strategy - theories of

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The objective of strategy is to create advantage, sustain advantage, and renew advantage in order to produce superior value for the business ecosystem. Theories of strategy attempt to explain the underlying forces which produce this advantage or are the primary factors of consideration in producing advantage.

Mintzberg's perspective --
""Strategy formation is judgmental designing, intuitive visioning, and emergent learning; it is about transformation as well as perpetuation; it must involve individual cognition and social interaction, cooperation as well as conflict; it has to include analyzing before and programming after as well as negotiating during; and all of this must be in response to what can be a demanding environment. Just try and leave any of this out and see what happens!"" (Mintzberg, 1998, pp 372-373).

Theories of strategy and theories of the firm are closely related. Theories of the firm seek to answer the question of why firms exist at all. The notion of why a firm exists will color the theory as to what strategy will achieve the competitive advantage the firm needs to survive. For example, if a firm exists because it lowers the transaction cost amongst the members of the firm below what they would otherwise be, such as in an open market, then strategy recognizing this purpose of the firm will complement that theory of the firm.

Porter's strategy theory criteria --
See strategy theory criteria.

Strategic phenomena --
Ralph Stacey takes the ""phenomena"" approach to theorizing about strategy and organizational change. In so doing, he first defines the related phenomena of interest. He then identifies the factors of consideration to make sense of the phenomena. Ultimately, his approach serves to expose the assumptions and reasoning processes behind the theories of strategy and organizational dynamics. See strategic phenomena.

Theories of strategy --
The theories listed below are not necessarily reconciled or mutually exclusive. As a group, they are messy, but they each have a different emphasis as to what the driving force and thus primary consideration of strategy should be. The value to the practicing manager is not to 'pick a theory' and runt with it. It is to understand the legitimacy and perspective of each one to build their own knowledge of the dimensions of strategy.

  • contingency theory -- Donaldson (1995) summarizes the various strains of contingency theory in terms of the SARFIT (structural-adaptation-to-regain-fit) model. In an open systems world, environments create requirements for organizations that their managers address in part by adopting strategies. These strategies in turn create contingencies-size, technology, level of diversification, or others-for which some organizational structures are better suited than others. When managers of an organization find themselves with a structure that does not match its contingencies (e.g., because these contingencies have changed), their organization's performance suffers, and they endeavor to change its structure to one with a better fit, to improve performance. (Scott & Davis, 2007, p 311).

  • evolutionary theory -- organizations need to evolve in order to exist in an ecosystem of continual creative destruction. This evolutionary process has three processes - variation, selection, and retention. Strategy consist of producing the requisite variation from which advantageous positions, patterns, or configurations can be selected, and retained in order to be exploited for the duration of their contribution to advantage. Searches for variation to select from are both problemistic (see behavioral theory below) and opportunistic, enabled by slack resources.

  • organizational theory -- the organizational approach to strategy maintains that strategies and structures are dependent variables, being consequences of organizational performance (Scott & Davis, 2007, pp 313). This lends credibility to the BAi approach to strategy, i.e. competitive advantage, with its emphasis on the primacy of competency development to produce an organization competency for creation and recreation of competitive advantage. This also happens to align with Collins' approach of Level 5 Leadership and 'getting the right people on the bus, the wrong people off, and the right people in the right seats' in Good To Great.

  • resource-based view -- focused on the firm's distinctive competencies, whether current or potential, which enable it to provide superior value in its offerings, whether across markets, industries, or multiple types of customers. The ""resource view"", contends that a firm's internal resources and capabilities are the best source of competitive advantage over other firms. An approach to strategy with this view then seeks to find or develop distinctive competencies and resources, applying them to produce superior value. To the extent that these competencies can be kept unique to the firm, they can be used to develop a competitive advantage. See resource-based view.

  • positional view -- outwardly focused on seeking an advantageous position in a market or industry, then taking steps to defend that position. The ""positional view"" of strategy, also called the external view, contends that competitive advantage is a function of industry attractiveness, or a position within an industry. See competitive advantage.

  • economic theory -- economic theories generally follow from neo-Classical economics, where markets and people are rational agents. The two dominant realms of economic theory are:
    • Industrial organization economics -- this branch of economics focuses on markets, industries, and the position, or possible positions, of organizations within the industries. This branch of economics has been represented in mainstream approaches to strategy since the 1960s, being reflected in Harvard's Business Policy teachings, BCG's experience curve, growth share matrix, deterministic approach to strategic planning, the works of Porter and Treacy & Weirsema, and the Structure-Conduct-Performance paradigm. Its emphasis is on what is outside the organization and how the organization should position itself to best take advantage of that - the positional view of strategy.
    • Organizational economics -- focuses on the firm itself, rather than the markets and industries. Theories of the firm look to explain why firms exist in the first place, such as agency theory and transaction cost related theories. This branch of economics is associated with the resource-based theory of strategy, that views the primary cause of advantage and sustained advantage to be the resources of the firm, not its position in an industry or market. This approach includes neo-classical microeconomics and evolutionary economics.

