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Cognitive Models of Strategic Thinking and Firm Performance: The Croatian Experience

Lara  Jelenc,  Paul  M.  Swiercz  


 

This research explored the relationship between leader cognitive models of strategic
thinking and firm performance. It provides an empirical examination of the link between
influential streams of strategic management thinking perceived as the top manager decision-
making strategies, and organizational success. The hypotheses tested were generated from a
classification model yielding four cognitive models of strategic management thought.
Regression analysis was used to examine the relationship between cognitive models of
strategic thinking and firm performance. The respondents were 127 (31 percent of the
population) top managers from the population of Croatian firms. ROE and ROA, available
from secondary sources, were used to assess financial performance.

Key words: cognitive models, strategy, strategic thinking

Introduction

In one of the earliest definitions of strategic management Steiner (1969) defined it as

the -- scientific discipline that helps top managers scan the environment, define the mission

and the vision, strategy formulation, its implementation, control and evaluation. Consistent

with the Steiner’s focus on top managers as strategic decision makers, in the McKinsey

Survey - Improving Strategic Planning (McKinsey Survey 2006), 62 percent of the

respondents reported that the majority of strategic decisions in the firm are made by a small

proportion of senior managers, i.e., the CEO or equivalent. Those in charge of the process of

strategic management provide direction to the firm not just by making strategic decisions, but

more deeply, by sharing and embedding a perception of “effective” strategic management on

the whole firm.

This paper is consistent with an invitation from researchers (Hiller, Hambrick 2005,

Delgado-Garcia, De La Fuente- Sabate 2010) to incorporate new psychological constructs

into the upper echelons perspective. The leader's “cognitive model of strategic thinking” can

be characterized as resulting from the set of influences, formal and informal learning, and

field tested experiences that mold executive leaders over the course of a career. Each top

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manager has his/her own specific cognitive model of strategic thinking. With the advent of

modern strategic theory and the learning systems that translate theory into practice, it is

reasonable to assume that a majority of top leaders demonstrate a preference for a particular

strategic thinking model – a thinking model that will to a greater or lesser extent reflect

existing theory. This in turn allows for the identification of discernable cognitive models of

strategic thinking.

In the first section of this paper we present the short review of the Croatian

management research. The second section develops and showcases the theoretical drivers of

the research. Section three presents two hypotheses and their underlying logic. Section four

reports the research design and analytical methodology. Section five reports the empirical

results. Section six discusses the results, while section seven calls attention to the limitations

of the study and propositions for further research.

The Croatian Top Management Research

Strategy research conducted on Croatian firms is limited to several studies conducted

over the past decade. The first study (Alfirević 2000) demonstrated the lingering influence of

state driven organizational designs. The research showed that despite that the need for

fundamental changes in competitive environment top managers of Croatian firms did not

perceive that change was required. Top managers reported of being satisfied with the

organizational design of their own firm. In a second study (Buble et.al. 2003), using data

based on the international research conducted in 2001, identified successful strategic

behaviors of Croatian and Slovenian firms on a comparative basis. Apart from the

theoretically accepted strategic models of behavior, the results evidenced the significant

relation between the firms’ financial performance and organizational culture. When the

researchers compared variances in strategic behavior between the Croatian and Slovenian

  2  
strategic business units a number of apparent differences appeared. (Note: because only a

small number or Croatian firms was available at the time of the study, the differences are not

statistically significant). Nonetheless the investigators were able to report that:

 Croatian business units do not implement investing strategies as frequently as do the

Slovenian ones;

 A larger share of the Croatian business units had no explicitly defined and

implemented generic business strategy;

 A smaller share of Croatian units applied collaborative strategies.

These limited studies offered only a general idea of the qualitative characteristics of

the Croatian management. This paper is intended to investigate compliment and extend the

earlier studies of contemporary Croatia.

Theory Development

The richness of theories and directions in strategic management over the past four

decades makes the overview on the progress of the discipline difficult. Most scholars agree

that the most influential theories of strategic management were mainly developed in the USA

(Kesner 2005).

The accumulated practice and research on specific topics in strategic management has

yielded a rich set of distinctive and diverse typologies/models of strategic thinking

(Mintzberg 1973; Grandori 1984; Chaffee 1985; Ansoff 1987; Hart 1992; Idenburg 1993;

Hampden- Turner 1993; Whittington 1993; Mintzberg 1994; McKiernan 1996; Mintzberg,

Ahlstrand, and Lampel 1998; Haberberg, Rieple 2001; Jelenc 2004). They all present a

theoretically based approach toward the process of formulating, implementing and

controlling firm strategies. Figure 1 provides a summary of a number of writers on the topic.

When looking closely at the review of the models of strategic thinking it is possible to detect

  3  
three large groups of different authors' approaches to the subject. The first group is the

measurment apporached which seeks to scale strategic behaviors within a prescribed

categorical framework. It is not important the group in which top managers has been put, but

rather a point on the continuum about his preferences (for example Bourgeois and Brodwin

(1984) listed commander, change, collaborative, cultural and creative as the the   classification

sorted by the increasing level of engaging employees in the process of strategic

management). The second group is the categorial approach, in which one, two or three

criteria are important to make two/three/four relations available for top managers (for

example Whittington lists classical, evolutionary, processual and systemic approach

accoridng to the outcomes of strategy and the processes by which is it made). The third group

are the classifications with non-categorial approach, rather different point of views that

researched regarded as crucial and important to label. In this group there is no specific pattern

or criterion rather a rule of thumb that guided researchers in their suggestions (for example

McKiernan listed planning, practice, learning, positioning and resource-based view according

to distinctive and clear way of identifying strategy past and future).  

