Abstract
As firms act to meet competitive challenges, they separately vary their exposure to objectively real risks, and their subjective risk perceptions. Hence the ‘fit’ between each firm's subjective risk map and its objective ‘riskscape’ is in constant flux. Realist thought, which emphasizes the separateness of mind from external reality, and sets itself the slow and painstaking task of improving the fit between the two, is therefore universally relevant for risk management. This simple ‘risk realism’ has value for academics wishing to analyse risk management practice and can provide useful working assumptions and procedural guidelines for practitioners. Mindful of both uses, this paper utilizes the philosophical thesis of critical realism to develop ontological and epistemological standpoints that relate specifically to what we call ‘competition risk’. Working from these standpoints we develop parallels between business and military engagements with competition risk. We explore what we treat as ontologically indistinct competition risk issues present across both contexts and conclude that firms can learn much from how the military deals with both ‘regular’ and ‘irregular’ forms of competition risk.
Introduction
We theorize the management of ‘competition risk’ in terms that apply just as readily to business competition as to the very different sorts of ‘competition’ that take place between military adversaries. Eventually we focus on five specific areas of comparison where businesses may be able to derive useful insight from military experience. Critical realism provides us with a conceptual framework whose basic tenets we discuss in order to both justify parallels between business and the military, and to nuance the staged analytical procedures we can follow to compare both worlds and so develop the abstract generalizations we propose as outputs from our paper. Through our core argument that businesses and military forces encounter the same competition risks, we open a two-way learning corridor between both types of organization. However, we focus on how the military, which has had longer to develop effective practice, can provide businesses with valuable pedagogic metaphors and analogies. Military metaphors are all too often used frivolously. In line with Mutch's (2006) paper on the value of military metaphor for business, we argue that such metaphors can be used well by businesses willing to think through their competition risk exposure as part of their strategic planning processes. Such metaphors, in theory, can sensitize us to an underlying logic of competitive interaction equally pertinent to both contexts.
Underlying our argument is an advocacy for greater attention to competition risk, within the context of strategic risk management, as a spur to the development of the risk management profession at a time when it increasingly seeks to promote its potential contribution to top table strategic management and decision making. Risk management can enhance strategic capability by anticipating and developing resilience towards risk on an ex ante basis, when strategy is conceived, formulated, and planned. Commonly, however, risk management practice is relegated to the lesser mission of engaging with strategic decisions on an ex post basis, focusing on risks to strategy implementation and ongoing operations. We suggest that if risk management practice is to improve towards ex ante strategic capability enhancement, then it can only benefit from academic literature which establishes competition risk as a valid risk category with its own germane theory to support management efforts within conceivably any management context.
Our paper is bound by basic philosophical assumptions. First, it is inspired by the realist notion that the more ontic exercises we undertake, where we note similar issues arising in very different contexts where entities deal with competition risk, the better we can appreciate the generic issues that demand consideration whenever any individual or collective entity is challenged by competition risk. To be clear, both academics wishing to develop guidance on the nature and management of competition risk, and risk practitioners faced with the challenge of actually managing these risks, can usefully undertake this sort of comparative exercise. Our concern throughout this paper is more with the former, yet we refer throughout both to the academic analysis of competition risk, and to the management practice we seek to support through the five ‘lessons’ we propose at the end of the paper. As we will argue, critical realist research focuses on understanding what makes an action either successful or unsuccessful in circumstances that are epistemologically challenging. The chief determining factor is often whether the social actor is able to theorize the complex social reality that confronts them. Although critical realism's goal here is often considered to be the ‘emancipation’ of social action through its guidance in support of theory construction, critical realism is just as easily adapted to support any management effort to deal with any opaque social reality. For critical realists, to theorize such action is fundamentally to evaluate its ‘effects’ with reference to some conception of efficacy. Yet this sort of analysis can be tailored to any academic or practitioner conception of efficacy. Hence the academic theory and the practitioner guidance yielded by critical realism may overlap considerably.
Underlying this notion that comparative analysis can play an important theory building role is an even more fundamental realist assumption. We commit to a realist ‘ontology of invariance’ which assumes that it is legitimate to view certain specified ‘things’ as manifesting separately yet identically across very different contexts. Specifically, we view the logic of competitive interaction as something that we can defensibly consider invariant across business and military contexts. Thinking as realists, we view this logic as only revealing itself gradually, through careful comparative analysis focused on the options competing entities have at their disposal, together with the consequences associated with recourse to those options. Noting that the differences between business and military contexts may be immense in some respects, the analytical value of our realist ontology is to frame similarities as objects of study which are valuable in their own right. An alternative philosophical thesis, such as social constructivism (Burr, 1995), would focus instead on difference, for example, through its concern with observer generated contexts and context specific sense-making mechanisms (Mayer, 2004). However, we suggest that the study of competition risk is sufficiently important as to justify multiple academic contributions emphasizing both similarities and differences between business and military handling of competition risk.
