human capacity to think rationally and art effectively. They diverge widely in their implications (<ir strategic management. By directlv confronting these differences, vuu should he better able to test \nur uwn 'theories ol action' ami to decide finally which basic theory most closely matches vmir own experience and needs.
Theories of Strategy
RICHARD WH!! TINGTON*
Practical men, who believe themselves to lie .piite exempt from any intellectual inlku nccs are umuUv the .slaves oľsoine deluiict economist. Mailmen in authority, who hear voices m the air, are dislilliii£ their frenzy from sume academic scribbler of a tew years back.
(Kvmws i Viň: i83>
introduction
II
theories are important. Thev contain our basic assumptions about key relationships in business lite. Theories tell us what to loiik out lor, what our JL first .steps should he, and what to expect as a result ot our actions. Saving us Írom going hack 10 first principles at each stage, they are actually short-cuts to action. Often these theories are not very explicit or very formal. Whether building Írom experience or from books, we all tend to have our own private assumptions about how things work, how to get things done. Providing the basic grounding for our behaviour, Argyris < 1977) calls these assumptions 'theories of action'.
The danger ol these theories is forgetting we have them. As Keynes (1936) implies, fho.^e who boast of their coulinonscnsc approach to management are very probably just following the iil-inlormed, halt-forgotten, pseudo-scientific nostrums peddled to them in (heir early careers. Drawing upon his work with American senior managers, Argvris <i977) warns that nothing is more dangerous than to leave underlying assumptions hidden. Until we surface our implicit 'theories of action', we cannot test their accuracy and amend them to the conditions oi the day. S hose who do not actively confront their underlying assumptions are condemned lobe 'prisoners oi their own theories' (Argyris 1977: 119).
The point of this chapter, then, is to make explicit the assumptions that underlie . . . theories of strategy. Each theory holds verv different views about our
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The Classical approach to strategy
Tor Classicists, profitability is the supreme goal of business, and rational planning the means to achieve it. Dominant in the mainstream textbooks, the Classical approach draws wide disciplinary and metaphorical support. Its notions oi strategy formulation are informed by the economics ot eighteenth-century Scotland, while its assumptions about strategic implementation appeal back to the militaristic ideals of Ancient Greece.
For all this, die Classical approach to business strategy is still novel. I'hc beginnings ot a coherent discipline only emerged in the 1960s, with the writings of business historian Alfred Chandler (I9b2), theorist Igor Ansiiff (1965) and the businessman Alfred Sloan (1961). These three men early established the key features ot the Classical approach: the attachment to rational analysis, the separation of conception trom execution, and the commitment to proiii maximization,
Alfred Sloan, former President oi General Motors, defined the fundamental strategic problem as positioning the firm in those markets in which maximum profits could he earned. In his great biography My Ycms with Ccncidi Motors, Sloan laid down the Classical protit-orientated goal oi strategy.
the strategic aim oi a business is in earn a return 011 capital, and if in any particular case the return in the iunt> run is not satisfactory, the rleliciencv should be corrected fir the activity abandoned. ( I 9(i i: 4-9)
Sloan's (1963) biography chronicles in detail the development of the measures and methods by which, with as much cold objectivity as he could summon, he pursued this strategic aim over tour decades at (General Motors. Among the innovations he helped to pioneer were return on investment criteria, the decentralized divisional form and the separation of 'poliev' trom operations. l;-li
Sloan's example was highly influential, i he proline author and management consultant Peter Drucker worked for General Motors between 1943 and 194), when the company employed half a million people. He subsequently publicized Sloan's management structures and style in two books, The Concept oj the Corporation (,1946; republished in 1973) and % business (1947). Igor Aissoff tou was much impressed by Sloan, citing his statement on the strategic aim of business at the head <il the first chapter of his Corporate štrouýy, the first ever strategy textbook .y* generation later, Grant 199X; 16) reproduced the same statement in his tirst '.:chapter). Sloan was also closely connected with the first academic researcher of
Smuggled into Classical strategy thinking with the baggage ot economics, the individualistic ideal of rational economic man goes back at It-ast to the- hard-headed economies of eighteenth-century Scotland, tloilander's (19si7; 312} account ot" classical economics reveals how the fundamental principles of orthodox strategy thought were already present in the writings of Adam Smith. The profit-maximizing assumption is merely the economic expression of Smith's sad bcliel that self-interest was 'inherent in tile very nature ot our being'. Consequently, Smith asserted in his Itia/rh of Solium that 'each individual is continually exerting himself to find out the most advantageous employment ot whatever capital he can command' or, translated into the terms of modern accounting, eavii individual firm is continually exerting itself to maximize return on investment. According to Smith, our pursuit of this self-interest is governed by what he called 'prudence'. This notion of 'prudence' embodies the dual principles of 'reason' (the ability to foresee consequences ami to discern advantage) and 'self-command* (the readiness to abstain from short-term opportunism in order to benefit more substantially in the long run) (Hollander 1987: S1 5 16). it is exactly these principles ol eighteenth-century 'prudence' that are at the heart of modern long-term strategic planning.
