Advanced Strategic Management

Second edition

by Mark Jenkins, Véronique Ambrosini and Nardine Collier

Key points

Chapter 2: Institutional theory perspective: Gerry Johnson and Royston Greenwood

  • Institutional theory began with Meyer and Rowan’s (1977) paper, they explained that organisations are influenced by more than just their task environment, and that they mostly behave in the way they are expected to behave, based on the institutional environment.
  • The environment is seen as regulated, and as a web of transactions in a network of participating organisations, where all the organisations have a common understanding of the transactions.
  • Competences lie in the institutionalised nature of the organisations, as such one firm could gain advantage by being the most proficient at legitimising itself in a specific area.
  • The manner in which firms compete in this perspective is similar, and so competition takes place within the bounds of socially accepted norms. In this perspective there is a perceived lack of managerial choice and more of a sense of obligation to fit in with the accepted way of behaving.
  • As executives sit on the corporate boards of many companies in an industry, they ensure the conformity of the firms to normative pressures. Furthermore there is a lot of imitation in terms of strategies developed.
  • There is much commonality found in strategy decisions, these are not rational decisions, but bound in the common approaches, assumptions and practices developed from the institutionalised processes.
  • Change occurs within the bounds of what is taken for granted and therefore it is often based on familiarity which can result in strategic drift. Only occasionally can change be quite radical, such as when the first internet banks entered the banking industry.
  • Control and structure are a manifestation of institutional norms, often controls are set in place to reinforce rituals.
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Chapter 3: Military strategy perspective: Sylvie Jackson

  • Military strategy stems from before 400BC, and encompasses many of the world’s greatest strategies. The strategies used in the military context are often the basis of the strategies used in hostile or turbulent environments.
  • A thorough analysis of the environment is often undertaken to clearly understand the competitive and environmental arena that the organisation is situated within.
  • The individual abilities, skills or attributes of a person or organisation are assessed to identify opportunities. It builds on integrating morale and ethical validations into operations.
  • Culture is used to instil a sense of belonging into new organisational members.
  • Offensive action and the use of surprise is key to competing, this notion can be especially useful in new markets or with new technology.
  • The balanced scorecard has been adapted by the military, and hence is viewed to be useful in organisational settings.
  • Developing a ‘can do’ attitude even in the face of change over which the organisation has no control is key to military strategy.
  • Control is exercised across the hierarchy of command and reinforced by norms of behaviour.
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Chapter 4: A spatial perspective on strategy: Stephen Tallman and Mark Jenkins

  • The role of location to provide a competitive advantage, in an increasingly globalising world, is seen to be key to access world class capabilities.
  • The perspective recognises locally based resources to develop a competitive advantage and understanding that knowledge may only be assessed if a firm develops a position in that location.
  • It has linkages to the transaction cost model and can be understood using the idea of clusters. It can also be supplemented by the resource based view of the firm.
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Chapter 5: Industrial organisation economics perspective: Seân Rickard

  • Explains the economic behaviour of a firm.
  • Transaction cost economics has developed from this perspective.
  • Economic models should be viewed within the context of a firm’s strategic group, as firms attempt to differentiate from each other.
  • The “Structure-Conduct-Performance” paradigm was built based on the industry structure of a firm rather than a single business strategy. It focuses on the causal relationships between the number and size of firms in a market, their competitive behaviour and subsequent performance. This moved economics from the neo-classical school to the empirics of the industrial organisation school.
  • Barriers to entry are developed to place new entrants at a competitive disadvantage.
  • Culture is understood by the behavioural approach to decision-making, whereby the firm is understood as a collection of individuals, some of which coalesce as groups. It encompasses objectives, conflicts and motivations.
  • Porter’s (1980) five forces model is often used to understand the industry that a firm competes in and was developed from the Structure-Conduct-Performance paradigm.
  • In this perspective competition is subscribed via strategic conflict, based on game theory, to influence expectations of firm’s future behaviour.
  • Penrose’s (1959) arguments from the resource based view of the firm facilitate in understanding how resources can be used to improve the economics of the firm.
  • This perspective links change with the Austrian School, which concentrates on the dynamic progress of competition via exploration of new methods. Furthermore change in this context is linked to the growth of firms.
  • Game theory techniques can be mastered to control an industry. This perspective is also concerned with the separation of ownership and managerial control, and the use of contracts and incentives to get the best from managers.
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Chapter 6: Stephen Regan: Game Theory Perspective

  • Mathematically based game theory is concerned with how firms interact with each other, rather than their own actions.
  • Stemming from military strategy, game theory is based on the premise that people solve problems on the basis of what they believe others will do.
  • Firms decide whether to compete or cooperate with the firms in their industry, by trying to get into the mind of their rivals. However a firm may have to proceed with game theory even when it has incomplete or imperfect information.
  • It is understood by choice behaviour of the firm and the rational beliefs in behaviour.
  • There are two forms of game playing which firms can use: the strategic form (a straightforward identification of interactions) and the extensive form (a richer understanding of options and possible actions).
  • The games are heavily based in rational evaluations.
  • Communication, known as signalling, is used to build a competitor profile which is publicly known and can be different from the firm’s private self.
  • The theory can lead to a type of cooperative strategy based on bargaining theory.
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Chapter 7: Transaction cost economics perspective: Andy Lockett and Steve Thompson