In this paper, the authors acknowledge earlier studies (e.g. Rosa, 1998) which suggest that the study of risk traditionally has owed a great deal to the basic realist assumption that objective risk often remains tantalizingly close to, yet beyond the epistemological grasp of, those exposed to it or charged with managing it. Here we further explicate links between risk and realism by narrowing the focus within the realist canon to consider how critical realism, in particular, can help us to theorize competition risk. Although risks associated with competition have been extensively studied (Miller, 1992; Clarke & Varma, 1999; Pech & Slade, 2003; Ojiako et al., 2010; Marshall & Ojiako, 2010), our review of the literature suggests academia has offered practitioners very little useful guidance on actually managing competition risk. Hence we hope that our use of critical realism to develop ‘five lessons’ from the military will help to correct this oversight. Our paper is structured as follows. First we establish conceptual foundations for our study. We begin by considering what risk might mean within the context of a competitive environment. We suggest that institutional theory yields a useful conceptual framework, particularly because it leads us to think of risk as something that arises in situations where competitive players fail to agree on the ‘rules of the game’. To further explicate competition risk, we turn to critical realism, arguing from this perspective that competition risk inevitably confronts both academics and practitioners as an opaque feature of the social world which we can only approach incrementally through theoretical conjecture. We then look in more detail at how we can develop theories about competition risk, through business-military comparisons. Here we show that critical realism provides an important methodological guide to such comparisons. Although we set out four ‘stages’ of critical realist research in this section, all of which give more precise meaning and purpose to military-business comparisons, we do not then work through these stages sequentially to develop our theories. Instead, we round off our paper with five lessons which businesses can learn from the military. All five lessons pertain in some way to problems associated with the rules of the game that are flagged up by institutional theory. Furthermore, all five have an important place within ‘staged’ critical realist research as theoretical approximations that can be pushed through a more complex research process fundamentally concerned with developing and validating the sort of comparisons we offer between business and the military.
Conceptual foundations
Risk
Perhaps one reason for the lack of literature dealing with the management of competition risk is that strategic management literature still lacks a generally accepted definition of risk (Henkel, 2009). While some literature emphasizes an understanding of risk as something ‘out there’ that presents a managerial challenge, particularly where it is ‘unanticipated’ (Hansson, 1996; Rosa, 1998), other literature (Trewin et al., 2010; Ojiako et al., 2010; Marshall & Ojiako, 2010) conceives of risk in more functionalist terms as something that intensifies with action (or its absence) and which is maladaptive to competitive environments. Here we take the latter approach. We conceive of objective risks as being inherent within the properties and powers of the social environments within which social agents operate reflexively over time. To understand competition risk we therefore confront a serious problem: how can academic observers, and indeed practitioners, theorize the dynamics of competitive environments that create ‘risk’ for competitive players?
Theorizing the competition environment
When faced with this theoretical challenge, realism's cautious determination to slowly, and by successive approximations, improve its theoretical grasp of the opaque reality of competition environments seems particularly helpful. Its basic method is to first ask ontological questions: what sorts of ‘things’ truly exist within competition environments, and how can we be sure that the theories we create to interlink these ‘things’ do not reflect misunderstandings bound up with the common sense of the day? All realisms emphasize problems of mind dependency, maintaining that the world only manifests itself through the distorting frames we impose. Hence it insists that these are difficult questions to answer well. This realist standpoint becomes especially pertinent for aspects of the social world which do not readily manifest themselves and so must always be ‘guessed’ at to some extent. Notably, competitive players themselves stand to benefit from greater mindfulness of this simple realist warning. Firms do not frame the competitive environment similarly (Yasai-Ardekani, 1986), neither do they have similar perceptions of those properties of the competitive environments that we might equate with ‘risk’.
Realism is perhaps best regarded as ambivalent towards all such efforts to construct theory under difficult circumstances. Realists accept that how we perceive the world is highly dependent on pre-existing explanations of reality, even if those explanations are partial or unrealistic (Mir & Watson, 2001; Lam, 2010). Hence theory building from contentious foundations becomes a matter of plain necessity. It is this requirement for some theoretical starting point that leads us to seek parallels between business and the military. Of course, we must be mindful of differences; for example, we cannot argue simplistically that strategic business decisions should simply reduce or mitigate competition risk in the same way as the military might seek to defeat or annihilate its ‘competition’ (see Ojiako et al., 2010). However, we consider that firms may try to drive competitors out of markets in much the same way as the military might seek to gain victory. Firms may also seek to improve the ‘fit’ with their competitor environments by repositioning themselves wherever there is lower competition risk, in much the same way as a military force may concentrate its powers where it knows its enemy to be most vulnerable. To enable theory building based on similarities of this nature we require some overarching framework for theorizing competitive interaction.
An opportunity for institutional theory?
Institutional theory offers a simple conceptual framework and form of words for thinking about competitive interaction whose conceptual breadth of scope renders it as applicable to military competition as to competition involving any economic, political, religious, or civil society organization or institution. Indeed, much of this literature is valuable because it allows us to theorize complex social reality where all such entities interact. Several scholars, including Scherer (1967), Yasai-Ardekani (1986), Clarke & Varma (1999), Smith & Raspin (2008), Marshall & Ojiako (2010), and Ojiako et al. (2010), consider the environment within which firms compete as key to formulating strategy (and therefore how risks are likely to be framed). Taking this approach, factors relating to the competitive structures of markets, such as number of competitors, the purchasing power of consumers and customers, the presence of a significant number of foreign competitors, the height of entry barriers, and size distributions of competitors (e.g. duopolies and oligopolies), all become considerable as areas of risk that obviously require attention.
