Strategic management: an overview of the major paradigms

This essay was translated from the 100-page literature review in my master’s thesis (in French), which the petty bureaucrats from the marketing department at école des sciences de la gestion (ESG UQAM) refused.

”If a firm has the same strategy as its competitors, it does not have a strategy.” [My translation] (Johnson et al., 2008, p. 3)

Strategic management as a field of research

According to Alan D. Meyer (1991, p. 821-822), strategy is a research field with contested boundaries at the intersection of economics, organizational behavior, and organizational theory. This field is influenced by a wide array of disciplines including, non-exhaustively, finance, marketing, psychology, political science, and sociology.

As such, the discipline of strategy has the potential to create a bridge across the corporate functions and the hierarchical levels by encouraging a dialectic between researchers coming from all horizons while also encouraging the active inclusion of practitioners in the debate (Meyer, p. 828-830).

Twenty years later, Gary L. Lilien (2011), recommended not only to include practitioners and intermediates (e.g. consulting agencies, business executives) in the process of creation of new marketing decision-taking models but also to actively encourage post-graduate students to acquire real-work experience within organizations as part of their academic training.

Based on a sample of 35 anonymous experts, Alan Meyer’s (1991, p. 825-828) exploratory research revealed that there were many polemics among experts, including methodological debates regarding the usage of quantitative methods borrowed from economics such as cluster analysis as well as debates regarding the usage of inductive methods for the purpose of theory generation.

A major difference between strategic management and its parent discipline is that strategy is a process rather than a result and, consequently, the discipline is resolutely grounded in praxis (Meyer, p. 826-827). Similarly, Yvan Allaire (1984), in his essay on the epistemology of research in management science, proposed that “administration is first and foremost a practice, a praxeology, a clinical activity […]” [My translation]

Similarly, Edgar H. Schein (1985, p. 21-22) compares the intervention of a business consultant to that of a clinician or a therapist by providing an outsider perspective and helping the business executives diagnose the problem within their organization.

At the end of his analysis, Alan Meyer (1991, p. 831) proposed that two schools of thought oppose each other: the structuralist perspective grounded in a positivist’s epistemology and the processual perspective grounded in a constructivist epistemology. According to him, the supporters of the latter view welcome and encourage a plurality of perspectives within a field with fluid boundaries.

This most passionate debate on the essence of strategy is not dissimilar to the one reported by Clifford Geertz (1973, p. 29) in the field of anthropology: “Anthropology, or at least interpretative anthropology, is a science whose progress is less marked by a perfection of consensus than by the refinement of debate. What gets better is the precision with which we vex each other.”

Some major schools of thought on strategy

According to Ellen E. Chaffee (1985, p. 89-90), there are three major distinct, yet to some extent overlapping, models of strategy. Despite a wide variety of opinions between theoreticians, the three models share five common premises:

1.?????? Strategy is a response to new circumstances occurring within the organization’s environment. As such, strategy cannot be formalized into clear-cut procedures.

2.?????? Strategy includes actions to accomplish and the processes for both decision-making and implementation.

3.?????? There are corporate strategy and business strategy. I recommend reading Michael E. Porter’s (1987, 2008) articles “From Competitive Advantage to Corporate Strategy” and “The Five Competitive Forces That Shape Strategy” published in Havard Business Review for more details regarding both types of strategies.

4.?????? Strategy development requires both a conceptual exercise and an analytical exercise.

5.?????? Most authors believed that “the heart of strategy” boils down to conceptual work done by the top brass within organizations. This idea is supported by Cynthia Montgomery (2008) who called for ‘’putting leadership back into strategy”. Conversely, Kaplan and Norton (2007) proposed the usage of a balanced scorecard as a system for ensuring that managers at all levels within the organization are consulted during the strategy formulation process.

The linear model: a positivist approach towards strategy

The first model, the linear model (Chaffee, p. 90-91), is based on an objectivist ontology and a deterministic postulate as defined by Yvan Allaire (1984). Following the positivist epistemic frame supporting the model, business leaders can rationally predict short- and mid-term market trends.

This idea is notably exemplified by the model that Igor Ansoff (1957) proposed to build prediction scenarios to support investment decisions and, most particularly, when an organization is contemplating a diversification strategy.

As a side note, diversification strategies are high risk succeeding a mere 5% as compared to market extension (20%), production development (25%), and market penetration (55%) (McDonald and Wilson, 2016, p. 607). As such, building predictive scenarios when considering risky investments is amply justified if we are to mitigate the uncertainty. It is recommended to build two or four models to prevent the natural tendency to focus on the middle option (Johnson et al., 2008, sect. 2.2.2).

