The definitive examination of strategic investment from the viewpoint of the people who run the company--the CEO and principal officers. Includes fou… - Joseph L. Bower

How can we use our new understanding to help top management change the process by which resources are invested so that strategic objectives are more effectively achieved? Strangely enough, given the argument above in favor of recognizing complexity, the next paragraphs develop a very simple conceptual scheme for viewing the firm. This is done because the relationships among the essential forces that have been discussed can be most clearly revealed. Furthermore, a more formal discussion facilitates a more precise statement of the research questions. It might be useful to begin a statement of the scheme with an informal description of its structure. Briefly, the scheme describes a firm's position at any point in time as representing a sum or resultant of past decisions and acts which commit the firm's resources. The process of changing that position is deemed to consist of two parts: (1) routine, and (2) critical. Routine change is the continual use of assets and generation of profit which results from the activities of ongoing business. No more will be said about this class of change. The process of critical change is described in the scheme as consisting of two parts: (1) the "business planning process" and (2) the "investment process." The former involves the problem solving which results in the choice of markets and broad product objectives. The latter involves the problem solving which results in the commitment of corporate resources in an attempt to achieve the chosen objectives.

We contest the conclusions of scholars such as Tushman and Anderson (1986), who have argued that incumbent firms are most threatened by attacking entrants when the innovation in question destroys, or does not build upon, the competence of the firm. We observe that established firms, though often at great cost, have led their industries in developing critical competence-destroying technologies, when the new technology was needed to meet existing customers’ demands.

The research described in this book is based on a field investigation of resource allocation in a very large firm. It was motivated by my conviction, stated above, that for purposes of management and research, adequate models of the allocation process are not available. I believe that this lack stems from the fact that prescriptive theories of economic choice have not yet been set in the context of the large organization's political process. The research described below is an attempt to take a step in that direction by developing a descriptive conceptual scheme of the resource allocation process. Because "resource allocation" is an all-encompassing phrase, it is not particularly operational as a subject for research.