Creative Destruction and Creative Action: Path Dependence and Path Creation in Innovation and Change

Simon Grand Donald MacLean University of St. Gallen University of Glasgow Institute of Management Gilbert Scott Bdg Dufourstrasse 48 University Avenue CH-9000 St. Gallen Glasgow G12 8QQ +41 79 639 38 07 +44 141 330 4649 simon.grand@unisg.ch d.maclean@mgt.gla.ac.uk

Second Draft, August 2003 Please do not quote without permission Presented at the INSEAD Conference

Fontainebleau, August 25th & 26th, 2003

Abstract

This paper combines two concepts, creative action and creative destruction, to produce a novel model of innovation and strategic change. It describes how micro-creative actions lead to macro creative destruction, and especially how local intentionality, embodiment and sociality create novel micro-level combinations, which enter into dialogue with the past – challenging, questioning and, under certain conditions, destroying some of it whilst experimentally engaging with the remnants. This leads to synthesis of new potentials, some of which will “align with” ”or “extend” past patterns - and thus crystallize into temporary new patterns of strategy that “hold-out” against the relentless drives for innovation and change for long enough to extract an economic return on the investments inherent in the pattern.

This has an important bearing on issues of practice, design, control, emergence, micro and macro in relation to the practices of strategic change. In essence we are arguing that design and control are limited to acts of destruction, which are located on the macro-level by the intentional behavior of individuals in interaction with each one another. Destruction creates organizational slack, into which new forms of embodied behavior are expressed. Some of these new forms will stabilize into new patterns or order thus giving rise to a new strategic path, which although linked to (enabled and constrained by) the past, is qualitatively different from it and inherently surprising. In this view, the link between micro and macro is no more than the link between the past and the emerging future, effected through intentional acts of micro-expression/macro-destruction by embodied, interacting individuals in the living present.

Research Questions and Argumentation Structure:

Recent Issues in Strategy Research

Management research is interested in describing and explaining the dynamic nature of firm

development (Porter, 1991), be it as organizational learning, strategic change, dynamic

capabilities (Teece, Pisano & Shuen, 1997; Eisenhardt & Martin, 2000), strategic initiatives

(Noda & Bower, 1996), venture creation (Shane & Venkataraman, 2000) or innovation

(Henderson & Clark, 1990; Christensen, 1997). In parallel, management scholars realize that

they are not sufficiently equipped with the conceptual terms to cope with these issues and

phenomena appropriately. This is problematic since management could be seen as one of

the core activities within a firm coping with the complexities, uncertainties, ambiguities and

newness of firm development. As a consequence, management research is characterized by

an ongoing discussion about the appropriate conceptual foundation and paradigmatic

structure needed to cover these issues and phenomena. Two manifestations of this are

particularly interesting:

• On the one hand, strategy research is characterized by an increasing interest in strategy

practice in order to understand the mundane situated activities that lead to strategically

important change and innovation (Whittington, Johnson & Melin, 2002), arguing that it is

important to understand where exactly new perspectives, patterns and ideas originate. In

parallel, innovation research insists on the in-depth study of innovative practices and

situated activities that guide and shape the successful establishment of new solutions,

technologies and products, by emphasizing the importance of the firm as one central

locus for these developments (Shane, 2003).

• On the other hand, recent entrepreneurship research is characterized by the insight that

entrepreneurial venture creation (and innovation in general) cannot simply be understood

by focusing on the individual actor, the entrepreneur, and the early start up creation, but

that it is essential to understand how entrepreneurial activities are embedded in

organizational and institutional contexts to which they refer (Shane, 2003), as well as to

study how such initiatives lead to robust organizational and institutional settings and

eventually new products and new industries. It is this embeddedness and situatedness

that explains an important part of any entrepreneurial initiative.

This paper is based on the view that such similarities and connections between research on

innovation, entrepreneurship and strategic change merit an exploratory exchange and

transfer of conceptual material in the common pursuit of a novel combination - thus fruitfully

addressing the central concerns outlined above, which seem to lie at least partially beyond

traditional disciplinary boundaries.

Research Questions

In line with these recent developments in strategy research, the term micro-strategizing

attempts to draw attention to what people actually do when engaged in strategic behavior

and change (Whittington, Johnson & Melin, 2002). Such a focus leads naturally to a concern

for what might be called practice, micro-behavior or, in this paper, action as a focus in

strategy research. We are thus investigating the research question: Where and how do new

strategies originate? [research question 1].

In this perspective, strategy research is dominated by (often) unquestioned rational and

normative conceptions of human action, which, with predominately modernist conception of

context evident, tend to overplay, underplay or simply misunderstand the nature and role of

micro-contextual factors in organizational dynamics. These are typically manifest as: [1]

insufficiently accounting for the situational factors and activities underlying the orientation

and direction of strategic behavior and change (for an exception Whittington, Johnson &

Melin, 2002), especially their highly creative nature; [2] not differentiating between micro-

behavior and potential or actual macro-outcomes (for an exception von Krogh & Grand,

2002), especially with respect to innovation and change; [3] not analyzing the impact of

strategic contexts (spatial and historical) on micro-behavior (for an exception Bower, 1970;

Burgelman, 1983; 1991; 2002; Pettigrew & Whipp, 1991). These limitations are visible in the

recent attempts to better understand strategic entrepreneurship of established firms and new

ventures in contexts of technological innovation, business creation, or organizational change

(McGrath & MacMillan, 2000; Hitt, Ireland, Camp & Sexton, 2001).

