by Richard Whittington, Thomson Learning, 2001.
A copy of this book can be ordered online via the Ashridge e-bookshop.
Four main approaches to strategy are considered in detail - the classical, the evolutionary, the processual and the systemic. Each sees the growth of an enterprise from a different perspective and the debate is clarified, between the rationalists, the jungle dwellers, the activists and the social environmentalists.
(Reviewed by Edgar Wille in September 2004)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
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You will have to go a long way to find a better book on strategy than this. It isn’t a standard text book which gives you the idea that if you think clearly and analyse carefully you will command the future of your enterprise. This book emphasises the variety of approaches that are possible to strategy, any of them or combinations of them being appropriate in specific situations. Richard Whittington issues a health warning against depending on the orthodox philosophies of strategy which permeate the text books: "Good strategy rarely means doing the same as everyone else."
The book is based around four main approaches to strategy:
No one theory of strategy can assume its own superiority. If there had been one easy way to riches, everyone would have gone for it and it would have been "competed away" anyway. This book is an antidote to bogus certainties. In setting out these perspectives Whittington gives some critical analysis of each, leaving the readers to decide what is most appropriate in their own situations.
The reader of this summary may wish to compare it with other summaries under the strategy heading. The Rise and Fall of Strategic Planning and Strategy Safari by Henry Mintzberg et al, are especially relevant.
Readers also need to bear in mind that there is a certain artificiality in all attempts at categorisation in any field. We are tipping ideas and information into a bucket and then affixing a label representing common factors in the contents of the bucket. But the categories are not a law of nature. They are rather tools to make talking about complex issues easier to engage in. This is especially important to bear in mind in this summary of four principal approaches to strategy.
The second chapter of the book is crucial. It takes each of the four approaches and looks at them in greater detail. It summarises them:
The Classical school thinks that planning can anticipate market changes and adapt to them. Rational analysis should be undertaken away from the hurly-burly of operations; the top thinkers leave the daily battlefield to the foot soldiers. It’s a bit like Taylor’s separation of the thinkers from the doers. Getting their hands dirty will divert the thinkers from their true role.
Evolutionists say that markets are too tough and unpredictable for heavy investment in plans to be worthwhile. Hence be efficient and then seize opportunities which arise in the business jungle. The Classical approach is too detached from reality to notice the detail of opportunities which might be there.
Processualists are most strongly opposed to Classical detachment; they believe that effective strategies emerge "from intimate involvement in the everyday operations" of their organisations and from harnessing their basic strengths to the situations which arise.
The Systemic school recognises that the social environment inside the organisation, or outside in the world at large, make pure rationalism impossible. You have to take account of how people act and react, what their personal objectives are; the motivation of senior people to see profit maximisation of the firm as a means to their own personal financial benefit. They believe in planning, but it is often more a matter of manipulation, or to give a show of rationality without its substance. It can at least be a useful ritual.
"For Classicists profitability is the supreme goal of business, and rational planning the means to achieve it". The great presenters of classical theory are historian Alfred Chandler (1962) in his book "Strategy and Structure", theorist Igor Ansoff (1965) in "Corporate Strategy" and Alfred Sloan (1963) in "My years with General Motors".
Sloan considered that:
"the strategic aim of a business is to earn a return on capital, and if any particular case the return in the long run is not satisfactory, the deficiency should be corrected or the activity abandoned".
He insisted on the separation of ‘policy’ from operations.
Chandler’s definition of strategy shared much of Sloan’s perspective:
"[It is] the determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those goals".
For Chandler, top management must think through the destiny of the whole corporation, freed from responsibility for operational activities. The structure would be constructed to follow the strategic decisions. This assumed that the current structure would not affect the strategy, whereas Processualists, for example, would say that the structure you have must affect the way you think about strategy. It cannot be disregarded. You cannot think in a vacuum.
Mintzberg shows how the Classical approach derives much of its initiative from the "Command" school of military theory. "Strategies emerge from the decision-making process fully formulated, explicit and articulated; strategies are in a sense orders for others to carry them out." It is the picture of the general in his tent despatching orders to the battlefield, certain that the soldiers will carry them out. Mintzberg points out that you cannot assume that in a civil organisation all the managers and staff will do as they are told, nor that they have no insights that top people should listen to. Of course the strict Classicist will deride these more flexible approaches as "seat of the pants" management.