In institutional theory, our realist ‘ontology of invariance’ translates into ‘organizational isomorphism’ which assumes that (perhaps very different) organizations possess important similarities. For example, they might manage strategic risk with similar conceptions of rational action. This might entail framing narrow instrumental rationalities in similar ways in response to similar circumstances; yet it might also entail the use of similar ‘practical rationalities’ where similar psychological and cultural adjustments are made to similar changing circumstances. Such adjustments, within a competitive environment, are bound to involve reflexivities between competing entities. To some extent, such entities can even be expected to harmonize culturally, attitudinally, or behaviourally, over time. Consider in particular the classic new institutionalist argument that the long-term performance of firms depends upon the willingness of competitors to accept the rules of the game (North, 2005). In other words, the success of a firm's strategic risk management approach may depend upon other competing firms adhering to both written and unwritten standards of competitive behaviour. A full understanding of competition risk therefore requires that we resist the anarchic individualism associated with the neoclassical perspective of the firm, favouring instead a more systemic view of risk. Institutional theories (see Fama, 1980; Edelman & Suchman, 1997; Aram & Salipante, 2003; Scott, 2008) ask us to consider that organizational interaction is necessarily both competitive and cooperative. From this standpoint we can conceive of competition risks as intensifying with either too much competition, or too much cooperation, across a competitive marketplace. Bending or breaking the rules of the game brings systemic risk because it may set in motion processes such as catastrophic, mutually destructive price wars; yet not doing so can make whole industries sluggish and uncompetitive —particularly through the absence of much-needed innovation from maverick individual players. Of course, both types of risk are interdependent. Successful innovations by individual players, in time, may reduce systemic risk by improving whole markets.
Clearly, then, competition risk depends very much upon how players choose to orient themselves to the rules of the game. Linking the two concepts, we might say that competition risk comprises the threats and opportunities that accompany decisions to either reinforce, reinvent, ignore, deny, subvert, or modify the rules of the game wherever there is uncertainty over their nature or relevance to the management of risk.
Arguably, if risk management is to attend effectively to competition risk, then it must develop core competencies in negotiating dynamic competitive environments, in the way that rhetoric dealing with ‘enterprise risk management’ often promises but rarely delivers upon. As we proceed to explore parallels between business and the military, we will emphasize that in both cases competition risks are usefully regarded as intensifying with what we call chaoplexity, a military concept (Bousquet, 2009) which helps us to understand the risks that relate to the rules of the game in more useful depth. It is easy to see why this concept has become important within military literature. The nature of chaoplexity is nowhere better illustrated than in the ongoing war in Afghanistan, with the emergence of so-called non-state combatants whose ‘open’ non-hierarchical structures render their intentions, actions, and values highly unpredictable. As we will argue below, parallels with businesses facing extreme global competition from all sorts of competitive alignments, and who possess highly unpredictable views concerning the rules of the game, are well worth drawing.
A critical realist research approach
If we are to argue that military usage of ‘chaoplexity’, and indeed other military concepts and theories, have relevance to business, then rather than advocate an undisciplined and unstructured research approach to comparing these two domains, we seek to show that critical realism can be used to great effect as a philosophical and methodological foundation. Here we explain the basic tenets of critical realism which can help to structure and guide our comparisons and justify our suggestion that businesses can learn valid ‘lessons’ from the military. The realist canon is diverse, spanning many different disciplines (Niiniluoto, 2002). Wild (1947) cautions that the term is often used imprecisely or with little concern for rigour and integration across the four realist fields of ontology, epistemology, axiology, and logic. Always very clearly at issue, however, is a realist ontology concerned with overcoming the mind's tendency to distort objective reality by identifying ‘things’ that really exist, and a realist epistemology centred around iterative procedures that test and improve theories about the world. As Dow (1997) maintains, realist ontology conditions realist epistemology. Explicit assumptions concerning ‘what is real’ give us the (always corrigible) conceptual foundations needed for theory building.
