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STRATEGY FORMULATION AS A LEARNING PROCESS: AN APPLIED MANAGERIAL THEORY

OF STRATEGIC BEHAVIOR
Author(s): H. Igor Ansoff
Source: International Studies of Management & Organization, Vol. 7, No. 2, STRATEGY
FORMULATION (SUMMER 1977), pp. 58-77
Published by: Taylor & Francis, Ltd.
Stable URL: http://www.jstor.org/stable/41103851
Accessed: 12-09-2017 13:15 UTC

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STRATEGY FORMULATION AS A LEARNING
PROCESS: AN APPLIED MANAGERIAL
THEORY OF STRATEGIC BEHAVIOR

H. Igor Ansoff (United States)

The Overall Model

The theory of strategic behavior here described is formulated


to fill a gap in the current management literature between a
number of unidisciplinary, abstract, academic perceptions and
a growing literature of prescriptive techniques for managing
the relationship between complex organizations and turbu-
lent environments. The task attempted is twofold: (1) to
integrate the key, relevant, unidisciplinary, theoretical con-
cepts into a multidisciplinary framework; and (2) to make this
framework readily applicable to the solution of current and
urgent managerial problems. At this time no attempt will be
made to popularize the result in language acceptable to man-
agers who have not had previous exposure to the key theoret-
ical and problem-solving concepts found in the economic, so-
ciological, and management literatures.

H. Igor Ansoff is Justin Potter Professor of Management at


the Graduate School of Management, Vanderbilt University,
Nashville, Tenn.
This paper is a brief summary of the first part of a book en-
titled Theory and Technology for Managing in Turbulent En-
vironments, to be published in England by The Macmillan
Press, Ltd., and in the United States by John Wiley & Sons, Inc.

58

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Strategy Formulation as a Learning Process 59

The key disciplinary sources and the specific concepts bor-


rowed or adapted from them are illustrated in Figure 1. As
this figure shows, the key relational paradigm is taken from
Chandler, who postulated a dynamic sequential relationship be-
tween the "environment," a business firm's strategic behavior
in the environment ("strategy"), and the consequent changes in
the internal configuration ("structure").

1 . Chandler f s * paradigm :

"Environment"

"Structure"-^

2. Microeconomic theory: survival, strategic budgeting,


economic effectiveness

3. Sociotechnical systems: culture-capability, technology


4. Systems theory: environmental turbulence, organiza-
tional openness, variety
5. Politics of decision processes: power balance in or-
ganizational change
6. Psychology of individual behavior: aspirations, risk
propensities, differences in psychological profiles
7. Sociology of organizational response to stress: myopia,
inertia, drift
8. Strategic management: managerial thrust in change

Figure 1. Origins of the theory.

The paradigm is expanded in two ways:

*Alfred D. Chandler, Jr. (1962) Strategy and Structure.


Cambridge, Mass.: M.I.T. Press.

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60 H. Igor Ansoff (United States)

1. Alternative possible sequences of cha


ment-strategy-structure are added.
2. The class of organizations studied is enlarged to include
not only the "private" firm but also other environment-serving
organizations (ESO) (university, hospital, government-owned
firms, ser vice -deli very branches of the government). This is
a class of organizations that exists for the purpose of provid-
ing goods/services to the environment and that is dependent
for its survival, at least in part, on the proceeds of its "sales."
The basic model of strategic behavior of such organizations
is illustrated in Figure 2. The square boxes are behavior-
determining concepts, and the round and oval shapes are inter-
actional components of strategic behavior by the ESO.
Because of limitations of space, we shall rely on a series of
diagrams and flow charts for tracing the relationships among
the several modules of Figure 2. Unfortunately, much of the
work of interpreting their contents must be left to the reader.

Environment

As Table 1 illustrates, the focus of this theory is on environ-


mental turbulence, which is defined by the five attributes listed
in the left-hand column. The five levels of turbulence identified
at the head of the columns are used as "standard states," not
only of the environment but also of strategic behavior and of
internal configuration of the ESO.
Three environmental settings are studied: (1) a state of
steady turbulence in which the environment remains at a given
level of turbulence; (2) a "drifting" environment which gradu-
ally "heats up" or "cools off"; and (3) an environment in which
turbulence suddenly shifts (e.g., invention of the transistor, or
formation of the OPEC petroleum consortium).
Three types of ESO suben vironment are recognized: (1) the
commercial environment, with which the ESO exchanges goals/
services and money; (2) the subsidy environment, which pro-
vides financial support to the ESO; and (3) the political environ-
ment, which legitimizes the ESO and sets the rules for its be-
havior.

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Strategy Formulation as a Learning Process 61

ENVIRONMENT S.

