The purpose of this article is to raise issues about how managers think strategically. Specifically, it concerns issues about the appeal of relatively simple, economic concepts at the expense of those that are more complex and involve an understanding of human nature.
Learning in the article is drawn from two sets of observations: the study of a successful company, conducted over a period of eight years since 1997, and teaching the case study to classes of business students, managers and executives.
Managers find relatively simple economic concepts, such as economies of scale, attractive in explaining why companies are successful, and are keen to hold to this reasoning even when there is evidence that challenges the basis of their thinking. The article suggests that this is true in the classroom and in practice. This way of thinking is compared with the reality in the case where competitive advantage arises from complex combinations of tangible and intangible resources, the source of which is the motivations and passions of leaders or deeply held philosophies and beliefs in the company's culture.
The article argues against the inclination of managers to focus too strongly on rational, economic concepts in their strategic thinking and practice. It gives examples of why this is dangerous. The article also postulates the length of time it might take a leader to fully appreciate the nature of a company's success and illustrates the fragility of sustainable competitive advantage if this knowledge is not transferred from leader to successor.
Sound strategic decisions are not made with rational thinking alone. A deep understanding of human nature, especially what motivates people, is at least as important and could be vital to prevent destroying competitive advantage.