■!
The more pragmatic and self-conscious Classical thinkers hesitate over some oi the economists' abstractions and the militarists' metaphors (see Grant !99S; clt. I). Yet echoes of both continue to linger in the orthodox textbooks. Henry Mintzberu's {1990) recent critique of strategic management orthodoxy exposes this subtext with painiul clarity.
Bv careful analysis of kev texts, especially those associated with the Harvard business School, Mintzherg (1990) identities what he terms the 'basic premises' ol Classical thought, "file first premise, that strategy formation should be a controlled conscious process of thought, derives directly from the notion ol rational economic man. The premise thai responsibility for control and consciousness must rest with the chief executive officer - 'THE strategist', as Minuberg (1990: 176) puts it -reflects both the individualism of economics and the military notion ot the solitary general at the tip of the pyramid ol command. Military notions of command also inform the premise that strategies emerge from the decision-making process fully formulated, explicit and articulated: strategies are in a sense orders lor others to carry out. thence too comes Miiit/.bei g's {1990) last premise, that implementation is a distinct phase in the strategy process, only coming alter the earlier phase of explicit and conscious formulation. It is this which underlies the image oi the strategist as general in his tent, despatching orders to the front. The actual earrvinu-out of orders is relatively unproblcmatic, assured by military discipline and obedience.
In sum. the Classical approach to strategy places great confidence in the readiness and capacity of managers to adopt profit-maximizing strategies through rational long-term planning. Accordingly, the Classic texts from Ansoff ( l%S> to Grant (1^98) furnish us with an abundant technology ot matrices, formulae and
flowcharts, The 'seat-ot-the-pants' managerial style of William Duram at General Motors is banished to the past, flattered bv the image of Olympian detachment, lured by the promise ol technique-driven success, managers are seduced into the Classical fold.
Evolutionary perspectives on strategy
Evolutionary approaches to strategy are less confident about top management's ability to plan and act rationally. Rather than reiving on managers, they expect markets to secure profit maximization. Stressing competitive processes of natural selection, Evolutionary theorists do not necessarily (prescribe rational planning methods; rather, thev argue that whatever methods managers atlopt, it will only be the best performers that survive. Managers need not be rational optimizers because 'evolution is nature's cost benefit analysis' (Einhorn and Hogarth I9SS: 114).
evolutionary theorists often make an explicit parallel between economic competition and the natural law of the jungle, Bruce Henderson, lounder of the Boston Consulting Group, complains:
Cl.vssie.il eeonomie theories ol competition ,u v so simplistic and sterile that, thev have hren less eimlribulions to understanding than nixsueies. These llieciries |>nsltilale rational, self interested heltaVKir by individuals wlio iiilciael limiuidl market eM-fian^es in j fixed ami >!aiu- legal .svslein of properly .md contracts. (!9.W: |4.f)
According to Henderson, these postulates are loo abstract and unrealistic. Competition is not a matter of detached calculation but a constant slrui>glc tor survival in an overpopulateci, dense and steamy jungle. He concludes {19)S9: 143): 'Human beings may be at the top of the ecological chain, but we are still members ol the ecological community. That is wliv Darwin is probably a better yuide to business competition than economists are.*
In fact, many economists had reached a similar conclusion long before llruee Henderson, H.C. Hall and Hitch's (19 59) simple held enquiries had discuv creel thai business practice was far from that prescribed bv the ideal oi rational economic man: not only did managers fail to set output at the theoretically profit-maximizing level where marginal costs exactly equal marginal revenues, but thev had no idea "hat their marginal cost and revenue curves were anvwav. Lconomists adjusted to this business stupidity bv letting the markets do the thinking.
Thus Alchian (19.90) appealed directly to the biological principle of natural selection to propose an evolutionary theory of the hrm that downgraded manage rial strategy and emphasized environmental fit. The most appropriate strategies .within a given market emerge as competitive processes allow the relatively better ,performers to survive and flourish, while the weaker performers are irresistibly squeezed out oi the ecological niche. The evolution of industries tvpicaliv follows
2    THtOrtici I.Jf ;"rtA
markets art' too efficient to permit the creation ofany sustainable advantage. In a competitive cnnroament, elaborate strategies can only deliver .1 temporary advantage: competitors will be quick to imitate and erode any early benclits. Classical techniques in particular are unlikely to deliver permanent superiority. 'S he market lor such knowledge is ux> perfect. As McCloskey observes:
formal methods will nul earn abnormally hii>h profits tin- long, The loniulity makes die hi easy to copy, (.ining lo business school is not a way to ari|iurc immense wraith, bn-au.se it is too easy gel in. (I y9i): I 2S)
The market ensures thai everybody else has access to Michael Porter's (1985) writings on competitive advantage too.
