Home Geography The Internet as a Technology-Based Ecosystem: A New Approach to the Analysis of Business, Markets and Industries
The Historical Context
The classical science paradigm is sometimes referred to as the ‘Newtonian-Cartesian’ paradigm (Mc Millan 2008). This is because Newton was regarded as having laid the methodological foundations of modern science. The successful development of science in western countries during the seventeenth and eighteenth centuries was dependent upon the emergence of empirical methods and a new philosophy of thought coupled with an application of classical scientific principles of rational reasoning, logic, analysis, and measurement to the solution of problems. When classical scientific rationality is applied to management studies and strategy it aims to be:
The classical science approach, therefore, aimed to reduce the uncertainty involved in taking strategic decisions. Stacey (2007) referred to this as ‘technical rationality’ and reaffirmed that it underpinned the conventional approach to problem solving and decision making in strategy.
Business strategy actually emerged as a discipline in the 1950s and 1960s and during the first twenty years of its development, many of the major concepts and approaches that are used today were established. The early strategic thinkers were influenced by classical scientific thinking. In this classical approach to strategy, the actors were viewed as being rational and strategies were deliberately planned, formulated at the top of the organisation, and implemented as part of a top-down linear process.
Alfred Chandler (1962), Igor Ansoff (1965), Alfred Sloan (1963) and Kenneth Andrews (1971) are commonly referred to as the founding fathers and proponents of the classical approach to strategy. The ‘classicists’ saw profitability as the supreme goal of business and rational planning as the means to achieve it. Alfred Sloan (1963), defined the fundamental strategic problem as one of positioning firms in markets in which maximum profits could be earned. This gave rise to the ‘Positioning School’ of strategy upon which Michael Porter’s (L985) industry structure approach was based.
Alfred Chandler’s (1962) work focused on organizational structures that would enable managers to execute their strategic responsibilities (‘structure should follow strategy’). Carrying out research at General Motors in the 1960s, Chandler stated that the reasons for the company’s success were partly due to the removal of the executives responsible for the destiny of the enterprise (strategic planning) from the more routine operational activities (implementation). This gave senior management time, information, and psychological commitment to long-term planning and appraisal of the firm (Chandler 1962: 309). Therefore, strategy formulation and control was seen as the prime task of the top managers and strategy implementation was seen as the responsibility of the operational managers in the divisions.
Research by Kenneth Andrews (1971), reinforced Chandler’s viewpoint. Andrews (1971) believed that corporate strategic planning could and should be approached in a linear, rational analytic manner. He proposed only two stages - strategy formulation and strategy implementation that were considered to be separate activities. Ansoff (1965: 105), meanwhile, linked his notion of strategy directly to military practice and academic economics. The strategy was formulated and executed using a militaristic style of hierarchical command based on economic rationalisation. Strategy formulation was, therefore, viewed as a rational and analytical activity directed towards the achievement of clearly defined objectives.
The strategy process models specified by these early researchers were, therefore, highly prescriptive since they assumed strategy cascaded from the top down. Mintzberg et al. (1998) classified these early approaches to strategy as the planning and design schools. The strategic planning school (Mintzberg et al. 1998) is one of the oldest schools of thought for understanding business strategy, with the possible exception of earlier writings which used military strategy as a model. The ‘design’ school was developed at approximately the same time. Both schools were also prescriptive and attempted to be all-embracing insofar as they aimed to consider all the relevant aspects of a strategic decision in one procedure. Both approaches assumed that strategy formulation should come from the top and these prescriptive models were concerned with best practice. They sought to offer suggestions about what managers ought to do rather than describing what actually happened in practice. This is why these approaches still play such a prominent role in strategy training and development today.
The strategic planning school also distinguished long-term, medium-term, and short-term tactical planning as sequences in the planning process. Long-term planning (as mentioned earlier) was assumed to be the responsibility of senior management (Ansoff 1965). Within individual businesses, medium-term strategies were formulated along with short-term tactical plans to achieve the long-term plan. In theory, lower level managers became involved in planning to deliver the long-term strategy. Business unit managers became involved at the medium-term planning stage. Middle managers undertook detailed planning in relation to the formulation of tactical plans, while lower level managers would be involved in the detailed action planning. This was subsequently a highly bureaucratic and inflexible process not well-suited to a dynamic, fast-changing environment.
In the 1960s, large organisations set-up planning departments in an attempt to concentrate strategy skills in one place. Acquiring and processing information were considered to be specialised activities. The strategic planning school was therefore criticised for neglecting the beneficial inputs of lower level managers, for placing too much reliance on forecasting (when it was difficult to predict outcomes) and for presuming that the formulation and implementation of strategy could be separated.