  4  
Figure 1 Overview of authors writing about the models of strategic thinking

Category  s caling     Categorial  


approach  
Grandori,  1984   Miles,  Snow,  1978  

Mintzberg,  Waters,  1985   Jelenc,  2004  


Chaffee,  1985   Idenburg,  1993  

  Ansoff,  1987    

Hart,  1992  
Whittington,  1993  

McKiernan,  1996  
Mintzberg,  1990;  
Mintzberg,  Ahlstrand,   Mintzberg,  1987  
Lampel,  1998  

Haberberg,  Rieple,  2001  


Mintzberg,  1973  

Non-­‐categorial  approach    

Taken together this wide ranging, yet interwoven, set of efforts to capture the essence

of strategic management can be characterized as a paradigm according to Kuhn (1996). A

paradigm is defined as the constellation of beliefs, values and techniques shared by the

members of a given community (Kuhn 1996). In other words, the paradigm identified here

represents the set of values, attitudes and perspectives shared by a group of theoreticians and

top managers. The category comprising any single model very slightly in number and nature

depending on the perspective of researcher but they are all drawn from a common set of core

aspirations and assumptions.

  5  
Jelenc (2004) and Jelenc, Vrdoljak- Raguž (2010) analyzed and coded these different

models and empirically derived a meta-typology postulating four Cognitive Models of

Strategic Thinking – Classical, Environmental, Competitive and Contemporary.

The Classical model presents what have come to be thought of as the basics of

strategic management. It has the deepest historical roots and is strongly identified with US

authors in the post WWII period of corporate economic expansion. Within the classical

model of strategic management there are two major streams of thought - the conceptual and

the planning approaches. The underlying idea of the conceptual stream is the call to establish

a fit between the outer and inner environment. Christensen et.al. (1985) and Andrews (1971,

1987) specify the process of strategy formulation as a deliberate and conscious act of analysis

for fit. The planning approach of strategic management is characterized as a more formal

procedure, formal training, and the formal analysis with a bunch of numbers (Mintzberg,

Ahlstrand, Lampel, 1998). According to this approach, the focus is on the objective analyses

within and outside the firm, which help create arguments as features of the planning

procedure. To predict and to prepare (Ackoff, 1983 cited in Mintzberg, Ahlstrand and

Lampel 1998) is the motto in planning the future. Figure 2 identifies the leading contributors

to the classical cognitive model of strategic management.

  6  
Figure 2 Contributions to the Classical cognitive model

Author Year Main publications


Christensen, Berg, Salter, 1951 Policy Formulation and Administration
Stevenson
Barnard 1956 The Functions of the Executive
Selznick 1957 Leadership in Administration
Moore 1959 Managerial Strategies
Chandler 1962 Strategy and Structure
Bilmour and Brandenburg 1962 Anatomy of Corporate Planning
Barnard 1962 Organization and Management
Tilles 1963 How to Evaluate Corporate Strategy
Ansoff 1965 Corporate Strategy
Learned, Christensen, Andrews, 1965/1966 Business Policy: Text and Cases
Guth
Steiner 1969 Top Management Planning
Ackoff 1970 A Concept of Corporate Planning
Newman, Logan 1971 Strategy, Policy and Central Management
Andrews 1971 The Concept of Corporate Strategy
Chandler 1977 The Visible Hand
Steiner 1979 Strategic Planning, What Every Manager
must Know

The Environmental cognitive model of strategic management is distinguished by its

focus on the reactive and passive ways of transitioning from the past to the future. Drawing

heavily on biological science based insights about natural selection, according to this view in

the world, strategy is about how the firm adapts and changes according to the imperatives of

the forces from the environment. Adding to insights gathered from biological theory, this

approach taps into anthropology for insights into the role of culture and into political science

theory to discuss the importance of power. A core assumption of the environmental model is

that the behavior of the individual within the firm can be explained with the individual’s

embeddedness in a social system, more accurately, to a set of social relations with the family,

state, professional and educational background, religion and nationality, sex and social class.

This sociologically dependent behavior reflects a modus operandi defining what is

acceptable, desirable and what is not, i.e. what is shameful and punishable. Because societies

are too complicated and people are too individual to expect uniformity of behavior, according

  7  
to the Enviromental cognitive model every strategist should analyze his social characteristics,

characteristics of his colleagues, partners, and competitors to acquire an image of social

discourse diversities and rules of acceptable behaviors (Whittington 1993). Figure 3 presents

the contribution of key researchers within environmental school.