For Evolutionists, then, strategy can be a dangerous delusion. Except tor the minority oi' linns with significant market power, die prosaic conclusion ol Oliver Williamson (1991: 87) is simply that "economy is the best strategy'. The only real comparative advantage is relative efficiency. Managers must concentrate on their costs, especially the 'transaction costs' of organizing anil co-ordinating. Williamson writes:
.i sli'.iU'tJizinii elturi will rarely prevail if a program is Ina'dened by slguillcanl cost exressrs in production, distribution or uigiiui/aoon. All the clever ploys and posit i»iutit>, aye, all the kind's horses and all die king's mm, will rarely save a project thai is seriously flawed in iirst order economizing respects. ('1991: 75)
Williamson's advice, then, is not to get distracted from the basics.
If deliberate strategizing is ineffective, then what matters is an abundance of diverse new initiatives from which the environment can select the best. Hannail and Freeman's (198$) 'population ecology' perspective suggests that overall efficiency can best be secured by ensuring a steady stream oi new entrants into any organizational population, from which the relatively ill-adapted arc ruthlessly selected out. Rates of new firm formation and failure, therefore, are equal and complementary indicators of economic health and dynamism. Thus the helter-skelter rise in the number of business failures in the United States multiplying eightfold between 1980 and 1 997 (figure 2.2) merely reflects the more effective natural selection processes brought about by competitive markets. The rise in new-business start-ups over the same period has kept the American economy's 'gene pool' refreshed and replenished. It is little use trying to prop up and reform existing undcrpcrforniers. Firms that are poorly adapted to current conditions should simply make way to let new businesses try their chances at achieving environmental tit. Market convert Tom Peters (1992: 6IK) actually applauds high business failure rates.
The Evolutionary perspective clearly has rather gloomy implications ior strategy. Certainly, differentiation is a sound principle within a competitive environment, but it is doubtful whether this can be achieved deliberately or permanently. The construction ol grand long-term strategies may be so much vain
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distraction; managers would do much better to get down to the modest business of nuking sure that what they do now is done as efficiently as possible. 11 managers must attempt to anticipate change, then they would he wise not to try to outguess the market by investing heavily in a single major plan. The most effective approach may he to experiment with as many different small initiatives as possible, to wait and see which flourish ami which fail, and then to build on the successes whilst ruthlessly eliminating die failures, it was this Darwinian approach that guided Sony in its strategy during the ! 980s, when it launched more than I foO different Walkman versions in the American market, never retaining more than about twenty versions on the market at the same time (Sanchez and SudharsJian 19 2). The Evolutionary advice, then, is that, in searching for the best strategy, it is best to let the environment do the selecting, not the managers,
fVocessual approaches to strategy
I'roccssual approaches to strategy generally share the Evolutionary scepticism about rational strategy-making, but are iess confident about markets ensuring prol'it-maximiang outcomes. For rWessualists, both organizations and markets are often ■ 'tick), messy phenomena, from which strategies emerge with much confusion and
.■        ViSiG rot*.
2    I rtfORIES
ill small steps. Indeed, ihev argue that it is to the very imperfections of organisational and market processes that managers mw their strategies and competitive advantages. The best Processual advice is not to .strive alter the unattainable ideal of rational fluid action, but to accept and work, with the world as it is.
The foundations for the Processual approach were laid by the innovative work of the American Carnegie School most prominently, Richard Cvert, James March and Nobel Prize-winner Herbert Simon, 'together, thev advanced a model of strategy-making that is still being restated with radical claims to novelty more than tour decades later. Rejecting the specious unit of rational economic man on the one hand and the perfections ol competitive markets on the other, thev were led to take the internal compiexits of organizations seriously. Here thev uncovered two of the themes that have now become fundamentals ol Processual thought: the cognitive limits on rational action, since extended by Henrv Mintzberg (1987, 1994) in particular; and the micro-politics of organisations, developed by Andrew Pettigrew (1971, 1985).
Aiming tor a more psychologically realistic theory ot human behaviour, the Carnegie .School emphasized the limits ot human cognition. Rational economic man is a fiction: in practice, people are onlv hoimdedlv rational' (Cyert and March 196}). Uv this thev mean that we are unable to consider more than a handful of factors at a time; we are reluctant to embark on unlimited searches lor relevant information; we are biased in our interpretation oi data; and finalIv we are prone to accept the first satisfactory option that presents itself, rather than insisting on the best (March and Simon 1958; Cvert and March 1961). Even momentary consideration ol our everyday behaviour will probably confirm the basic plausibility of these assumptions. The result is that the environmental scanning, data analyses and calculated comparisons of strategic options advocated bv Classical theorists of strategy tend always to be flawed and incomplete. This is just human nature.
The micro-political view of organizations was established by the Carnegie School's recognition of the individual interests represented in any enterprise, firms are not united in optimizing a single utility, such as profit. Rather, they are coalitions ot individuals each of whom brines their own personal objectives and cognitive biases to the organization. Organizational members bargain between each other to arrive at a set ot joint goals more or less acceptable to them all. Ihe bargaining process involves both many compromises and what Cyert and March (i 961: i!) describe as 'policv sidepayments' in return for agreement. For example, lhe Production Director may accept a reduced investment programme in order to secure at least some new machines this year, while supporting the Technical Director's bid for a new research and development initiative in electronics just to keep her on-side. Strategy is thus the product of political compromise, not profit-maximizi n g i.a leu I ation.
