Military strategy and tactics have always served as a backbone in the conduct of warfare. Strategy as planning, coordination, and general direction of operations aimed to meet political and military objectives. Today’s business environment still bears a resemblance to a battlefield, where various actors compete for survival. That is to say, strategy becomes a crucial weapon in a struggle over resources, political and economic power. According to a popular view, in order to succeed managers must invent ground-breaking and innovative strategies, which in turn give competitive advantage in a fierce competition.
This essay explores strengths and limitations of strategic decision making and suggests that strategy cannot be formulated and successfully implemented without analysis and understanding of the context and environment within which it exists. In other words, the choices of individual players are often determined and shaped by dynamic relations between states, firms, different geopolitical and economic blocks, political and social groups. Herman Schwartz argues that ‘unit-level variables are brought into play by system-level mechanisms, and so cannot be understood apart from those mechanisms’ (Schwartz 2004, p.130). Needless to say, that strategy is an essential element that gives meaning, identity and consistency to organizations. On the other hand, as observed by Whittington (2001), the complex web of global competition requires strategies that are more adapted, emergent and often chosen by “markets rather than managers”.
This analysis will further explore the ideas and theories concerned with strategy, which might be used as a framework in formulating effective business decisions. Strategic decision making is usually understood as rational, deliberate and calculated planning of actions leading towards clearly defined goals. “All these definitions treat strategy as (a) explicit, (b) developed consciously and purposefully, and (c) made in advance of the specific decisions to which it applies. In common terminology, a strategy is a plan” (Mintzberg, 1978, p.934).
According to classical rational theory, management and strategy must be deliberate and systematic in terms of coordination, appraisal and organising. A. Chandler (1962) insisted that strategy is a major factor in business activity and determines organizational structure as well as markets in which the firms compete. Chandler’s analysis was based on the success of vertically integrated firms and strategic decision making of large American firms including Do Pont, General Motors, Standard Oil and Sears Roebuck. Rational, detached and sequential approach to a strategy was essential during the rapid expansion of 20th century’s industries.
Nonetheless, today business interactions differ enormously from those witnessed in the previous century. The production process is being revolutionized, firms are getting smaller (at least their physical boundaries), and businesses are being disaggregated. The question that should be asked is whether Chandler’s approach is still applicable and whether the unit-level dominant approach to strategy can still succeed.
Chandler’s ideas are noticeable in the work of American born – British economist Edith Penrose. The latter is most known for the formulation of a resource – based or knowledge-based view of the firm. For Penrose, the firm is a collection of productive resources that are rare, difficult to duplicate, valuable and in control of the business. “From the resources within the firm, human resources, and in particular managerial resources, are most important” (Penrose, Pitelis, 1999, p.9). According to this view, an organization should focus on its internal competencies, knowledge, and resources available in order to expand and achieve competitive advantage. Therefore, the strategy should be formulated around those competencies.
Unit-level variables dominate in this theory and suggest that unique strategies could be developed independently from the system in which companies operate. Penrose’s seminal work contributes immensely to the studies of management strategy, hence her analysis contains several limitations and could be debated. Resource-based view primarily focusses on the processes and strategies that allow the growth and expansion of the firm. Furthermore, it does not fully explain the processes of global competition and dynamics of competitive behaviour among the firms, especially in contemporary environment. Additionally, by praising business leaders, the theory overlooks the possibility of managers pursuing their own interests, which might be in conflict with those of the organization.
As a result, reliance on resources alone might be endemic to the success of the firm. The classical view of the strategy was criticised by R. Whittington (2001) in his work “What is strategy – and does it matter”. Whittington argued that strategic goals and actions should reflect the social systems in which strategy is being made. Differences in markets, states, cultures, classes, and political systems make a difference to corporate strategy. As theorist observes “even multinational companies may be deeply influenced by social context, industrial cultures, class struggles, politics and professional biases of their home nations” (p. 26).
The conduct of a business in the US can be understood and perceived very differently from the one in Japan or Korea. Every strategist should analyse his or her particular social characteristics and social systems, in order to grasp the variety of social resources and rules of conduct available. In reality, firms do not exist in a vacuum and depend on various factors such as socio-environment and industry conditions. This view supports the observations made by Schwarts (2004), who argued that strategic movements of individual firms and their managers are usually constrained by the context and structures within which businesses operate.