  • Transaction cost economics is understood by the principle that to be economic a firm must minimise its production (labour, raw materials, etc.) and transaction costs.
  • Transaction costs are not transparent and are the cost of using the market, for example finding buyers, negotiating or acquiring information.
  • They are influenced by opportunistic behaviour regarding information asymmetry and the processor versus acquirers knowledge of the costs.
  • Transaction costs usually influence the decision as to whether a firm will “make or buy” goods.
  • The costs associated with using a market can lead some firms to prefer internal growth, moving into new markets to gain access to specific resources.
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Chapter 8: Agency theory perspective: Duncan Angwin

  • Agency theory is concerned with relationships between parties in which one (the principal) gives decision-making responsibility to the other (the agent), for example a shareholder and a manager, to act on their behalf.
  • Although designed to increase value for both parties, there are costs associated with the relationships; monitoring, risk attitudes and information asymmetries, etc. all of which influence the parties bargaining power.
  • An ‘agency problem’ may arise if the parties aims conflict, (for example shareholders needs of value maximisation against a manager’s want of self aggrandisement), if there is less effort by one party than the other would like, or if there are insufficient incentives. In these instances the market usually interrupts the conflicts, for example via the promotion of a new manager or a takeover.
  • Critics of agency theory argue that it is limited in that it does not account for human nature or the complexity of organisations.
  • It explains the separation of ownership and control.
  • Agency costs are those associated with the monitoring, incentivising, enforcement, etc. of the agents.
  • Corporate governance is used as a mechanism of control, and includes for example incentives, influence of a board of directors, or hostile takeover.
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Chapter 9: The resource based view of the firm: Véronique Ambrosini

  • The main principle behind the resource based view of the firm is the link between the internal characteristics of the firm and its performance; ergo the relationship of a firm’s resources and its competitive advantage.
  • To facilitate in developing a competitive advantage the resources must be valuable, rare, inimitable and non-substitutable (VRIN).
  • A firm is viewed as a bundle of tangible or intangible resources, its ability to use them then determines its performance.
  • Causal ambiguity acts as a limit to other firms’ ability to imitate resources, because they do not know how a firm achieves its advantage so they do not know what to copy. In some instances the firm itself will not know the source of its own competitive advantage.
  • Path dependency also limits a firm’s ability to copy others resources, because the resource may have been created over many decades and following many circumstantially bound decisions, resulting in a unique history for the firm, which competitors may be unable to imitate.
  • To compete and develop a competitive advantage a firm must manage its resources, protecting and improving those it holds, and creating new resources.
  • The resource based view is a competency based perspective that asks managers to look at their firm for competitive advantage.
  • Intangible resources are more likely to be VRIN resources than tangible resources as they are more difficult to copy or identify. This is the case with the culture of a firm which will be unique and therefore may lead to developing an advantage.
  • Diversification is mainly used in this instance, especially if based on a firm’s resources because by moving into new markets it can then use resources that are not currently being fully exploited.
  • Dynamic capabilities focus on the renewal of an organisation’s current set of resources in line with a changing environment. If the resources are not renewed they may become redundant. Dynamic capabilities refer to the ability of the firm to alter its resources by creating, integrating, recombining and releasing resources; i.e. creating future resources.
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Chapter 10: The cognitive perspective: Gerard Hodgkinson

  • People are limited in their ability to process a large variety of stimuli, therefore strategies are employed to cope with processing the information. Hence this leads to having a simplified representation of reality, which subsequently acts as a filter to all new incoming information. The filter may result in an industry making biased or inappropriate decisions.
  • The way people act is driven by their perception and interpretation of the world, based on their past experiences and learning, this is referred to as ‘top-down processing’.
  • ‘Bottom-up processing’ happens when environmental stimuli influences actions directly, without referral to past experience.
  • Mental representations of how individuals capture organisational life as a version of reality are also referred to as schemata, cognitive maps or mental models.
  • This all results in bounded rationality, whereby individuals are not able to make completely rational decisions because they are constrained by their own information processing limitations.
  • In organisations, this may result in an upper echelon perspective whereby the environment is constructed by the views of top management and how they interpret stimuli.
  • This body of literature challenges the fundamental assumption of rationality, on which most perspectives of strategy are based.
  • This perspective posits that we ask the fundamental question of “from whose perspective has this analysis been taken”, when reviewing any work that tries to understand the external environment.
  • Some strategic groups are socio-cognitive constructions, where CEOs and senior managers have a shared interpretation of reality. This then determines the context in which they believe competition can ensue.
  • There are many cognitive mapping techniques that can be used to aid in eliciting the competences in organisations, these include causal mapping and repertory grids.
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Chapter 11: Knowledge perspective: J-C Spender