The combination ol political bargaining and bounded rationality strongly favours strategic conservatism. The need lor change will only be imperfectly recognized, and anyway change is suspected because it is likely to set off a period of internal civil war until a new  dominant coalition' is established (Cyert and March
196}). Strategic behaviour therefore tends to become entrenched in the 'routines' and 'standard operating procedures' imposed bv political exigency and cognitive limits, Rather than perfectly rational strategies, organizations opt simply lor 'adaptive rationality', the gradual adjusting ol routines as awkward messages irom a dynamic environment eventually force themselves on managers' attention.
Cvert and March ,195 J) argued that tirms can get away with these slow adjustments because, contrary to the views ot the more stringent kvolttCionists, markets are in fact typically quite tolerant of underperl'omijiicc. firms often enjov sufficient market power to be able to earn reasonable profits without maximum effort. Shareholders are unable to detect this nnderpcrformance because, like everybody else, thev are not rational or informed enough to know. Thus linns can build sufficient 'organizational slack' to buffer themselves against the need lor strategic change, delivering just enough profits to keep everybody reasonably happv. in this sense, firms 'sati slice' rather than pioht-maximsze (Cvert and March !%}:+!).
This modest view ot ol ionizations and flu: people who run them has signil-icatit implications lor strategy. The Processual perspective radically downgrades the importance of rational analysis; it limits the search for strategic flexibility; and it reduces expectations of success. In practice, strategy-makers do not strive cease lesslv for the optimal solution, but satisfy themselves with following the established routines and heuristics of the organization. Indeed, as Nelson and Winter (1982: Iff) observe, 'according to the concept of strategy that has been developed bv a number of investigators associated with the Harvard Business School, the fundamental heuristic imperative for top management is: Develop a strategy*.
But strategy statements themselves can become routini/cd heuristics, working to constrain the held of opportunity and guiding decisions into established paths. Sav Nelson and Winter, in strong Processual mood:
it i-. f^uitc lujporonridtc to cotueiv*.- of firm hefiavuir ui term* ot deliberate choice from 4 broad menu ot alu'-iu.ui\vs ifui some external obsei vcr considers n> bc ' available' opportunities fur ihe organization. The menu is not luo.uf bui n.in nw and idiosyncratic; it is built into lhe firm's routines, ami mosi ol die 'choosing is also accomplished automatically bv dn-se routines. (19S2: 1 H)
Strategies are not chosen; they are programmed.
Strategies, then, are a way ill which managers try to simplify and order a
.world which is too complex and chaotic for them to comprehend, lhe regular .-..procedures and precise quantifications of strategic planning are comforting rituals, ..managerial security blankets in a hostile world. Thus Weick < 1990) tells the story of
A Hungarian detachment that got lost in the Alps during military manoeuvres. As it ..s.tMWed for two days, the soldiers despaired and laid themselves down to die in the
IfOWn wilderness. Then suddenly one of the soldiers found a map in his pocket, the
detachment took heart, and they marched confidently out ol the mountains. Sale •tack at camp, they discovered the map was of the Pyrenees, for Weick < 1990),
theories oh siRArtoY
strategic plans arc often like this map: it dees not matter much if they are wrong, so long as they give managers the confidence and sense of purpose to act. H'the firm sits waiting for this right map, it will freeze; if it gets up and moves, it will somehow or other (mil direction, acquire experience and make its own opportunities
(Box .'.1
Box 2.1
Surfing the edge of chaos
The notion of 'emergence' in strategy finds increasing support in. 'chaos theory', the new science complex adaptive systems. I his (tew science is concerned with now order tends rwunliy to spring from chaos, n doesn't taxe precise planning from trie top. only a few simple rules guiding action from the bottom.
brown and Eisenhardt (1999) give the example of 'bosds' - a computer simulation of autonomous, bird-like agents. Something remarkaele happens when these mindlessly moving agents are given just three simple rules: tiy to maintain a minimum distance injm other objects, including other boids; tiy to match the velocity ot nearby buids: and try to move to the centre of the mass ol nearby boms. Regardless ol their slatting positions on the scieen. and of the number arid positioning of obstacles, the baids always end up doing the same thing: forming a flock. There's no need tor leaders; order emerges naturally from myriads of small adaptive adjustments.
The point about being on thr- 'edge of chaos' is to have enough stiucture to allow lor patterns to emerge, but not so much as to cause inflexibility and cost. I he American company allows scientists to do whatever they like with 15 per tent of their time, but within a framework that insists on taking .30 per cent of sales from products less than four years old while imposing tough targets for profit and growth, innovative ideas - such as the Post-it or Thinsulate - bubble op from below but 'all into place Withm a coherent strategic Srame. Suiting on the edge ol chaos means nding the wave - never failing behind and never falling hi.