Figure 3 Contributions for the Environmental cognitive model

Author Year Main publications


Hawley 1950 Human ecology
Bruns, Stalker 1961 The management of innovation
Lindblom, 1963 A Strategy of Decision
Braybrook
Woodward 1965 Industrial organization: Theory and practice
Lawrence, Lorsch 1967 Differentiation and Integration in Complex Organizations
Hannan, Freeman 1977 The Population Ecology of Organization
Schendel, Hofer 1979 Strategic Management: A New View of Business Policy and
Planning
Freeman 1984 Strategic management: a stakeholder approach

The Competitive model of strategic management is distinguished by its call for an

active attitude towards the future, emphasizing the importance of competitive advantage. The

model emphasizes the development, nourishment, and sustainability of the competitive

advantages as representing the main reason for a firm’s success. The positioning and

analytical schools of strategic management develop the models of competitiveness on several

levels: industry level (Porter 1979, 1980, 1991), firm level seen through the entrepreneurial

school (Schumpeter 1934, 1947) or individual level seen through the visionary school

(Drucker 1970; Mintzberg 1973). The resource-based strategy (Grant 1991; Barney 1991;

Teece 1990; Penrose 1959; Prahalad and Hamel 1990) describes strategy formulation

according to the resources and capabilities that must be considered as strategic and at the

same time dynamic and sustainable in order to accomplish a long-run success. Figure 4 lists

the contribution of the Competitive model.

  8  
Figure 4 Contributions to the Competitive cognitive model

Author Year Main publications


Wernerfelt 1984 A Resource-based view of the Firm
Pinchot 1985 Intrapreneuring: Why You Don’t Have to Leave the
Corporation to Become an Entrepreneur
Barney 1986 Organizational Culture: can it be a source of sustained
competitive advantage?
Prahalad and Hamel 1990 The core capability of the corporation
Barney 1991 Firm resources and sustained competitive advantage
Grant 1991 The resource-based theory of competitive advantage
Peteraf 1993 The cornerstones of competitive advantage: A resource-
based view
Teece, Pisano, Schuen 1997 Dynamic Capabilities and Strategic Management

The Contemporary cognitive model of strategic thinking is the fourth and newest

perspective on the study of strategy. This school does not challenge classical school per se,

but rather its focus in on a change in underlying logic of strategy with a focus on the

importance of collaboration and cognition. The model emphasizes the need for mutual

understanding. It's adherents believe that competitive tensions reduce the business rationale

of all competitors, thus making them weaker (Chaharbaghib and Willis 1998). It is more

important to learn and gain knowledge and notions on how to be different and how to

collaborate in order to achieve goals and success. The cognitive school (Wick 1987; Smircich

and Stubbart 1985) tries to explain the way in which strategy is formulated in the head of the

strategists. The learning school (Cyert and March 1963; Normann 1977; Argyris and Schőn

1978; Senge 1990) thinks that the process of strategic management is complex, however, they

believe it can be successfully created and managed by continuous learning about the process

and about the ways of improving  it.  Figure 5 showcases important contributors to this model.

  9  
Figure 5 Contributions to the Contemporary cognitive model

Author Year Main publications


Simon 1947 Administrative Behavior
Simon, March 1958 Organizations
Lindblom 1959 The Science of «Muddling Through»
Braybrooke, Lindblom 1963 A Strategy of Decision
Cyert, March 1963 A Behavioral Theory of the Firm
De Bono 1970 Lateral thinking
Anderson, Paine 1975 Managerial perceptions and strategic behavior.
Argyris 1976 Increasing Leadership Effectiveness
Quinn 1978 Strategies for Change: Logical Incrementalism
Argyris, Schőn 1978 Organizational learning: a theory of action
perspective
Donald Schön 1983 The Reflective Practitioner: how professionals think
in action
Shrivastave, Schneider 1984 Organizational frames of reference
Smircich, Stubbart 1985 Strategic management in an enacted world
Senge 1990 The Fifth Discipline
Senge, Scharmer, Jaworski, 2005 Presense
Flowers

Proposed theoretical cognitive models of strategic thinking have been developed in

the form of hypothesis and empirically tested on the sample of Croatian top managers.

Hypothesis

The aim of this paper, as showcased in Figure 6, is twofold. The first objective is to

test for the existence of the four proposed cognitive models of strategic management. The

second objective is to investigate the impact of top manager cognitive pre-dispositions and

firm financial performance.

  10  
Figure 6 Developing hypotheses

H1  

Constructs  of  cognitive  


H2   Measure  of  
models  of  strategic  
business  
thinking:   performance:  
 
• Classical                                              ROE  
• Environmental                                ROA  

• Competitive  
• Contemporary  
 

  As argued above the strategic behavior of a given firm is strongly influenced by the

underlying cognitive map of its most influential leader. These personal cognitive maps are

reflections of values, beliefs and assumptions about the correct way to organize and address

competitive challenges. The top managers’ personal paradigm and subsequent strategic

behavior can be grouped and simplified into several constructs that represent distinctive top

manager orientations (classical, environmental, competitive, and contemporary models).

Setting the number of cognitive models of strategic thinking to four can be limiting, but at the

same time it offers a balance between the reality of complex business environments and the

mainstream paradigms of strategic business thinking.

Hypothesis 1: The way of perceiving the process of strategic management is represented by


four cognitive models of strategic thinking.
 