The above resonates with recent developments in entrepreneurship research where there is

a growing recognition that the predominant focus on the isolated individual entrepreneur is

problematic (Shane, 2003). As the discussion of strategy research above implicitly shows,

although emphasizing the micro level, [1] the situational embeddedness of action implies that

an explicit study of the mutual interplay between individual action and specific situations is

important. This leads to conceptualizations of action as practice that start with the interwoven

nature of the two as strategy practice (Whittington, 2003), leading to an interest in

understanding organizational aspects of entrepreneurship (Garud & Karnoe, 2003); [2] this

further implies that situational action does not self-evidently impact on any macro-outcomes,

and that it is thus important to understand how entrepreneurial initiatives lead to institutional

change and innovation on a macro level, discussed as path creation (Garud & Karnoe,

2001); [3] at the same time, it is these institutional contexts that shape situational activities,

studied as path dependency for some time in evolutionary theory (Nelson & Winter, 1982;

Nelson, 1991). This leads to an interest in understanding: What forms do new strategies take

and how can they be distinguished against a background of ongoing micro-activities?

[research question 2].

Conceptual Approach

Given this research interest, rational and normative conceptualizations of entrepreneurial and

managerial activities tend to underemphasize or overemphasize the role of autonomous

individuals and institutional contexts in explaining managerial and entrepreneurial initiatives,

innovation and change, thereby neglecting the inherent creative nature of micro-strategizing

(MacLean 2002a; 2002b). This is [1] on the one hand the result of a predominant research

interest in developing rational and normative approaches to strategy, as formulated in the

authoritative research agenda for the last decades (Schendel & Hofer, 1979), reconfirmed

and extended more recently (Rumelt, Schendel & Teece, 1994); [2] on the other hand, this is

the result of the theoretical approaches which dominate the research and conceptualization

of strategy and management, economic theory with its emphasis on the rational individual as

the central agent, as well as institutionalist theories with their emphasis on the institutional

embeddedness of any individual activity.

Given this research interest, the paper suggests to revise and to extend these predominant

theoretical positions, in order to bring local creative action and macro-level innovation and

change to the core of the theoretical conceptualization in strategic management. If research

intends to advance our understanding of these phenomena and to develop new promising

answers to these research questions, a revision of the underlying and unquestioned action

theory is essential. Taken together, the present paper suggests that our understanding of

strategic change profits from a focus on the interplay between path dependence and path

creation as an essential dimension of managerial and entrepreneurial activities, combining

the classic idea of entrepreneurship as macro-level creative destruction, innovation, and

change (Schumpeter, 1934) with more recent views of innovation and change as micro-level

creative action (Joas, 1996).

In any attempt to criticize established successful theoretical perspectives and discourses, it is

thereby important to think about the appropriate epistemological level of critique (Foucault,

1966; Hacking, 1983; Elkana, 1986; Latour, 1987; Feyerabend, 1989): [1] new theory can

basically share the predominant axiomatic and theoretical core of the discipline, extending

and further specifying this dominant model by adding additional theories and model based on

an unquestioned axiomatic foundation (this is very successfully done in the various powerful

extensions of economic theory, especially in transaction const economics, Williamson, 1995)

[theory extension]; [2] new theory can try to fundamentally criticize and replace the axiomatic

and theoretical core of the discipline, by introducing an alternative axiomatic theoretical core

(see especially institutional theory, Scott, 1995) [external critique]; [3] finally, and as we think

most productively in our context, one can try to criticize the predominant axiomatic core of an

discipline by revising and transforming the axiomatic core itself (this is most recently done in

action theory (Joas, 1996) or also in convention theory (Gomez, 1996)) [internal critique].

In the context of our paper this implies that we emphasize the importance of action theory as

an essential part of the axiomatic and theoretical foundation of any approach to management

and entrepreneurship research (see also Stehr, 1991), but criticizing economic theory for is

limited understanding of creative action. In parallel, this also implies that we agree with the

institutional and normative approaches in their emphasis on the highly embedded, situated,

contextual, localized nature of managerial and entrepreneurial activities, however suggesting

that it is more productive to incorporate this emphasis into an action theory instead of an

external critique that leads to an almost complete negligence of action and practice.

Argumentation Structure

As a consequence, the paper starts by exploring the importance of path dependency and

path creation as two important ways of looking at the dynamics of strategy and firm

development. While the original idea of creative destruction essentially relates the two

(Schumpeter, 1934), path dependency has been further elaborated in evolutionary theory in

much detail (Nelson & Winter, 1982) in order to explore the inertia of economic and cultural

development, while the second only recently became an issue in innovation research (Garud

& Karnoe, 2001); second the paper explores the difficulties and limitations of rational and

normative perspectives on strategy and management, as well as of economic theory and

institutionalist theories, for explaining strategic action at the turning point between path-

dependent development and path creation. Such views tend to treat innovation and change

as an episodic response to problems or survival pressures rather than as a quintessential

feature of organizational life.

Third the paper introduces the theory of creative action as an appropriate way which allows

us to model strategy under these conditions, identifying a series of open issues which can be

covered by introducing creative action as a third perspective on strategy practice, as well as

discussing how the integration of creative action into the axiomatic theoretical core of any

management theory would allow to re-contextualize and enrich the rational and normative

perspective on strategy and management. In this line of argumentation, the paper suggests

to understand the body as a source of pre-reflexive impulses to creative action and not

necessarily as an instrument of the intellect, questioning the validity of approaches which

assume instrumental control of the body; it sees identity as an evolving process in social

interactions, prior to rational and normative attempts, questioning the autonomy of the

individual; it conceptualizes intentionality as an emerging facet of an ongoing dialogue

between means, ends and context in practice, questioning a teleological view of strategy.

This provides us with the necessary conceptual building blocks of a creative theory of action

to realize an internal critique of a rational theory of action.

The contribution of this paper is that of weaving together the micro-level implications of

creative action with the macro-level dynamics of creative destruction to advance a theory,

which explains both strategic change and entrepreneurship in novel terms that put creativity

at the heart of the matter rather than as a form of rational or normative behavior, or as an

anomaly with respect to rational and normative behavior.

Creative Destruction and the Transition from Path Dependency to Path Creation

We live in an area of continual change and constant innovation. As a consequence it is not

surprising that people are interested in understanding the genesis of novelty (Garud &

Karnoe, 2001) as well as managerial and entrepreneurial activities in these contexts.