Johnson et al. (2008, p. 33?37) refer to this approach as being the lens of methodology. According to those authors, this orthodox view of strategy has the benefit of being highly rational and granting managers high levels of legitimacy. On the other hand, this approach permits only moderate levels of innovation within organizations.

That being said, while modern theories of economics do not deny the rationality of economic actors, they nonetheless reject the classical idea of perfect rationality for the concept of bounded rationality (Williamson, 1981; Jensen and Meckling, 1994).

Finally, as proposed by Ellen Chaffee (1985, p. 90-91), the linear model cannot adequately capture the complexity and unpredictability of modern markets. From an evolutionary perspective, we could talk in terms of unpredictable and disruptive chocs bringing about cycles of “destructive regeneration” within the international system (Cavusgil and Cavusgil, 2012).

The adaptive model: an evolutionary approach toward strategy

In opposition to the mechanist vision of organization underlying the linear model, the adaptative model (Chaffee, 1985, p. 91?93) opts for an evolutionary perspective inherited from biology. A contrario, to the previous model determinist postulate, the adaptative model adopts a voluntarist epistemic postulate (Allaire, 1984).

Therefore, according to this model, the organization’s environment is an open system, that is, a dynamic system in which future evolutions are difficult to predict (Chaffee, 1985, p. 91?93).

Notably, the lens of complexity incorporates considerations from both the evolutionary theory and complexity theory (Johnson et al., 2008, p. 41?46). Considering the firm from this perspective is relatively low in rationality and legitimacy, yet it allows leaders to foster a high level of innovation.

From a cultural perspective, the ecological-adaptive school (Allaire and Firsirotu, 1984, p. 201?202) is the one that maps the closest with the adaptative model.

Finally, the evolutionary perspective – strategy as a position - was one of the dimensions included by Henry Mintzberg (1987, p. 21) in his 5Ps model of strategy. Arguably, Micheal Porter’s (Porter, 1991, 1996, 2008) concept of competitive positioning epitomizes the capacity of firms to interact with, compete within, and, to some extent, influence their competitive environment.

The interpretative model: a constructivist approach toward strategy

The third model, the interpretative model (Chaffee, 1985, p. 93?95), according to which “reality is socially constructed”, is built upon a constructivist epistemology. This model supposes the existence of a social contract among the members within an organization.

This idea of a social contract isn’t new in the field of political science and can be traced back at least 250 years ago to Jean-Jacques Rousseau’s thesis on the rapport between the State and its citizens (Rousseau et Bernardi, 2012).

Using this lens, the interpretative model is concerned with symbols and metaphors that explain the subjective reality interpreted and shared by the people working within a given organization (Chaffee, 1985, p. 93?95).

Notably, the lens of experience (Johnson et al., 2008, p. 37?40) allows strategists to account for the existence of cognitive biases (Gino and Staats, 2015) and false assumptions among members within an organization (Brodt and E., 2001).

In particular, this lens allows us to understand why the accumulation of experiences by the organization and its members tends to crystalize around a dominant logic that narrows their collective field of vision (Bettis and Prahalad, 1995). Eventually, the good old solutions are taken for granted and the filter of the dominant logic prevents managers from perceiving the changes occurring within their environment (both opportunities and threats) because of their bias toward proven solutions.

The lens of experience (Johnson et al., 2008, p. 37?40) allows managers to gain high credibility because they can leverage their seniority as a source of legitimacy. However, this lens offers low levels of rationality and innovation.

As for the lens of discourse (Johnson et al., 2008, p. 46-50), it postulates that logos (both discourse and logic in Greek) is a source of influence, legitimacy, and power for managers. Notably, Andrew M. Pettigrew (1977) considers that the strategy formulation process is essentially political by nature since members within organizations tend to coalize into interest groups competing for the firm’s limited resources.

This lens grants managers high levels of rationality and legitimacy as well as a moderate potential for innovation (Johnson et al., 2008, p. 46-50.

From a cultural perspective, the interpretative model maps closely with the symbolic school of culture (Allaire and Firsirotu, 1984, p. 206?209). That being said, all the cultural schools of thought consider the organization as a socio-cultural system (idem, 199-209) and, as such, can be considered to belong to the category of interpretative models.

