The traditional methods and ways of thinking of strategic management are no longer viable.

They assume that exogenous causes and causal interrelationships can be shaped and utilized to produce objective factors of business performance. Superior management can result in superior performance through identifiable combinations of observable causal factors.

The modern science of complex evolving systems, represented by Austrian economics in social sciences, compels recognition that business outcomes are emergent rather than resulting from identifiable causal factors. Human action, by both customers and employees, occurs in complex interactions of dynamic interpersonal coordination, the results of which are unforseeable. It is the beliefs, perceptions, expectations, imagination and intentions of individuals that combine and interact unpredictably in business reality. Strategic business success is highly uncertain in this context and impossible to sustain.

A new strategic management paradigm is called for.  The components are:

The philosophy of subjective value. Human beings seek value, defined as an improvement in self-perceived well-being. They constantly seek a desired state to replace a current state that is deemed less than perfectly satisfactory. Businesses thrive when they are able to facilitate customers’ feelings and experiences of value. The performance of a firm, and any structure or methods it adopts, are 100% determined by the perceptions of its target customers. Any change in these perceptions will result in changes in firm performance. Dynamic business energy emanates from customers, not from strategy. 

Converting knowledge into value. It follows that customer knowledge and understanding are the vital, scarce resource of the business firm. There are no structural competitive advantages, but it can be the case that the combination of people in one firm share knowledge and understanding that is more functional for the task of conversion into value via innovation, service and relationship. The law of increasing functional information guides the market systems selection of the best value-facilitating firms.

Entrepreneurship (rather than management) is the business function for conversion of knowledge into new value. It is a non-linear, non-processual act of co-ordinated and creative imagination. It can be advanced and accelerated by identifying and continuously renewing insights into customers’ motivations, purposes and values, and composing and recomposing new value propositions for them to choose from. Entrepreneurial capacity consists of skill in designing business propositions and in stimulating customers’ choice of those propositions. During the act of designing the value proposition, the customer’s choice lies in the future, and so is unknown and unknowable. Entrepreneurial imagination is the cognitive connection of the present offerings and future choices. It does not result from traditional strategic management or planning.

Innovation is a necessary condition for business persistence. In the dynamic swirl of rapid change and inscrutable complexity, continuous innovation is required to stay relevant to customers and to stay coherent with the environment. This is continuous improvement in a value proposition to match continuously increasing knowledge on the customer’s part of what they can want and demand. There are opportunities beyond persistence – adaptive innovators can respond to the changing environment with new value propositions that exceed the expectations of customers, i.e. incorporate new knowledge before it’s widespread. And the truly evolutionary businesses can make leaps of innovation that introduce true novelty to the market. The market may select the novelty or reject it; successful new businesses and new products are those that qualify for selection. The market is always evaluating and always selecting.

Nothing in this process can be predicted or projected. Strategic planning is powerless. Discovery, not planning, is the dynamic of innovation in business.  Discovery requires the humility of relinquishing certainty and control, and the creativity of generating new ideas and combinations for testing and experimentation. There is joy in discovery, and we must learn to love feedback loops, the conduits from the customer and the marketplace that tell us how our experiments perform in evaluation. Humility and empathy are not the central focus of traditional strategic management. We hear much more about heroic business leadership and the intellectual superiority of planners and strategists. But discovery is not driven by intellectualism but by action – run lots of experiments, gather fast feedback, determine what works, and incorporate it into the next epxeriment, until a new value prososition emerges that is robust enough to commercialize.

Complexity is the overarching organizational metaphor. Complexity can’t be tamed or managed. Simple imagery fails to convey any meaning. For example, when there is discusion of market share, or growth rates, or 5-year total stock market returns, or even quarterly revenue, it’s meaningless in the context of complexity. Complexity is a swirl of ongoing interactions between people and their contexts, constrained by rules, norms, institutions, events and things, with emergent and unpreditable outcomes triggering new emergent responses which further accelerate change and make it even more chaotic. Businesses can’t snapshot the swirl of complexity, or choose just a few developments to respond to. They must act intuitively to find islands of order in the raging sea of chaos.

The new form of organization for complexity is autonomy. In the new paradigm, firms gradually learn how to auto-organize, eschewing structure and hierarchy and management authority in favor of self-management by employees and team members. Teams self-assemble around functions like marketing and branding or operations and delivery or finance, and role map the collaboration that will optimize the combination of specialist talents in pursuit of a shared purpose. Purpose is the binding force, rather than position in a hierarchy or on an org chart or the authoritarian directives of management. 

Subjective value, knowledge conversion, entrepreneurship, innovation, discovery, complexity and orgnizational autonomy – these are the components of the new management paradigm.