Modern-day critical realism builds on this longstanding philosophical foundation in part through its determined efforts to overcome postmodernism's stance of judgemental relativism towards theory. Its goal is often taken as being to emancipate, through all it does to support the further expansion of knowledge through science (López & Potter, 2001). Bhaskar helps us to participate in this project by encouraging us to think more carefully about the basic contours of ‘the real’. His layered ontology (Bhaskar, 1978) famously differentiates between ‘the empirical’ (what we see and record), the ‘actual’ (events that occur), and the ‘real’ itself (generative mechanisms and causal powers often invisible, unrecorded, and un-actualized). This threefold distinction helps to resolve the tendency to confuse the subjective with the objective, which Sayer (2000) regards as a common weakness present across diverse schools of idealist and anti-realist thought. Bhaskar's (1978) layered ontology has obvious yet greatly underappreciated implications for how we think ontologically about risks, which can of course be recorded risk statistics (volatilities or probability/impact figures) at the level of the empirical, ‘ risk events’ at the level of the ‘actual’, and (unactualized) generative mechanisms/potentialities at the level of the ‘real’. It is this third layer of reality than interests us most. Bhaskar's ‘real’ comprises loose conditional tendencies for changing circumstances to precipitate or unleash emergent properties; crucially, within such changed circumstances, social actors face changed external powers that should matter to them, but which they may remain unaware of because the powers in question, being ‘real’, are by definition unactualized (i.e. not manifest to observers through specific occurrences or events). In other words we can say that Bhaskar's ‘real’ comprises our unactualized risk environments which are forever constituting and reconstituting themselves, perhaps giving no tangible warnings to exposed social actors. Bhaskar's domain of the real thus encourages us to conceive of risk environments as things knowable through abstract theory rather than experience — as may also very usefully be said of competition environments. From the perspective of the risk practitioner, this is a world of possibility that ought to be considered very real, even if it is only approachable through conjecture. Managers need to evaluate theories with respect to such possibilities, giving thought to their ‘practical adequacy’ (Sayer, 2000). Realism as a pragmatic philosophy (Aram & Salipante, 2003) within this context emphasizes the managerial value of alertness to the fact that the world exists irrespective of the level of human awareness (Pawson & Tilley, 1998). Thinking along these lines, it is arguable that strategic decisions made without the realist's vigilant attunement to the possibility of a wide split between appearance and reality, and without the realist's emphasis upon the fallibility and corrigibility of theory, are more likely to be flawed, with possibly dire consequences for the survival of today's firms (Godfrey & Hill, 1995).
From the perspective of the academic analyst, all of these considerations also matter. One further consideration that seems to loom larger for the academic analyst than for the practitioner is that Bhaskar's critical realism deals with abstract theoretical phenomena (often considerable as what we can usefully call unactualized risks), which we can perhaps sometimes only detect by searching for them as abstract theoretical commonalities present across multiple (sometimes very different) contexts. Hence academic scholarship is required, and hence the nature of our study.
It is important at this juncture to delineate between two different categories of realism: the first being dogmatic realism (Exner, 1996) and the second being critical realism (Bhaskar, 2008). According to Patomaki & Wight (2000) and Kwan & Tsang (2001), both dogmatic and critical realism are of the view that theoretical conjecture may be either true or untrue. They also believe that scientific research can assist in the development of a realistic account of the phenomena under observation. However, while dogmatic realists suggest that existing theory may adequately explain reality; critical realists are of the opinion that explanations of reality are never conclusive, but progress over a period of time (Fay, 1996). It is useful to stress that critical realist writing requires constant vigilance against sliding towards a dogmatic realist treatment of the phenomena under scrutiny.
From a strategy research perspective, critical realism represents a formalization of underlying reality through successive ‘observations’ of things (Montgomery et al., 1989; Mir & Watson, 2001). Correspondingly, the critical realist researcher seeks to contribute to the weight of evidence within the literature by enriching the theoretical possibilities available to academic analysts. Critical realism emphasizes, however, that it is only possible to move towards true explanations of reality if substantial efforts are put into long-term observation (Bhaskar, 1978: 14; Tsang & Kwan, 1999: 759). Only in this way can knowledge be developed through the ‘generation, refutation and application of theories’ (Montgomery et al., 1989: 189). Our study is not so ambitious as to attempt anything more than to float theoretical first approximations that clarify the nature of competition risk. We can only offer a conceptual framework for managing competition risk which helps to pave the way for sustained academic attention to this subject. Our study is fundamentally ‘comparative’ rather than iterative. Or, as we claimed earlier, it is ‘ontic’ in the sense that it looks for similarities between business and military contexts that help to reveal what Bhaskar would call ‘real’ phenomena present across both contexts. Here it becomes important to remember that critical realism, which seeks to examine the contingent relationships that exist within and between phenomena, differs according to Mir & Watson (2001) from ‘mainstream realism’ in that it opposes the notion of predictive validity and instrumentality (in effect, it disputes arguments which attribute direct cause and effect relationships between phenomena). It adopts this stance because not only are such relationships often ‘neither provable nor testable’ (Mir & Watson, 2001: 1171), but also in the words of Bhaskar (1978: 69–71) they can only exist in ‘closed systems’ where external influences are controlled. It is easy to forget that critical realism resists such artificial closures of theory at every turn (Bhaskar, 1978; 2008; Tsang & Kwan, 1999). In fact, for critical realists, the impossibility of direct observation entails that the ‘structures and mechanisms’ which it seeks must be viewed as dependent upon, but very different from what we ‘observe’. It is the job of the critical realist researcher to explore this elusive realm of structures and mechanisms, always mindful of the possibility that past events, historical regularities, and indeed all theoretical constructions based on these things, do not always prove reliable guides to its important contours.
Stages in critical realist research
In this section we discuss critical realism as an appropriate methodological guide to carrying out comparisons between military and business scenarios where competitive players are exposed to competition risk. Miller & Tsang's (2010) concern to demonstrate the value of critical realism to management research led them to propose four research steps. We look at these now in turn to highlight a variety of relevant methodological issues which provide the context for the claims we make in this article about how business can learn from the military.
