evolutionary organization strategy framework

Source: Burgelman, 2002. This is a conceptual framework for studying the role of strategy-making in Intel's evolution. It is made up of three different ""tools"" which form the perspectives of the evolutionary organization processes -- variation, selection, retention, and competition (see evolutionary organization theory) -- at three different levels of analysis as well as the interplay between the different levels. Tool I focuses on the big picture, providing a panoramic scene which contains everything related to the industry and company, but does not focus on the details. Tool II zooms in on the strategy-making process at the company-level, with its integrated induced and antonymous strategy process. Tool III looks at the internal corporate venturing associated with the autonomous process.

Tool I: Dynamic forces driving company evolution --
This tool in the framework helps examine strategy-making at the industry-company interface level of analysis, and the coevolution of industry-level and company-level forces. This tool has five interrelated variables --

• Basis of competitive advantage in the industry -- Most industries contain several viable positions that companies can occupy. External forces determine the basis of competition in each of these positions. Consistent with the traditional industry structural analysis, these forces encompass customers, competitors, suppliers, new entrants, and substitution. Other forces may be significant as well, especially in rapidly evolving industries. Non-market forces, such as the government, are also potentially important.
• Distinctive competencies of the firm -- Distinctive competencies concern the differentiated skills, complementary assets, and routines that a company possesses to meet the basis of competitive advantage in the industry. The form the basis of the capabilities that a company can deploy. Distinctive competencies are intrinsic to a company's identity and character. For instance, they very much determine the generic corporate strategy -- differentiation or cost leadership -- that a company will pursue.They are not easy to change. Deep competencies are also likely to be a well-spring of new opportunities.
• Official corporate strategy -- Official corporate strategy concerns top management's statements about the company's intended strategy. These remarks reflect top management's beliefs about the basis of the company's past and future success. Key beliefs concern product-market domain, the relative importance of different distinctive competencies for competitive advantage, core values that help determine what the company will and will not do, and financial and other objectives. These are the most important drivers of a company's strategy.
• Strategic action -- Strategic action is what the company actually does-the consequential actions that it engages in. Strategic action, position, and competencies mutually support each other. Strategic action without position has limited ability to be exercised and without distinctive competencies is powerless. Position without strategic action is unlikely to fully exploit advantage and without distinctive competencies is precarious, because most positional advantages erode and eventually vanish. Distinctive competencies without strategic action are aimless and without position cannot be fully leveraged. Through strategic action that links position and distinctive competencies in novel ways, a company can attempt to proactively change the basis of competitive advantage in the external selection environment. Often, of course, strategic action must react to the changing external selection environment. Strategic action in large companies is usually distributed over different levels of management and different, specialized groups.
• Internal selection environment -- In principle, there needs to be alignment between the basis of competition and distinctive competencies and between official strategy and strategic action, but in dynamic environments this alignment is likely to come under severe pressure. The internal selection environment plays a crucial role in helping the company find new ways to reestablish alignment between the dynamic forces.

Tool II: Evolutionary Framework of the Strategy Making Process --
Tool II gives substance to the variation, selection, retention, and competition processes by conceptualizing strategy-making in terms of induced and autonomous processes. Induced and autonomous strategic action correspond to variation; the structural and strategic contexts correspond to internal selection; and the concept of corporate strategy corresponds to internal retention. Competition involves the internal struggle of different businesses for corporate resources and the external struggle for survival in the competitive environment.

This framework consists of seven interrelated variables which ultimately manifest themselves in the concept of corporate strategy -- the official corporate strategy. Collectively these variables account for the autonomous strategy process and the induced strategy process. See these two processes for an in-depth description. The variables are as follows --

• Familiar external environment -- the environment that is the focus of the official corporate strategy, both to adjust to it changes and to shape it to the firm's advantage.
• Concept of corporate strategy -- the official corporate strategy, shaped by and for the familiar external environment, and made by the combination of the structural context and strategic context.
• Structural context -- this context encompasses the organization structure, planning and control systems, and other administrative and cultural mechanism that top management uses to maintain the link between strategic action and the existing corporate strategy. This context is shaped by induced strategic action and the official corporate strategy. It also shapes the official corporate strategy and the strategic context for the autonomous strategy process.
• Induced strategic action -- action initiated by the operational and middle-level managers that fit with the concept of corporate strategy and leverage the organizational learning that it embodies.
• Emerging external environments -- these are the environments emerging that may become relevant to the company.
• Autonomous strategic action -- the initiatives of individuals outside the scope of the corporate strategy.
• Strategic context -- the strategic context for the autonomous initiatives serves to evaluate and select autonomous strategic actions outside the regular structural context. This context is shaped by and shapes the autonomous strategic action. It is shaped by the structure context. I shapes the concept of corporate strategy.

