Rethinking Strategy

8/10/2019 Rethinking Strategy

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Strategic Management S1 Foundations of SM

Art or Science Continuum

3 Characteristics of scientific method:

Reductionism (reduce complexity of real world)

Repeatability (in experiments whose results are validated)

Refutability (knowledge is scientific only if it is falsifiable)

Science in general:

Fragmentation is the only way to describe ungraspable problems Different views on

same issue.

Science involves application of rational thinking to human experience.

im is to concisely express laws which govern the regularities of

the universe.

!he laws being expressed mathematically if possible.

Science of Strategy

Concernded with:

"nderstanding why some firms perform better than others...

#y examining the strategic behavior of firms as they interact with their environment...

$ith a view to identify ways to improve firm performance.

Levels of Analysis:

Individual-actor level(e.g.% cognitive% entrepreneurial & !'! literature)

irm level (e.g.% planning% design% positioning & culture literature)

Intra-firm level (e.g.% consensus% conflict & decisionmaking literature)

Inter-firm level(e.g.% alliances & networks literature)

Industry level (e.g.% market structure & strategic groups literature)

Country level (e.g.% institutional literature and evolutionary theories)

Strategy Research


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ssumptions Firms Differ% *mployees 'atter% +*,S matter

!escriptive -ey concepts to understand a wider concept

"#planatory: 'akes links btw. +oncepts

"#ploratory: $hich concepts predict a phenomenon

Article 1: Seth + Thomas

$eneral:

Debate on more or less pluralism in strategy field is ancient & current.

pt article to start with because strategys links with economics are deep & prominent.

'any different economic theories of the firm% which can potentially inform study of strategyformulationimplementation.

/ives insight into relevance of different theories for strategy agenda.

+onsider e.g. how the behavioral & motivational assumptions of the behavioral &

managerial theory make them relevant (cf. Spender).

!heories assuming firm homogeneity & strongform Darwinism are least useful for strategy

research.

0articulary 1elevant for this course #ehavioral !heory 2 1esearch #ased view

Definiotion of Strategy strategy is a pattern or plan that integrates an organi3ation4s ma5or

goals% policies and action se6uences into a cohesive whole. well formulated strategy helps

to marshal and allocate an organi3ation4s resources into a uni6ue and viable posture based on

its relative internal competencies and shortcomings% anticipates changes in the environment

and contingent moves moves by intelligent oppontents (7uinn% 89:;)


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*conomic !heories of the firm

%eoclassical &heory of the irm:

constructed to investigate the way in which prices and the allocation of resources among

different uses are determinded% part of the theory of value

appropriate model of firm describes the forces that determine the prices and 6uantities

produced of particular products by the individual firm.

Firm is represented by production function which captures the underlying technology used

to employ the forces of labour and capital for the purpose of generating goods and services

&raditional Industrial 'rgani(ation )I'* "conomics +Same assumptions as


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!he focus in neoclassical microeconomics is the theory of price and in traditional @; the

theory of market structure. new set of explanatory Astructure variables is introduced

by the @ ; approachB

@; economics has a normative orientation towards the shaping of public policy rather

than the predominantly positive orientation of neoclassical microeconomicsB

@; economics has a more empirical flavour.

&he %ew Industrial "conomics

Stems from the introduction of noncooperative /ame !heory to @, ecomics as a tool to

mathematically analy3e conflict. +entral concept is the art of outdoing the adversary

knowing the adversary is trying to do the same.

@n /ame !heory the firm is viewed as a player who makes rational and interlligent

decisions. ctions intended to maximise their payoffs. ll players same = substantive

rationality assumption.

+entral concept is e6uilibrium strategy which is a strategy combination consisting of a best

strategy for each player in the game.

!hese concepts enetered S' through concepts such as first mover advantage% reputation

formation and exploitation and commitment.

ehavioral &heory of the irm

Focus is to predict price% output and resource allocation decisions of the firm% but also on the

actual process of decision making as its basic research commitment.

Firm Definition +ollection of individuals with multiple goals who operate in a defined

structure of authority.

#ounded 1ationality 'anagerial behavior is characteri3ed by limited ability to formulate

comprehensive models of reality maximising behavior becomes impossible satisficing

(satisfactory level of profits).

Decision making process is se6uential and sub5ect ot learning.

*volutionary theory of economic change !heory developed to characteri3e and explain

phenomena that involve dise6uilibrium in fundamental ways ie. Significant unforseen

technological change. 'odel seeks to explain the dynamic process of ad5ustment of firms.

Firm is capable of adaptive learning but imperfect memories

rountines that determinde input and output

rountines that determine search behavioral

routines that determine inverstment behavioral

.anagerial /iew0Resource ased /iew of the irm


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ddresses problems associated with separation of ownership and control of a firm.