Identify the hypothesized mechanisms
Miller & Tsang (2010) view this first stage as an interpretive stage, which focuses on the relationship that may exist between theory and an empirical context. The researcher is asked to produce a ‘contextualized specification of the explanatory properties and processes that underlie hypothesized causal relations’ (Miller & Tsang, 2010: 147). This leads us to consider the following matters within our study. Since the 1970s, a broad range of strategic management perspectives have been developed (Combs & Ketchen, 1999; Hoskisson et al., 1999; Priem & Butler, 2001; Pozzebon, 2004). These are linked by a common concern to analyse organizational behaviour by refocusing away from the organizations themselves towards conditioning influences within organizational environments. This burgeoning body of literature has much to say about the ‘competitor environment’ in particular, and so represents a rich seam for theorists of competition risk. For example, while some perspectives emphasize conflict between multiple competing organizations (Hannan, 1988), with in effect competitive adversaries becoming ‘sources of risk’, other perspectives (see Edelman & Suchman, 1997) emphasize environmental constraints, such as legal frameworks, or indeed the rules of the game which we mentioned earlier, all of which can be considered to produce or vary competition risk.
Other literature (see O'Gorman, 2001) treats risks as obstacles to firm growth. This literature refers back to the ‘population ecology’ model of organizational environment (Carroll, 1984), which conceives effective risk management as wholly dependent upon access to resources, which at the best of times may be limited in availability. Another influential alternative perspective is to theorize the competitive environment as comprising intra and inter-organizational networks where resources and communications flow laterally (Powell, 1990). All of these perspectives can help to guide our business-military comparisons. In fact, critical realism stresses that good ideas can come from a range of sources, including from any simple metaphors that pass between business and management literatures, and can help to validate what these far richer academic literatures are claiming. What matters is that at stage one we can critique existing bodies of ideas, such as those found in strategic management literature, for the extent to which they allow basic ontological categories of the ‘real’ to be distilled and pushed forward into an iterative process of further refinement.
Test for the presence of mechanisms
Miller & Tsang (2010) identify a test for presence as the second step in critical realist research, which may include testing for ‘effects’ if the mechanism itself is not observable. Here we begin to see that well-known concern with retroductive logic famously associated with critical realism, which needs to find some effect (often in the form of an ‘event’) so that it can then enquire into what must be going on in the world, in order to explain why the effect has arisen. Clearly, the more contexts we have where we can point to the ‘effect’, the better able we are to identify the mechanisms responsible, and hence the value of comparative studies for critical realist research.
For example, in this study, our environmental parallel between firms and the military entails that both business and military organizations increasingly confront a common problem: that of how to deal with ‘irregular competition’ (see Ojiako et al., 2010). The notion of irregular competition emerges from military circles and was initially applied to the description of military operations between forces of unequal resources and capabilities. Typically, this would involve conflict between professional armed forces and small, lightly armed, ‘irregular’ forces who feel they must re-write the rules of conventional warfare if they are to succeed against larger, more professional, and better equipped adversaries. The corresponding business term is ‘asymmetric competition’ which refers to the predicament of firms who feel they must modify their stance towards the rules of the game if they are to compete effectively (Pech & Slade, 2003). It appears that firms are more willing than ever to engage in unethical and sometimes illegal business practice (Shleifer, 2004). Such practice might take the form of negative advertising, the spread of damaging rumours about competitors, brand tampering, and the adulteration of competitors' products. Hence the more stories we can tell of instances where military or business entities have engaged with such challenges, the more alert we become to the nature of the underlying challenges themselves.
Test isolated causal relations
In this step, if the researcher is able to tentatively establish the existence of the abstract mechanisms, then the next stage now becomes the testing of resultant causal effects. For our purposes, this can mean looking closely at the circumstantial prerequisites for both successful and unsuccessful negotiations of competition risk, which of course only begins to make sense when we have a clear understanding of what ‘success’ actually means. Thereafter we can begin to focus on detailed individual stories of success or failure that effectively ‘test’ the mechanisms we are interested in. There are a range of differences between the military and businesses which must be taken into account when considering the sorts of effects that are relevant to our study. It is useful for our purpose to think of effects, no matter how positively or negatively they might be evaluated, quite simply as ‘outcomes’ which are significant as ‘lessons’ we can learn from. In the first place, the military's main reason for existence is to win wars, primarily through the use of violence (Finer, 1962; Jochnick & Normand, 1994). Hence we need to remain attuned to that unique cultural and ethical situatedness within society that is instrumentally necessary for the military to achieve its objectives. Similarly, we may consider that the military relies upon command and control structures which are highly centralized and hierarchical (Pigeau & McCann, 2002). This renders the military highly remarkably effective in its swift resource deployments (Finer, 1962). Few business organizations share this impressive ability, but have varying abilities to conduct themselves in this way. However, we also know that both military and businesses require flexibility and mindfulness, combined with a healthy suspicion of planning, if they are to deal effectively with competitor behaviour calculated to have the advantage of surprise (Weick & Sutcliffe, 2001). Hence we can begin to conceive of the mechanisms that matter across both business and military life as ones that challenge these shared qualities, leading to outcomes with learning value for those involved.