The term ‘design’ school was coined by Henry Mintzberg (1994) because he proposed that strategy should be designed rather than planned. This was an approach endorsed by Clayton Christensen et al. (1987), and although it shared many similarities with the basic strategic planning approach, it attempted to simplify the decision process by placing design responsibility with the chief executive. The top manager was, therefore, responsible for designing strategy with the support and assistance of lower level managers and specialists.
The design school also consisted of a stage theory model (Andrews 1971), where strategy formulation and implementation were separate activities (as was the case with planned strategies mentioned earlier). Its reliance on the top manager could also lead to complications since some top managers were more capable than others. The plans that top managers created were likely to require amendment and organisational politics (Mintzberg et al. 1998) often resulted in poor or inadequate feedback support. Strategic failures would sometimes be blamed on poor implementation resulting in middle managers postponing their upwards communication.
The rational approach to strategy is outlined in Table 1.1 (Walton 2017).
The examples provided under each of the headings within the table are analytical frameworks, models, methods, tools and techniques designed to help managers objectively measure and rationally analyse the external industry environment and the internal resources and capabilities of the firm; to consider strategic options and to recommend courses of action. These frameworks, models, and tools will be analysed in Chapter 2 in greater depth.
Table 1.1 A rational approach to strategy (Walton 2017)
Figure 1.1 also provides an illustration of how a basic rational analytic framework is designed to operate (incorporating iterative feedback loops).
By the start of the 1980s, two clear trends and paradigms had emerged in modern business strategy. The first strategic paradigm became known as the ‘process approach’. This focused on the way that strategy was formulated, evaluated, and implemented and resulted in the development of the ‘analysis, choice and implementation’ model (Johnson and Scholes 1988). This is similar to what the chapter has been analysing so far as illustrated in Table 1.1 and Fig. 1.1. In 1988, Johnson and Scholes produced a strategy process model which depicted the formulation, evaluation and implementation of strategy as occurring due to the result of three overlapping processes consisting of strategic analysis (positioning), strategic choice and strategic implementation (action).
The second strategic paradigm to emerge was developed by industrial organisation economists (Porter 1980). This led to a body of theory heavily influenced by economics and was referred to as ‘strategy content’. During the 1980s, scholars with a background in industrial organisation economics initiated deductive large scale quantitative research aimed at
Fig. 1.1 A basic analytical framework (Walton 2017) elucidating the relationship between strategy and performance. Michael Porter (1980, 1985) was the most influential writer to emerge during this period.
Within this field, Edward Mason (1949) and Joe Bain (1956) were also credited with the development of a structure-conduct-performance (SCP) model that provided a framework within which further propositions concerning the relationship between strategy and firm performance could be developed. The SCP model proposed that the structure of an industry determined the conduct of a firm, which in turn affected their performance. It was suggested that there were direct cause and effect relationships between the structure of industries, the behaviour of firms within them and their financial performance. Industrial organisation economics, therefore, became the dominant paradigm within which strategy research was conducted. It remained of key importance throughout most of the 1980s and 1990s and it is still highly influential today despite new schools of thought emerging from authors such as Mintzberg et al. (1998) and Jarzabkowski et al. (2007) who viewed strategy formation as being a social process routed in culture and involving power, politics, cognition and learning etc.
This gave rise to what has become known as the ‘positioning’ approach to strategy (Porter 1980). Although the term positioning was not used during the period in which the SCP model was developed (Mason 1949; Bain 1956), it has become an important word in the history of modern strategy. The positioning school of thought in strategy proposes that successful competitors in an industry start with an understanding of the environment. The SCP paradigm (mentioned earlier) emphasises how market structure determines industry attractiveness (Porter 1980). It asks the question ‘how can firms position themselves in attractive industries in order to earn superior profits?’ One of the problems this question raised, from a traditional perspective, was that established firms were not able to readily move from one industry to another (Teece 2012). Industry boundaries also became blurred over time as firms diversified and as technological advances enabled firms to move into related areas etc. However, a complete change at this point in time was not seen as possible. For example, the assets of an oil company would not be well-suited to redeployment within the environment of a processed food manufacturer. A pharmaceutical company would not be able to re-deploy its assets in the hotel and leisure industry. The task for positioning theorists was therefore to understand the industry environment and how the firm could best position itself within it as well as to identify changes in the environment which could affect its ability to compete on an ongoing basis.
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