Soaicev Brown and tisenhirrlt i 999, Risuiie I V99
In this wav, the Classic sequence of formulation first, implementation second, gets reversed: strategy is discovered in action (March 197b). Alfred Sloan's {S96i) distinction between 'policy creation' and 'policy execution' begins to blur. Doubting top managers' capacity to prescribe effective strategies in the splendid isolation of their executive suites, Mint/.berg (1987) proposes the metaphor of strategy as 'craft". The craftswoman is intimately involved with her materials; she shapes her clay bv personal touch, imperfections inspire her to artistic improvisation, hands and mind work together in a process of constant adaptation. So should it be with strategy. In a world too complex and lull ol surpri;
strategist needs to retain the closeness, the awareness anil
) redid, the the adaptability ot
the craftsperson, rather than indulging in the hubris ol grand long-range planning, i-or Mdntzberg, crafting strategy is a continuous and adaptive process, with formation and implementation inextricably entangled.
This view of strategv is an unglamorous one: hands net dirty, steps are small and there are tew hold lunges into the unknown longrerm. But this slow progress is not to be despised. As Lindbiom (I9.S9) claimed, there is 'a science of muddling through', involving cautious comparison ol successive options and careful maintenance of consensus. The gradual adaptive approach to strategy has its own rationality, which Quinn (1980: 89) terms 'logical increnientalism'. The superior rationality of logical jncrementalism lies in its acceptance of our own bounded rationality; 'Smart -strategists appreciate that thev cannot always be smart enough to think through everything in advance' (Mintzberg 1987: 69). Honest about his or her limits, the logical inercmentalist is committed to a process of experimentation and learning.
The incrementalist approach is not necessarily a tactical one. It may be informed bv an underlying logic, or 'strategic intent1, that is both sufficiently clear to provide a sense of direction antl sufficiently broad to allow flexibility and opportunism along the way, as tor instance Komalsu's ambition simply to 'encircle Caterpillar' (Hamel and Prahalad 1989). More radically, Mint/.herg and Waters (1985) suggest, the underlying strategic logic may be perceived only atter the event, .Strategies are often 'emergent', their coherence accruing through action and perceived in retrospect. Thus Intel's famous switch trom the Dynamic Random Access Memories (DRAMs) market to its new roSe as a dominant player in microprocessors was achieved during the. 1980s through an accumulating series of incremental investment decisions that had consistently valued the prospects of the new business more highly than the old. Yet all the while the company's explicit strategy and self-definition was still to be a 'memory company', its original business. As late as 1985, one-third of the research and development budget was still devoted to the 'strategically important' memory business, even when the company had been reduced to a negligible 2 to } per cent market share. As Chief Executive Olficer Andy Grove observed: 'Don't ask managers "What is your strategy?" Look at what they do!' (Burgelman 1996: 42 3).
J his incremental approach to strategy is reinforced by Processualists who emphasize the stickiness of external markets. For the 'resuurce-lused' strategy theorists (e.g. Grant 1998), market imperfections inhibit the opportunitv-ntaximizing .strategies proposed bv- Classicists. The resources with winch firms
Compete are not all to be bought and sold in markets according to the shifting matrix of strategic opportunities and threats (Collis and Montgomery I99S).
pportunities and threats (C< Resource-based theories of the firm stress how a firm's resources include tacit , 1 P*"cms ,jt'co-operation, and intangible assets that take time ami learning to evolve. These resources cannot be traded, changed or imitated with ease (Box 2J). ri h°?f"l ^ i'nn* t'omIJt:rit'ye advantage, therefore, lies m what is unique and Wram lyts"     reS°UrC'CS    rhcw (''ollslitute its distinctive competences
Box 2,2
The knowledge resource
In today's knowledge-based stolonty, superior knowledge is iikcly to be Uie mow Vdiutibic miource ol ail Knowledge is valuable precisely because it i> itard to manage and harcl to trade Most useful knowledge is tacit not ea-.il>- L.iptuied in managerial ojlao.e.es or mutated C-y competitors. Knowledge reside* iewtoe tne Heads ot sjvver ranking s-Latf not in the flies of top management Knowledge is dynamic: in onpnsdirtabte ways - expwTencp ano events are always adding to it. regardless of foinia! efforts al research and development. Knowledge is hard to trade, because the aco.uu'er Cannot know as, value unt--1 it is actually used. Knowledge is often nighty immobile, because embedded in the routines, culture and teams ol a particular organization for ait ibe.se reasons, the value of knowledge rs unlikely to difluse away through noi mal processes ol market competition and exchange.
Ci.jot-.l-'y, -ill these knowledge characteristics impose constraints en the strategy piocesi especially in knowledge-.-ntensive. firms, such as professional seivntes or nev.-technology enterprises, strategy is as likely to emerge bottom-up as top-down. Alter-all, it 1.1 Jl me bottom where the knowledge lies anG is continuously recreuted I op managers ignore !hf> source of value in iheu sti ategy pi ores; at their pent
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III other words, the sources of sustainable superior performance lie internally, in die capacity to exploit and renew distinctive resources, rather than external!*, in simply positioning the firm in die right markets. Strategy involves building on core competences, not chasing each and every opportunity, Hamcl (IWI: S3) accuses: 'die traditional "competitive strategy" paradigm (e.g. Porter I VtiO), with its focus on product-market positioning, focuses on onlv the last few hundred yards ot what mav be a skill-buildmg marathon'. However attractive market opportunities might be, entry strategies will tail in the implementation il the firm lacks the requisite skills and resources internally or underestimates the dilficultv al acquiring them externally. What matters in strategy, therefore, is die loiig-term construction and consolidation of distinctly e internal competence:;. In this view, strategy become* a patient inwardly aware process, rather than the lluid externally oriented pursuit of opportunity emphasized by Classical industry structure analyse*.
Thus the IVoccssualist focus on (he imperfections of organizational and market processes yields at least tour conceptions ol strategy radically different from Lire Classical perspective: .strategy mav be a decision-making heuristic, a device to simplify reality into something managers can actually cope with; plans mav just be managerial security blankets, providing reassurance as much as guidance; strategy mav not precede action but mav only emerge retrospectively, once action has taken
place; strategy is unl just about choosing markets and dlen policing performance, but about careful!) cultivating internal competences. Many of die confident precepts ol' the Classicists are put in jeopardy: suddenly, it .seems that goals are slippery and vague, long-term policy statement.-; vain delusions, ami the separation ol formulation Ironi implementation a sell-serving top management myth.
lui the pure Prucessualists oi the Carnegie School, all this means that strategy is inescapably about sati.sficiug, settling lor less than the optimal, but more managerial Processuaiists turn the messy reality of organizations- and markets to advantage, in practice, the technical sophistication ol the Classicists amounts to naive idealism. It is above all by rccogni/.ing and aeenntinodaťmg real-world imperfections that managers can be most eflcctive. Giving due attention to implementation, exploiting imperfect markets to build distinctive competences, cultivating flexibility for incremental adaptation these are really the means to maximum performance.
Systemic perspectives on strategy
Against the .sometimes nihilistic propositions ot Lviilutionarv and Proccssual theorists, Systemic theorists do retain faith in the capacity ot organizations to plan forward ami to act effectively within their environments. Where they differ from the Classicists, however, is in their relusal to accept the tonus and ends ol Classical rationality as anything more than historically ami culturally specific phenomena. Systemic theorists insist that the rationales underlying strategy are peculiar to particular sociological contexts.
A central tenet of Systemic theory is that decision-makers ale not simply detached calculating indiv iduals interacting in purely economic transactions, hut people rooted deeply in densely interwoven social systems. Cranovetler's (l*)SS) notion of social 'embeddedness' captures the sense that economic activity cannot be placed in a separate ratified sphere of impersonal financial calculation. In reality, people's economic behaviour embedded in a network ol .social relations thai may involve their families, state, their professional and educational backgrounds, even their religion and ethnicity (Svvedbcrg et al. ilJH7; Whiuinglnn "these networks influence both the means and ends ot action, defining v, hat is appropriate' and reasonable behaviour tor (heir members, (lehaviour that mav look irrational or inefficient to the Classical theorist mav be perfectly rational and efficient according to U»e local criteria and iuui/uv operandi ot the particular social context.
Svstvmic theorists propose, therelore, that tirms differ according to the ..-..social and economic systems in which they are embedded. They are not all pel iect . proht-inaximizers, as they choose to be in Classical theory and they are obliged to be in revolutionary theory. But nor are shey just the particularistic organizations of" the Proeessual perspective, whose idiosyncrasies arc the product of internal limit.-. -Arid compromises, hi the Systemic view, the norms that guide .strategy derive not so IRUCI) irom the cognitive bounds of tile human psyche as from the cultural rules of
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S1
the local society The iiiteiTi.il contests of organizations meoWc licit just the micro-politics ol individuals and departments but the social groups, interests and resources ol the surrounding context. The variables of the Systemic perspective include class and professions, nations and states, families and gender,