Test the theoretical system
Miller & Tsang's fourth stage shifts the focus from individual effects to testing ‘the entire theoretical system’ (Miller & Tsang, 2010: 150). Here theoretical propositions must be seen to have value across varying application contexts. Thinking on this level, we suggest that firms wishing to address the growing challenge presented by competition risk may need to heed five lessons obtainable from the military, including:
Establish a clear ‘centre of gravity’ (CoG)
Value rather than seek to annihilate the ‘competition’
Use intelligence
Adapt to handle ‘chaoplexity’, and
Adapt to handle ‘irregular’ adversaries.
The remainder of our paper examines each of these lessons, with reference to how each arises from military theory and practice. Our objective in each case is to build up a richer picture of how competition risk can be managed. These five lessons will speak to the subtleties of competition risk which we derived (above) from organizational and institutional theory, considered from the standpoint of critical realism.
As a foreword to this exercise, it is perhaps worth emphasizing that our concern with a strategic view of competition risks to different sorts of organizations must make allowances for very different management infrastructures and risk philosophies. The management of strategic risk within the military is generally stratified across levels of command (Trewin et al., 2010). For example, at the first level, under the auspices of the CoG concept (Echevarria, 2003), the military seeks to deal with staff command-level risk. Such risk is usually managed by divisional officers and focuses on strategic challenges that might be, for example, of a political nature. In the case of the British Army, its overall risk philosophy is that risks to its forces and personnel must be minimised whenever possible (Trewin et al., 2010). However, risk is treated as something that is ‘environment-specific’, in order words, it is dictated by the realities of the combat environment. Similarly, in business organizations, we see that listed firms across much of the globe are influenced by market pressures and regulatory compliance drivers to ensure that often confusingly overlapping systems of strategic risk management, risk-based internal control, and enterprise risk management deliver strategic attention to risks. As with the military, businesses are notably inclined to individualize their risk categories and risk aggregation schemes. The simple practical value of our study will be to encourage greater attention to the ubiquitous challenges presented by competition risk that ought to matter no matter what the pre-existing management infrastructure and risk philosophy may be.
Managing competition risk: The lessons
The ‘lessons’ we propose below all relate in one way or another to problems flagged by institutional theory where competitive players may be creating uncertainty by varying the rules of the game. So how should entities respond when their competing adversaries appear to be abandoning or varying such rules? Litigation and appeals to regulators (in business) and perhaps war tribunals (for the military) may promise ‘too little, too late’, and so aggrieved business and military organizations may often need to fall back on their own resources. Lessons from the military are particularly interesting and provocative for firms in such circumstances.
Establish a clear ‘centre of gravity’
The CoG concept was first developed within Prussian military strategy (von Clausewitz, 1976). The basic idea is that, for any military campaign to be successful, a focal point must be established and clearly articulated. Once a blow is successfully applied to this centripetal point (place or person), the opposition's critical ability to resist will be degraded to the point where it will cease resisting.
Business might well learn from military experience with the CoG concept by using it to set objectives for competition risk management. In particular, competition risk management may translate practically into a planned ladder of escalating punitive actions against rule-breakers where, on each rung, measured and proportionate responses are established. Thinking on this level, businesses can both respond ex post to infractions of rules and can ex ante seek to avert such infractions through what military metaphor would call ‘first strike’ or ‘counterforce’ measures that deplete the enemy's capacity to aggress in the first place. Just as such considerations suggest that it may sometimes make sense for businesses to target their competing adversaries' CoGs, it also makes sense for them to think about problems arising within military efforts to apply this concept. A key difficulty seems to be that there are different ways to theorize it, hence subjectivity may play an important role in its identification. A number of scholars concur that different branches of the US armed forces, specifically the US Marines Corps and the US Army, do not only see the CoG concept from very different perspectives (Echevarria, 2003; Gertmann, 1986), but on occasions, these differences have led to major tensions between their commanders. For example, according to Watts (1984), differences in CoG perception between the US Army and the US Air Force during the first Gulf War (2 August 1990 to 28 February 1991), led to widely publicised disagreements between US Army General Norman Schwarzkopf (Commander of Joint Operations) and US Air Force General Charles Horner (Commander of the Air Campaign) during the war itself (Watts, 1984).
In business, this translates into problems of strategic risk governance where managers, directors, and influential investors may all have something different to say about the actions that ought to be taken to target competitor CoGs. Military disagreements over such matters can be carried out under high levels of secrecy effectively guaranteed by threats of military court martial. In business, altogether different pressures for transparency and reporting prevail and it is secrecy that is more likely to be punishable. Clearly, if business is to employ the CoG concept well, trust must first be cultivated across governance systems to give managers the confidence to take strong and perhaps escalating actions where they deem it necessary.