A hierarchical integration of the three models

In fine, since all three models overlap to some extent and newer models tend to build incrementally upon existing ones, it is possible to contemplate the idea of a hierarchy of strategic models (Chaffee, 1985, p. 95?96).

The role of the environment in the process of strategy formulation

As part of his post-graduate work, my former teacher, Fran?ois Dauphin (2007, p. 6), studied the role and the impact of the environment in the formulation of a corporate strategy, that is: “the choice relating to field [of activities] of the organization or the change of this field whenever the firm diversifies, exits markets, or discontinues particular products.” [My translation].

Notably, he noticed that the definition used by researchers to define the concept of the organizational environment had a major impact on their conceptualization of strategy (Dauphin, 2007, p. 6). As such it was deemed important to differentiate between those different conceptualizations.

The objective environment (an attempt to be rational)

Firstly, researchers opting for a positivist epistemology will consider the environment as being objective (Dauphin, 2007, p. 7-16). Under this conception, the environment is considered external to the organization and independent from all forms of subjective considerations from its members and, most particularly, from the leaders in charge of developing the strategy.

Similarly, to the conceptualization of the linear model by Ellen Chaffee (1985, p. 90-91), the objective conceptualization of the environment supposes that we can accurately account for all the relevant variables necessary to make predictions. However, those variables can and will evolve in time, which makes planning especially difficult if the firms operate within a hyperturbulent environment (Dauphin, 2007, p. 14-15).

Although it is virtually impossible for organizations to collect and process the overwhelming mass of stimuli coming from the environment, this approach nevertheless has the merit to enforce a degree of discipline by inciting them to perform rational analysis in an attempt to make optimal decisions (Dauphin, 2007, p. 16; Johnson et al., 2008, p. 36).

For example, in the case of decision-making in marketing, simple linear models – in opposition to managers’ mental schemes – can prove to be useful in improving the consistency in recurrent decision-making (Lilien, 2011).

The perceived environment (an interpretation)

In opposition to the objective conceptualization of the environment, the environment can also be perceived (Dauphin, 2007, p. 17-24). Accordingly, the conceptualization of the environment is the product of the perceptions and interpretations of decision-makers.

Yet, “those interpretations are subjected to perceptual errors as well as biases resulting from past experiences.” [My translation] (Dauphin, 2007, p. 17-18) As such, decision-makers tend to analyze according to their personal interests and/or uncertainties.

A major challenge in the conceptualization of strategy is the necessity of minimizing the gap between the decision-makers’ perception and reality (Dauphin, 2007, p. 19-20). We find similar consideration in Peter Druker’s (1994) “theory of the business”.

The enacted environment (a social construct)

Finally, the environment is also enacted, that is, this environment is inscribed in the mental schemes and the cognitive structures of the leaders to become the shared structures supporting the strategy formulation process (Dauphin, 2007, p. 22-24).

The challenge inherent to the strategy formulation is reaching a strong congruence between the prevalent idiosyncratic understanding of the environment within the firm and the effective reality regarding the opportunities and threats existing in the external environment (Dauphin, 2007, p. 24-26).

A socio-technologic conceptualization of strategy

Interestingly, while considering the limits of an objectivist conception of the environment, Fran?ois Dauphin (2007, p. 27) underlines that “the current reign of quantitative empiricism constrains the essential reflection concerning the relation between the formulation of strategies and the environment.” [My translation]

As such, he called to transcend the traditional conception, that is, the prevalent positivist conceptualization of the environment to include the decision-makers’ biases (Brodt and E., 2001; Gino and Staats, 2015) that slips in their interpretations during the formulation of strategy. As such, Fran?ois Dauphin (2007, p. 30-31) underlines the tendency in the field of strategy toward becoming a socio-technology [1] that includes contributions from various fields within the broader category of social sciences.

As for his mentor, Yvan Allaire (1984), who considered administrative science as a praxis, Fran?ois Dauphin (2007, p. 31) proposes that strategy “is concerned first and foremost with specific and concrete problems lived by practitioners.” [My translation] Consequently, although he doesn’t deny the contribution of a realist (objectivist) perspective of strategy, he concludes his work document with a strong normative call to transcend our environmental conceptualization:

”But the strategy is a practical guide, a discipline offering a strong normative contribution, a socio-technology upon which progress is possible; we consider it to be a science, but the strategy doesn’t have the pretension (or ought not to have the pretension) to prescribe universal laws.” [My translation] (Dauphin, 2007, p. 31)

End notes

1.?????? Anecdotally, Professor Cataldo Zuccaro, who taught me multivariate analysis, used the same descriptor, “socio-technology”, to refer to the field of marketing.