important, therefore, to Systemic theory are diflerenccs hetween countries' social systems ant! changes tvilhin countries' social systems. As Whitlev (1999 > has shown tor southeast Asia, prevailing forms ol business may varv widely according to llie local interplay of slate, familial and marker strut lures. Thus, in Smith Korea, a traditionally strong state lias promoted the creation of the vast chaebol conglomerates; in nearhv Taiwan, bv contrast, the combination of an exclusionary Kuomintang state with the peculiar culture of' Chinese family business has created an entrepreneurial economy of small and medium-si/ed (inns, loosely linked by familial networks. Whitlcv ( !Wl: 240 concludes: 'different kinds of enterprise structures become feasible and successful in particular social contexts, especially where cultures are homogeneous and share strong boundaries with nation states'. For all the contemporary talk of globalization, the peculiarities of local histories and local .societies still matter-Indeed, most large companies are hardly global at all. I he Gestrin et al. (2000) surycy of more than 200 Fortune Global S00 large corporations finds that on average roughly 60 per cent ol their turnover and their assets were still concentrated in their home markets, Growth in international turnover and assets bad been slow throughout the 1990s and the profit share trom overseas had been disproportionately weak even before the Asian crisis of 1997-98. The world's largest international engineering conglomerates illustrate the point: only 41 per cent ol General Electric's sales in 1999 were outside the United States, J> per cent ol assets and just one third of profits {www.ge.com); at Hitachi, just 30 per cent of 1999 sales were outside Japan, 17 percent ol assets, but, so depressed was the Japanese market, 69 per cent of profits (www.hitachi.co.jp). In Hu's (1992) sceptical phrase, companies like these are not so much global multinational!! as domestic companies' with international subsidiaries. [■■■]
Thus even the largest multinationals can retain strong local character. As Walker (I98ii: J9S) observes, in its image and management style 'General Motors remains a thoroughly Midwestern company." Apple is very Californian. IKEA is Swedish. Companies whether as competitors, customers, partners or suppliers -vary widely according to their local contexts. Rather than rising above their origins, even multinationals may be deeply influenced by the industrial cultures, class structures, politics and professional biases ol their home nations,
Indeed, the very notion of 'strategy' may be culturally peculiar. Arising m the particular conditions of North America in the post-war period, the Classical conception oi strategy does not always lit comfortably in other cultures. Pascale l I9JJ2) reports that the Japanese do not even have a phrase tor 'corporate strategy'. "Strategy' has strong connotations of freewill and self-control, but uianv cultures prefer to interpret events less as the product of deliberate human action, and more
as the resuh oi God, fate, luck or history (Hovacigiller and Adlcr 199} >. For example, fundamentalist Muslims see life follow tut; a path pre-ordained bv God, while the Chinese olfen explain events in terms of""Joss", a combination of luck and fate. To these deterministic cultures, the idea of 'strategy' embodies a voluntarism that is entirety alien. Hovacigiller and Adler's (! 991) analysis suggests that Classical notions o! strategy are the product ol a historically peculiar coincidence between the American 'can-do' culture and the steady growth and 'fax Americana' of the lyiOs and early 1960s. Strategy as a managerial practice developed in a context of cultural voluntarism and economic and political security that was uniquely favourable to long-term strategic planning.
flic- American origins of the strategy concept may also constrain our understanding of what strategy involves. Willcs (1990) finds that the Anglo-Saxon cultures of the United States and the. United Kingdom are biased towards ait individualistic Iree-enterprise model of strategy that denigrates explicit reliance upon the state. By contrast, tile traditional nationalism of the French and German states, and the developmental role oi the Japanese state, have given to the Anglo-Saxon world's major competitors industrial cultures in which the enlisting of state resources is seen as a natural and important part of strategic management (Willis 1990), Thus national approaches to strategy can be heavdy distorted by what is locally regarded as culturally legitimate.
From this perspective, die Classical and Evolutionary emphases on markets and profitability, to the exclusion o! stale resources and national interests, are simply the product of very particular historical and social circumstances 1 his is not to say that thev are necessarily 'wrong . 1 he current sociological appreciation ol the ' institutional environments' of organizations iMcvcr and Rowan 1977; UiMaggio and Powell 198$) highlights the social pressures to conform to local lonns ol rationality. American business works within a culture which respects profit, values technical procedures and regards the free market as an article ol faith. In this context, any individual business-leader who repudiates outright the forms ol Classical strategy -making risks losing his or her credibility in the face of auditors, customers, financial markets and governmental regulators, ail ol whom can exert considerable influence on success. Whether or not formal planning in die Classical mode is economically effective, if that is how key elements, of the institutional environment expect business to he done, then it is sociologically efficient to at least go through the motions, The rationality of the Classical approach Co strategy may he a social construct, but nevertheless it is one that it can be dangerous tu ignore.
Vet it remains important to be clear how particular conceptions ol strategy reflect and reinforce the limitations of a particular society. Indeed, Shrivastava (!9H6) goes so lar as to allege that the whole discipline of orthodc management actually constitutes as
tfox strategic
sell-servingly conservative political ideology. He
points to how the Classic theorists' normative emphasis oil top-down management «to profit maximisation as the ultimate unifying goal serves to reproduce the Conditions ot hierarchically organized capitalist society in general. The firm is as a 'co-operative system' (e.g. Barnard 19IS), for whom the
'rHtůRI£S ■:
;pe.titors' political pim-iT may
be as i
irtant as their market
u~i particular, comp< power.
