 00:04:49.160 Anyway, these are the top five, generally speaking, the top five journals in management. 51 00:04:49.160 --> 00:04:55.680 So I looked at the whole period from Jacobson's article, and it was published in 92, all the 52 00:04:55.680 --> 00:05:00.640 way through 2012 last year. 53 00:05:00.640 --> 00:05:10.880 And what I did was try to translate these dimensions into concepts and keywords as well 54 00:05:10.880 --> 00:05:20.880 as main authors, and Peter, you might want to see that your name is here. 55 00:05:20.880 --> 00:05:25.640 Even though I graduated, I still want to brown-nose my previous advisor a little bit. 56 00:05:25.640 --> 00:05:37.640 Anyway, so I use these and the requirement is not simply that an article has to use, for instance, the term heterogeneity because obviously that could mean anything. 57 00:05:37.640 --> 00:05:47.640 So they will have to use some sort of combination of keywords or a combination of a keyword and specifically Austrian reference, 58 00:05:47.640 --> 00:05:56.640 trying to identify if it's actually Austrian or if it's just used as an Austrian style of concept, right? 59 00:05:56.640 --> 00:06:05.640 Now, the findings then, what I find during this period is that there is an upward trend. 60 00:06:05.640 --> 00:06:08.640 They seem to be adopting more Austrian concepts. 61 00:06:08.640 --> 00:06:12.640 Of course, we have a bit of an outlier here last year. 62 00:06:12.640 --> 00:06:24.640 But even if we leave that out, and this one here with zero in the beginning, even if we leave those out, there are more articles published now using Austrian concepts than there were before. 63 00:06:24.640 --> 00:06:37.640 So potentially Jacobson's prediction that strategic management has a lot to gain from using Austrian concepts, potentially he had it right. 64 00:06:37.640 --> 00:06:47.640 The problem is that this is a total number of articles, now if we look at the fraction instead, the trend line doesn't look all that good. 65 00:06:47.640 --> 00:06:55.640 It's very stable and I think the slope is zero or infinity or whatever you want to call it. 66 00:06:55.640 --> 00:07:05.640 So what I did instead of looking at the total then, because it doesn't tell us much, is break it down into these dimensions and then break it down for each journal 67 00:07:05.640 --> 00:07:14.360 to see over time, where are the opportunities for Austrians and where are the Austrians basically. 68 00:07:14.360 --> 00:07:20.940 So if we look at per category, where the strategic objectives, the market conditions and so forth, 69 00:07:20.940 --> 00:07:27.600 we can see that different journals emphasize different parts of the Austrian style strategic 70 00:07:27.600 --> 00:07:28.600 management. 71 00:07:28.600 --> 00:07:34.240 So we see, for instance, market conditions, you can see that Cadmum Management Review 72 00:07:34.240 --> 00:07:41.320 Review and Strategic Management Journal are pretty strong with eight articles each, whereas 73 00:07:41.320 --> 00:07:46.600 generally Administrative Science Quarterly, they don't publish much Austrian stuff at all, 74 00:07:46.600 --> 00:07:50.920 so if you want to get published, don't send it there. 75 00:07:50.920 --> 00:07:55.920 Now looking specifically at the number one journal, Academy Management Review, which 76 00:07:55.920 --> 00:08:00.360 fits Austrian reasoning a lot better because that's their theory or conceptual journal 77 00:08:00.360 --> 00:08:03.840 rather than publishing empirical stuff. 78 00:08:03.840 --> 00:08:08.840 I look at each category for AMR over time. 79 00:08:10.440 --> 00:08:13.640 As you can see, for entrepreneurial discovery, 80 00:08:13.640 --> 00:08:17.660 there's a negative trend over time, 81 00:08:17.660 --> 00:08:20.300 which doesn't make any sense if you read the articles 82 00:08:20.300 --> 00:08:22.100 because there's actually more. 83 00:08:22.100 --> 00:08:24.620 If you look at the topical line here, 84 00:08:24.620 --> 00:08:26.580 there seems to be more entrepreneurial discoveries 85 00:08:26.580 --> 00:08:29.980 just that they leave the Austrian references out. 86 00:08:29.980 --> 00:08:36.980 So they don't cite Kirzner anymore, they used to, but they don't anymore. 87 00:08:38.380 --> 00:08:45.380 In terms of disequilibrium, this seems to be where Austrians are or should be. This is 88 00:08:47.060 --> 00:08:52.660 where the opportunities seem to be, because the trend line is very positive and there 89 00:08:52.660 --> 00:08:57.380 are more articles published, as you can see here. The blue and the red are a number of 90 00:08:57.380 --> 00:09:22.380 In terms of heterogeneity, it looks like the trend is negative, but the fact is that there was actually only one article published during these twenty years, so we can't really say much. I tried my best to extrapolate, but if you only have one data point, it's really difficult. 91 00:09:22.380 --> 00:09:38.380 But the thing is heterogeneity is used a lot in the articles you can see here with, I'm not sure what year this is, but it's 18 articles in that year in only AMR using the heterogeneity concept or heterogeneous resources. 92 00:09:38.380 --> 00:09:48.380 But they do not at all use other Austrian concepts with this concept or cite Austrian authors. 93 00:09:48.380 --> 00:09:57.380 They're simply not there, but obviously, it should be possible to talk about this concept and just inject a few Austrian references as well. 94 00:09:57.380 --> 00:10:00.380 It should be an opportunity, right? 