Value rather than seek to annihilate the ‘competition’
Yet businesses can learn much more than ‘how to aggress well’ from the military. Classical Western strategic management theory (Summers, 1986) is primarily rooted in the Prussian ideology of total war and its comprehensive definition of defeat (Rosinski, 1976; Roth, 1988), which is bound to have considerable psychological appeal within any competitive context. Considered in controversial psychoanalytic terms, the culture of Prussian militarism is arguably a reflection of the most virulent kind of prejudice, sometimes termed ‘obsessional prejudice’. Young-Bruehl (1998) argues that a hallmark of obsessional prejudice is its intolerance towards the very existence of the groups it targets. To appreciate the allure of this psychological stance for both the military and businesses, we might usefully consider psychological literatures which assert that we all have basic psychological needs for both ‘enemies and allies’ (Volkan, 1988). Clearly, the naming of some ‘enemy’ can rally and energize a firm. This phenomenon has been linked to strong leadership styles in particular, and it draws heavily upon the tendency to ‘affiliate under anxiety’ where some crisis draws colleagues closer together (Schachter, 1959). This common psychological response to crisis can be harnessed by ‘strong’ leaders wishing to gain and maintain power within organizations, through a symbolic naming of ‘demons’ (Little, 1988). Leaders so motivated can then marshal their organizational resources towards strong actions aimed at vanquishing these demons. In all such cases, the real underlying purpose behind the action might sometimes not be to deal with the adversary; far from it, the real objective might simply be to drive through a painful change process or ensure that power and control are gained and maintained. This school of thought (which very notably makes psychological realist assumptions about leadership motivations) has important implications for how businesses should identify and manage their competition risks responsibly. Clearly, what the realist Carl Schmitt famously called ‘friend-enemy codings’ (Schmitt, 2007) are dangerous things easily misused by opportunist leaders for narrow personal ends in any walk of life.
Yet military organizations are necessarily becoming wary of the ‘total war’ approach and its attendant psychological issues, simply because they need to adapt to the new geo-political reality whereby ‘asymmetric’ organizations are increasingly structured on the model of decentralized and independently operating or ‘composite’ units which cannot be comprehensively ‘defeated’ in the Clausewitzean sense (Sullivan, 2007; Mandel, 2007). Similarly, businesses are increasingly wary of expending resources to drive competitors out of business because they realize that global competition will always ensure that a plentiful supply of new adversaries appears whenever any one adversary has been dealt with. Furthermore, the idea that organizations benefit from monopolistic markets has waned and literature on strategic resilience teaches firms to value competitors as sources of inspiration for change and adaptation (Scitovsky, 1990; Hamel & Valikangas, 2003; Brown & Eisenhardt, 1998). Although businesses have considerable management literatures that can help them think through why they ought to value their competitors, the added advantage in seeking to learn from the military is that military experience emphasizes the need for dialogue with adversaries where antagonism and distrust have grown extreme. Bargaining over acceptable rules of the game, testing adversaries' commitments to agreed reformulations, and demonstrating commitment to such reformulations all become part of that essential trust-building process which allows dialogue to become more productive over time.
Actually ‘use’ intelligence
The above emphasis on dialogue and trust-building leads to a greater need for intelligence concerning what competing entities are planning to do. Questions of how and why, where and when, and with what resources also become vital within this context. As has been demonstrated in both military and business scholarship, reliance on pure strength (or in the case of businesses, market position) is unlikely to lead to the achievement of objectives. Intelligence plays such a crucial role in combat that it might well serve as the differentiating factor between success and disaster (Dobrev & Carroll, 2003). It has been suggested that wrong intelligence analysis led to the Viet Cong's initial success during the Tet offensive in Vietnam (Willbanks, 2008). US Army Intelligence was generally aware that the Viet Cong had begun a major build-up, but failed to plan against the risk of invasion because its intelligence estimates were based on capability assessments, rather than an assessment of the intentions of the Viet Cong to fight.
Intelligence has been shown on some occasions to be underplayed in military operations. For businesses, the starting point for intelligence may be competitor data, leading to the need for at least some formal mechanism for processing intelligence and, most importantly of all, for ensuring that it is communicated in an appropriate form to strategic decision makers. In establishing competition risk management mechanisms, just like the military, businesses must ensure they do not focus solely on capability assessments at the expense of intelligence assessments of competitor intentions, based on a detailed understanding of why the competitor might deem it appropriate to act in a particular way.
Adapt to handle ‘chaoplexity’
One recent scholarly definition of chaos emphasizes non-repetitive and extremely dynamic behaviour (Lorenz, 1993). This need not necessarily involve the complete absence of some form of order, rather, chaos can be characterized by periods of relative calm which are suddenly interrupted by unexpected and random behaviour introducing new elements of uncertainty into relationships between competing adversaries. Applied specifically to combat scenarios, the concept of chaos suggests the presence of two interrelated forms of uncertainty. Military references to the unleashing of the ‘dogs of war’ (originally from Shakespeare's Julius Caesar) provide a useful syntax for thinking about the aleatoric uncertainties that can be present within competitor relationships. Aleatoric uncertainties are possible future circumstances that are fundamentally unknowable, such as when a military fortification will be overrun, or when a scientific breakthrough or a new market entrant will upset a competitive marketplace. Similarly, there may be further ‘epistemic uncertainties’ that can be resolved through intelligence and communication, as famously articulated within von Clausewitz's (1976) expression ‘the fog of war’, which he used to refer to the situational awareness of combatants who are often deprived of information. ‘Chaos’ brings both forms of uncertainty into the frame.