Til conclude, lbe Systemic perspective challenges the universality ot ariv sini^U: model oť strategy, The objectives of strategy ami the modes oť strategy -making (lepenci on the strategists' social characteristics ami the social context within which they operate. From this perspective, the Classical approach emerges a> culturally highly specific after all, it originated in just two large .American companies. Du Pout and General Motors, controlled b\ a single family during the 1920s, li may work well jo certain contexts, and often the appearances at least ot Classjeal rationality may he required anyway, hut it will not translate everywhere. 7'n insist on a socially alien form of strategy making whether in a Japanese keireisu or a patriotic American business - is to court disaster. Moreover, Id assume that your competitors or customers operate according to the same model of strategy as yourself risks substantial strategic miscalculation. A state-backed Chinese enterprise or j growth-oriented manageriallv controlled firm will not respond to competitive signals in the same way as a Classically run business; and, in anv stand-oil with an Anglo-.Saxun profit-maximizcr, both are likely to hold out much longer. Hie main message of the Systemic perspective, then, is that strategy must be sociologically sensitive,
Conclusions
The four approaches to strategy introduced in this chapter differ widely in their advice to management. The Classical school confidently prescribes a rational, detached and sequential approach, offered as a universal norm. The Evolutionary and Prores.sual perspectives are more cautious, each sceptical of strategists' capacity* to direct strategy effectively in this rational hierarchical was. For hvoiuliouists. environmental change is typically too fast, tot) unpredictable and too implacable to anticipate and pre-empt; their advice is to concentrate on day-to-day \ iability while trying to keep options open. Processualists doubt whether either organizations or markets work with the* ruthless efficieiicv that Classicists and Evolutionists respectively claim, and incline therelore towards patient strategies of incremental adjustment ami cultivation oi core competences. Knaiiv, Systemic theorists take a more reialivistic stance, insisting that both the ends and means of strategy depend on the character of prevailing social systems, and that therefore even the hyper-rationality of the Classical school may be appropriate in some social contexts   hut only some.
The main characteristics of the lour approaches are summed up in lablc 2. i. For the Classical school, strategy should be formal and explicit, its objective unambiguous proht maximization, evolutionists generally agree on the second part - for hijjh profitability is essentia! to survival hut regard ellorts to secure this through extravagant long-term strategies as so much iutik- distraction. tJficicncv is the. evolutionists' watchword. Processual theorists too dismiss Classical formality,.
seeing strategy as 'crafted', its goals vague and any logic often only emerging in retrospect. But where Processualisss find economic irrationality. Systemic analysts search for other rationalities: tor them, modes ol strategy are deeply embedded in particular social systems, and their processes and objectives may be perfectly rational according to the criteria of the locally dominant groups.
I he main locus of each of these approaches varies accordingly, for the Classical school, success or failure is determined internally, through the. quality ol managerial planning, analysis and calculation. The Processualists are inward-looking too, concerned with political bargaining processes the adjustment oi managerial cognitive biases and the building of core skills and competences. The two other approaches emphasize the external. revolutionists stress the determining impact of markets, ami the Darwinian processes ol natural selection. Systemic, theorists argue that, to understand what is really going on within the organization and amongst competitors, the strategist must be sociologically sensitive.
Table 2. i The four perspectives an strategy
	Classic	Processual	Evolutionary	System ic
Strategy	Forma*	Crafted	Efficient	Embedded
Rationale	Profit maximization	Vague	Survival	Locai
Focus	internal (pfans)	Internal	External ^markets)	External
Processes		(politics/cognitions)		(societies)
	Analytical	Ba rgain ing/J e a rn i \\g	Darwinian	Social
Key influences	Economics/mi litary	Psychology	Economics/biology	Soeioíogy
Key authors	Chandler: Ansoff;	Cyert and March;	Han nan and	Granovecter;
	Porter	Mintzberg;	Freeman;	Whidey
Emergence		Pettigrew	Williamson	
	1960s	Í970S	1980s	1990s
Table 2.1 also associates each approach with the particular decades ot their emergence (ef. Mintzberg et al. 199S). The Classical approach, with its emphasis on planning and analysis, had its hevdav in the 1960s, a time ol steady growth and American economic and technological confidence. Haith in planning was dented hard by the largely unforeseen oi! shocks of 1974 and 1979 (Wilson 1990), leaving ..the field open for both the Processual stress on bounded rationality and the evolutionary awe for market forces, evolutionary arguments gained still greater /.resonance with the popularity of free-market economics during the 1980s.
The most recent arrival ix the Systemic- approach to strategy. Although hrms have always differed in their objectives anti contexts, the closing ot the twentieth century and the opening ot the new have forced a sharper appreciation ot difference. The end to the stark opposition between capitalist America and the euntmunLst Soviet bloc has allowed a more nuanced appreciation ot the different gestures ol market economies and the rich variety ol' their linkages with the rest ol society. The former communist economies have themselves bred a wide variety
of capitalisms from the wild Mafia capitalism of Russia to the deliberate 'red capitalism' of China. The dramatic successes and occasionally equally dramatic failures of Asian economies have drawn attention to the very dilferenl social structures that underlie their business systems. Even in the West, privatization has brought into the economic sphere organizations that must compete, yet which also operate with complex social and economic motives and rely upon many non-market resources. The profit-maximizing entrepreneurs and competitive markets of the textbooks are not the only reality with which strategists must contend. Competitive strategy in complex environments requires a Systemic sensitivity to the diversity of contemporary economic practices.
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