95 00:10:00.380 --> 00:10:08.380 And if we look at success factors, unobservables like knowledge and things like that, it's also a negative trend. 96 00:10:08.380 --> 00:10:13.380 Not a lot of articles. As you can see, there are two, so I could extrapolate. 97 00:10:13.380 --> 00:10:23.380 But they do talk a lot about knowledge, and they talk about culture, and they do talk about these Austrian concepts, but it's just that Austrian economics is not there. 98 00:10:23.380 --> 00:10:33.380 So it should be very possible to publish something here, even though I would guess that it would be difficult to publish something purely Austrian. 99 00:10:33.380 --> 00:11:03.380 So overall the observations from doing this and looking through those 5,000 something articles, it seems that strategic management scholars have adopted a lot of what Austrian economics has to offer, at least using Jacobson's view, but they have not adopted the framework, so they have not followed Jacobson's recommendation that they should be more consciously using Austrian economics, 100 00:11:03.380 --> 00:11:05.220 is simply not there at all. 101 00:11:05.220 --> 00:11:07.020 There's no connection between the concept 102 00:11:07.020 --> 00:11:10.480 and the overall whole or the theory. 103 00:11:10.480 --> 00:11:11.800 And when they use the concepts, 104 00:11:11.800 --> 00:11:14.660 they generally do not cite Austrians. 105 00:11:18.960 --> 00:11:21.380 This is all what I said. 106 00:11:21.380 --> 00:11:24.440 And one of the problems that I see with this 107 00:11:24.440 --> 00:11:27.580 is that it seems like they're talking about the firms, 108 00:11:27.580 --> 00:11:31.160 they inject all these concepts that we know very well, 109 00:11:31.160 --> 00:11:35.680 But they do not connect this to an overall understanding 110 00:11:35.680 --> 00:11:39.520 for the production process or the production structure 111 00:11:39.520 --> 00:11:42.800 or what the production is really for. 112 00:11:44.320 --> 00:11:46.000 Because they focus on the organization, 113 00:11:46.000 --> 00:11:49.760 they focus on its capabilities, they focus on its resources, 114 00:11:49.760 --> 00:11:52.000 but they do not talk about the general market at all. 115 00:11:52.000 --> 00:11:54.760 They do not make this connection from the micro view 116 00:11:54.760 --> 00:11:57.520 of the firm to the macro view of the market as a whole 117 00:11:57.520 --> 00:11:58.980 or the market process. 118 00:11:58.980 --> 00:12:00.720 This connection is simply not there. 119 00:12:00.720 --> 00:12:21.720 So that should be a great opportunity for people like us to publish in this area and stress this point that actually it makes sense to connect this firm or the firm in general to the overall market process and how they interrelate and interact. 120 00:12:21.720 --> 00:12:39.720 So the conclusions, of course, is that there seems to be a lot of opportunities in strategy still, or rather, there should be more opportunities now than before, which seems to be according to Jacobson's sort of prediction or recommendation. 121 00:12:39.720 --> 00:12:54.720 It's gonna be a hard sell simply because you have to take out all the Austrian lingo and the Austrian theory and add the Austrian concepts. 122 00:12:54.720 --> 00:13:03.720 What is possibly an extra opportunity here is the strategic management, I would say. They don't really have a theory. 123 00:13:03.720 --> 00:13:12.220 They don't have, like any economist, even neoclassicals, they have a theoretical framework within which they do their reasoning, right? 124 00:13:12.220 --> 00:13:26.720 Strategic management is, like any management, mainly inductive, and there are plenty of papers where they mix and match different methods that have nothing at all to do with each other, and they still get published. 125 00:13:26.720 --> 00:13:32.320 But pointing out that these concepts actually do relate to each other in a certain way 126 00:13:32.320 --> 00:13:36.720 and that there is a lot of value in using them together in that way 127 00:13:36.720 --> 00:13:40.320 should be a very productive approach, I think. 128 00:13:40.320 --> 00:13:48.120 The hard part is, of course, making sure reviewers understand this. 129 00:13:48.120 --> 00:13:56.120 So another problem then is that it seems that the Hayekian version of Austrian economics is the big one. 130 00:13:56.120 --> 00:14:06.120 Jacobson in his article for 92 adopts a purely Hayekian or Vissarion knowledge problem sort of view of Austrian economics 131 00:14:06.120 --> 00:14:15.120 whereas the mundane version or the version most people here would use simply is not there. 132 00:14:15.120 --> 00:14:19.120 There's a lot of talk about knowledge and opportunity discovery. 133 00:14:19.120 --> 00:14:21.120 There's a lot less about judgment. 134 00:14:21.120 --> 00:14:27.120 and there's, well, barely anything at all on production and things like that. 135 00:14:27.120 --> 00:14:34.840 So whether this is a threat or an opportunity, I don't know, we'll have to see, I guess. 136 00:14:34.840 --> 00:14:40.000 And entrepreneurship then is pretty much only Kirznerian. 137 00:14:40.000 --> 00:14:45.480 There is not much of the Misesian judgmental entrepreneurs we heard about in previous sessions 138 00:14:45.480 --> 00:14:47.440 that does not exist, 139 00:14:47.440 --> 00:14:50.080 especially if we take Peter Klein out of the picture.