N. I MARKET '
~^' DYNAMICS I

ESO BOUNDARY w /^-r^A

f PERCEPTION ' I '


A OF )/ fc
S V ENVIRONMENT

ACTION ^T^pirati^ ASPIRATI


POTENTIAL >X -*i ASPIRATI0N ) / thrust

POWER ' x ^^
STRUCTURE ' ^ ^^ ^^^ ^S, BUDGET
I ' ^^ Vvf ACTI0N | I
' "Nx I TRIGGER J |

/ STRATEGIC ' ""^O^ '


4

V BEHAVIOR J ( Vb

Figure 2. Model of ESO behavior.

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Strategy Formulation as a Learning Process 63

To accommodate a range of not-for-profit ESOs and the new


realities of consumer pressures on the firm, the concept of
competition in the commercial environment is enlarged to a
concept of environmental impedance, composed of environ-
mental resistance (which includes competition) and environ-
mental potential.

Strategic Thrust

This concept, shown on the right-hand side of Figure 1, is


outlined in Figure 3. Strategic thrust can be defined as a class
or type of strategy used by the E SO in its interaction with the envi -
ronment. As Figure 3 shows, two distinctive dimensions of thrust
are important: (1) the entrepreneurial dimension, which changes
the product-market-customer-technology-funding source-
natural resource mix through which the ESO interacts ; and (2 ) the
marketing thrust, which determines the aggressiveness with which
the ESO interacts with its various partners. Each thrust is classi-
fied according to five levels of the ESOfs increasing departure
from its previous behavior and experience.

Strategic Action Potential

This concept, shown on the left-hand side of Figure 1, elabo-


rates Chandler's concept of "structure." As Table 2 shows,
the term "culture" is taken in a rather limited, managerial
sense to indicate strategic action propensity. In the present
theory, culture and organizational capability are each classi-
fied into five states of increasing organizational openness to
the environment, using the previously established categories:
stable, reactive, anticipatory, exploring, creative.*
This theory postulates that, frequently, the level of culture
and the level of capability in an ESO will not match each other,
particularly in environments undergoing a shift in turbulence.

♦Limitations of space prevent us from reproducing the con-


tents of these classifications, but they can be found readily in
I. Ansoff, R. DeClerck, and R. Hayes (1976) From Strategic
Planning to Strategic Management. London: John Wiley & Sons.

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Strategy Formulation as a Learning Process 65

Table 2

Strategic Action Potential

Culture
(= strategic action Organizational Technological

Aspirations Problem-solving Know-how


Performance discipline skills - Scientific
Change perspective Leadership skills - Design
Futurity perspective Informal systems - Process
Risk preference Formal systems - Production
Structure - Marketing
Capacity - Information
Facilities
Capacities
Equipment

Strategic action potential = culture + organizational capability


+ technological capability.

Effectiveness of Strategic Behavior

A central hypothesis of this theory is that an ESOfs strategic


thrust, its action potential, and its technology will not be bal-
anced, either with respect to each other or with respect to the
environmental turbulence. When this occurs, the economic ef-
fectiveness of the ESO in the environment suffers. This is
illustrated in Figure 4. The graph illustrates two profiles: a
Mbalancedft and an "unbalanced" ESO. The symbolic equation
defines the relationship between strategic productivity of a
given ESO and a balanced ESO in the same environment.

Power Structure

In the preceding discussion the outcome of a given strategic


thrust was related to the environment and to the action potential.

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66 H. Igor Ansoff (United States)

f a
Environment

Strategie S* qT
thrust yS
A , . / ^Balanced ESO
Action A , .
potential

Technology

Unbalanced ESO

Key: S: Stable; R: Reactive; A: Anticipatory; E: Explorator


C: Creative.

Strategic productivity of strategic thrust b is (SP)t>.


Optimal strategic productivity in environment a is (SP)a.
(SP)b = (SP)a X (ST)ab x (AP)cb x Tdb
Figure 4. Effectiveness of strategic behavior.

The same variables affect the choice of the thrust used by the
ESO. But this theory postulates that the choice is equally af-
fected by the political force-field in which the ESO operates.
The model of the power structure is illustrated in Figure 5.
The upper left-hand part shows the control that gives individu-
als or groups power to influence the behavior of an ESO. The
upper right-hand part shows four principal constituencies that
exercise power on the five behavior attributes shown in the
oval. The table at the bottom shows three basic power con-
figurations chosen for analysis of their impact on strategic
behavior.