Strategic management is a process whose ultimate aim is to achieve a firm

performance goal. This goal could be expressed in financial terms (e.g. percentage of profit

increase within five years…) or in the non-financial term (e.g. entering new foreign markets,

launching new products, merging with other firms). No matter how the goals have been

  11  
expressed, the results are expressed in financial measures. Measuring performance is relevant

to managers because it helps them make decisions about resource allocation. The strategic fit

is a core concept in normative models of strategy formulation. The pursuit of the strategic fit

has traditionally been viewed as a desirable performance implication. The way top manager

perceives the process of strategic management and forms his cognitive model of strategic

thinking is related to the results of his actions - financial results of the firm. His strategic

behavior is directly influencing strategic actions, strategy implementation and final results.

Hypothesis 2: Firm performance will be impacted by the leader’s preferred cognitive


model. Differences in firm performance will be observed across the four
cognitive strategic management schools - Classical, Environmental,
Competitive, and Contemporary.

We chose the questionnaire as the instrument for empirical research the top managers’

perceptions of the process of strategic management, more precisely, cognitive models of

strategic management thought. Given the research environment it was determined that a

printed questionnaire was the most appropriate for data collection. The questionnaire was

initially tested with a pilot study. In this phase, semi-structured interviews were conducted

with three top managers and consulting two academics. The semi- structured interview with

the three top managers offered insights the structure and wording of questions. They read the

statements and suggested reformulating some questions, deleting and adding questions in

order to elaborate on some issues making them more understandable. Their suggestions

added to the straightforwardness of statements and a better understanding of instructions. The

academic consultants offered suggestions regarding methodological improvements to better

relate questionnaire statements to the research hypothesis and called attention to potential

logical errors. After revising the questionnaire according to the suggested improvements, it

  12  
was distributed to the population of Croatian firms employing at least 250 employees (401

firms in total).

We used the official database of the Croatian Chamber of Economy (www.hgk.hr) to

select the firms according to the criteria of the number of employees. On August 18, 2005,

the database listed 401 firms that had 250 and more employees. Data collection took place

from October 2006 until June 2007. During that period, we sent the questionnaire by post

twice. All respondents received a letter of support issued by the Croatian Chamber of

Commerce and web portal q21.net. A number of top managers were personally contacted via

telephone, fax, e-mail and/or in person. Data collected continued until the end of June 2007,

at that point 127 managers had responded, 31.82 % of the total population.

Hair et.al. (2005) suggests that, as a rule, a study should include at least five times as

many observations as there are variables, but the more acceptable size would be a ten-to-one-

ratio. In case of this paper, there are nine times more observations than there are variables

(ten variables of strategic thinking and four schools of strategic management in comparison

to 127 observations).

The empirical research showed that the average respondent and the average firm have

the following profiles:

• Top manager answered the questionnaire (60.6 percent),

• Top manager is between 46 and 60 years of age (56.7 percent),

• Top manager holds a university degree (66.1 percent),

• Top manager has been on the current position between two and five years (41.7
percent),

• Prior to the current position, he/she worked inside the firm (53.5 percent),

• Firm employs between 250 and 500 employees (55.9 percent),

• It is a privately owned firm (56.7 percent),

• Firm produces a product rather than offering a service (55.9 percent),

  13  
• Firm operates in the energy production and distribution industry (44.9 percent),

• Firm has been operating for more than 31 years (70.1 percent), and

• Firm works mainly on the domestic market (48 percent).

The sample is statistically representative of the population according to several

criteria. T-tests showed no significant difference between respondents and non-respondents

on the following criteria: form of ownership (t = 0.614, d.f. 399, p> 0.10), legal form of firm

(t = 1.137, d.f. 399, p> 0.10), origin of capital (t = 0.770, d.f. 399, p> 0.10), and Croatian

National Classification of Industries (t =0.483, d.f. 399, p>0.10). There was, however, one

criterion showing a statistically significant difference between respondent and non-

respondents: the number of employees in the firm (t= 0.842, d.f. 399, p<0.10). The data

showed that the responding firms tend to employ slighty more employees than non-

responding ones.

The geographical distribution of respondents according to county chambers in Croatia

is presented in Figure 7. The percentage of population and the percentage of responses of

Croatian firms within individual county chambers is shown to be more or less balanced.

Figure 7 Distribution of population and responses according to individual county


chambers
 

Code County chamber Population Percent of Responses Percent of


Population Responses
1001- 1009 Karlovac 9 2.244 9 7.086
1010-1018 Bjelovar 9 2.244 3 2.362
1019-1025 Šibenik 7 1.745 0 0
1026-1032 Zadar 7 1.745 3 2.362
1033-1041 Vukovar 9 2.244 2 1.574
1042-1048 Virovitica 7 1.745 1 0.787
1049-1067 Varaždin 19 4.740 4 3.150
1068-1094 Split 27 6.733 8 6.300
1095-1102 Slavonski Brod 8 1.995 2 1.574
1103-1109 Sisak 7 1.745 1 0.787
1110-1139 Rijeka 30 7.481 15 11.811
1140-1160 Pula 21 5.239 6 4.724

  14  
1161- 1170 Požega 10 2.493 1 0.788
1171 Otočac 1 0.250 0 0
1172-1199 Osijek 28 6.982 9 7.087
1200-1208 Krapina 9 2.244 5 3.940
1209-1217 Koprivnica 9 2.244 1 0.788
1218-1226 Dubrovnik 9 2.244 7 5.511
1227-1244 Čakovec 18 4.490 6 4.724
1245-1401 Zagreb 157 39.153 44 34.645
TOTAL 401 100 127 100 t
Source: Empirical data

Independent Variable

The research unit of the analysis was the top manager’s perception. In each of the firm

there was only one top manager asked to answer the questionnaire. As indicated, prior

researched has demonstrated that the top manager is the person most responsible for the

process of strategic management in the firm. The top managers’ paradigm about the process

of strategic management strongly influences the way the process of strategic management is

formulated and the way it is going to be implemented, controlled, and evaluated. Top

managers influence the perception of their direct subordinates and other employees in the

firm, thus building the image of the firm in the market. The top managers’ perception is a part

of their paradigm, according to which they shape their style of management and leadership

and the way they comprehend the environment, the firm, and the future of their firm. The

perception of the strategic management process does not interfere with the strategy content

(e.g. the specific features of their industry or market characteristics), but rather the way it is

approached.

This paper uses the term top manager, as the term representing the person who

manages and leads at the strategic apex of the firm. It could be the case of a single person or a

team. The job title for this function is has some variation - chief executive officer, managing

director, top manager, general manager, senior manager – while actual job content is quite

similar.

  15  
Dependent Variable

Business performance – as indicated by financial viability - is the ultimate goal of

firm's existence. In this paper we were able to secure quantitative measure of business

performance - return on equity and return on assets. Because strategy involves the use of

resources that give the company a competitive advantage (Barney 1991) and ROA yields the

most direct information about how efficiently tangible resources have been allocated (Hull

and Rothenberg 2008). ROA, therefore, is the most common accounting-based performance

measure (Bergh and Ngah-Lim 2008) highly correlating with other measures such as return

on sales (ROS) and return on equity (ROE). Both measures, ROE and ROA are highly

dependent on the industry. They represent how effectively the company is converting cash,

total assets (ROA) and equity (ROE) into net income. Many business experts recommend

examining ROE and ROA over a longer period, not just for the previous year. This will take

out any abnormal numbers out of the picture and will give a more realistic view. Over the

long run, firms that are good at generating higher profits with the available assets are more

viable and beneficial for business investments. In this research ROA and ROE are three year

averages. The three-year average has the advantage of smoothing the data so as to better

represent strategic performance and viability.

Results

The results of the research are classified by the hypothesis while the final conclusion

summarizes all the results of the empirical research.

Hypothesis 1: The way of perceiving the process of strategic management is resented by


four types of strategic management schools.

The validity for constructs of strategic cognitive models is tested by construct,

symptomatic or theoretical validity in two ways (Psychometrics, 2001/2002). The subjective

method of testing theoretical validity is performed by generating sentences/premises in order

  16  
to develop a questionnaire based on theoretical literature. In this research, once the

questionnaire was created, two professors of strategic management read the statements and

suggested content improvements. Each of the premises is founded on a specific paper and/or

idea and supported by relevant literature. The objective method of testing validity was

performed through factor analysis and by generating the most relevant premises of the

schools of strategic management. We also conducted a face validity test

(http://writing.colostate.edu/guides/research/relval/com2b2.cfm). In order to ensure that the

questionnaire is well suited for practitioners in terms of statement clarity and

straightforwardness of instructions, we consulted three top managers working in Croatian

firms.

The constructs first of all tested for reliability using the Cronbach alpha test for

internal consistency. Results for each of the proposed strategic thinking orientations are

presented in the Figure 8. The generally accepted cut off level is 0.7. Using this as the

reference score three of the four proposed orientation scales meet this threshold. The

Cronbach alpha for the construct of classical school of strategic management was 0.776.

Both competitive, (alpha = 0.840) and contemporary (alpha =0.841) school of strategic

management had satisfactory levels of internal reliability. Only the environmental school

orientation failed to meet the threshold with an alpha score of has 0.6221.  

                                                                                                                         
1
  Cronbach alpha measures consistency among the individual items in a scale. It is not a statistical test; rather a
coefficient or reliability and therefore the level of acceptance could be interpreted in a variety of ways (Cortina
1993; Cronbach 1951; Nunnally 1967; Peterson 1994; Voss et al. 2000). Cronbach alpha is recommended to be
above 0.7, but not much higher than 0.9 (Nunnally 1994). The level of acceptance in the cognitive and
psychometric testing is 0.75 or 0.80. Even between fields of psychology, the level of Cronbach alpha depends
on the type of study. For example, cognitive tests (tests of intelligence or achievement) tend to be more reliable
(above 0.8) than tests of attitude or personality (in cut-off point of 0.7 is more suitable). Other social sciences
level is usually set at 0.7. The logic behind the level of 0.7 is the thinking that at that level the standard error of
measurement will be over half (0.55) a standard deviation (Nunnally 1967; Thorndike and Hagen 1977). Some
put the limit as low as 0.60 in case of the explanatory study (Kline 1999). The general attitude about strategic
thinking was a challenge to measure and harder to create a construct. The acceptance level depends on the
purpose of the test (explanatory or applied) or measure in question (Swailes and McIntyre- Bhatty 2002).
As reported in Peterson (Peterson 1994), Nunnally changed his reliability recommendations from his 1967
edition of Psychometric Theory in his 1978 edition. In 1967, he recommended that a minimally acceptable

  17  
Figure 8 Internal reliability measured by Cronbach alpha before the factor analysis

All Classical Environmental Competitive Contemporary

Cronbach alpha 0.882 0.776 0.622 0.840 0.841

Source: Empirical data

The factor analysis performed on the items of schools of strategic management

excluding items class 58, environ61, comp74, comp79, comp80, contem88 from further

analysis. Pattern matrix in the Figure 9 demonstrates the loading of the factors and constructs.

Figure 9: Pattern matrix of the cognitive models of strategic management thought

Items* Component
ComCont Enviro Class
Contempor87 ,798
Contempor89 .778
Contempor86 .718
Contempor91 .716
Comp82 .698
Comp77 .687
Comp72 .672
Comp78 .620
Contempor85 .602
Comp71 .549
Contempor90 .531
Contempor84 .527
Comp75 .517
Comp81 .495
Comp83 .478
Comp73 .478
                                                                                                                                                                                                                                                                                                                                                                                         
reliability for preliminary research should be in the range of 0.5 to 0.6, whereas in 1978 he increased the
recommended level to 0.7 (without explanation).
The values beneath the level of 0.7 should not be disregarded automatically due to the several reasons. One
reason for Cronbach alpha to be deflated is the fact that the construct measures several different ideas or
different attributes/dimensions rather than one (Swailes and McIntyre- Bhatty 2002), and the correlations among
items are weak or not present at all. Cronbach alpha measures how well their items measure a single one-
dimensional latent construct. Therefore it is suggested to run a factor analysis and group the items within the
same dimension and run the test of reliability once again (http://www.ats.ucla.edu/stat/spss/faq/alpha.html).

The second reason could be small number of items in the scale (Cortina 1993; Field 2005), especially below
seven (McKennell 1978 cited in Swailes and McIntyre-Bhatty 2002). Research performed by several researchers
(Churchill and Peter 1984; Bruner and Hensel 1993; Peterson 1994) proved the positive relationship between
scale length (the number of items included in a scale) and the reliability of the scale. This was based on the idea
that the wider are the scales, the greater are the variances, and therefore the alpha is increased. One interesting
point is that scales with a central point (five or seven points) tend to generate higher alphas than those with four,
like in this case) or six points (Voss et.al. 2000).
 

  18  
Envir64 .703
Envir68 .652
Envir66 .499
Envir63 .494
Envir65 .454
Envir62 .436
Envir69 .433
Envir67 .408
Class49 .667
Class52 .623
Class56 .602
Envir60 .570
Class50 .569
Class55 .539
Class54 .511
Envir70 .497
Class51 .474
Class53 .433
Class57 .432
Class59 .344
Cronbach 0.782 0.643 0.906
alpha
(for all 0.868)
Sum 381.83 356.38 403.31
Number 16 8 12
Mean 3.0066 2.8061 3.1757
Std. .44613 .42161 .46423
Deviation
Variance .199 .178 ,216
N=127. Extraction Method: Principal Component Analysis.
Rotation Method: Oblimin with Kaiser Normalization. Rotation
converged in 7 iterations. Supressed values less than 0.30.
Bartlett's Test of Sphericity sig. 0.000. Kaiser-Meyer-Olkin
Measure of sampling adequacy: 0.788. Variance explained 38.044
percent.
* For the statistical purpose, the premises are coded. The text of
the items is listed in the appendix.
Source: Empirical data

The factor analysis and factor loading generated three cognitive models of strategic

thinking. The names of each of the construct derived from the school that predominately

forms the construct. Therefore, Hypothesis 1 is statistically strongly supported for two of

proposed cognitive orientations and modestly supported for a third.

  19  
A one-way ANOVA between three constructs of strategic management schools and

the variable (VAR012) yields support for Hypothesis 2 . Variable (VAR01) denotes the

positive value or negative value of the selected financial results (ROE, ROA) for firms that

prioritized selected strategic cognitive models. Competitive-contemporary cognitive model

(N= 33) showed a significant relation (F(1,125)= 4.509, p<0.05) positive relationship between

orientations and financial results. Only the top mangers leading and managing according to

the premises of the competitive-contemporary school of strategic management have

significantly better (positive) financial results than the top managers with cognitive

orientations toward the other schools of strategic management. One might conclude that the

majority of the top managers that picked the competitive-contemporary school of strategic

management actually made a good choice because this choice is significantly related to the

better (positive) financial results.

Figure 10 presents the financial results of each of the constructs of strategic

management schools. The most frequently used construct is Competitive-Contemporary. The

second is Classical school and the least used is Environmental school. The most successful

orientation is among Croatian top managers is Competitive-Contemporary when the firm

performance measure is ROA. In contrast the research indicates that the Environmental

school is most effective if the performance criterion is ROE.

