Strategy is an over-arching domain in business which encompasses several fields of study. Strategy has made its presence felt outside the pane of purely business studies. Such has resulted in the study of this topic from varying viewpoints - economic, sociological, psychological. Also, within the field of business itself there are shifting views as to how to view the subject. Such is exemplified in Mintzberg's (1985 and 1999) work.
To garner a greater depth of knowledge as to the reasons why so many disagreements exist, this study identifies the scope of reasoning behind these varying views of strategy. This has been carried out by critically analysing the main work upon the strategic field and also by examining the use of theories within these viewpoints.
It has been found that this general disagreement as to what strategy is lies with the fact that this topic is too broad to contain a steady, rounded framework or agreed upon definition or direction. As such, it can be surmised that the field of strategic management is still in a stage prior to maturity. That is, there is still much to be learnt about this fascinating and all-important managerial activity.
Table of Contents:
Introduction _________________________________________________Page 3
Internal & External Fit _________________________________________Page 5
Prescriptive & Descriptive Approaches ___________________________ Page 6
Economic & Sociological Perspectives _____________________________ Page 8
Psychological View ____________________________________________ Page 12
Deliberate & Emergent Strategies ________________________________ Page 13
Conclusion___________________________________________________ Page 14
Bibliography_________________________________________________ Page 15
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There are many definitions about strategy. Of which, the importance of strategy is agreed. However there is no one agreed upon set of terms or definitions so as to explain what strategy actually is.
"Of all the concepts in management, strategy is the one that attracts most attention and generates the most controversy. Almost everyone agrees that it-is important. Almost no one agrees on what it is" Magretta (2003).
Strategy applies to more than just the business field. A strategy is a guide which sets measures and objectives in place, in order to fulfil universally agreed upon goals relevant to the parties involved. With regard business, strategy must be created so that an answer to the question - What must managers do, and do particularly well, to make the company a winner in the game of business?- may be discovered.
However, such cannot begin to explain strategy or offer reason why there are so many differing opinions revolving around this hugely important aspect of business. For instance, even the ability to define strategy causes upset. There is no universally agreed upon definition. There are many well-respected business thinkers who each have devised definitions of strategy. Michael Porter, the world-renowned thinker on company strategy and the competitiveness of nations, defines strategy as "â€¦the creation of a unique and valuable position, involving a different set of activities" (Porter, 1996). Henry Mintzberg, the internationally famed academic/author on business and management, defines strategy as 'a pattern in a stream of decisions' (Mintzberg, 2007). In Johnson, Whittington and Scholes' textbook, Exploring Strategy, a text in its ninth edition adding to its notoriety and wide-spread use, strategy is defined as "the long-term direction of an organisation" (Johnson et al, 2011).
Quite simply, it is very difficult to pin the essence of strategy into a concise sentence or definition. As such, this fuels the disagreement as to what strategy is.
Strategic management is-an extremely important field of study which draws upon many different disciplines (Dobbin and Baum, 2000). Business and the environment in which it operates have changed drastically in recent years. For instance, taking three large global forces - liberalisation, globalisation and e-commerce - it-is evident they greatly influence decisions surrounding strategy as a result of rapid movements with ever-changing lead times, just to mention but a few. Having to comprehend and subsequently deal with this whole host of issues, managers and executives must pause and take note of the theory and practice of the strategic art. The concern of business strategy can be generally agreed upon by strategy writers - strategy seeks to match the internal capabilities of the company with the external conditions prevalent (Kay, 2000).
Strategy is composed of a mission, visions, and values. Within these an organisation lays out there long term objectives (mission), the future outlook signalling where stakeholders want to see the organisation, level of market share, image of its brand etc (vision) and the processes intended for use so that the mission will be completed (values). The composition of strategy and the route to be taken in order to satisfy the mission come under much disagreement. There are a wide array of approaches, theories and schools which offer views toward strategy formation. It is here that a large degree of disagreement occurs.
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To try to address this question I will look to critically analyse the following:
The role of internal fit versus external fit
The perspective approach versus the descriptive approach
Economic approaches to strategy versus sociological approaches
The psychological perspective, and
The deliberate vs. emergent strategy continuum.
Internal and External Fit:
Whittington (2001) has attempted to assemble four categories of strategy based upon years of published strategic theories. The classicist and evolutionary approaches are excellent starting points to the disagreements over internal or external leadership of strategy. The prevailing approach in the 1960s is characterised in the classicist approach. Chandler and Ansoff are advocates of this planning-dominated, logical, rational, top-down approach to strategy formation. The focus here was to maximise profit and trust in the capacity of managers to fulfil this. As such, it-is-an internally driven system where strategy is seen as achieving the essential fit between internal strengths and weaknesses and eventual threats and opportunities. The strategies adopted seek to gain advantage at competitive levels, through the likes of cost leadership and product differentiation, and corporate levels, by pursuing policies of vertical integration, diversification and multi-nationalisation. These economic internal contributions allow an organisation to gain competitive advantage (Douma and Schreuder, 2002).
In contrast, organisations may seek to gain competitive advantage with an external view towards the market. This relates in part to the evolutionary approach (Whittington, 2001). Managers are viewed as incapable of keeping pace with the near perfect efficiency of markets to secure profits. As such, industry analyses are conducted to discover the opportunities and threats present. Porter's (1979) five forces offer a thorough approach for carrying out such detailed industry analyses. Porter (1996) supports the market orientation and explains that an organisation's ability to achieve fit by combining activities rather than building competitive advantage, which can by copied by competitors, will allow the delivery of greater value to consumers and ultimately success. However, the combination of both Porter and the evolutionary perspective does not match harmoniously, as few theories usually do when discussing strategy. Porter explains that positioning is of vital importance to organisations so that they can meet the needs of necessary consumers. In contrast, the evolutionary perspective views the market gloomily; expecting it to act in a hostile and unpredictable manner.
The changing views of strategy between inward-to-outward orientation is explicated by Hoskisson et al (1999). Hoskisson's work explains these pendulum swings as developments in strategic management which changes the focus of research and ultimately allows for "enriching the field's total body of knowledge".
The Prescriptive and Descriptive Approaches:
Mintzberg, Lampel and Ahlstrand (1999) discuss ten 'schools' of strategy process in their book Strategy Safari. These comprise of three prescriptive schools and seven descriptive schools. Prescriptive focuses on the upper echelons of management engagement in the decision-making process. Hence, subordinates simply follow the dictates of their superiors. In contrast, the descriptive school moves the decision-making process down the rungs of the hierarchy ladder so that strategy formation encourages more organisation-wide involvement.
As such, the forms of strategy developed differ. The prescriptive approach pays attention to the process in which strategy is formed with a high degree of emphasis on planning and the outcome focusing on performance.
The design school is the first of Mintzberg's strategy schools. This depicts strategy as a mental process of discovering strengths, weaknesses, threats and opportunities; inferring competencies and/or success factors and adopting a 'best-fit' strategy. Mintzberg recognises this-as the most influential view of the strategy-formation process (Mintzberg et al, 1999). As Pelling (2004) critically argues, however, perhaps its success is due to Harvard's desire to teach "the art of persuasion by presenting negotiated truths as if they were scientifically justified". The design school acts as an important beginning for the construction of strategy. It has not been developed in great enough depth, yet has acted as a stepping stone for a number of other strategic schools - both the planning and entrepreneurial schools draw from design. Mintzberg himself criticises the school, citing problems with the separation of formulation and implementation. Also, the prescriptive use of SWOT analysis for strategy formation is-a dangerous idea. As Pelling (2004) writes, "Someone using SWOT in this way is therefore just as much a myth-maker and story-teller as an analyst."
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To look to the use of a SWOT analysis for an intangible organisation in the modern business world would be wholly unnecessary. How, for instance, could such be carried out on the likes of Amazon.com? Haberburg (2000) argues that "classifying a firm's attributes baldly as strengths and weaknesses, and ignoring everything in between, we risk discarding important information about areas where its resources might be a source of advantage if they were only developed a little further."
In contrast, the descriptive branch places emphasis on the content of strategy. It is-a more functional-level concern insofar as the process of decision-making is far less relevant than the content decided upon. Also, it-is understood that at the lower-echelon level at which descriptive planning is used, there is greater likelihood of day-to-day, month-to-month fluctuations. In coping with this it-is understood that the plan itself is liable to change.
I will discuss the configuration school as a case of best practice. This school extracts elements from many others to form a view that there is the possibility of integration between all. Mintzberg (1999) explains what this school seeks to achieve: "while the process of strategy making may set out to change the direction in which an organisation is going, the resulting strategies stabilise the direction". As such, it could be seen as a form of strategic choice which reflects the life-cycle and operating environment of the organisation due to the changes it accepts and naturalises. Another part of this strategic approach follows the work of Khandwalla (1970) whereby effectiveness may be attributed to "the inter-correlations among several attributes". Such structure seems to hold true as it-is structure which follows strategy. The installation of strategy which establishes the structure allows for the synergy of formulation and implementation while also allowing similar business functions the opportunity to coordinate. This strategic approach will also allow for the necessary changes over time in response to environmental, structural or any other changes.