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Strategy Formulation as a Learning Process 67

Power Sources General management


Control of /* "X
1. Law [ j
2. Societal norms V J
3. Actions ^^jT^
4. Resources/ ^f
knowledge ^-^. S* ^' /^"^'
5. Job security ( ^-^. J( Aspiratio
6. Charisma ^-^^^f -Perception ofl Tp
7. Withholding of Middle ^ environment
e£fort ^-^ -Budgeting ^-^
(^ ^- W- -Strategic
y behavior W V-^ J
V-^
lower man- -strategic
agement transforma-

Environment

Power Environ- General Middle-lower Tech-


structure ment management management nocracy
Autocratic 1, 2 3, 4, 5, 6, 7 - -
Decentralized 1, 2 3, 4, 5, 6, 7 3, 4 4, 7
Distributed 1, 2, 4 3, 4, 5, 6, 7 3, 4, 5, 7 3, 4, 5, 7

Figure 5. Model of power structure.

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68 H. Igor Ansoff (United States)

Aspirations

The theory attempts to reconcile and integrate several dif-


ferent conceptions of goal/objective behavior found in the lit-
erature. The differences are found on two levels. On one
level there is an ambiguity about whether organizations that
do or do not make their objectives explicit can be said to have
objectives. We avoid this ambiguity by replacing the concept
of objectives by the concept of aspiration level, which is al-
ways observable. This is defined at the bottom of Figure 6.

% of ESO Serving a Market

Typical Distribution of
Not-for-Profitf

^^^ ~****^ ^^, ■■ «^Typical Distribution of


^r ^v ^^ ^^*x^Bus1ness Firms

CVua¿a <

Ptonz

Figure 6. Organizational aspirations. Level of aspiration is


the performance below which the ESO engages in nonextrapo-
lative behavior.

The second difference found in organizational literature is in


perceptions of the level of aspirations. Typically, the socio-
logical literature ascribes conservative MsatisficingM behavior
to the ESO, whereas micro -economic theory is based on the
postulate of maximizing behavior.

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Strategy Formulation as a Learning Process 69

FOUNDING OF ESO

¿uolpUn* :/ '<xp<*vUonA X^^ence"»^


EVOLUTION OF I I ADAPTATION TO I I CHANGES IN I TeVOLUTION
SYSTEMS | | EXPERIENCE | [MARKET DEPENDENCE! | POWER

' ' '0^ . <up¿Aa£¿onA / òuAvlvat y^ /


' ' yPotzntial . / pojifatmanoA y^ /

' NyV^FORMATIOÍT^v^/^^ V i
' Y OF ASPIRATIONS
' 'BY POWER CENTER^/ ^-
' ^^»^ ^^ pZAAonal ^ _^ _«_
' CLòpiAcutionò ^ y^ _^
KUutU, ' / ^r /
cont/Lotò ^ poweA ^/ ^/^ /

' /^NEGOTIATION^/^eAÌ^^p /
' Xaspirations^/ /
' Powvi-CintzA /
' I ZpVuvUor« J *******

Y MOTIVATION ' /
/ AND ' /
( CONTROL OF Y
V BEHAVIOR J

ASPIRATION
L BEHAVIOR

Figure 7. Model of aspiration beha

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70 H. Igor Ansoff (United States)

The horizontal scale of Figure 6 combines the two behaviors


and provides a continuous transition between them. The two
hypothetical distributions of aspirations shown in Figure 6,
one for not-ïor-profit organizations and the other for business
firms, indicate a substantial overlap of aspiration behavior be-
tween conservative firms and not-for-profit organizations.

Aspiration Behavior

An explanation of the overlap is provided in Figure 7, which


shows that, although at their founding the firms and the non-
profit organizations are given different "launching platforms,"
historical evolution can lead to substantial modifications. In
particular, the concept of market dependence (which is the
percentage of its income an ESO must earn through its com-
mercial activity) explains why firms converge toward bureau-
cracies when they find themselves in a monopolistic or con-
trolling oligopolistic position in the environment.

Modes of Strategic Behavior

Aspirations are fulfilled through ESO interaction with the


environment. In this theory we recognize three distinctive
strategic behaviors, shown in Figure 8. The lower part of the
figure describes the differences among them in languages of
several viewpoints. The first three lines use the language of
strategic management; the fourth is the Simon-March categori-
zation; the fifth, that of Mintzberg; the sixth, cognitive psy-
chology; and the seventh, organizational sociology.
Also shown in Figure 8 are the two distinctive transition
points triggers. These are further elaborated in Figure 9,
which defines the conditions of the triggers and relates them
to our previous definition of cultural states within an ESO.