Bibliography

Academic articles

Allaire, Y. (1984). Le savant et le Manager : essai sur l’épistémologie de la recherche en gestion. Actes du Colloque : Perspectives de recherche pour le praticien

Allaire, Y. et Firsirotu, M. E. (1984). Theories of organizational culture. Organization Studies, 5(3), 193?226. https://doi.org/10.1177/017084068400500301

Bettis, R. A. et Prahalad, C. K. (1995). The dominant logic: Retrospective and extension. Strategic Management Journal, 16(1), 5?14. https://doi.org/10.1002/smj.4250160104

Cavusgil, S. T. et Cavusgil, E. (2012). Reflections on international marketing: destructive regeneration and multinational firms. Journal of the Academy of Marketing Science, 40(2), 202?217. https://doi.org/10.1007/s11747-011-0287-9

Chaffee, E. E. (1985). Three Models of Strategy. The Academy of Management Review, 10(1), 89. https://doi.org/10.2307/258215

Dauphin, F. (2007). La nature évolutive de la conception de l'environnement dans la formulation de la stratégie. Document de travail. ESG-UQàM

Jensen, M. C. et Meckling, W. H. (1994). THE NATURE OF MAN*. Journal of Applied Corporate Finance, 7(2), 4?19. https://doi.org/10.1111/j.1745-6622.1994.tb00401.x

Lilien, G. L. (2011). Bridging the academic–practitioner divide in marketing decision models. Journal of Marketing, 75(4), 196?210. https://doi.org/10.1509/jmkg.75.4.196

Meyer, A. D. (1991). What Is Strategy’s Distinctive Competence? Journal of Management, 17(4), 821?833. https://doi.org/10.1177/014920639101700413

Pettigrew, A. M. (1977). Strategy formulation as a political process. International Studies of Management & Organization, 7(2), 78?87. https://doi.org/10.1080/00208825.1977.11656228

Porter, M. E. (1991). Towards a dynamic theory of strategy. Strategic Management Journal, 12(S2), 95?117. https://doi.org/10.1002/smj.4250121008

Williamson, O. E. (1981). The Economics of Organization: The Transaction Cost Approach. American Journal of Sociology, 87(3), 548?577. https://doi.org/10.1086/227496

Books (English)

Geertz, C. (1973). The interpretation of cultures: selected essays. Basic Books.

McDonald, M. et Wilson, H. (2016). Marketing plans: how to prepare them, how to profit from them (Eighth Edition). Wiley.

Schein, E. H. (1985). Organizational culture and leadership (1st ed). Jossey-Bass Publishers.

Books (French)

Johnson, G., Scholes, K., Wittington, R. et Fréry, F. (2008). Stratégique (8e éd). Pearson education.

Rousseau, J.-J. et Bernardi, B. (2012). Du contrat social (éd. revue et mise à jour). Flammarion.

Professional articles

Ansoff, H. I. (1957). Strategies for diversification. Harvard business review, 35(5), 113-124.

Brodt, R. L. C. et E., S. (2001, 15 janvier). How Assumptions of Consensus Undermine Decision Making. MIT Sloan Management Review. https://sloanreview.mit.edu/article/how-assumptions-of-consensus-undermine-decision-making/

Drucker, P. F. (1994, 1?? septembre). The Theory of the Business. Harvard Business Review. https://hbr.org/1994/09/the-theory-of-the-business

Gino, F. et Staats, B. (2015, 1?? novembre). Why organizations don’t learn. Harvard Business Review. https://hbr.org/2015/11/why-organizations-dont-learn

Kaplan, R. S. et Norton, D. P. (2007, 1?? juillet). Using the balanced scorecard as a strategic management system. Harvard Business Review. https://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-system

Montgomery, C. A. (2008, 1?? janvier). Putting leadership back into strategy. Harvard Business Review. https://hbr.org/2008/01/putting-leadership-back-into-strategy

Porter, M. E. (1987, 1?? mai). From Competitive Advantage to Corporate Strategy. Harvard Business Review. https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy

Porter, M. E. (1996, 1?? novembre). What Is Strategy? Harvard Business Review. https://hbr.org/1996/11/what-is-strategy

Porter, M. E. (2008, 1?? janvier). The Five Competitive Forces That Shape Strategy. Harvard Business Review. https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy