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9
Strategy Process: Forming,
Implementing and Changing Strategies
BALAJI S. CHAKRAVARTHY
and R O D E R I C K E . W H I T E
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STRATEGY PROCESS
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ORGANIZATIONAL
CONTEXT
Purpose
Management
Systems
Informal
Organization
e
m
Ti
Decision and
Action Premises
Actions
Strategy
Dynamic
Ti
BUSINESS
CONTEXT
Strategy
External
Environment
Core
Competencies
e
m
Ti
Feedback
Learning
Firm
Performance
e
m
Ti
e
m
Ti
STRATEGY DYNAMIC
Process researchers have not generally
included a strategy outcome in their studies.
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Strategy
Dynamic
BUSINESS
CONTEXT
Strategy
External
Environment
Core
Competencies
Firm
Performance
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STRATEGY PROCESS
187
Innovating
Improving/
Imitating
S1
Migrating
Consolidating
S2
dynamic with both business context and strategy in Figure 9.2 seek to convey this two-part
agenda for strategy process research.
By its very nature, strategy process is
dynamic. It is about becoming, becoming
something else. The process must help bring
about change. However, strategy process is
also about being. Even maintaining a steady
state requires a process. An active vocabulary
is required to describe these processes. Mary
Parker Follett (1924) was one of the first management scholars to stress the importance of
active language to describe the processes of
organizing. Karl Weick is a contemporary
theorist who emphasizes the importance of
ing words: thinking, behaving, sense making, interacting, integrating, etc. However,
Weick and Follett are the exceptions. Webb
and Pettigrew (1999) complain about the
largely static character of the language of
strategy. The more dynamic vocabulary, consolidating, improving/imitating, migrating,
and innovating, which is proposed here,
follows in the footsteps of Follett and Weick.
If a firm is not on the strategy frontier,
improving/imitating advances the firms strategic position toward the strategy frontier. Other
firms on the strategy frontier, or those closer to
it, provide the firm seeking improvement ready
benchmarks to follow. Having reached the
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STRATEGY PROCESS
189
Actions
Feed forward
Learning
Feedback
Learning
BUSINESS
CONTEXT
Strategy
External
Environment
Core
Competencies
Firm
Performance
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STRATEGY PROCESS
of decisions. Therefore, the strategy process
cannot be fully understood just by studying the
decision making process.
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STRATEGY PROCESS
behavior; they are heritable in the sense that
tomorrows organisms generated from todays
(for example, by building a new plant) have
many of the same characteristics, and they are
selectable in the sense that certain routines
may do better than others, and, if so, their relative importance in the population is augmented over time (1982: 14).
Evolutionary theory assumes that an established firm can replicate itself by replicating
its routines. It implies that established routines
can be applied on a larger scale, although not
without costs. As the example in the quotation
suggests, a firm with one successful plant
could start a second similar plant relatively
easily. By this logic the routines of other successful firms can also be imitated but perhaps
at greater cost and/or with less accuracy. In the
extreme, Nelson and Winter recognize that an
imitator working with very little information
about the routines of the source must largely
solve the problem independently. Such a firm
would merit the title of innovator except that
the knowledge that a problem has a solution
does provide an incentive for persistence in
efforts that might otherwise be abandoned
(1982: 124).
Routines are by definition stable and resistant to change. But Nelson and Winter did
suggest several sources for innovation (mutation). Puzzles or anomalies arising in relation
to operation of established routines were identified as one possible source. Making sense of
these anomalies may lead to a change in, or
recombination of, routines. They also suggest
that innovation may itself be routinized by the
heuristics employed by top management.
Periodic strategic challenges and changes to
organizational structure initiated by top
management can disrupt established routines
and allow for change. Some of the change may
result in positive innovation. Evolution can at
least be facilitated, if not managed.
Evolutionary processes can also be guided
by a broad organizational purpose. Quinns
(1980) work on logical incrementalism
recognized the practical impossibility within
large organizations, with their many interlinked systems, of bringing together all the
elements of a strategic decision at any precise
moment. Instead of seeing this is a problem,
Quinn sees in this misalignment the source of
new initiatives opportunities that can spark a
193
MANAGING DECISION
ACTION PREMISES
AND
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manifest organizational cognition. Moreover,
organizational cognition is not static and can
be enhanced through learning (Walsh and
Ungson, 1991). This learning can come both
during the implementation of decisions and
from the ensuing outcomes, as well as from
actions that may be initiated without a prior
decision (Starbuck, 1983). The latter type of
learning has been called action-learning
(Morgan and Ramirez, 1983). In addition,
members of an organization can also learn vicariously by observing the consequences of the
decisions and actions of others. Also, as noted
earlier, learning can be driven by foresight.
Learning is an important complement to decision making and action taking (see Figure 9.4).
However, since other chapters in this book
focus exclusively on cognition and learning,
we will not dwell on these in this chapter.
Managing Premises
The above discussion would suggest that all
levels of managers in a firm, from functional
managers to top management, are engaged in
the strategy process. They make decisions and
take actions, which through interaction and
iteration lead to the shaping and realization of
a strategy. We now turn to the question: how
can this decisionaction dynamic be managed?
