Friday, March 12, 2021

Who does Strategy? Organizations!

A new book will be published soon, “Strategic Management:  State of the Field and Its Future,” edited by the excellent scholars Irene Duhaime, Michael Hitt, and Marjorie Lyles. My chapter is titled “The organizational view of strategic management,” and it synthesizes how the fields of organization theory and strategic management have moved towards each other already and will probably continue to do so in the future.

Why is this, and why does it matter? Let us start with the second question. There are two widespread myths among students of strategy, including researchers, and executives also believe them. The first is about the power of the individual decision maker. This myth almost makes sense. All of us make decisions many times a day, starting with simple stuff like choosing goods to buy and moving up to life-changing decisions such as educational choices. We feel powerful when doing that. But are we independent? Maybe we think we are, but do you really think that the enormous sums spent on marketing to influence our decisions are wasted? Research says they are not. We make decisions, but not independently.

Executives making decisions feel powerful too, only more so. And why not, executives making strategic decisions can allocate and redirect enormous sums of money and hours of effort. But are the executives independent? It does not take a large organization to make the executive completely dependent on information about the internal organization and external environment that is captured, processed, and presented to the executive by others. The individual choosing a cereal is influenced by marketing. The executive making strategic decisions is a product of the organization.

The second myth is that strategic decisions are a simple matter of picking the option that maximizes the economic value of the firm. If only that were true: life would be easier and we could pay executives much less because it is not hard to line choices up by value and pick the best. But strategic decisions are about uncertainty and evolution. They reach into the future, so the alternatives cannot be lined up by value, but it is possible to understand the type and size of uncertainty, and it is also possible to make choices that alter the uncertainty. They reach into the future, so it is important to guess how the world changes, and how the organization can evolve to match the world, or even influence it.

The solution to these two myths is to view the organization as the strategist. The responsibility for being strategic does not really lie with specific executives like the CEO, it is spread throughout the organization as its divisions, functions, teams, and individuals deal with a changing world, seeking to adapt to it and communicate what they have learnt to each other. It is in this interface that the fields of organization theory and strategic management communicate with each other. Strategies are shaped by societal groups outside the organization, individuals and groups inside it, the commitment and learning resulting from past strategies, and the goals formulated to manage past strategies. All of this is organizational, and all of it is strategic.

Despite these overlaps, organization theory and strategic management do not always communicate well. Organizations do not determine strategies, but some researchers think they do. Strategies cannot be chosen independent of organizations, but some researchers think they can. The reality is that organizations are stuck in an adaptive strategic cycle. The modern synthesis of organization theory and strategy is that problem and opportunity discovery by internal decision makers directs strategic change, and this strategic change in turn modifies the organization over time. More and more researchers in organization theory and strategy do their work with this adaptive cycle in mind, and in doing so they advance both fields of research. And this research in turn improves the teaching of management, and the practice of management.

5 comments:

  1. Absolutely right, Henrich. In the early days of Strategic Organization I was asked to write a piece on the relationship between strategy and organization. Unfortunately I never managed to finish it!! But the thrust was to be how strategy is developed within a set of organizational structures and processes, not independent from them. Perhaps I should try again! Bob Hinings

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  2. I would love to read your chapter in this book. Is it available in un published pdf form on ssrn, research gate or somewhere else?

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