                                                                                                                         
2
 Variable  VAR01  was  coded  for  either  positive/negative  values  of  profit.    

  20  
Figure 10 Constructs of strategic cognitive models and financial results

Construct Classical Environmental Competitive-


Contemporary
Financial measures N 31 14 33
ROA0406 Sum 61.00 3.99 161.18
Mean 1.967 0.142 2.3703
(Percent)
ROE0406 Sum -11.39 17.92 15.46
Mean -0.3674 0.6400 0.2274
(Percent)
Source: Empirical data

Table 11 also reveals several interesting insights. Moreover, 2.3 percent of the ROE

variances can be explained with the environmental school of strategic management. The

variances of ROA value could be explained with only 1.8 percent with the classical school

but with the significance level of p<0.10.

Figure 11 Regression analyzes of financial results and construct of

strategic cognitive models

Constructs ROE ROA


β Adjusted F β Adjusted F
R2 R2
Classical -0.045 -0.006 F(1,125) = 0.255 0.160 0.018 F(1,125)= 3.290†
Environmental 0.176 0.023 F(1,125)= 3.988* 0.034 -0.007 F(1,125) =0.149
Competitive- 0.068 -0.003 F(1,125) = 0.574 0.141 0.012 F(1,125) =2.527
Contemporary
† p<0.10, *p<0.05

Source: Empirical data

Hypothesis 2 is partially supported firm performance is impacted by the leader’s

preferred cognitive model. Differences in firm performance are observed across the four

cognitive strategic management thoughts: Classical, Environmental and Competitive-

contemporary model.

Discussion

The empirical results reflect the complexity, contradictions and multi-perspectives of

strategic management in practice. The results have similarities with the analysis performed in

  21  
2004 in Primorsko-goranska Chamber (Jelenc 2005). Thus, the results confirm the research

done in 2004 and generalized to firms doing business in all of the Republic of Croatia. The

orientations of Classical, Environmental and Competitive-contemporary have been shown in

this study to be distinctive strategic cognitive models of strategic thinking.

In addition, the most frequently used model of strategic management was shown to be

the competitive-contemporary cognitive model, followed by classical model and then by

environmental model of strategic management. From this information, we might conclude

that the top managers in the Croatian firms predominantly think according to the premises of

the Competitive-contemporary model of strategic management.

One of the possible explanations for the popularity of this combined model of

thinking could be the emergence of co-opetition (Brandenburger, Nalebuff 1996) a neologism

rediscover by game theorists and used to describe cooperative competition. The construct of

the classical model is recognized as a separate cognitive model which calls attention to the

presence of the basic ideas of strategic management within top managers cognitive model of

strategic thinking. The third group is the environmental school appears to the preferred

cognitive model of the top managers sensitive to the importance and strength of the

environment, natural selection principles, and adaptation to the changes recognized in the

competitive landscape.

In addition, this research is the first to empirically demonstrate the relationship

between strategic thinking orientation and firm performance. We discovered that firms lead

by managers choosing the Competitive-contemporary model of strategic thinking have

positive financial results as measured by ROA. The top managers that chose competitive-

contemporary model have the highest financial results when the criterion is the mean value of

ROA in the period 2004-2006. When the criterion is the mean value of ROE, the most

suitable way of top managers’ approach is according to the premises of the Environmental

  22  
model. When researching the relation between the models and financial results with the

regression analysis, the environmental model explained 2.3 percent of variances of ROE, and

classical school can explain 1.8 percent of variance of ROA. At the first glance, this

percentage is small, but reflects the direct influence and importance of top managers

viewpoint on the financial results of the Croatian firms. The relation is established, while the

nature of this relation is still subject for further research.

Limitations

There are several limitations in both the theoretical and the empirical part of this paper. The

limitations of the theoretical part lie in the assumptions. Key assumptions included the

following: a) the top manager is the person in charge of the process of strategic management,

b) his/her opinion about strategic issues is relevant for the firm, and c) the subjective opinion

of the top manager is indicative of the firm’s approach toward the process of strategic

management. Furthermore, we assumed that the way the top manager perceives the process,

influences the way his employees approach the process and that this reflects on the entire

firm. Each of the assumptions is open to challenge since empirical research supporting them

is lacking.

The limitations of the empirical portion of the paper are several. The nature of

strategic management includes three time frames: the past, the present, and the future. Top

managers are influenced by the past events and experience, they resolve current problems,

and make plans to prepare themselves and the firm for future challenges. We conducted the

field research about top managers’ perception of the process of strategic management in

2006-2007. Their perception reflected their strategic behavior at that moment. This strategic

behavior became effective in 2007-2008 and the first financial indicators will be seen in 2008

or 2009. This would be the appropriate time lag for the strategic decisions to prove their

  23  
accountability. Thus, the financial results of 2008-2009 that will be published in the first half

of 2010 will be the best indicators about the most suitable ways of strategic thinking and

schools of strategic management. They will additionally show how much the financial results

do depend on the construct of schools of strategic management. There is a vast majority of

top managers in the sample performing their duty for two years and longer (41.7 percent of

top managers had been on their current position 2-5 years, 23.6 percent of top managers 6-10

years, and 16.5 percent for 11 or more years). We concluded it is rational to take into account

their perception in the period of 2006-2007 and compare it with the financial results of 2004-

2006. In order to avoid the statistical bias in financial results we took into consideration the

average value of the three financial indicators in the period of 2004-2006.