According to Simon (1945) there are two
kinds of premises that top management can
establish to guide decisions in an organization:
value premises and factual premises. Value
premises establish the goals for the organization, with each step down in the hierarchy
implementing the goals set forth in the step
immediately above. (Simon, 1976: 5). Factual
premises specify the alternatives that may be
considered in pursuit of the prescribed goals:
Given a complete set of value and factual
premises, there is only one decision which is
consistent with rationality (Simon, 1976:
223). This extreme prescription would not
apply to any of todays large organizations,
given their great diversity. If it ever was, top
management is certainly not the one big brain
today, making all of the firms decisions.
Nevertheless, Simon (1945) is right in
pointing out the important role that purpose
plays in shaping behaviors within an organization. The extent of discretion available to
organizational members is determined by the
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Setting Purpose
Intentionality or goal directedness has been at
the heart of most research about strategy
process. As Lewin and Volberda (1999) note:
Intentionality is rooted in social-psychological
theories of human behavior and purposeful
action. It underlies theories of rationality in
economics, strategic management and decision sciences. It has been the foundation of
management practice and the raison dtre for
the thriving enterprise of teaching and
research in schools of business. Intentionality
requires managers to anticipate what the external environment will favor in the future. It is a
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ORGANIZATIONAL
CONTEXT
Purpose
Management
Systems
Informal
Organization
Decision and
Action Premises
Actions
Feed Forward
Learning
Feedback
Learning
BUSINESS
CONTEXT
Strategy
External
Environment
Core
Competencies
Firm
Performance
tremendous challenge for a firm to have internal selection processes that accurately reflect
external selection pressures. While accuracy
may be hard to come by, intentionality cannot
be abandoned all together. By setting purpose,
top management influences the way in which
the firms managers see opportunities (and
threats) in its environment, leverage and renew
its competencies, and overcome its cultural
inertia. As Quinn (1980) reminds us, goal
directedness can play a central role in bringing
stability to even an evolutionary process. It is
useful, however, to distinguish between goals
of different specificity.
Collins and Porras (1994) have demonstrated the importance of an enduring guiding
philosophy for nurturing a firms long-term
success. They define guiding philosophy as a
system of fundamental motivating assumptions, principles, values and tenets the purpose of an organization and its core beliefs and
values. Purpose defines the broad arena in
which the firm seeks to contribute to society,
whereas its core beliefs and values define how
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practice of generalizing a complex series of
specific purposes under one term, stated to be
the purpose of this organization (1968: 91).
Purpose can vary in its generality. When the
desired strategy outcome is innovation or
migration, purpose must allow for a lot of discretion. The strategy process will be bottomup in nature. In addition, purpose has to be
more general, because it will be harder for top
management to sense the external selection
pressures accurately in such a context. On the
other hand, when the firm seeks improvement,
imitation or consolidation, purpose can be
more specific. The external selection pressures
are better understood. The strategy process
can also be top down. Understanding how the
setting of purpose can influence the decision
and action premises guiding a firms strategy
process is an important area that needs further
research.
Architecting Management
Systems
The study of management systems began gaining momentum in the 1960s when many large
firms started diversifying, and resorted to a
divisional structure for managing this diversity (Chandler, 1962). The use of a divisional
structure meant more delegation in strategy
making. Formal planning was employed to
coordinate and control the strategies of the
firms divisions and their business units
(Ansoff, 1965). The early writings on formal
planning saw the process as rational (Ackoff,
1970; Steiner, 1979) and drew heavily on the
work of Simon (1945). The driver of the
process was top management. It set the goals
for the organization and established the
premises for other decision makers in the
organization. However, given its own cognitive
limits, top management had to rely on corporate staff for making and implementing strategic decisions. Strategic decision making was
thus abdicated to staff executives in many
companies and the resulting bureaucratization
of the planning and control process has been
criticized by many (Gluck et al., 1982;
Mintzberg, 1994; Peters and Waterman, 1982).
The real problem with strategic planners in
the 1970s was their mistaken belief that strategy
is made top-down. But the remedy for this problem is not the abject surrender of the strategy
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Informal Organization
Barnard recognized the important complementary support that informal organization provides
a firms management systems. He suggested
that the leadership skills that are pertinent to it
are: feeling, judgement, sense, proportion, balance, appropriateness. It is a
matter of art rather than science, and is aesthetic
rather than logical (1938: 235). The logical
aspects of managing a firms context architecting its management systems have to be balanced by the more aesthetic aspects of
leadership (Doz and Prahalad, 1988).
The essence of leadership is to set the
agenda for the organization and create the network to achieve it (Kotter, 1982). The agenda
setting process requires top management to
take the strategic intent of the firm, which can
at times appear distant and abstract to its
members, and break it down into more bitesized challenges. Moreover, the emotion and
passion that leaders impart to these challenges
will decide whether members of the organization will accept them as their personal goals.
The networking aspects of leadership have to
do primarily with mobilizing support and
cooperation to help individuals discharge their
responsibilities.