The configuration model shares change elements of its strategy idea with Lewin (1946) whereby change is planned and behaviour shifted so as to achieve a desired outcome. In an organisational context, such a process allows for change to the status quo so as to alter and subsequently normalise new behaviours thus achieving successful alteration to new organisation cultures, reward systems or structures.
Economic and Sociology Perspectives:
On a broader aspect as to the disagreements about what strategy is, there are a host of issues stemming from the overall direction of strategy. Strategy acts upon different levels - corporate, business, operational. In this instance, strategy's environmental outlook regarding purpose and scope is discussed. That is, does strategy follow an economic or sociological imperative? Strategy, purely economic based, prioritises organisational efficiency; strategy, purely sociologically based, offers to explain that organisations are all about power. This is-an important question because theories, mechanisms and directions are shaped accordingly. I will now discuss the contributions of each standpoint and refer to theories as part of each.
To begin, there are different viewpoints from these perspectives. The economic strategic stance explores efficiency form the perspective of the firm (Dobbin and Baum, 2000). The methodological imperative is to develop necessary theories regarding the optimal use of strategy based upon worked examples. As such, the strategic theorist seeks to explain the success of strategy prior to its adoption into practice. This behaviour is fuelled by competition and the requirement of efficiency.
In contrast, the sociological standpoint lies outside of the organisation looking at the effect of efficiency upon the corporate landscape (Dobbin and Baum, 2000). As such, the goal is to explain context and history upon management approaches after they're in use with the incorporation of multivariate models.
The economic contributions to strategy do not form one concise shape; instead they impact upon strategy at business level (competition strategy) and corporate level. Economic contributions, however, are made clearer when highlighted in tandem with actual information organisations need and actual decisions required to be made. Therefore, several steps involved in strategic planning are used to demonstrate economic contributions (Douma and Schreuder, 2002). Strategy is seen to take both an outward and inward view of the organisation. Industry analysis is conducted, initially based on Bain's (1951) industrial organisation (IO) with later progression to Porter's five forces model. Bain's IO paradigm explained conduct as a determinate of performance with the model - structure determines conduct; conduct determines performance. The dilution of clarity to the direction of causation paved the way for Porter's model depicting the forces that drive industry competition.
Organisations differ in this-aspect along key variables such as R&D and pricing. Rumelt (1991) finds these differences between firms in the same industry to be of greater importance than differences between industries. His-argument: if structure were to determine conduct, there would be no difference between firms in the same industry. This reason led to Porter's model.
Having determined structure, competition and profitability through analysis, competitive advantage is sought through the use of competitive strategy. Competitive strategy reflects choices concerning-strategic dimensions of an industry. Strategies such as cost leadership or-product differentiation are two popular methods of business-level strategy which seek to-gain competitive advantage.
Competitive advantage under a resource-based view (RBV) is based upon the possession of-certain resources. The sustainability of this-advantage is garnered via the difficulty or-cost for competitors to obtain the resource. A firm, thus, seeks distinctive inputs so as to-gain above-normal returns through stand-out products/services which attract consumers while they may-also offer low-cost product offerings to add to returns.
Transaction cost economics (TCE) views the firm and market as separate governance-structures. An organisation adopts one of two methods to production - to produce itself or to go-to market. As such, an organisation is required to weigh its options. If economic exchange is costlier, production occurs in-house and the organisation will-grow; if costlier to produce in-house, the organisation will go to the market. This theory offers explanation to the corporate strategy-approach of vertical integration.
Sociology is the study of human social behaviour with particular focus towards the establishments and institutions that are present in human society. It-is evident that modern societies "contain many complexes of institutionalised rules and patterns" (Meyer and Rowan, 1977). These established rules provide a framework for the establishment and growth of formal organisations. Whereas the economic side of strategy notes the bounded rationality of actors, sociology focuses greater attention toward behaviours and relationships.
Economic sociology is-an attempt to redefine, in sociological terms, questions traditionally addressed by economists. As such, economic sociology seeks to analyse a number of organisations (rather than a single organisation like their economic counterparts), the inter-dependence of organisations, whole series' of organisations, and the organisations as open systems (Swedberg, 2003).
Resource dependency theory (RDT) is-an outwardly facing perspective explaining that an organisation must secure critical resources from the external environment in order to survive. As such, the management of relationship (for continuous supply) and the environment are important factors. In comparison to the resource-based view, RDT welcomes the interaction with the outside so as to ensure resource availability. RBV, however, takes a more defensive stance in the protection of resources - thus highlighting a sociological perspective of inter-organisation dependence.
Population Ecology theory (PET) is an inwardly facing perspective which explains that the external environment is the determinate of organisation survival. The environment starves a poorly-performing firm of resources. This Darwinian outlook on organisations presents problems, however. PET is difficult to apply to industries with high barriers-to-entry, high regulatory frameworks and it-is difficult to judge the capacity of an organisation's goal-reaching capabilities.