Thereby, the reference to the classical, almost paradigmatic idea of creative destruction as

the core of strategic change, innovation and entrepreneurship is important (Schumpeter,

1934). Thereby, two perspectives on creative destruction and innovation are evident, and as

we will argue, both perspectives are important: path dependence and path creation.

Path Dependency and the Implications for Entrepreneurial Strategy Practice

Naïve ideas about innovation assume that entrepreneurial interventions are about completely

devaluing existing ideas and structures, and the creation of a completely new order as an

alternative, also visible in research and exploration of entrepreneurship phenomena (Casson,

1982; Shane, 2003). A more elaborated perspective in innovation research however would

acknowledge the historical antecedents of novelty. Our present and future choices and

activities are conditioned by choices and experiences we have made in the past. Novelty is

not a negation of the past only, but an elaboration and extension in specific directions

depending on the particular sequence of unfolding events and situational contexts. Stated

differently, the emergence of novelty is to a large extent a path dependent phenomenon

(David, 1985; Arthur, 1988). This perspective provides a starting point for studying the

emergence of novelty not as an isolated and independent act, but rather as a process,

temporally and socially embedded. The most important question then is how exactly the past

impacts on this process – both at the macro-level as well as at the detailed micro-level of

entrepreneurial and managerial activities.

Path dependence alludes to a sequence of activities and events constituting a self-enforcing

and self-stabilizing process that unfolds into one of several potential states, which cannot be

fully anticipated (Bassanini & Dosi, 2001). The state that eventually emerges depends on the

particular sequence of events that unfold. This is one of the specific reasons why a steady

accumulation of small steps, or of local interventions of entrepreneurial and managerial

practice, might impact on macro-level organizational, institutional as well as inter-

organizational outcomes (Arthur, 1996), in the firm of organizational routines (Cyert & March,

1963; Nelson & Winter, 1982), institutional contexts (North, 1990; Karnoe, Kristensen &

Andersen, 1999), institutionalized rules (Powell & DiMaggio, 1991), or trajectories (Dosi,

1982). Interestingly, it however often remains unclear how exactly the transition from local

practices and small events to the establishment of stable order takes place.

In this perspective, research differentiates three degrees of path dependency (Liebowitz &

Margolis, 1995): With first-degree path dependence, there is sensitivity to starting points but

no necessary inefficiency. In some sense this perspective corresponds to the idea of the

central role of initial conditions for the further development, a classical idea in economic

theory, especially prominent in the more recent resource based perspective on strategy

(Helfat, 2000). With second-degree path dependence, there is sensitivity to starting points

and inefficient outcomes that are costly to alter, referring to the central issue of inertia and

the importance of rules, norms and routines in stabilizing action. With third-degree path

dependence, not only do inter-temporal effects propagate error, the inefficient outcomes are

avoidable. In this sense “third degree path dependence is the only form of path dependence

that conflicts with the neoclassical (economic) model of relentlessly rational behavior leading

to efficient, and therefore predictable, outcomes” (Liebowitz & Margolis, 1995, p. 207). In

addition, third degree path dependence challenges the deterministic nature of rules, norms

and routines as strictly defining appropriate and aligned activities, which is in conflict with

explanations in line with institutionalist theory.

In the context of studying innovation and the emergence of novelty, the above distinction is

interesting, since what is phrased inefficiency in the first place might become innovative in

the second place (we will know it however only ex post). The very essence of innovation and

novelty is the high degree of uncertainty and ambiguity that goes with it, together with its

inherent destructive nature, implying that efficiency is often low or not defined in terms of the

existing ways of doing things, but with the potential of becoming something very new and

relevant over time. So while the third degree path dependence is problematic in economic

terms, it is especially interesting in terms of entrepreneurial strategy practice, innovation and

change. How exactly can we explain that avoidable inefficient outcomes are explored and

exploited by entrepreneurs in order to provide novelty? A path dependence perspective thus

has important implications for management and entrepreneurship, which might be quite

controversial, since it emphasizes that temporally remote and very local events play a key

role in the development of novelty and that often these events gain significance only post hoc

and look very inefficient in the first place.

First of all this allows to cover the highly contextual nature of novelty and innovation. An

activity, product or service can only be understood as new relative to some already existing

activities, products and services, which implies that depending on timing and context,

something might be highly innovative or some time later not innovative anymore, and it might

be highly innovative in a specific local context but does already exist in different places and

are thus not novel in a broader context. We thus learn from the analysis of path dependence

that entrepreneurial and managerial strategy practice is highly contextual in the perspective

of their relevance for innovation and the emergence of novelty.

Second, this implies that a predominantly rationalistic and normative conceptualization of

managerial and entrepreneurial activities ex ante becomes difficult. One the one hand, an

“under-socialized” (Granovetter 1985) understanding of entrepreneurial and managerial

practice has difficulties in explaining why, under some conditions, (especially) third level path

dependence can actually emerge, since one would expect entrepreneurs and managers to

resolve the emerging inefficiencies, at least in the long term. On the other hand, and “over-

socialized” understanding of practice has difficulties in explaining what the avoidance of

inefficient outcomes actually means and how such “inefficiencies” contribute to survival, the

underlying logic of normative approaches. As a consequence, both economic theory and

institutionalist theories are limited in explaining these phenomena.

The concept of (third degree) path dependency leads to a growing interest in understanding

the actual development and establishment of novelty (Garud & Karnoe, 2001) in terms of

both path dependency and path creation and to a situation where rational (under-socialized)

and normative (over-socialized) views of change are increasingly called into question.