Ghoshal and Bartlett (1994) define support
as an attribute of an organizations context that
induces its members to share and lend assistance to others. Mechanisms that allow them
to access the resources available to others, and
the personal orientation of superiors that gives
priority to providing guidance and help over
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exercising authority contribute to the establishment of support. The three key bottlenecks to
sharing in an organization are poor predisposition, lack of opportunity, and low motivation
(Chakravarthy et al., 1999). Whereas formal
incentive plans can partially address the motivation problem, successful sharing requires an
informal organization that is clan like in its
predisposition to share, intense in its informal
networking and high on trust.
Cooperation comes from a fair process. It is
the role of top management to ensure that the
strategy process is seen as fair. Dissenting
voices must be heard and all concerns must be
dealt with openly. This does not mean that
members will always have their way, but
when they dont they will be provided an
explanation. Procedural justice theorists (Lind
and Tyler, 1988) have argued that fair procedures serve two purposes. First, over the long
run, fair procedures should help protect the
interests of organizational members. Hence,
perceptions of procedural justice can lead to
freer sharing within the firm. The second function of fair procedures is symbolic, to signal to
individuals that they are valued and respected
members of the organization. In this regard,
fair procedures would most likely promote
harmony between organizational members
and the development of other positive affective reactions. The overall consequence of
fair procedures in organizations is the building
of trust between members of an organization
(Jones and George, 1998).
Senge (1990) and others have clearly articulated the importance of empowerment and
cooperation of organizational members in
order to create a supportive climate for learning. Empowered individuals are more likely to
enhance their personal mastery and experiment
with new mental models. But for such risktaking behavior to occur, members of the
organization must not feel vulnerable to either
sanctions by superiors or abandonment by
peers and subordinates. The ability of top management to provide coaching help and constructive feedback is important for nurturing
risk taking behaviors in the organization. In situations of organizational change, employees
distrustful of management may regard management initiatives as subtle attempts to exploit
employees. Trust is especially important when
the desired strategy outcome is innovation or
migration, each calling for risky decisions and
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of individuals and groups can be reflexive,
evoking a routine that is known to address
the problem at hand. Even though such action
is not preceded by a decision, some may argue
that the routine, which drives it, is in essence
a prepackaged decision. However, action can
also be initiated without a decision, influenced
more by organizational politics or the broader
evolutionary forces to which the firm is subjected. Thus, strategy can be both intended and
emergent. It results from action taking that
may or may not be preceded by decision making. While there have been numerous studies
that highlight the emergent nature of strategy,
there been very few studies that focus on the
organizational politics that is associated with
the strategy process. This needs to be
redressed.
The organizational context influences both
decisions and actions within the firm. By managing the firms organizational context, top
management can steer it to the desired strategy
dynamic. It is important to view the outcome
of strategy process dynamically improving/
imitating, consolidating, migrating or innovating the firms strategy position, and not in
terms of generic strategies or financial performance. This offer the best hope for cumulating
research on strategy process, whether it is
done at the level of buisness, corporate or
international strategies. Strategy process
research must be tied explicitly to both the
organizational context of the firm and its strategy dynamic. Without this link its relevance
to managers will remain questionable.
Furthermore, the research on strategy
process is typically pursued from a single perspective rational, political, evolutionary or
administrative. Each provides a partial understanding of a complex process. Each perspective has its dogmatists, but luckily some
dissenters as well. The best hope for an integrated theory lies in these dissenters, researchers
who have a strong grounding in one of the four
perspectives but are looking to others for stimulation. They are more likely to see the merits
in a rival perspective and start forging a more
integrated perspective.
Much of the current research on strategy
process seems to be caught on a treadmill
doing more or less the same thing over and
over again. It can be characterized in two
ways. There is the work that begins with a
strong theoretical perspective. This type of
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CONCLUSION
While there is a vast and growing literature
on strategy process, it is often disconnected
from strategy outcomes. It also tends to view
the process rather parochially from a single
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perspective. The rational perspective is appropriate to individual level decision making but
has been extended unconvincingly to organizational level decision making. The political perspective could be very useful in addressing
goal conflicts and in managing change, but it is
not popular among strategy process researchers.
The evolutionary perspective handles dynamic
interactions, but does not easily accommodate
managerial intervention in the process. The
administrative perspective is manager friendly,
but it needs to validate its frameworks.
Addressing these limitations requires more
holistic thinking about the strategy process. In
this chapter, we have tried to synthesize the
current knowledge about various parts of this
framework. To make real progress, strategy
process needs an integrating theory. To build
one, the field urgently needs a few ambitious
multidisciplinary research programs. In the
meanwhile, the deluge of reductionist papers
that currently inundate the field are likely to
end up as isolated puddles, not as part of the
river that every one is waiting for.
ACKNOWLEDGEMENTS
The authors wish to thank Charles Badenfuller, Yves Doz, Peter Gomez, Anil Gupta,
Peter Lorange Leif Melin, Howard Thomas,
Georg Von Krogh, and our doctoral students
for their helpful critique and creative suggestions in developing this chapter. We are especially indebted to Andrew Pettigrew for his
excellent guidance. While so many have
helped, we are solely responsible for any
shortcomings in this chapter.
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