The autonomous strategy process is variation increasing, produces a degree of instability, changes the identity of the company, and explores new opportunities. The induced strategy process carries out the strategic intent of the firm, seeks to reduce variation, produce stability, produce continuity, perpetuate the company's identity, and exploit.

Related evolutionary ideas --

• Emergent and deliberate strategy -- Induced and deliberate strategies are similar, but the induced strategy process provides more detail on what is involved in getting the organization to actually implement corporate strategy.21 The link with autonomous strategic initiatives, on the other hand, is more complicated. Autonomous initiatives involved in generating and developing a new business opportunity usually involve deliberate actions taken by leaders below top management. The deliberate actions taken by these leaders help develop new competencies and help create a new strategic position that may open up a new business opportunity for the corporation. Thus, a strategy that emerges at a high level of the corporation often has its roots in deliberate actions by leaders at lower levels in the corporation.
• Exploration and exploitation -- The autonomous strategy process dissects exploration into autonomous strategic initiatives and the process of strategic context determination. The latter serves to select viable autonomous initiatives and link them to the corporate strategy thereby amending it. The autonomous strategy process thus goes beyond exploration. It is also concerned with turning the results of exploration into new exploitation opportunities.
• Ambidextrous organizations -- Ambidextrous organizations are designed to handle both incremental and revolutionary change. The idea is closely related to the framework of induced and autonomous strategy processes. Yet there are two important differences: First, induced and autonomous initiatives do not necessarily map onto incremental and radical technological change. Change in the induced strategy process, while incremental, can be very large. For instance, developing a new microprocessor is incremental for Intel but involves hundreds of millions of dollars in development costs and billions in manufacturing investments. In the induced strategy process, incremental simply means change that is well understood-doing more of what the company knows how to do well. Change through the autonomous process, on the other hand, can be radical but is initially usually rather small. However, it always involves doing things that are not familiar to the company-doing what it is not sure it can do well. Second, change through the autonomous strategy process usually comes about fortuitously and unexpectedly. Initially senior and top management have no clear understanding of its strategic importance for the company and how it relates to the company's distinctive competencies. Resolving this indeterminacy is the most difficult challenge facing autonomous strategic initiatives. This highlights the importance of the strategic context determination process.
• Strategy-making and self-organization -- The theory of self-organization and of organizations as chaotic systems is a useful perspective in organization theory and strategic management. Self-organizing systems discover answers to their problems through experimentation. Because prediction is difficult in dynamic environments, the organization develops a catalog of responses and stimulates learning through experimentation. Similarly, ideas of deterministic chaos concern organizations that experience counteracting forces that produce nonlinear dynamics. Some forces push the organization toward stability and order; other forces push the system toward instability and disorder. Strategy-making as adaptive organizational capability balances variation-reduction (induced) and variation-increasing (autonomous) processes at any given time and over time.
• Punctuated equilibrium -- The punctuated equilibrium view of company evolution posits that organizations evolve through long periods of incremental change punctuated by discontinuous, frame-breaking change. While there are many examples of sudden radical changes, punctuated equilibrium views beg the question of where these sudden radical changes come from. Truly exogenous shocks such as large meteorites hitting the earth and destroying existing ecosystems are always a possibility but fortunately a remote one. Many radical changes-technological or otherwise-are the cumulative result of continuous small changes over a long period of time. Sometimes these changes originate in the company's autonomous strategy process and sometimes outside of the company altogether. Often they happen inside and outside simultaneously. Companies always want to spot such changes sooner rather than later. The introduction of intracompany variation, selection, retention, and competition processes to study strategy-making provides a tool for identifying the underlying-more continuous and finer grained-strategic leadership activities that eventually, through sheer accumulation, cause lumpy radical strategic change.

