Mainstream Western world literature presents strategy as a deliberate, coherent, and chronological process. However, the strategy can also be an emerging reaction that is irrational and fragmented such that is remains a continuous learning experience for the organization. There are four major theories used to explain the strategy. They include the classic theory, the evolutionary theory, the procession theory, and the systemic theory (Wittington 2001). The following paragraphs discuss the various backgrounds and characteristics of the four theories as part of the explanation of strategy. This paper explores the fact that consultants and theorists who compete for giving advice to companies cannot even agree on the most basic questions, which are: What is a strategy, does it matter, and how is it constructed?
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What is strategy?
In the classic theory approach, managers have to embrace a long-term perspective of profit maximization is the most rational way possible. The theory features other sub-theoretical implications such as the economic man concept, which champions for the establishments of central authority within firms that is undisturbed by non-rational thoughts and decisions undertakings.
Instead, the economic man, or the purest classicist approach, is to figure out the fundamental features of the market, the positioning of the competition, and then work out the best move for the firm to defend its market share and take advantage of demand opportunities (Thompson & Martin 2010). It also includes a ruthless pursuit of reducing costs to maximize profit margins. The classic approach puts the company leader at the helm of a strategy capable of making decisions that affect the firm’s behaviour in the same way that a military general would decide how the army behaves. Therefore, for the firm to succeed, its leader must be strategically smart (Wittington 2001).
In the evolutionary theory approach, the strategy is a matter of doing what is best for the survival of the company in a competitive market place. Therefore, it entails the managerial practices and leadership qualities that shape the short-term direction of a firm to reflect its business environment changes. Evolutionists believe that the people in charge of a firm as the ones responsible for formulating its strategy. The evolutionist class of economists sees markets are volatile at all times and therefore, the resulting behaviour of firms, which is their strategy, is mainly a reaction to the market.
Since only the fittest firms survive the market in the long term, the evolutionary theory calls for maximum efficiency of the firm in utilizing its resource such that, at any given time, the firm has reserve resources to respond to demands of the market. The evolutionary theory was a response to the simplicity and rigidities of the classic theory. It was erroneous to assume that legal systems of property and contracts are static and that individuals are always rational. In fact, the evolutionary theory corrects the thought of expecting other firms and the market to respond favourably to appropriate changes made by management (Wittington 2001).
In the processual theory approach, the strategy is a result of the many activities that members of an organization in their individual and collective capacities engage in to create notable patterns of a firm’s behaviour in the competitive market place (Wittington 2001). To the processualist, human nature is sticky and imperfect; thus, it is futile to expect that people will be able to create visions and stick to explicit plans of achieving the stated vision.
To them, the strategy is simply a constant adaptation to people and market changes that allow firms to remain operational. The strategy of a firm is something that emerges from the activities happening within the firm. Here, the strategy is the pattern of the organization (Tsang 2002). As people take part in routines and other aspects of organizational life, they end up creating distinct features of their behaviour and decision-making process in both proactive and reactive terms, and this ends up forming the strategy of the particular organization (Thompson & Martin 2010).
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In the systemic theory approach, strategy links to the cultures and power that exist and influence social systems around the organization (Wittington 2001). The systems shape the behaviour of people who make up the organization. Therefore, a firm’s strategy cannot exist out of context with its supporting social systems.
The strategy appears due to the company’s efforts to respond to changes in the market place as permitted by its social and power structures in its environment. It is possible for companies to act deliberately as long as they are within the confines of their societal structures (Steers et al. 2010). When using the systematic approach to explain the strategy, one would say it reflects the given social system that governs the affairs of the firm. The system defines rules of activities and interests to pursue (Wittington 2001).
Much of what a consultant proposes to a firm in a crisis will depend on the location of the firm and its underlying motivations for operating. Contrary to popular Western world opinion, the increase of shareholder value does not always emerge as the primary goal of the firm’s existence. However, the shareholder’s interests will always dictate the existence of the firm (Wittington 2001). For the processual and systemic theorists, firms have other possible outcomes to strive for other than profits. Meanwhile, the evolutionist and the classicist theorist see profits as the only aim of the firm.