Shareholders delegate control to managers with little control over them. 'anagers in turn

has great power and considerable discretion to pursure activities which are beneficial to

them but at the expense of shareholder4s interests.

#lack #ox view #"! goal is managerial utility. 'anagerial utility is postulated to be a

function of variables such as i.e. sales or the rate of change of the firm4s si3e.

1esource #ased Ciew (0enrose) Firm is a collection of resources. !his implies form an

analytical perspective that a firm4s distinctive competence is based on the speciali3ed

resources% assets and skillss it possesses and focuses attention on optimum utili3ation of

these to build competitive advantage and thus economic wealth. ssets could be tangible or

intangible assets (ie. 0atents)

@ssue Firm could be seen as bundle of resources% as well as a bundle of market acrtivities

(@, framework).Agency &heory and the irm: inancial "conomics /iew

!he financial economics view assumes that the firm maximises the discounted value of

future cash flows ie. !he


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$hen productive assets are nonspecific a market contracting process is seen as most

efficient.

@n this framework as well% principalagent relationships are key. owever% these

relationships are characteri3ed by a structure of authority which is typically embodied by

some sort of hierarchy. ierarchy is pyramidical = top levels control lower levels. !hus

resolution is not contract but (gency !heory) organi3ational structure of hierarchy.

2hilosophical .ethodology

@nductive uses observations to draw generali3ations (move from the specific to the general)

Deductive uses assumptions & rules of inference to infer generali3ations (move from the

general to each specific).


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risk of resistance

!ypical S$,! model% shridge 'ission 'odel

2lanning School= formal process (nsoff 89E)

pproach rigorous set of steps are taken% from the analysis situation to the execution

of the strategy

#asis "rban planning% system theory% cybernetics

+ontributions /ives clear direction. *nables resource allocation.+ontrol

Gimitations +an become too static. 1isk of groupthink. 0redicting is difficult.!op

'anagement must create strategy from an ivory tower

!ypical !heory of 'echanistic and ,rganic Systems. 0arenting styles. Gevers of

+ontrol. Scenario 0lanning

2ositioning School +n analytical process (0orter 89:;)

pproach @t places the business within the context of its industry and looks at how the

organisation can improve its strategic positioning within that industry

#asis *conomics% @ndustrial organisation and military strategy

+ontributions Strategic 'anagement is a science. 0rovides content in a systematic way

to the existing way of looking at strategy. Focus on hard facts. 0articularly useful in

early stage of strategy development% when date is analysed.

Gimitations S'* S 0G


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perspective

!ypical *ntrepreneurial /overnment Seven surprises for new +*,s (porter).

Geadership styles

&he cognitive school + a mental process (Simon 89JE)

pproach nalyses how people perceive patterns and process information. +oncentrates

on what is happening in the mind of the strategist and how it processes the information

#asis 0sychology

+ontributions Sees strategy as a cognitive process in the mind of the

strategist.Strategies emerge as concepts% maps% schemas and frames of reality. Stresses

the creative side of the strategy process. Strong at the level of an individual strategist.

Cery useful to explain why our minds are imperfect.

Gimitations


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+ontributions +an help to let the strongest people survive in the corporate 5ungle. +an

help to ensure that all sides of an issue is fully debated. +an help to break through

obstacles to necessary change. Democratic. +an help to decrease resistance after a

decision is made. 1ealistic.0articularly useful to understand Strategic lliances% >oint

Centures and to do Stakeholder nalysis.

Gimitations 0olitics can be divisive% uses a lot of energy% causes wastage and distortion

and is costly. +an lead to aberrations.+an lead to having no strategy or 5ust doing some

tactical manoeuvring. ,verstates the role of power in strategy formation.

!ypical #ases of Social 0ower% 0ower Distance% Stakeholder Calue 0erspective% +ore

/roup !heory% Force Field nalysis% Stakeholder 'apping

&he cultural school= a collective process (


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1esearch into the boundaries (ie. Firm and its environment) is the focus of this

synthesi3ing school. +entral 6uestions

$hat are the advantages and disadvantages of doing it yourself and contracting outI

$hen is cooperation preferable to doing it yourself or contracting out and how must

the cooperation be organi3edI

$hat are the strategic implications of make% buy or cooperateI

ow can make% buy or cooperate decisions be implemented an how should these

dynamic relationships be managedI

!wo basic issues where to draw the boundaryI KK how to manage the fu33y dividing line

between firm and its dividing lineI

1ooted in various base disciplines ie. economics% sociology% psychology% history

!ynamic Capabilities School

!his school consides S' as a collective learning process aimed at developing distincitve

capabilities that are difficult to imitate.