Tool III: A process model of internal corporate venturing --
The process model of internal corporate venturing is a matrix-like framework that documents the simultaneous as well as sequential strategic leadership activities of different levels of management (the rows in the matrix) in the different levels of strategy-making (the columns). The model considers three generic levels of management: (1) venture team, (2) middle/senior management, and (3) corporate management. The model also considers two generic levels of strategy-making: (1) corporate-level strategy-making and (2) business-level strategy-making. Corporate-level strategy-making encompasses the determination of the structural and strategic contexts (overlaying processes). Business-level strategy-making encompasses definition and impetus (core processes). The process model documents the set of business-level strategy-making and the corporate-level strategy-making. The model is descriptive, not prescriptive. It serves as a diagnostic tool to better understand key problems that are encountered as well as generated by the organization's strategic leaders who are involved in entering a new business.

Simultaneous conflicting forces at work in the framework --
There are two major opposing forces simultaneously at work in the process model. One force derives from the structural context part of the process. Creating the structural context is top management's responsibility; so the first force is to a large extent a top-down force. A second force derives from the definition part of the process. Definition revolves around initiatives driven by strategic leadership activities of operational and middle-level managers. The definition of new business entry usually, although not necessarily, originates at levels below top management. So, the second force is to a large extent a bottom-up force. Forces associated with impetus and strategic context integrate the top-down and bottom-up forces. Impetus is gained if operational-level champions are able to draw resources to their initiative and establish a beachhead in the market with their product or service. The strategic context for the new business initiative can be determined by middle/senior-level champions who convince top management to incorporate the new business into the corporate strategy and to put the full support of the company behind it. An important contribution of the process model is to clearly show that the bottoms- up and top-down forces are opposing forces, and that they are in play simultaneously. The process model provides a tool for representing the simultaneity.

Tool III was particularly helpful to examine the strategic leadership activities involved in the development of Intel's chipset venture (chapter 7) and ProShare, Hood River, and networking ventures (chapter 9).

Implications --
The tools of the evolutionary research lens helped answer specific research questions. Tool I helped explain why the basis of competition in Intel's core business and its distinctive competencies diverged over time and why the company's strategic actions diverged from its stated strategy. It also helped explain how Intel overcame these divergences and managed to adapt. Tool II helped explain how Intel's induced- and autonomous-strategy processes took shape over time and why strategy could lead to inertia. It also helped explain how autonomous initiatives were selected and retained in Intel's corporate strategy. Tool III helped explain how the activities of leaders situated in different positions in the organization combined in the autonomous process and where and why the process was likely to break down. This book addresses these and related questions, shedding additional light on how Intel attempted to control its destiny in an extremely dynamic environment. The analysis informs two important subjects of evolutionary organization theory- organizational ecology and organizational learning-as well as the practice of strategic leadership.

Organization ecology --
The radical view. Organizational ecology emerged as a new theoretical approach in the mid-1970s. The key argument of the original formulation of the theory went as follows. Organizational change must be understood at the level of entire populations of similar organizations and as the result of replacement and selection rather than of adaptation. For instance, suppose one measured the average characteristics of companies in the semiconductor industry in 1960 and did so again in 1999. And suppose one found significant differences in average company characteristics. Organizational ecology would explain these changes in terms of incumbent companies exiting the industry (usually because of failure) and new companies (with different characteristics) entering the industry. Incumbent companies failed in the face of environmental change because organizational inertia prevents them from adapting. In short, organizational inertia causes companies to be selected against. The rates of founding and disbanding drive organizational change.

The revised view. During the 1980s, the organizational ecology argument was subtly modified because the original formulation begged the question of why companies would be inert in the first place.28 The revised theory posited that companies need to develop routines and procedures that make their behavior reliable, predictable, and accountable to key constituencies, such as customers, suppliers, employees, and industry analysts. These attributes allow companies to overcome the liabilities of being new, give them legitimacy, and lead them to be selected by the environment over firms that are not reliable, predictable, and accountable. But these very attributes make it difficult for companies to change in major ways after they have been selected. Hence, the new argument was that environmental selection leads to organizational inertia. There is strong empirical evidence in support of this theory of organizational inertia. The study of Intel's exit from its original core business adds to that evidence.