    • Historically, dimensions typically downplayed or left out of the above approaches include 1) the role of human agency, the strategists who for the dominant coalition and how they make strategic choices and 2) the organizational paradigm within which strategic decisions and actions take place. Researchers such as Cyert, March, Weick, Nelson and Winter, and Ralph Stacey serves to begin filling this void.

  • behavioral theory -- the behavioral theory of the firm accounts for three important ideas absent from the traditional economic theory of the firm. (From Scott & Davis, 2007, pp 333-334).
    • First, actors are boundedly rational, constrained by limits in their access to information and their ability to process it, which leads them to satisfy rather than maximize, to economize on what they attend to, and to follow standard operating procedures where possible.
    • Second, organizational practices and structures need not perfectly match their environment and may be slow to change, so understanding how they got to where they are is useful.

    • Third, participants bring different interests to the organizations, and conflicts among them are frequently unresolved, leading to continuous renegotiation of goals among participants.

      The resulting theory is both behaviorally plausible -- the people in it look like the people we know, not the characters in economics. Using Cyert and March's terms, organizations set goals, i.e. aspiration levels, which are a result of their past performance, prior goals, and past performance of the firm's peers. This 'process' is adaptive, adjusting aspirations based on the changing business ecosystem and the firm's performance. When performance falls short of aspirations, organizations engage in problemistic search to find a solution to the 'problem.' Problemistic search is motivated (in that it continues until the problem is solved), simpleminded (search is in the neighborhood of the current alternative solution), and biased (reflecting the backgrounds and interactions of the participants).

  • strategy as a pattern -- ""The series of ...decisions which determines behavior over some stretch of time may be called strategy"" (Simon, 1957, p 67; see Barnard, 1938, p 231, from which Simon may have developed this idea; as cited in Mintzberg). The essence of ...strategy ... is pattern. The interdependence of purposes, policies, and organized action is crucial to the particularity of an individual strategy and its opportunity to identify competitive advantage. It is the unity, coherence, and internal consistency of a company's strategic decisions that position the company in its environment and give the firm its identity, its power to mobilize its strengths, and its likelihood of success in the marketplace. It is the interrelationship of a set of goals and policies that crystallizes, from the formless reality of a company's environment, a set of problems an organization can seize upon and solve.(Andrews, 1971, pp 14-15). Strategy is pattern, consistency in behavior over time.

    • What Mintzberg found in his research was that the recognizable patterns indicating strategy are not patterns of decisions but patterns of actions. Though actions imply decisions, the linkage between formal decision making and actions in an organization are often ambiguous. Many times, there is very little decision and a lot of action. Other times, a lot of decision and little or no action. Also, the decision and the action may not correlate.

  • deliberate -- deliberate strategy is about a process, a plan and the control to course of action. It is about control.
  • emergent -- patterns forming out of individual's actions, emerging, is emergent strategy. Emergent strategy is about learning.
  • intended -- strategies intended may be realized or unrealized.
  • realized -- the strategy that actual happens as a result of deliberate and emergent strategies realized. Some intended strategies go unrealized.

  • top-down -- the view that the top leaders of the organization are responsible for the creation of strategy.
  • bottom-up - the view that strategy bubbles-up from within the organization where the members interact most closely with the business ecosystem.

  • systemic process vs. responsive process views of strategy --
    see below.

Mintzberg's general theory of strategy --
Mintzberg's general theory identifies eight 'ideal types' of strategies along a deliberate-emergent continuum:

  • planned strategies -- originate in formal plans-precise intentions exist, formulated and articulated by central leadership, backed up by formal controls to ensure surprise-free implementation in benign, controllable, or predictable environment; strategies most deliberate
  • entrepreneurial strategies -- originate in central vision-intentions exist as personal, unarticulated vision of single leader, and so adaptable to new opportunities; organization under personal control of leader and located in protected niche in environment; strategies relatively deliberate but can emerge
  • ideological strategies -- originate in shared beliefs-intentions exist as collective vision of all actors, in inspirational form and relatively immutable, controlled normatively through indoctrination and/or socialization; organization often proactive vis-à-vis environment; strategies rather deliberate
  • umbrella strategies -- originate in constraints-leadership, in partial control of organizational actions, defines strategic boundaries or targets within which other actors respond to own forces or to complex, perhaps also unpredictable environment; strategies partly deliberate, partly emergent, and deliberately emergent
  • process strategies -- originate in process-leadership controls process aspects of strategy (hiring, structure, etc.), leaving content aspects to other actors; strategies partly deliberate, partly emergent (and, again, deliberately emergent)