In the end, the definition of strategy is uncertain, but it is still possible to describe the strategy in terms of its characteristic. At this stage, one must still rely on a particular theoretical background to explain it. So far, there are four distinct theories of strategies, though they hold some similarities that practitioners could use to iron out application differences. In practical terms, it all depends on how much power to shape the future the firm has and its ability to exercise that power.
For the classicist, the strategy is all that matters, and with it, firms can successfully earn profits and grow (Wittington 2001). On the other hand, using a systemic perspective, one would conclude that though strategy matters, it is not the end goal. Firms must still operate within systems that govern the affairs of organizations and people. Such systems include culture and governance (Thompson & Martin, 2010).
With the above theoretical basis for understanding strategy, it is clear that picking one definition does not suffice for all situations; however, a particular theoretical definition will always fit at least one practical use scenario. The background of the strategist, together with the aim and the environmental variables at work will always define the interests of the firm and the essence of using a particular strategic theory to explain the concept of the strategy itself. A better way of making sense of strategy is usually in its application, where firms can tell whether it makes a difference or not.
Does it matter?
After getting a glimpse of the four theoretical definitions of strategy discussed in this paper, the next logical step is to understand why strategy is important. Understanding strategy helps to explain the underlying reasons for various actions taken by firms. In this sense, strategy is important to the analyst of a firm.
Strategy matters because it is a rational process of planning that allows the firm to get a firm grip of its future. At least that is the classic theory perspective (Bensoussan & Fleisher 2013). Still, the evolutionist perspective sees strategy as important because it allows firms to take advantage of their present situations to make necessary changes that should eventually allow them to survive the market hostilities created by rivalry (Henry 2011). When looking at the importance of strategy from the two perspectives above, it is clear that without strategy, firms would perish as they would be unable to structure themselves appropriately or they would fail to react according to the requirements of their market (Lowson 2002).
In some cases, strategy will not matter in the long-term because it is incapable of shaping an organization’s affairs in such a period (Meek & Meek 2003). For example, to the processualist, strategy remains an emergent process of learning and adapting, more like a pattern of the firm (Wittington 2001). Therefore, strategy in this case matters little other than to use it as a basis of predicting actions that a firm would take in a given circumstance. When strategy makes a difference, then it becomes important. However, in cases that limit strategy effectiveness or create vagueness such that highlighting the strategy is difficult, then it would not really matter what strategy a firm follows (Jarrett 2003).
According to Michael Porter, strategy is essential because it positions the organization effectively against its environmental influences so that the former benefits as much as possible (Porter 2004). From overall economic perspectives, resources are scare and poor positioning worsens the scarcity situation for organization (Hitt et al. 2013). In that regard, strategy is what allows firms to move from bad positions to good ones that enhance abilities to utilize the scarce resources.
The essence of having a strategy could be just a manifestation of the professional management field that presents ideological views of markets and firms. It is a basis of power acquisition, which grew from individual interests to become a social expectation (Wittington 2001). Still, strategy is important for influencing a firm’s behaviour towards growth. It affects the choices made on diversification and innovation, which are two elements that are responsible for growth. On an individual level, strategy is important on career advancement in the organisation. Knowing the particular rules that apply to a particular firm situation is essential in making the right management decision for the firm (Grant 2008).
For large firms with multiple divisions and business interests, strategy is important because it serves as a tool for management to use when dealing with concerns of the company or its specific business units (Flynn et al. 2011). Beyond large firms, there are national interest to development and economic growth. The same four theories of strategy namely classical, processual, evolutionary, and systemic all play a role in prescribing relevant policies (Wittington 2001). Again, understanding them and their implication at the national level is important for the firm manager whose management efforts of the firm would be influenced by the particular national policies (Tsang 2002).
How is it constructed?
As expected the construction of strategy would differ according to the theoretical backgrounds used to define it. For practitioners, the underlying theory may not be that apparent. As such, their construction of strategy could be just a matter of following tradition and best practices within their industry. However, even then, they would still be following a particular theoretical underpinning.
For example, even with appropriate rulebooks on the formation of strategy, it might not be practically possible to follow them because of cultural influences. As such, the construction of strategy will much depend on what the present cultural system dictates (Luthans & Doh 2012). In such as case, a manager would be working within the processual theory of strategy because of the limits created by the societal structures. It is common for some societies, mainly in the Middle East and Far East countries to consider professional pride, national patriotism, and managerial power as equally important to the maximization of profits (Luthans & Doh 2012).