Newer views. New organizational ecology research continues to draw attention to important challenges that strategy-making faces. One such challenge concerns multibusiness companies, which often face pressures-inertial and/or political- to shield some of their businesses from the severity of competitive pressures that stand-alone businesses encounter. Multibusiness companies may thus be weakened overall unless their internal selection environment matches the competitive intensity of the external selection environment.

Another challenge involves a potential tradeoff between competitive advantage based on position and competitive advantage based on distinctive competencies. Companies that rely on positional advantage shield themselves from competitive pressures and do not need to develop strong distinctive competencies to succeed. But this makes them vulnerable to new competitors using novel strategies to attack their position. On the other hand, companies that rely on distinctive competencies to compete with similar others may be able to hone these competencies and become best in class. But such distinctive competencies become highly specialized and make the companies vulnerable to new competitors deploying different competencies.

Still another challenge faced especially by companies in opportunity-rich technological environments, even those with a well-functioning autonomous- strategy process, is that they will not be able to match the variation generated in their environment. Eventually, some variations may threaten the incumbent companies. As an example, witness the enormous variation spawned by the Internet in recent years, which no single established company could possibly match. To reduce this threat, established companies may have to complement the internal variation generated by their autonomous-strategy process with other approaches, such as corporate venture capital.

An integrative view. This book integrates strategy-making and organizational ecology. The argument runs as follows. Almost all companies start small and are subject to liabilities of newness (they are unknown, untested, lacking legitimacy, and so on). The major force faced by small, new companies is environmental selection. Most do not survive external selection pressures. Organizational ecology provides a useful theoretical framework within which the evolutionary dynamics of small companies can be more clearly understood. Some companies, however, do survive and become large and established. Although large, established companies continue to remain subject to the selection force of the external environment-and many succumb to it in the long run-these companies have gained the opportunity to substitute internal for external selection. Analogous to external selection, internal selection is concerned with a company's entering new businesses and exiting from failing ones over time.

Organization learning --
Indeterminacy. Adopting an evolutionary perspective implies that outcomes are viewed as indeterminate and can be explained only after the fact. As one evolutionary scholar put it, ""We can say that some outcome has occurred because of some prior sequence of events, even though we could not have foreseen, prior to the fact, that particular sequence unfolding.""32 This seems almost the exact antipode of the traditional view of strategy, which is to determine in advance the ensemble of strategic actions that will achieve desired outcomes. There is no conflict, however, with the perspective adopted in this book, which views strategy-making in established companies as a dynamic organizational learning process.

Learning in the induced process. The induced-strategy process, which is concerned primarily with exploiting existing business opportunities, deliberately drives strategic action in a more or less foreseeable pattern toward desired outcomes. Induced strategic action commits a company to a course of action that is difficult to reverse. Thorough preparation prior to deciding on such a course of action is important. Equally important is the work that comes afterward, because top management is keen to understand why strategic actions produce the results that the company obtains. Such understanding provides a basis for taking further strategic actions. Sometimes this work involves abandoning a course of action, for instance, exiting from a losing business.

Learning in the autonomous process. The autonomous-strategy process, which is concerned with exploring new business opportunities, involves somewhat more complex organizational learning. Here, strategic action at higher levels in the management hierarchy benefits from interpretation of the outcomes of strategic action at lower levels. The effectiveness of the process depends on correct. of results at each level. The learning at a lower level becomes the stepping-stone for more-encompassing strategic action at the next managerial level.

Need for balance --
Strategy making as an adaptive organization capability involves keeping both the induced and autonomous processes in play simultaneously at all times, even though one process or the other may be more prominent at different times in the company's evolution.

Risks to manage --

• exploration consuming the firm's exploitive capacity and capability
• exploitation crowding out explorative capacity and capability
• autonomous strategic action that posses a threat to the current strategy, such as disruptive technologies
• autonomous initiatives having a dissipative effect on the corporate resources and distinctive competencies
• autonomous strategic initiatives may undermine the existing competitive position of a company without providing an equally secure new position