Path Creation and the Implications for Entrepreneurial Strategy Practice

The term “path creation” implies that managers and entrepreneurs do not passively observe

and react to an external stream of events, opportunities and changes; they are rather seen

as knowledgeable actors with the ability to proactively make sense, enact and shape these

events and opportunities, often in ways other than those prescribed the existing rules and

norms, as well as only partially rational, given the high degree of uncertainty and ambiguity in

which they have to act (Giddens, 1984). As a consequence, we believe that they attempt to

shape paths, in specific contexts and in real time, by setting processes in motion that actively

shape emerging practices, artifacts and procedures. At the same time however, this does not

mean that they can exercise unbounded strategic choice. Rather they are embedded in

structures that they jointly create (Giddens, 1984; Granovetter, 1985) and from which the

mindfully depart.

By stressing path creation, research starts to draw attention to phenomena in the making –

that is the temporal processes that underlie the constitution of phenomena and events. Such

a perspective assumes reciprocal interactions between economic, technical, and institutional

forces that constitute institutional settings and actors involved. Social orders, institutional

rules, and artifacts are both the medium and the outcome of human endeavors (Giddens,

1984). In the context of innovation and novelty, we thus can say that any solution or system

designed to be efficient at one specific point in time is not necessarily efficient over time

(Schumpeter, 1942). This means that entrepreneurs and managers may intentionally deviate

from existing artifacts and relevance structures, fully aware they may be creating

inefficiencies in the present, but also aware that such steps are required to create new

futures. Such processes of mindful deviation thus lie at the heart of path creation, underlying

innovation and the emergence of novelty.

In path dependence, the emergence of novelty is serendipitous. Events that set paths in

motion can only be known post hoc. Consequently, the role of agency can be viewed as one

of entrepreneurs watching the rearview mirror and driving forward. Although path

dependence insists on the importance of a sequence of specific micro level events, it does

not provide an explicit theory of agency (Garud & Karnoe, 2001). Understanding path

creation is thus very important, since it bridges the role of institutional processes emphasized

in path dependence with an explicit emphasis of enactment and intentionality, explaining how

managers and entrepreneurs escape over-determinisms and lock-in into path-dependent

structures, rules, norms and routines, while at the same time not falling into the difficulty of

under-determinisms characteristic of rational choice theory.

Managers and entrepreneurs potentially set path creation processes in motion in real time.

This ability to create and exercise options is thus crucial. Thereby, it is important to recognize

that they are not necessarily driven by a search for optimality (Rosenberg, 1994), be it in

individual or organizational terms. Entrepreneurs creating paths explore the creation of new

dimensions of merit that, in time, may set in motion a sequence of events (Garud & Rappa,

1994). While these activities thus are often highly inefficient in terms of the predominant path

in which managers and entrepreneurs operate, it might turn into fruitful exploration (March,

1991), experimentation and improvisation (Weick, 1999) in the view of the new approaches

and solutions developed.

Creative Destruction in Entrepreneurial Strategy Practice

As a consequence, understanding creative destruction at the core of innovation and the

emergence of novelty implies to integrate the path dependent, situated character of

managerial and entrepreneurial activities, as well as their path-creating dimension within one

model. The present paper attempts to bridge the two by introducing creative action as an

alternative to the predominant models of rational action and normative action. While the first,

in line with economic theory and its internal extensions, overemphasizes the individual

autonomy in choosing and shaping future events, the second, along the ideas of institutional

theories and other attempts of external critique, overemphasizes the institutional

embeddedness of action.

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We now continue by exploring the predominance of rational and normative approaches to

strategy practice, identifying the specific advantages and limitations of these models for

understanding the path-dependent and path-creating nature of strategy. We then introduce

creative action as an alternative approach to strategy practice, which allows advancing our

understanding of how managers and entrepreneurs succeed in exploring new opportunities

and opening new avenues, while exploring the path-dependent nature of such new directions

and creative activities at the same time. In parallel, we also reflect in more detail what the

appropriate epistemological level of critique for our argumentation is, since this has a major

impact on the ways in which the new theoretical perspective relates to the predominant

theories and discourses in the field.

Theories of Innovation & Change and Innovation & Changes of Theory

Our argument thus far has shown how macro-level features of the social economy such as

institutions, routines and structures are subject to third degree, path dependent change. In

the words of Schumpeter, pressures for change “… incessantly revolutionize the economic

structure from within, incessantly destroying the old one, incessantly creating a new one.

This process of creative destruction is the essential fact about capitalism …” (Schumpeter,

1943). This draws our attention to the incessant nature of innovation and change, but it offers

little by way of insight concerning the internal dynamic of change and innovation processes.

It puts the entrepreneur and the phenomenon of creativity and innovation at the heart of the

intellectual enterprise for studying organizational development, but we are required to look

elsewhere if we are to seek an understanding of creative entrepreneurial and managerial

behavior on a day-to-day mundane level.

Before leaving Schumpeter however, it is worth alighting on two aspects in the above quote,

‘incessantly’ and ‘essential’. With these two terms, Schumpeter is drawing our attention to

change as a prominent and defining characteristic of institutions and firms. Change is not

something that occurs only in the movement from one stationary state to another; the very

notion of equilibrium is discarded in favor of a world in perpetual flux. As such, conceptions of

changeful action, which is instrumentalized to transform equilibria or automatically triggered

to sustain them, must likewise be discarded in favor of a view which puts change, innovation,

transformation and human creativity at center stage. In organizational terms this requires a

change in the ways that we view change and especially action in situations of change.

Predominant Positions in Strategy Research

In terms of strategy and strategy process, the above translates to a call for scholars to move

away from notions of change as a switch from one form of competitive advantage to another,

or the adaptive adjustment of sustainable patterns –away from a view that sees change as

instrumental in the pursuit of competitive advantage toward a view that locates competitive

advantage in the change processes themselves. In other words, change should be viewed

not as the rational action of aspiring organizations or the reflex reactions of persisting cultural

entities, but as the ongoing expression of micro-interacting social processes. This, however,

is far from evident in the literature at present.