Although strategies have four distinct theoretical backgrounds, their constructions usually follows no particular theory. Instead, construction mainly aligns to the needs of the organization and the emphasis laid on strategy. The actual methods used to come up with strategy will usually reflect the everyday practices of particular societies and culture, which extend to the norms of doing business.
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In Western cultures that support individualism and logic or rational thinking, the evolutionist or classicist approaches of strategy would prevail without much societal hindrance (Luthans & Doh 2012). In the same environments, the systemic and processual theory underpinnings of strategy could still prevail, but they would not be as popular as the former two theories. In as much as different strategy definitions go on to define the nature of business transactions and organizational behaviour, they also depend on the expected definition and behaviours of the same organization from the society (Lync 2010).
By looking at major firms in different parts of the world, the strategic construction differences emerge, as major highlights of political, economic, and cultural influences on organization interest and behaviour. When observing the nature of enterprise specialization and development, business specialization and rational contracting, as well as evolutionary strategies are in favour with large Japanese enterprises. At the same time, all the features are out of favour in the United States diversified corporation (Wittington 2001).
In the cultural perspective, authority, loyalty and division of labour also show major differences among Japanese, Chinese, Korean, and United States corporations (Tsang 2002). They all signify the same political, economic, and social background features of each country that end up explaining the nature of organizations. The features are responsible for the creation of Japanese large enterprises or their equivalents in South Korean known as Chaebols. Meanwhile, even with economic prosperity of recent decades, the major Chinese corporation still operate as family businesses, while their United States counterparts are huge conglomerates with diversified corporation. As expected, the structural differences in the firms would then translate to diverse forms of strategy construction. A family business in China, for example, has low vertical enterprise co-ordination, while the Chaebol has high vertical enterprise co-ordination (Wittington 2001).
Strategy construction is a consequence of changing operating environments for firms, at least in the Western world. Here, the 1970s ushered a period of uncertainty and firms could no longer rely on their plans for growth to sustain them. Significant events happening beyond their control had the capacity to wipe out their entire business opportunities and markets or create them. Strategy, therefore, becomes a mix of internal and external features of the organization, with the aim of achieving a perfect combination that makes firms stealth in every sense (Lee et al. 2000).
In the historical sense, the making up of strategy shifted progressively from the classical theory basis to the evolutionary theory before changing to reflect the procession perspective and presently reflects the systemic theory background. In the past, mostly 1960s, organizations concentrated on planning for the long-term, but various events that characterized the cold war of the period questioned the rationale of long term planning. Consequently, it became important to pay attention to present market conditions and react to them fast (Henry 2011). A good strategy, therefore, became the ability to react such that the firm would always remain favourable in the market place.
With time, it became apparent that even as firms concentrate of being perfect fits for their markets, they face challenges of adapting as quickly as they should (Cameron & Mike 2012). Their internal processes and people relations were just not as predictable as the theories explained. As a result, the processual theory emerged to explain that what matters most was the resulting behaviours and routines of a firm that define its ability to correspond to demands from the market. The focus, therefore, shifted from external to internal. However, it also emerged that various features of the society affect firms in particular ways to dictate their operations (Luthans & Doh 2012). Therefore, organizations would only develop routines, procedures, interests, and other daily activities that were in accordance with the larger systems that governed their existence.
The emerging understanding of strategy is that they are programmed, at least in the processual theoretic way. The world is too complex and chaotic, such that the simplification into qualitative and quantitative terms that are easy to analyse and plan for becomes the strategy of the firm. While in the past strategy was formulation then implementation, now it is the other way around. Managers are no longer seeking to control their internal or external environments; rather, they are aiming to act deliberately to reflecting the emergent behaviours in their organizational internal and external environments. It is impossible to think of everything in advance. The new aim of strategy is to think of the most possible consequence and causes, while undertaking routine tasks and participating or the organizational daily life.
In the end, the construction of strategy is not always a tactical one, as the term ‘strategy’ would suggest. It could just be a logical response to situations and best practices. Again, best practices in this case could be the cultural expectations and political interests that shape the firms affairs. In the Western world, after years of studying and practicing the classical and evolutionary theories of strategy, the logical response for many managers would be to use various tools of strategy. Here, they would not be tactically carrying out the task of defining their strategy; instead, they would just be doing the expected thing for managers to do when facing internal or external organizational changes (Cameron & Mike 2012).
Strategy can be a feature of leadership that arose at the same time when professional managers became the leaders of organizations. As firms grow beyond family business status to public companies, they embrace professionalism and hire professional leaders. Accordingly, the professionals embrace processional tools of leadership, among them strategic tools. The managers at a firm get to their positions in various ways and they all have varied backgrounds. As expected, an accounting major, with years of experience in the finance department will embrace leadership measures that concentrate on the company finances, while another manager with marketing background will focus more on sales (Wittington 2001).
In addition, the organizational politics will always favour the majority’s interest within organization such that even though a leader could have a marketing background, the company could still focus on a financial strategy because its overall leadership structure has many people with financial backgrounds and interests. On a countrywide basis, firms will act according to the dominant profession in their country.
Therefore, while a particular firm’s action would be reflecting its internal routines, procedures and interests, the same features are a reflection of the overall country’s social systems. Firms in Japan and Germany are likely to have less financial outlooks as part of their strategies because those countries have less finance professionals, especially in top management positions, as compared to the United States and Britain (Wittington 2001).
When the learning approach is the basis of understanding strategy, practitioners prefer to use methods that bring out adequate information about the firm and its environment to influence conclusions. Here, an analysis of the future will rely on experience of the firm and related literature, which forms the expected best practices that consultants or other professional strategists will use when making their conclusions (Henry 2011).
On the other hand, when using the emergent approach, as highlighted in the classical and evolutionary theories, practitioners will prefer methods that take account of the behaviour of firms and markets and they analyse whether the particular firm followed those practices. In the first part, the firm is working towards dominance by learning from its environment, while in the second part the firm is working towards dominance by shaping its environment (Flynn et al. 2011). The extent to which the firm is able and actually partakes in the learning or shaping of its environment becomes its strategic initiative according to the respective theoretical backgrounds and practical assumptions used by the strategist (Frynas & Mellahi 2011).
Interestingly, those who are at the helm of company leadership and who would be expected to make the most deliberate decisions on the strategic direction of the firm are usually less powerful than their titles suggests (Wittington 2001). When making the strategy of the firm, management build up routines that influence their future responses to internal and external challenges of the firm. At an expert level, the processional relies most on routines of problem solving as much as the company leader does. Therefore, a strategic choice at any level or point will always be a mix of reactions and proactive steps taken against routines and expectations.
Summary on strategies
In the end, the definition of strategy is uncertain, but it is still possible to describe strategy in terms of its characteristic. So far, there are four distinct theories of strategy discussed in this essay under the section of what is strategy, though they hold some similarities that practitioners could use to iron out application differences. In practical terms, it all depends on how much power to shape the future the firm has and its ability to exercise that power. For the classicist theory, strategy is all that matters and with it, firms can successfully earn profits and grow.
On the other hand, using a systemic theory perspective, one would conclude that though strategy matters, it is not the end goal. Firms must still operate within systems that govern the affairs of organizations and people. Such systems include culture and governance (Thompson & Martin 2010). On the other hand, in the processual theory approach, strategy is a result of the many activities that members of an organization in their individual and collective capacities engage in to create notable patterns of a firm’s behaviour in competitive market place. Finally, in the evolutionary theory approach, strategy is a matter of doing what is best for survival of the company in a competitive market place.
The most appropriate approach to strategy today would be the learning approach that favours the theories, which bring out adequate information about the firm and its environment to influence conclusions. Given that the construction of strategy is still evolving in reflection of changing operation environments, the best way forward is to focus on apparent cultural and systematic influences on a particular organization before undertaking strategy construction.
The paper ends with the conclusion that strategy is both a reaction and proactive approach for influencing organization behaviour to minimize risk. Its importance and construction, thus, depends on the severity of risks facing the organization and opportunities available. In this regard, the uniqueness of organization and their operating environments is the reason why Consultants and theorists compete to advice companies, but they cannot even agree on the most basic questions: What is strategy? Does it matter? How is it constructed?
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