  • Gathering reliable information about the world allows managers to make more rational decisions vis-à-vis opportunities and threats.
  • This perspective is concerned with sense-making, the understanding of what competitors actions really mean for a firm. This works under the assumption that all competitors will have different interpretations, and different ways of looking at the world.
  • It is difficult to come to a balance between these two views, a manager can never have all the knowledge there is on which to base a decision, but he/she must have a deep understanding and as many facts as possible before doing so. This can lead to ‘satisficing’ whereby searching for solutions ends once an acceptable answer is identified.
  • This perspective also acknowledges that there is human agency in every choice made and actions taken.
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Chapter 12: Network Perspective: Silviya Svejenova and José Luis Alvarez

  • The network, or relational perspective of strategy argues that a firm’s profitability can be understood by examining its network of relationships.
  • The network partners and their resources are considered as is the firm’s ability to collaborate, and generate value through these relationships.
  • Firms are seen as interdependent, not single entities.
  • The perspective is concerned with how the networks inputs and the firm’s resources can create value, to gain rents that would not be possible singularly.
  • The network is a form of social capital which creates the performance.
  • This is built either by brokerage (value is created by connecting firms) or closure (firms are highly connected to each other and share information throughout their network, via repeated, trusted and stable exchanges).
  • Managers in networks often have a dynamic view of the relationships, as they need to ensure that the network is servicing their needs.
  • The perspective suggests that a firm’s position in a network and the relationships it has is a unique and difficult to imitate resource, which is also strengthened through notions of path dependency.
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Chapter 13: Strategy-as-practice perspective: Julia Balogun, Paula Jarzabkowski and David Seidl

  • Strategy-as-practice looks at the work of the strategist, to understand everyday processes, practices and activities involved in doing strategy and strategic change in organisations.
  • It is based on ‘re-humanising’ strategy, addressing the reality of actuallydoing strategy, or ‘strategising’ as it is also known.
  • Strategising encompasses how a strategist talks, acts, etc., and the tools he/she uses.
  • This micro-phenomena must be understood in the wider social context. Hence this perspective tries to establish links between micro and macro perspectives.
  • There are three main factors to comprehending strategy-as-practice: praxis: interconnection of industries/groups and the institutions in which they reside; this is what people do. practices: shared routines of behaviour, traditions and norms, via which individuals construct activity, this is the know how of the strategist, and the mental activities they perform. practitioners: the individuals who draw on practices and do actions, they shape the activity.
  • It is a dynamic perspective which includes a temporal dimension.
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Chapter 14: Complexity perspective: Jean Boulton and Peter Allen

  • The complexity perspective gives a view of the behaviour of organisations as integrated, capturing many different theories and taking on board the uncertain and dynamic nature of the world.
  • It espouses that people should recognise that the future does not yet exist, and so it is emergent.
  • The perspective explains that if an organisation allows interconnectivity and diversity it can better respond to changes in the environment, and that locally based variations result in novelty and innovation.
  • Systems are seen as interacting, nested, evolving and overlapping, there are no fixed boundaries, characteristics, etc.
  • The goal of complexity theory is to create clear actions based on the best data, but recognising that plans may not work as expected.
  • Complexity theory stems from a number of areas, including maths, non-equilibrium thermodynamics (having the most significant impact) and systems theory. Computers allowed these different areas to expand their work through modelling.
  • Complex systems recognises that connections of items can be non-linear and mechanical, and these alter over time. The systems then self-organise and self-regulate.
  • Chaos theory is an subset of complex systems.
  • The path of any complex system is irreversible and cannot be determined. They will, however, unfold relatively causally, it is when there is the option of distinct paths that it becomes unpredictable.
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Chapter 15: Critical management perspective: Mahmoud Ezzamel and Hugh Willmott

  • This perspective opposes the main approaches of strategic management, which abstracts it from the wider relations of inequality and power in which knowledge is produced, thereby excluding or repressing the claims of other fields.
  • It views strategic management based on the perspective an individual holds to be true, and its power to persuade others of its merit. Hence the production and reception of knowledge from a critical management perspective is understood as an articulation of power, not as an indication of what it reflects or captures.
  • The perspective is concerned with the domination, exploitation and subjection of a theory, by which to privilege it to academics or practitioners.
  • It is more concerned with theory dependent on empirical findings than those generated via tested hypothesis.
  • Critical perspective attempts to connect strategy with domination, exploitation and subjection, relating it to structures of inequality.
  • It also asks for a recognition of the limitations associated with many strategy approaches.
  • Critical management has a varied group of commentaries on and integrations of strategic management, there are many types, for example Foucauldian analysis.
  • Foucauldian discourse rejects the dominant conception of a language-reality relationship where signs (e.g. “strategic management” as a term) capture reality.
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Chapter 16: The theory and reality of strategy: How practitioners and academics can form meaningful partnerships: Suzanne Behr and Margaret White

  • This view espouses the benefits of interactions between practitioners and academics and the gains to be made from knowledge transfer.
  • It highlights problems of their partnership include differences in culture, goals, timeliness, and relevance, and explains that to get over these problems there should be an initial interest in collaboration, create beneficial knowledges, reach for widely based outcomes.
  • There is a place for theory and rigour to work with practice and experience.
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Chapter 17: Conclusion

  • Which theory do you think is more relevant to the organisation you currently work for (or to an organisation that you are well aware of)? How has this theory been adopted?