Management of Strategic Thrust

The modes of behavior and the triggers are combined in the


second major relational hypothesis of this theory. Figure 10

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Strategy Formulation as a Learning Process 71

-,
Strategic ! Strategic ! Strategic
Discontinuity j Evolution j Stabilit
t~ . . «j. j. . ax. Economic
Crisis ~ . . Strategic «j. j. . Aspiration ax.
Trigger Trigger Trigger
ness

Focus on strategic Focus on attain- Focus on organiza-

Transformation of Adaptation of stra- Fixed strategic


strategic thrust tegic position position
Transformation of Adaptation of Incremental evolution
capability and strengths and of capability
culture weaknesses

New types of pro- Reprogramming Program extrapo-


grams lation
Novel patterns of Familiar patterns Fixed patterns of
strategic deci- of strategic de- strategic decisions
sions cisions
Cognitive dis- Cognitive change Cognitive stability
continuity
New models of Prior Model of Reality
reality

Figure 8. Three modes of ESO behavior.

identifies the major variables that determine the strategic be-


havior. Among variables affecting ESO as a whole is the mini-
mal strategic thrust S^, which reflects the influence of both
the ESO aspirations and the level of environmental turbulence.
The variable Rj measures the strength of the tendency of a
culture in a given unit of an organization to project itself onto
the rest of the ESO; and the variable rij measures its power to

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72

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Strategy Formulation as a Learning Process 73

ESO as a Whole

P - actual economic performance


C - level of performance that triggers crisis
S - actual strategic thrust
Sa - minimal strategic thrust essential to meet aspira-
tions

Each Subunit

Sj[ - culture-determined strategic thrust


Ili "" elative power to affect strategic thrust
Ri - drift tendency to force ESO into Si
Ii (I-ae-iP-C)) - inertial resistance to change in S
Li - strength of managerial leadership
Di - strength of performance discipline

Figure 10. Variables affecting strategic thrust.

do so. It is to be noted that the pull may be toward isolating


the ESO from the environment (a pull typically exerted by pro-
duction departments in marketing-oriented business firms),
or it may be toward more aggressive environmental engage-
ment (a pull exerted by the R & D departments in marketing-
oriented firms).
The variable called inertial resistance is invoked whenever
management attempts to change the strategic thrust of an ESO
The formula reflects the observable phenomenon that inertia
tends to decrease rapidly whenever the performance of the
unit approaches crisis conditions.
The variables Li and Di jointly define the managerial thrust
as the tendency of units toward conscious maintenance of a re-
lationship with the environment that will assure satisfaction of
aspirations. Li is the "human" leadership strength, and Di
is the systemic performance control discipline.
Using the variables of Figure 10, Figure 11 describes the
nature of the three principal modes of behavior. The reader

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74

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76 H. Igor Ansoff (United States)

ENVIRONMENT N.
'| tnvlto nmental n&AJU tance.
* ' ^cm/^tonmeittat potential

' tuAbulence level ^s. y^ y^


• budget Intensity >v / '
• maAket dependence ' I MARKET 1
. politicai LünUatlon* ' > V DYNAMICS J

^^ ^S' / i ^AtAateglc
f PERCEPTION ' / l ' behavlo*
I OF 1/ ♦ '
V ENVIRONMENT //
anticipation/ time tag * ^v >W | '
vltlon/myopla ^ ^ ^^^1' "^^^ / i '
ACTION I ^'* >' Awuttíj i I STRATEG
POTENTIAL f^_-

____ ' "^^ aòpOutflon leuel ^^¿- ^/ mKU:>l

STRUCTURE l ^ thAuAt ' TRIGGER I ' BUDGE


1 y - l ' tdAiit '^

' / CHANGEr^S^V j(
' / / ^PROGRAMS/BUDGETS ' ' /
Y /( POWER STRUCTURE ' 'S

I 1 ^STRATEGIC THRUST^ / I

IVI' '^ACTION
1 ^ACTION POTENTIAL^ 'U/
POTENTIAL^ /

Figure 13. Strategic transformation behavior.

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Strategy Formulation as a Learning Process 77

unaccustomed to mathematical symbols can combine the verbal


descriptions with the graph model of the ESO at the bottom to
form an image of an ESO as a football being positioned along
the strategic thrust axis by interaction of the three forces.
Strategic drift is accommodated under budgeting behavior, in
proportion to the unit power and past success; it is constrained
by management in strategic evolution; and it is superseded by
the force of inertia in strategically discontinuous behavior.

Power and Strategic Behavior

Figure 12 illustrates the role of power in the choice of be-


havior. As shown at the lower left, it is assumed that a change
in the level of environmental turbulence is taking place that
makes it necessary (to survive in the long run) that the ESO
shift to a strategically discontinuous behavior, abandon its re-
liance on a previous view of reality, and develop novel percep-
tions and new relationships to the environment.
As Figure 12 demonstrates, the mere existence of powerful
central management by no means guarantees a timely response
(remember Sewell Aver y of Montgomery Ward!). It also shows
that when continued strategic adaptation behavior leads to
crisis, a transfer of power to a group that possesses the needed
vision and perspective is necessary before the ESO can launch
strategically discontinuous behavior. Power-culture trans-
formations are necessary but not sufficient for survival; avail-
ability of resources, time, and basic starting action potential
are also essential.
Figure 13 summarizes the theoretical framework by des
ing the variety of strategic behaviors presented above.

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