Abstract

Practical wisdom (“phronēsis”) is an Aristotelian concept that has been incorporated into management research to a considerable extent in the last 20–30 years. This paper attempts to show how practical wisdom is necessary as a type of situational knowledge that is required for most management decisions to be sustainable. We start reviewing the types of knowledge necessary in decision-making, and we emphasize “practical wisdom” as the kind of knowledge that is particular and subjective, is acquired through practice, and is transmitted by example. We relate the concept of practical wisdom with the Hayek concept of knowledge of time and place, the Polanyi concept of tacit knowledge, and Nonaka’s knowledge management. We conclude that in most management decisions, phronēsis is required and, thus, is necessary to increase sustainability in terms of effectively sharing knowledge and acquiring virtues to improve managerial decision-making. Not considering phronēsis has bad implications for management as it can lead to unsustainable and poor decisions, for instance, in main areas of management control such as pricing policies, budgeting, balanced scorecards, transfer pricing, and goal setting. Along with the intellectual virtue of practical wisdom we conclude that moral virtues, specifically justice, should be the complement that guides organizational objectives.

Highlights

  • Practical wisdom or “phronesis” is an Aristotelian concept that has been incorporated into management research to a considerable extent in the last two or three decades

  • This paper attempts to show how practical wisdom is necessary as a type of situational knowledge that is required for most management decisions to be sustainable

  • “automatic” systems in management that have become fashionable in the last few decades are doomed to failure, as the concept of knowledge required is close to the intellectual virtue of phronesis, as we are going to examine in the following examples of real managerial issues

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Summary

Introduction

Practical wisdom or “phronesis” (the original Greek word) is an Aristotelian concept that has been incorporated into management research to a considerable extent in the last two or three decades. Our emphasis is in putting this into practice, i.e., showing to what type of knowledge we refer when we speak of phronesis For this purpose, we illustrate it with examples from the management control field, where a quantitative analysis is needed but is by no means enough. We go back to Aristotle’s analysis of different types of knowledge, to show how the Aristotelian concept of phronesis fits in the decision-making process, and allows to improve management virtues which are seen as crucial in sustainable managerial decision-making processes [17]. All of them have to do with the knowledge that is not quantifiable or even explicit but is indispensable for decision-making We conclude that these views have common ideas that allow us to conclude that practical wisdom is unavoidable to enter into virtuous cycles and sustainable management. We conclude that complementing practical wisdom with moral virtues, mainly justice, complements sustainable management and reinforces the ethical managerial approach for sustainable organizations

Different Concepts of Management
Hayek’s View of the Economic System and Knowledge
Polanyi and Tacit Knowledge
Nonaka and Knowledge Management
Practical Wisdom in Some Managerial Decisions
Pricing Decisions and Pricing Policies
Practical Wisdom in Management Control Systems
Goal Setting
Practical Wisdom and Moral Virtues
Discussion and Practical
Conclusions
Limitations of This Study and Suggestions for Further Research
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