@nstead of using an outside in approach (ie. 0orter) where importance lies within the

environment% the dynamic capability school employs an inside out approach. +entral

6uestions

oe do organi3ations develop firmspecific capabilitiesI

ow can organisations develop new capabilities that are complementary ot that

substitute existing capabilitiesI

$hat are determinants of successful development routesI

ow can one determine or measure collective capabilities of the firmI

Sanche3 0erspective dynamic capabiliy is the firm4s relative ability to use current

resources to create new resources and the develop new ways of using current resources.

+ompentence based competition

Strategc flexibility by modularity ability to substitute components variations

organi3ational learning = modular product architectures my facilitate learning

-ir5avainen Gearning affects strategy formation and strategic change in knowledge

intensive firms.

+yclical 0rocess

L levels learning and meta learning = intertwined changes of the knowledge of

individual managers and the development of a collective paradigm of the group ofsignificant actors. Development of portfolio of competences


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&he configuration school +a process of transformation

pproach Strategy formation is a process of transforming the organisation from one type of

decisionmaking structure to another in an episodic process depending on environment.

+entral 6uestions

@n what environment are specific strategy configurations effectiveI

$hate are the relevant dimensions that explain the variety of strategy configurationsI

ow can an organisation pass through a transition from one configuration to the otherI

#asis +ontext

+ontributions Strategy and organisational shape (,rganisational development) are closely

integrated and should be reconciled. n organisation can be described in terms of some

stable configuration of its characteristics% which it adopts for a period of time in a particular

type of context. !his causes it to behave in particular ways% that give rise to a particular setof strategies.!he period of stability are interrupted occasionally by some process of

transformation.-ey to strategic management is most of the time to sustain stability% or at

least adaptable strategic change% but periodically there is a need for transformation and to be

able to manage that disruptive process without destroying he organisation.!he way of

strategy formation must adapt to its own time and context% while it takes one or more of the

8; mentioned forms. ence strategy formation itself has configurations.

Gimitations @n reality there are many shades of grey% not 5ust a limited number of valid

configurations. !he pattern is in the eye of the beholder% if you describe reality by usingconfigurations% then you are distorting reality to be able to explain it.

!ypical ,rganisational +onfigurations% +haos !heory% +atastrophe !heory% Disruptive

@nnovations

Article 3: Spender Article

$eneral:

!races the chronological development of the field from the work of nsoff through

+handler to current day debates.

#ackdrop in classic assumptions about (i) economic rationality & (ii) notion of the firm%

both of which are being challenged.

,pens up a third dimension of analysis centering round the idea of actionKpractice shaping

identity & outcomes.

!evelopment of the iel:

fter $$@@ 6uantitative methods and planning dominated% environment was seen as stable.

7uantitative 0lanner and Forecaster.

+handler (89EL) changed the field. @ntroduced 6ualitative research = secondary data and


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historical methodology. Showed that managers do not think in terms of old planning and

decision making models

89J;s development of the StrategyStructureFit paradigm. (still prevalant for many today)

+urrent focus on networking and organi3ational learning


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study through the transaction and organisational levels up to the industry% national and

global levels

!he Dynamics of ,rgani3ation -nowledge% 1ountines% Gearning and euristics

'ove towards knowledge based theory of the firm Focus on organi3ational knowledge and

learning shows a new convergence btw. @nstitutional economics% political theory% gametheory% and cognitive theory = especially in the technology strategy area.

-ey 6uestion oe do we ac6uire% protect% apply and sustain intangible resourcesI @f firms

knowledge is idiosyncratic% scarce and the resource of sustainable competitive advantage% it

is being considered a tangible but essentially static asset.

Dealing with 0ractice = !hird dimension

!hird 4action4 dimension of emerging framework of strategic theori3ing 'uch of executive

creativity that results in strategic advantage emerges only through action

@mplication @n order to grasp orgain3ational practive fully% we may have to move away from

the idea of generality. ction is always in context% and strategic advantage always in the

world.

'anagers have been 6uicker to reconceputali3e new ob5ects of attention than have

academics. 'anagers becoming less concerned with the firms tangible assets and their

ownership% the basis of a microeconomic theory% than with the pattern of economic activites

that they can influence to produce appropriate conse6uences.

1esearch 0roblem ction is difficult to capture in papers and researh as it is immediate andcontext based.

,rgani3ation presupposes that orgain3ations can be instead. @nstead they are partially

emerging and 6uasiautonomous systems of organic order. !he S' manager4s role is

redefined as helping to shape these systems in the light of historical% socioeconomic%

technological and institutional contexts in which they are embeded.

Documents

Rethinking Strategy