In the worlds of practice, education, and research, the rational action view of strategy, though

perhaps subject to growing criticism, continues to dominate the landscape. Whilst, in social

theory, uncertainty and interactivity have seen the ‘homo oeconomicus’ evolve somewhat -

from a self-interested isolated individual to a game-theoretic gambler or a bounded rational

actor, individual rationality remains a highly persuasive and adaptable conceptual basis for

explaining action in all types of contexts, situations and events, thus leaving the axiomatic

core and the fundamental conceptual building blocks unquestioned (Williamson, 1985; 1991),

while adapting the variety and specificity of all the different theories and models that help to

specify and apply this core to specific phenomena and issues.

The notion of enlisting the most appropriate means in given conditions for the realization of

prior intentions is still the preferred choice of the majority of those concerned with strategy.

The steady stream of relatively user-friendly, quasi-economic frameworks produced by

academics has underpinned this. Time has seen such frameworks extend their reach

inwards from the relatively familiar territories of strategy-structure-performance (Chandler,

1962; Rumelt, 1982) and structure-conduct-performance (Bain, 1956) to corporate and

business environment (Andrews, 1971; Porter, 1980; 1985) through the resource base

(Wernerfelt, 1984; Rumelt, 1984; Prahalad & Hamel, 1990; Barney, 1991) and dynamic

capabilities (Helfat, 2000) into increasingly “soft” issues. Offers of frameworks for the

management of areas such as culture, stakeholders (Peters & Watermann, 1985; Barney,

1986; Johnson & Scholes, 2001), knowledge (Nonaka, 1994; Spender, 1996; Spender &

Grant, 1996) and learning (Argyris, 1990; Senge, 1990; Beer & Eisenstat, 1996) provide

some evidence of the inexorable drives of rationalization (Knights & Morgan, 1991) and

deeply rooted views of human action as ultimately, if somewhat reluctantly, rational

Normative conceptions of action operate in the strategy literature in three main guises. First,

in fairly cognitivist terms, concepts such as shared cognitive structures and associated

routines (Senge, 1990; Argyris, 1990), dominant logics (Bettis & Prahalad, 1995), shared

strategic intent (Hamel & Prahalad, 1989), paradigm (Johnson, 1988) industry recipes

(Spender, 1989) and such like; second, in more anthropological and social terms, drawing on

notions of culture (Hofstede, 1980; Schein, 1985; Johnson, 1988) and institutional fields

(Scott, 1985; Greenwood, Suddaby & Hinings, 2002), third, one can discern in the resource-

based view, a move towards normative conceptions of action in its acknowledgement of

organizational repertoires of embedded competences (Prahalad & Hamel, 1990; Bogner,

Thomas & McGee, 1999), routines (Nelson & Winter, 1982; Miner, 1994) capabilities

(Leonard-Barton, 1992; Helfat, 2000) and their roles in both distinguishing and constraining

strategic behavior. Whilst this stream of research may be diverse in analytical detail, it is

concerned largely with organizational outputs and functionalist explanations rather than

rational choices, and regards these outputs as being formed largely by established historical

and cultural patterns, rules and structures that operate in the collective domain.

Limitations of Rational and Normative Models of Strategy Practice

It is relatively straightforward to argue that, when viewed from a rational perspective,

explanatory (and / or predictive) difficulties could emanate from any of three areas. First,

cognitive limitations in abilities to assimilate and process information concerning means ends

and conditions; second, failures in instrumental control of means during implementation /

action which is often linked to, third, a somewhat “under-socialized” (Granovetter, 1985) view

of process that fails to take full account of social phenomena in organizations. By contrast,

one might argue that the somewhat “over-socialized” view of the normative school inclines it

towards explanations of persistence rather than change (Mayer & Whittington, 1999) with

relatively enduring, self-reproducing, structures, fields and norms dominating behavior;

second, it is downplaying of issues such as instrumentality or control (Mintzberg, 1994)

renders strategic direction as something of a “mystery tour” (MacIntosh & MacLean, 1999)

which tends to cast management as relatively powerless and, third, behavior which is styled

as non-rational (at least in the economic sense) or even irrational (Townley, 2002) fails to

connect with managerial notions of intent and performance.

However, perhaps the most obvious criticism of rational and normative models of strategy is

the one alluded to earlier in this paper. Quite simply, they are out of touch with a reality which

is becoming ever more aware of the pervasiveness of change as an every-day occurrence

though which novelty emerges in unpredictable and uncontrolled ways. The experience of

change and innovation in organizations does not stack up with theoretical depictions of

change as episodes of mechanically enacted designs or externally induced reactions. Thus

in the eyes of the non-academic, organizational world, strategy research is seen as an

increasingly meaningless would-be informant of individual day-to-day practice. As described

above, the present paper suggests that neither theory extension based on rational action

theory, nor external critique along the lines of institutionalist theories really advance our

understanding in this matter, but that internal critique is most appropriate. As a consequence

we suggest to revise the axiomatic core and conceptual foundation by developing a theory of

creative action.

Strategy Practice as Creative Action

Thus far we have looked at strategic change and innovation in terms of theories of action,

which are either normative or rational in orientation. We have argued that the majority of

work on strategic change explicitly or implicitly subscribes to views of human action as

predominantly rational or normative (or both) and, further, that this is the cause of a growing

distance between research and the reality of current practice in which spontaneous creative

acts are of growing importance. Pettigrew et al (2001) note the promise introduced to

theories of change by consideration of the phenomenon of creativity. In a similar vein, Joas

(1996) has remarked: “Suffice it to say at this point in time that there is some basis in reality

for the claim that the significance of the idea of creativity for an understanding of our present

is growing” (Joas, 1996: 253).

Based on this sentiment, Joas has made a strong case for adopting a new perspective on

action (Joas, 1996). He has sharply criticized rationally and normatively oriented concepts of

action, instead developing a theory of creative action based on a combination of insights

from the philosophical traditions of American Pragmatism and German philosophical

anthropology. In this he questions the validity of approaches, which assume a teleological

view of intentionality, instrumental control of the body and autonomy of the individual.