The second limitation we faced is that there is only one respondent in each of the

firms who could fill in the questionnaire. Because of this, one might conclude that the results

of this field research provided biased answers. The aim of this field research was to find out

about the perception of the person in charge of the process of strategic management and not

the opinion of managers at lower levels or employees in general. The opinion of the top

manager is the only perception that we were interested in the firm. The subjectivity was

intended and deliberate. It would be illusionary to ask for an objective opinion about a

subjective perception. The subjective opinion of the top manager becomes the objective

criteria for middle management.

Further research

At the conclusion of this paper, we would like to point out several possible directions for

further research. The schools of strategic management are one of the topics that will keep

appearing in strategic management literature from time to time. It may not be the mainstream

research track but rather the method that researchers will use in order to denote the

  24  
advancement in the field of strategic management. It will offer quite an extensive and

refreshing overview of the existing paradigms and the guidelines for future research. The

research of strategic management schools is like a look in the mirror of strategic management

research, suggesting which topic is passé, which topic should be more emphasized and which

topic has the potential to evolve.

Strategic management is oriented on goals and their financial and non-financial

results. Top managers should base their behavior on the direct strategy-financial result

relationship in order to receive as much dynamic feedback about interactions and continuous

improvement. This will help to build and maintain the top managers’ faith in strategic

management, since it will prove itself beneficial to their work.

Moreover, the future research of strategic management in Croatia should be focused

on several additional issues. This research could be continued and evolved into a longitudinal

research that would further depict patterns and trends, and the way these patterns and trends

change through time. Due to the nature of research and the respondents included in the

empirical analysis there should be at least a five-year time frame. This period is long enough

for the top managers to change their perception about the process of strategic management

and change the dominat type of strategic thinking. The research should be directed towards

more qualitative methods in order to grasp the strategy-as-practice skill. The learning

experience of top managers is a valuable asset, a tacit knowledge that should be more

researched in order to acquire new notions and insights that will result in better and more

efficient future managers/strategists.

  25  
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  28  
Appendix List of premises and their codes
 

Codes Text of the premises


Class49 Strategic orientation derives from the analysis of external factors and
factors within the firm.
Class50 Managers working on strategic issues are specially educated for such
a task.
Class51 Good strategy is a prerequisite of business success.
Class52 When we resolve problems, we select among several options in order
to determine which solution is the most appropriate.
Class53 In our firm, we do the planning by the book, i.e. step-by-step from
formulation through implementation up to control.
Class54 The say of the top manager or the top management team is the most
dominating in the process of formulating the strategy.
Class55 We use SWOT analysis.
Class56 By forecasting, we provide some features needed for planning.
Class57 Planning has to be formal and explicit.
Class58 The plan is implemented by the strictly defined steps.
Class59 Once formulated the plans do not change.
Envir60 The firm has to pay attention to the drafts of laws and regulations.
Envir61 The firm can only react to changes and adjust to new market
demands.
Envir62 The key of survival is to adapt to the environment.
Envir63 Some sets of norms and values in the firm are not easily changed.
Envir64 The firm has to follow the “rules of the game” set by others.
Envir65 Only the most flexible survive.
Envir66 Mentality and culture directly influence the firm.
Envir67 We are too small to change the world.
Envir68 The environment directly and to large extent influences our strategic
direction.
Envir69 The firm cannot do much if the opportunities in the environment
oppose its success.
Envir70 Firm receives the impetus to change from the environment.
Comp71 We try to be the first to launch the product on the market in order to
gain advantage.
Comp72 Creativity is key factor in formulating strategy.
Comp73 We focus our energy on the new challenges and not the problems
from the past.
Comp74 Strategy is the mix of intuition and wisdom.
Comp75 We proactively create changes on the market.
Comp77 The market is a battlefield where we fight our wars.
Comp78 The most successful managers are the source of innovations and ideas
that lead to changes.
Comp79 Idea and work are crucial features of a successful business.
Comp80 It is important for top manager to be charismatic.
Comp81 We understand our competitors; therefore, we can forecast their
reactions and behavior.
Comp82 Intended strategy might change if market changes.
Comp83 Team spirit and project approach to business create pleasant working

  29  
atmosphere.
Contempor84 Training and specialization is very important.
Contempor85 A valuable part of our firm is the tacit knowledge (employees’
knowledge that is hard to formalize).
Contempor86 We work on building competitive advantages.
Contempor87 Learning makes top managers successful.
Contempor88 We do business only in the narrow segment in which we are the best.
Contempor89 Dynamics of the business is the result of the way the top manager
thinks.
Contempor90 Dynamics of business is the result of the way the employees think.
Contempor91 Intellectual capital is the most important source of strategy.

Lara Jelenc, PhD working as senior assistant at the Faculty of Economics, University of

Rijeka, Croatia.

  30  
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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