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Commitment: The Dynamic of Strategy. By Pankaj Ghemawat * New York: The Free Press, 1991. vii + 178 pp. Notes, tables, graphs, bibliography, and index. $29.95. ISBN 0-02-911575-2.
REVIEWED BY F. M. SCHERER
This well-written volume continues the age-old quest for the business scholar's Holy Grail: a general theory of business strategy. Rejecting conventional explanations of business firms' success as insufficiently concrete and general, Pankaj Ghemawat focuses on the role of commitment, defined as the tendency for a strategy choice to persist over time. Commitment is said to be the key to the success of strategies because, by definition, a commitment endures and therefore can cause long-run differences in company performance. Also, behavioral patterns that give rise to commitment--for example, being locked into a choice by high sunk-cost investments, the lags that ensue before a commitment is fully implemented, and the inertia that inhibits abandonment of a strategy--serve simultaneously as barriers to profit-eroding imitation by competitors.
Although not much is made of the connections--presumably because the book is targeted toward business executives--the underlying logic of Ghemawat's analysis stems from two prominent strands in economic theory. To retain profitable dominant market positions, firms must deter competitive entry. But deterrence can require threats that are credible, and commitment enhances the credibility of threats. This notion was originally developed richly in Thomas Schelling's 1960 book, The Strategy ofConflict, which, curiously, is not cited by Ghemawat....