Instead, he puts forward a framework in which (1) intention is seen as a continually emerging

facet of an ongoing dialogue between means, ends and context; (2) the body is seen a the

“source” of pre-reflexive impulses to action and not necessarily as an instrument of the

intellect; (3) identity is seen as an evolving process in social interactions.

As regards (1) intentionality, creative action theory denies a teleological concept of intention

(which implies intellectually developed ends or aims which are achieved in given situations

by selecting appropriate means), instead seeing intentionality as an emergent part of action

in which biographical and social context are of paramount importance and behavior is not

necessarily purposive. Enforced ends (external or internal) are seen as inconsistent with

creative action. (2) Most action theories assume instrumental control of the body by the mind

– creative action does not. The body is the “source” of pre-reflexive feelings and vague

impulses to action; embodied phenomena such as emotion and intuition are key to emergent

awareness of those pre-reflexive drives, which become intention. Importantly, we can

deliberately or involuntarily lose control of the body – this is a key part of creativity – and

action is enabled by the subjective presence of a “body schema” (i.e. a background

awareness of the body’s configuration). (3) Primary sociality refutes the notion of an

autonomous individual and acknowledges the evolution of identity through social processes

and exchanges. Language and movement are key factors in enabling development to

emerge in unpredictable dynamics

A very brief summary of the above would be that creative action entails a form of dialogue on

three levels: (1) between the means, the ends and the situation; (2) between the “intention”

and the “body’s response”; (3) between the individual and others in the situation. Thereby, it

is perhaps worth noting at this stage that this view of action departs from the fundamentally

Cartesian orientation of its rational and normative counterparts in that the sequential

separation of experience into thinking components and acting components does not hold

(see also Grand, von Krogh & Pettigrew, 1999). We should also note that the three themes

are mutually constitutive of each other and not neatly separable categories - i.e. intention

emerges in from the body in social interaction; social interaction is influenced by embodied

processes and intention and embodied experience and biography develop in social

interaction and along with emergent intention.

We thus have a picture of strategic practice and novelty creation as the day to day

connecting, disconnecting and reconnecting of individuals with personal agendas, private

biographies, evolving moods, emotions, feelings and intentions – all of which influence and

are influenced by one another - occasionally giving rise to the emergence of novel networks

and forms of interaction, some of which temporarily stabilize as recurring patterns to form

new strategies. We would argue that this view of strategy is already apparent in the literature

but has not hitherto been linked to an explicitly creative view of human action, i.e. there is a

discernible body of researchers who, although diverse, are united not only by their openly

critical stance as regards rationalism, they are concerned with the outcomes of context-

specific “games” in organizations. More recently, work attempting to explore strategy and

organizational change has approached the issue from a growing variety of perspectives

including the emergent fields of chaos (Levy, 1994; Thietart & Forgues, 1997), complexity

(Stacey, 1995; Brown & Eisenhardt, 1997; MacIntosh & MacLean, 1999) and knowledge

(Tsoukas, 1996) amongst others, focusing on strategic behavior as an emergent outcome of

co-evolving and interacting players.

Whilst on the face of it, such work may appear to be only loosely connected – united perhaps

against a common foe or foes – we propose that, in actual fact, it has the potential to form a

third coherent body of strategy process research; it can be distinguished from normative and

rational approaches in that its various streams subscribe to a third model of human action – a

model which Joas claims has been marginalized and neglected in the modern era (Joas,

1996) – one in which human action is seen as quintessentially creative. Whilst this might

appear as simply „another take“ on strategic change, it is important to emphasize that it

differs fundamentally from both the rational and the normative perspectives in that it operates

from a different set of ontological and epistemological foundations. Its roots in pragmatic

philosophy and expressivist anthropology clearly distance it from the orientation of both

rational and normative perspectives in which action is seen as an instrumental facet of

intellectual ends or ingrained physio-psychological structures respectively.

As such, the theory transcends the common distinctions seen in dichotomized space of

rational-normative debates such as thinking-acting, individual-collective, deliberate-emergent

etc. Rather, it contends that such poles are simply emergent outcomes of embodied,

intentional interaction, explaining both how processes of rationalization and routinization are

inevitable in practice and incomplete in their ability to explain change – the dynamic which

creates them. In this sense, the theory of creative action operates a different level from its

rational and normative „counterparts“. Creative action is thus on the one hand offers an

alternative and conciliatory explanation of the traditional concerns of rational and normative

perspectives, whilst on the other, shows how neither rational nor normative perspectives are

likely to furnish satisfactory explanations of innovation and change in realistic terms owing to

their somewhat reduced views of human action.

Linking Path Dependence and Path Creation in Creative Action

The perspective of creative action on strategy practice allows us to explore the creative

nature of micro-strategizing. At the same time however, and this has not been at the center

of the analysis of creative action (Joas, 1996) and strategy research (MacLean, 2002a;

2002b) so far, this conceptualization allows to explore how creative action bridges path

dependence and path creation, thus linking the micro perspective on strategy practice and

micro-strategizing to the macro implications relevant in strategy and innovation research.

How exactly does creative action relate to the path dependence of any strategic situation,

and how does creative action establish the basis for new paths to emerge and evolve.

Intentionality as Path Dependent and Path Creating

In its discussion of intentionality, the theory of creative action emphasizes that orientation

does not stem from prior aims (as in the rationalist view) or reside in pre-existent norms (as

in the normative view). It is rather conceptualized as emerging from the situated action itself.

Ends, means and conditions are co-evolving during the day-to-day interactions of organizing.