The firms should realize themselves as part of a larger system and structure, which determine the actions and strategies available to them. “System-level mechanism strongly shaped social classes, as well as the kind of state and its capacities” (p.130). Understanding the relationship between states and firms is another key factor for the development of a successful strategy. States, as unite – level variables, play a key role in capital accumulation and affect the profitability of the local firms. This especially apparent through the growth of quasi-monopolies, legitimate or illegitimate forms of taxation, control of movements of goods, people and externalization of production costs, including pollution, exhaustion of raw materials and cost of transportation (Williamson, 1991). As noted by Wallerstein (2004) state is never neutral and constantly shapes markets conditions by creating rules and regulations. Moreover, governments are central in the conflict between business owners and workers, when each side tries to implement strategies enabling influence government decisions: “They (entrepreneurs) are particularly concerned about all matters governing their relation to those they employ – level of recompense, conditions of work, length of work week, assurance of safety, and models of hiring and firing.
Workers, on the contrary, have long demanded that state interferes in precisely these questions to help them achieve what they consider reasonable work situations” (Wallerstein, 2004). The complicated relationship between state, labour, and capital was widely discussed by B. Silver in her influential book “Forces of labor” (2006). The book questions the sovereignty of the countries and their ability to protect own citizens and offers international labour movements as a tactic to respond to unequal balance of power among various states. The effectiveness of different countries might be dependent and determined by the geopolitical rules and structure of power within which these country exist. This can be reflected in a question raised by Schwartz (2008): “Unit-level causal mechanisms obviously matter when explaining state formation and behavior. Can we link them to economic system-level mechanisms? Williamson (1991) notes, that “firms are affected by the decisions made not only by their own state but of many other states”.Despite the idea that all countries are sovereign, their independence and strength are determined by their position in the competitive environment of the world-system.
Stronger states find easier to intervene in the internal affairs of weaker states, limit they decisions of policy-making and affect economic activity of various groups involved in it. “Strong states relate to weak states by pressuring them to keep their frontiers open to those flows of factors of production that are useful and profitable to firms located in the strong states” (p.55). On the other hand, strong states resist to opening up their borders to flows of products that compete with their own from peripheral zones. The history and development of the modern world were explained by I. Wallerstein (1979) in his World-Systems Analysis.
He emphasizes on the world-systems rather than nation-states and offers a new understanding of how the world works. Wallerstein was concerned with history and social change and argued that there is world economic system in which some countries benefit (core) and others are exploited (periphery). The system is based on the international division of labour and segregation of resources, income, and profits. The core countries dominate in terms of technology, access to knowledge different industries, while countries in peripheries dominate in low-value production and provide cheap labour. “In other words, it provides a better explanation than would be possible only with a unit-based analysis about why— once there is a market—we have a specific international division of labour. These systemic mechanisms allow strong but probabilistic predictions about why some areas receive development and others do not, providing a useful check on optimistic prescriptions for growth, based only on potentially idiosyncratic unit-level comparisons of the sources of variation among units. New economic geography clearly predicts that not everyone can “win” simply by getting “institutions right” or “prices right.” (Schwarts, 2004, p.
132) This point of view explains the high concentration of global business power among multinationals in high-income countries (Nolan, Sutherland, Zhang, 2002). According to the more recent debated, this crisis of dependence and unequal exchange were further facilitated by the reconstruct of capitalism and logistic revolution. The logistics revolution is part of a larger paradigm shift, known as supply chain management (Bonacich, Wilson, 2008). The acceleration of globalization, advancements in technology, transportation, IT systems facilitated the move from the traditional “push” business model to a customer-driven “pull” model, shifting the balance of power from producers to customers. These shifts also introduced “systems perspective” or “total system approach” (Cowel, 2014). The distinction between production and distribution was broken, enabling a seamless flow of information and products as part of a total system. D. Cowen (2014) observes that just like in World War 1, when “logistics began to lead rather than follow strategy”, the success of competing actors became critically dependent on supply lines.
Moreover, individual firms no longer compete as autonomous entities, but as supply chain networks. This also represents new ways of doing business and relationships with members of supply chains, where the success of a single business depends on an ability to integrate itself into a wider network. According to Bonacich) and Wilson (2008), the corporate strategies became defined by logistics.
With the world-system analysis in mind, the changes in a global market and political arena might raise many questions for those, concerned with their implications to strategy. It would be logical to believe, that the new system gave even more control to the core countries, giving access to cheap labour and raw materials in periphery countries. If this proves correct, then the system “continue to map onto a stable hierarchy of wealth” (Schwartz, 2004). All things considered, strategic decision making and a success of the firms is highly dependant on the position that business identifies itself within a global division of labour and the value chains. Strategies made within unit-level variables should be further considered within a broader context that might influence their successful implementation. Different approaches to strategy could be taken depending on the firms’ internal resources, industry, state within which it operates, political and social environment, cultural perceptions. Porter’s analysis of competitive forcers affecting businesses could also be useful while identifying strengths and weakness of the organizations.
Various theories could be applied in different situations and should work as a guiding framework while making strategic decisions. Strategy is much more than a plan. It is a careful study of an inevitably changing and not always predictable environment, ability to be able to navigate among unexpected and change the course of action whenever needed.