However, new institutionalism theory (NIT) offers the opportunity to deflect PET problems. In this instance, the environment alone doesn't fully explain organisational influences - behaviour is-affected by a number of social and cultural pressures. Powell and DiMaggio (1983) explain that the environment pressures by way of coercive, normative and mimetic pressures. This explains that organisations resolve uncertainty through mimicking other practices.
In light of these-theories it can be seen that the sociological perspective upon strategy broadens an organisations avenues of perusal with-regard strategy formation. Much disagreement arises as a result-of differing views as to what determines organisational success - organisational capabilities or-the environment. Similarly, issues surround the role of managers, abilities of firms and influences upon-them. With such environmental and inter-organisational dependence emphasised, an organisation's role is diminished to that of a by-product of market inefficiencies. Organisations will argue, however, for their importance in the creation of value offerings and their ability to source and sell what likely would be otherwise unobtainable (consider products such as oil, iPods, and out-of-season fruit/vegetables).
The psychological view of strategy revolves around the processes and concepts that seek to explain the information processing by managers and organisations. There is-a wide variety of use of psychological tools to aid cognition in a strategic environment - schemas, cognitive maps and repertory grid systems to name just a few. Cognitive mapping allows organisations to discover core competencies and impose structure on vague situations (Eden and Ackermann, 1998). As such, it complements economic sociology as it seeks to explain similar themes, such as group dynamics, through alternate methods.
Managerial and organizational cognition (MOC) is based upon concepts, theories and methods from cognitive science. The focus here is upon limitations: limit to stimuli processing; and strategies acting as filters "which in turn may lead to biased and inappropriate decisions" (Hodgkinson, 2007). There are arguments both for and against this frame of thought. Stubbart (1989) argues that this line of study provides a link between environmental conditions and strategic action. In contrast, however, Hambrick and Mason (1984) say that upper echelon executives ultimately determine direction and outcomes however they posit a three-stage filtration process which ultimately "underpins the tendency for executives to perceive only a limited portion of all potentially relevant information".
Deliberate and Emergent Strategies:
Mintzberg and Waters (1985) discuss the varying levels as to how strategy plays out along a continuum of observable strategies in practice. On one end are purely deliberate - whereby strategy is realised as intended. The other are purely emergent - whereby there are patterns of consistency despite (or absent) intention. There are subsequently eight strategies along this continuum. In essence, we explore the complexity of the strategy formation process and are left with a continuum with two extremes, and several strategies inside this continuum which can be observed in real life.
Resulting from these varying degrees of strategy formation it-is evident that strategy formation processes differ from organisational bases. That is, centrally controlled organisations will depict the use of tighter control upon strategy and decentralised, loosely coupled organisations may depict the use of emergent strategy. Therefore, with relation to disagreements about strategy, issues surrounding the role of managers may present themselves. Is-a strategic approach where unintended actions occur as a result of environmental force a realistic business method?
However, there is scope for differing opinion. Emergent strategy may represent management that is open, flexible, and responsive. In this light, such would favourably co-exist with a classicist perspective insofar as the capabilities of the manager are trusted.
Strategy is-a complex and crucial process which should encompass the entire business so as to set objectives and guide core functions so that a desired outcome may be fulfilled. It-is evident that there are a host of issues surrounding what strategy is. These range from the individual - the cognitive processes of managers - to the overarching scope of organisational activities - economic, sociological, psychological.
It can be seen that over the course of strategic management's development there has been regular shifts between internal-external focus. According to Hoskisson (1999), these are expected pendulum shifts resulting from our increasing grasp upon strategy.
Continuing from this, the differing perspectives upon prescriptive and descriptive approaches resonate as the development of work upon the strategic field. The design school resembles the thoughts of early strategy pioneers, such as Chandler, with the movement towards the configuration school, supported by Mintzberg, highlighting the incorporation of several schools.
The work upon economic, sociological and psychological perspectives reflects the broad-parameters of the strategic field. Issues arise stemming from strategy's broad scope-within several fields of study.
Finally, the-emergent-deliberate continuum offers the field of strategy reasoning and-breadth towards the strategy formation process. Such is-achieved through its explanation-of organisational bases and subjectivity and there affect upon how strategy plays out.
As-such, these findings indicate that it-is difficult to come to a general agreement with regard to strategy. This discipline is-far too broad to contain a steady and rounded framework. Strategy seeks to-blend several disciplines so that the "long-term direction" can be incorporated into actions, processes, functions and methods of organisations in the attempt to-fulfil one's mission.