As we know from the sociology of knowledge (Latour, 1987; 1998), ends, means, conditions

are highly path dependent: (1) what ends are potentially relevant and gain attention depends

on past experiences as well as on the active cognitive structures and organizational

arrangements which emerge and evolve within the firm or the venture over time, described

as the structural and the strategic contexts guiding local strategy practice (Bower, 1970;

Burgelman, 1983a; 1983b; 1983c; 1991; 1994; Noda & Bower, 1996; Burgelman, 2001). (2)

The available means are somehow dependent on the established interconnections and

patterns at work - e.g. toolbox of the firm or the venture, including methods of how to

approach new challenges, concepts to structure new problems, or instruments to structure

the problem solution; (3) and the specific conditions are of course path-dependent by nature

(be it external or internal conditions).

It is due to this perspective that specific situational constellations can be seen as emerging

from the repeated interaction among individuals and artifacts (Latour, 1987), or as the duality

of structure and action (Giddens, 1984; Whittington, 1996), interpreting such structures (but

also norms) as resources which are reproduced, exploited and at the same time always also

transformed to some extent in mundane practices (see also Bourdieu, 1977). This is a

precondition for any structure or norm to remain adaptable to specific and to some extent

always also unique situations. Structures and norms can thus not be seen as completely pre-

determining mundane practice (this would lead to a much too mechanistic understanding of

how structures and norms apply in specific situations and contexts), but they shape mundane

practice as they are the resources and means supporting any actor in structuring specific

situations and in dealing with local challenges. As a consequence, intentionality in creative

action implies path dependence, in the sense that the structures and norms actualized and

reproduced in mundane practices are path dependent in nature. At the same time,

intentionality in creative action explicitly excludes any determinism by the past, while at the

same time also limiting rationality in the sense of realization of pre-defined aims.

In parallel, intentionality in creative action implicitly implies the potential for path creation.

Since structures and norms are never deterministically applied to specific situations and

challenges, but can rather be seen as resources which allow to structure such situations and

challenges (see also Wittgenstein, 1952), they are constantly adapted, interpreted, changed

and transformed in mundane practices in order to become productive (see also Ortmann,

2003). As a consequence, it is the situative character of intentionality that implies part of the

potentially creative nature of creative action. Any situational activity is thus creative to some

extent, the important question rather is whether local creativity leads to the emergence and

establishment of relevant and recognizable paths and structures which are different from the

overall predominant path in the past (this is actually compatible with Schumpeter arguing that

individuals are constantly creative (invention), but that only entrepreneurs are able to turn

this creativity into sustainable structures (innovation)). As a consequence, management and

entrepreneurship is about mobilizing the necessary resources to further explore and develop

the potential of intentional local creativity into a new path.

Embodiment as Path Dependent and Path Creating

In parallel to intentionality, the theory of creative action introduces embodiment as the other

important dimension of creative action. In its discussion of embodiment, it emphasizes that

creative expression is as much rooted in pre-reflective urges and embodied unconscious

impulses as in intellectual activity, and calls for acknowledgement of the body as a source of

creative action rather than as an instrument to which our minds dictate actions. This idea

resonates with recent insights from a knowledge-based theory of strategy and innovation,

which argues that embodied past experiences are an essential source for new knowledge

(von Krogh & Grand, 2002a; 2002b).

One important dimension of the knowledge creation process is the mechanisms by which

specific local experiences are transformed into explicated and justified knowledge (Nonaka,

1994; Nonaka & Takeuchi, 1995). It is the process of explication and justification that makes

local experiences accessible and at the same time convincing for people who do not share

the same experiences, but might have to rely on these experiences in order to fulfill their own

tasks. At the same time however, all the experiences that are not entering these explication

and justification loops are often not disappearing, but the people directly involved in these

experiences embody them.

This means that individuals are characterized by large repositories of highly tacit or even

unconscious experiences, which, due to specific situational contexts, were not further

explored and exploited at a particular point in time. However, they are at the same time

important resources for these individuals to deal with new situations and challenges. It is

these past experiences that explain the highly path dependent nature of embodiment, they

somehow are the repositories of past events. While they are essentially tacit or unconscious,

any rational approach to action oversees their importance. At the same time, there is no

deterministic impact of past experiences on present activities, which is often neglected in

structural and normative explanations of individual action.

In parallel, the (highly tacit and unconscious) embodiment of these past experiences implies

that all individuals rely on an enormous creative potential. Creative action emphasizes this by

showing how such embodied experiences are actualized and exploited in specific situations

in order to solve new problems and to make sense of specific circumstances. At the same

time, it is these circumstances that trigger the memory of individuals in the sense that they

influence which specific experiences are remembered and actualized in a specific situation

(see recent insights in the new cognitive sciences on memory). Furthermore, the perspective

of creative action allows to further deepen our understanding of how embodied experiences

guide sensemaking (Weick, 1995) and meaning making (Bruner, 1991) as well as

experiential learning processes.

Sociality and Path Dependence

Finally, sociality refers to the fact that based on the above developed observations about

intentionality and embodiment, it is important to understand any individual strategic or

entrepreneurial initiative as being embedded in and path-dependent on the past and present

historical, organizational, social and cultural contexts which shape individual activities in

terms of identity formation. At the same time, it is obvious that successful and robust path

creation fundamentally implies the establishment of new organizational, social and cultural

contexts, which become the historical context for the successfully established innovations

and changes, and thus underlie the formation of a new identity.

Creative Action and Creative Destruction: Framework and Conclusion

The paper discussed two major research questions: Where and how do new strategies

originate? [research question 1]. The paper demonstrates that only a theory of creative

action is able to explore the first research question appropriately, describing the central role

of intentionality, embodiment and sociality for understanding entrepreneurial and strategic

action in the context of innovation and change. What forms do new strategies take and how

can they be distinguished against a background of ongoing micro-activities? [research

question 2]. The paper shows to what extent creative action relates to path-dependence and

path-creation as the macro-level patterns that characterize creative destruction. At the same

time, it is the path-dependent and path-creating nature of entrepreneurial and strategic action

that makes it possible to evaluate the strategic importance and impact of micro-activities

appropriately.