To best draw lessons on the relevance of chaos to competition risk management, we can usefully return to the earlier mentioned military concept of ‘chaoplexity’ (Bousquet, 2009). The growing acceptance of chaoplexity as an inevitable feature of combat means that the traditional and contemporary Western military control-oriented doctrine, which is primarily based on synchronized and well-rehearsed action, is being increasingly questioned (van Creveld, 2003). In response, the military has sought to restructure more combat units around small and highly trained non-hierarchical teams. Some commentators such as Hammond (2004) suggest that, to address the challenges of chaoplexity, the military is increasingly reversing the roles of its combat arms. Conventional forces are now expected to support the operations of Special Forces in many cases. For businesses, this may imply that firms consider ordering their operations around less formalized team structures. Formalized organizational and team structures are more likely to increase operational and strategic predictability. What flexibility delivers is the responsiveness of the firm's internal structures. A flexible team structure also helps firms to react faster to changing markets, which of course requires human resource flexibility (perhaps with increased use of highly specialized temporary or contract staff). Paralleling military experience, the firm's fixed structures would then increasingly perform a support role within the value chain.
Adapt to handle ‘irregular’ adversaries
Given that competition risk comprises both regular and irregular competition, here we consider how firms might address issues of ‘irregular competition’ in particular. A review of the literature shows that war has been, and always will be, asymmetric (Arreguin-Toft, 2001; Mazzar, 2008; Nagl & Burton, 2009), but military literature has only recently adjusted to recognize this. The term ‘asymmetry’ was first applied to military combat in order to explore how forces have been able to defeat dominant major national armies, especially where these forces are remarkably less equipped and smaller in military terms (resources, funding, technology, and equipment) than the dominant force (Mack, 1975).
In general terms (applicable to both military and business scenarios), asymmetry involves a ‘competitor’ seeking to compete against a dominant organization (or force) by avoiding the dominant organization's strengths. Asymmetric combat (or competition) will primarily involve the weaker entity striving to compete against the dominant force by attacking the critical vulnerabilities of the dominant player. As the weaker entity has fewer resources at its disposal, it can only succeed by being selective about when, where, and how it engages with the stronger entity. The ‘how’ issue is particularly important here, as weaker entities may have no options other than to act contrary to the rules of conventional warfare (von Clausewitz, 1976; van Creveld, 2003).
We see much activity like this in the corporate world. Companies (both large and small), due to increasing demand for shareholder returns, increasingly are likely to engage in limited phases of either unethical or illegal forms of competition (Jones & Pollitt, 1998; Shleifer, 2004; Baucus, 1994). For example, in September 2009: the UK Office of Fair Trading (OFT) fined 103 major UK construction companies for bid-rigging. Other multi-national companies such as Microsoft, (Intel fined US$1.45 billion), and Pfizer (fined US$2.3 billion, the largest criminal fine to date) all appear to have been caught up in such practices (BBC, 2009; Straitstimes, 2009).
According to US Army General Schwartz, in an asymmetric competitive environment, to compete and win, ‘we need to look more like them than we do like us’ (Hammond (2004: 25–26)). To be clear, this idea is not as nihilistic as it may first appear and we are not advocating that firms engage in unethical or illegal behaviour with competitors. Essentially, doing so will only increase what can only be described as a ‘race to the bottom’ where values on all sides progressively diminish. However, there is both novelty and value in suggesting that such strategies all help to fill the range of viable treatment options for irregular competition risk. Arguably, where one market player decides to match the ‘irregular’ competitive behaviour of other market players, by employing eastern military-inspired strategies such as ‘feints’, they send powerful signals to their competitors that all parties risk squandering resources unnecessarily if irregular competition persists. Hence ‘matching’ decisions might, if used well, ultimately send signals that restore and uphold the rules of the game.
Conclusion
Critical realism can be used to focus our attention on a logic of competitive interaction which emerges only through theoretical conjectures that relate to the experiences of very different kinds of competing entity. It asks: ‘What is real?’ and ‘What types of things are we studying?’ Applied to the study of risk, critical realism affords us a valuable opportunity to break with the ‘flat ontology’ of much current risk research. It sets us thinking of often ‘unactualized risks’ as abstract causal mechanisms whose context specific operations we can glean retroductively, often from sparse evidence, and which we can investigate much more effectively if we come prepared with basic concepts derived from ontological studies such as this one which has probed the nature of competition risk. Of course, the conceptualization of competition risk that emerges from our study remains opaque. Indeed, critical realism, as a school of thought resistant to theoretical closure, insists this should be so. What matters is that our five-point comparative study of competition risk issues, which challenge both businesses and the military, can encourage more careful and thorough consideration of competition risk issues by both academics and practitioners.
Critical realism often considers philosophy as a diligent ‘under-labourer’ always striving for a more precise and differentiated ontology. Thinking from this philosophical position, we have no wish to recommend that other researchers develop pan-cultural comparative exercises towards ever greater detail. This may be fruitful up to a point, but arguably it is far more useful to use the concepts arising from our parallels to develop more context specific critical realist explorations of either business or military phenomena relating to competition risk. Consider that this often may be when the value of studies such as the present one becomes fully manifest. When we are exploring very specific competition risk contexts, we might well find that the evidence we require is either shrouded behind corporate veils or drowned in more contextual detail than we can handle. At that point, our efforts to determine the key competition risk issues arguably could provide a valuable starting point for theory construction.