________________________

Insert figure 2 about here

________________________

In sum, we can see how micro-creative actions lead to macro creative destruction, especially

how internationality, embodiment and sociality create novel micro-level combinations, which

enter into dialogue with the past – challenging, questioning and under certain conditions

destroying some of it and experimentally engaging with the remnants, thus contributing to a

better understanding of both, path dependence and path creation. This dialogue potentially

synthesizes new options, some of which will “align” or “resonate with” or “extend” past

patterns - and will thus crystallize into temporary new patterns of strategy that “hold-out”

against the relentless drives for innovation and change for long enough to extract an

economic return on investment in the pattern.

This has an important bearing on issues of practice, design, control, emergence, micro and

macro in relation to the practice of strategic change. In essence we are arguing that design

and control are limited to acts of destruction, which are located on the macro-level by the

intentional behavior of individuals in interaction with each one another. For example,

interacting individuals agree to “outlaw” or suspend particular routines or norms – or they

physically alter macro-level configurations. In so doing, they create organizational slack, into

which new forms of embodied behavior are expressed. Some of these new forms will

stabilize into new patterns or order (described as norms or rules) – depending on the extent

to which they “align with” the remnants of the pre-destruction macro-order – thus giving rise

to a new strategic path which although linked to (enabled and constrained by) the past, is

qualitatively different from it and inherently surprising. In this view, the link between micro

and macro is no more than the link between the past and the emerging future, effected

through intentional acts of micro-expression/macro-destruction by embodied, interacting

individuals in the living present.

Continuing the Dialogue: Creative Action/Destruction and Practice/Process Research

Finally, we would like to consider the above in relation to the broader context of strategy

process research. A detailed treatment of the issues raised here may be of considerable

value, but is beyond the scope of a concluding section such as this – points should thus be

taken as starting “suggestions”, “insights” or “invitations to respond” in the ongoing dialogue

around which this gathering has been organized.

[1] Given the variety of theoretical perspectives in the strategy process literature, we would

invite colleagues, first, to assess our claim that our shared concern with activities and

practices might be fruitfully explored from an explicitly action-theoretic orientation and,

second, that researchers might benefit from locating their own work in relation to existing

theories of action. Given that we are increasingly concerned with what people actually DO,

making explicit the theories that underpin our views of why and how people do things seems

like a sensible if not obvious step. While a rational theory of action overemphasizes the

autonomy and self-sufficiency of the isolated individual, institutionalist theories of action

neglect the importance of action and practice in interpreting and experiencing, as well as

shaping and creating organizational development, especially innovation and change. A

creative theory of action is a promising extension of the axiomatic core of the rationalist

action theory underlying and dominating strategy research sofar.

[2] We have aimed to show in our paper how our position is located on the other side of the

problematic line vis-à-vis normative and rational theories of action. One of the hallmarks of

the modern era is the way in which Descartes’ famous dictum is expressed in a multitude of

bifurcations such as thinking-acting, individual-collective, inside-outside. In strategy process

research these are most obviously manifest in two or three dominant forms - the separation

of experience into thinking and acting; the focus on the individual (often as “the firm”) or the

collective (as the “routine”, “script”, “culture”, “organization”); the notion of context as an

external set of situational “givens”; and the dominance of rationality both in research content,

but more significantly, expressed as the notion of “method” in research process. Perhaps

THE fundamental idea in strategy, uniting both rational and normative view, is the implicit

subscription to an INSTRUMENTAL view of change to affect either progress (rational) or

survival (normative) and the concomitant bifurcation of experience into stasis and change.

Again, we would invite participants to locate their own research (content and method) on the

philosophical landscape in these terms.

In line with these considerations, the present paper challenges the epistemologies in which

strategy research and management research try to advance the field, by either developing

theory in line with theory extension or as an external critique. In line with an internal critique,

we have rather depicted an alternative view in which the dynamic of experience is constantly

forming and reforming itself in acts of expression by interacting individuals. In this sense the

dynamic is not about “change” as an instrument but as an ongoing stream of gesture and

response, creation and destruction, in which stability and change are seen simply and

concurrently as we compare our views of the past with our experience in the present.

Meaningful enquiry requires participation in this dynamic. The somewhat radical implications

here include a move towards the pragmatists view of “experience” as the basis for reflective

enquiry and away from the notion of research method as an instrument of scientific research.

“Research” becomes a creative process in which many familiar distinctions such as process-

content, researcher-practitioner, creation-transfer collapse – and our engagement in an

emergent interactive dynamic with practice delivers experience of micro-practice/activity

networks that yield “research” and “practical” outcomes from an interactive process of

enquiry and knowledge production.

[3] From the above, it should be clear that our focus is neither on the isolated individual nor

on the collective; our focus is on the individual embedded in “interaction”. Key dimensions of

this are the individual, emotionally expressive biographies that constitute, and are constituted

by, any given set of interaction and the emergent intentions that form and are formed by such

interactions. Patterns of interaction – macro-order, or strategy - and changes in such

patterns, quantitative and qualititative, are creative expressions about the future enabled by

destructive acts in the present whilst looking at the past through the rear-view mirror of

memory. We would advocate a concern not just with interaction, but also with observed acts

of destruction (and the remnants of destruction) in patterns of interaction. As such enquiry

should be concerned with the individual biographies at play; what they intend / express /

gesture; how such intentions interact to creatively destroy things/processes; how the space

created by such acts of destruction are filled by novel and transient patterns of interaction. Somehow, we are thus proposing “interaction” as the basic focus (and mode) of enquiry for

research - as the fundamental “constituent” of the patterns that we recognize as strategy

(and research).

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Figure 1: Bridging Path Dependence and Path Creation

path

dep

endenc

e

path creation

creative destruction

Figure 2: Creative Action and Creative Destruction

St. Gallen & Glasgow, August 2003

path creation path dependence creative destruction

creative actionintentionality

embodiment

sociality