The evolutionary theorists believe that managers need not be rational optimisers, because "evolution is nature’s cost benefit analysis". Bruce Henderson, the founder of the Boston Consulting group wrote:
"Classical economic theories of competition are so simplistic and sterile that they have been less contributions to understanding than obstacles. These theories postulate rational, self-interested behaviour by individuals who interact through market exchanges in a fixed and static legal system of property and contracts."
He goes on to say that this is not how competition works. It is not a question of detached calculation, but a constant "struggle for survival in an over-populated, dense and steamy jungle".
This approach downgrades managerial strategy and emphasises environmental fit. Let the markets do the thinking. Competition winnows out the least efficient. So the concentration has to be on efficiency, not on rationality and foresight, when the market is not rational and cannot be predicted with any degree of certainty.
However other theorists point out that in some industries there are oligopolies which can select their markets. The Evolutionists reply that there are a variety of markets besides product ones, such as the labour market, the market for capital and the market for corporate control, which can impact on market selection.
The Evolutionary perspective doubts the capacity of organisations to achieve adaptation and differentiation in a deliberate and sustainable way. The market forces are so unpredictable and uncontrollable that success is likely to have a good element of chance and good fortune, rather than being the outcome of deliberate strategic choice. It is often a matter of being in the right place at the right time, and being able to recognise these.
This viewpoint even sees long term strategy as having possible disadvantages. Organisations maximise their chances of survival in the short term by achieving perfect fit against their current environment. Long term strategy is seen as too expensive. Investors in it can be undercut by the short term, inflexible, low cost producer. And markets are too efficient to permit the easy development of sustainable long term advantage. Imitation quickly erodes benefits.
The Evolutionists believe that what matters is an abundance of diverse new initiatives, from which the market will select the best. They think that the construction of grand long term strategies is a vain distraction. Managers would do better getting down to the modest business of making sure that what they do now, they do as efficiently as possible. Any attempt to anticipate change should avoid investing heavily in any one major plan, but give enough alternatives from which the market can do the choosing.
This perspective shares the Evolutionary scepticism about rational strategy making, but does not believe that markets alone will take the place of Classical rationality. They see both organisations and markets as "sticky, messy phenomena, from which strategies emerge with much confusion and in small steps."
Rational man is seen as a fiction. People can only consider a limited number of options, are biased in their interpretation of data, and are prone to accept the first satisfactory option that comes up, rather than carrying on seeking more and more information to find the best option.
As there are many different views in any company the strategies cannot be rational because they are essentially compromises, outcomes of bargaining between relevant managers, not of profit maximising calculation. Change is a matter of the gradual adjusting of routines.
Nelson and Winter suggest:
It is quite inappropriate to conceive of firm behaviour in terms of deliberate choice from a broad menu of alternatives that some external observer considers to be available opportunities for the organisation. The menu is not broad, but narrow and idiosyncratic; it is built into the firm’s routines and most of the choosing is also accomplished automatically by these routines.
Strategies are not chosen; they are programmed.
Strategies are seen as the way managers seek to simplify and order a world which is too complex and chaotic for them to comprehend. It is nothing like the orderly procedures and precise quantifications of strategic planning. Classic perceptions are of formulation first and implementation second. Processual thinking reverses this; strategy is discovered in action. Reference is made to Mintzberg’s example of the potter gradually shaping a vessel, crafting it as she goes along, adapting to imperfections, absorbing surprises and close to the action of the moment. Formation and implementation are inextricably linked.
It is what one could call the "science of muddling through". We might prefer it otherwise, but that is how in fact business tends to get done; out of the slow unpredictable progress we get what Quinn calls ‘logical incrementalism’. It is a matter of surfing the edge of chaos, with enough structure to allow patterns to emerge, but not so much as to cause inflexibility.
This perspective also fits with the concept of resource management which includes tacit knowledge, patterns of cooperation and intangible assets. A firm’s competitive advantage lies in its unique qualities, embedded in its resources. These make up its core - its distinctive competences.
Processualists see the Classical approach as na?ve. "It is by recognising and accommodating real world imperfections that managers can be most effective."
Systemic theorists consider that the rationales of strategy are to be seen in their sociological contexts. For them decision-makers are not detached calculating individuals, interacting in purely profit maximising terms. They belong to networks of human relationships, in which are reflected personal needs, which tend to obscure objective decisions. Families, the State, professional and educational backgrounds, social standing, even religion and ethnicity all come into the way decisions are made.
The lack of freedom to follow the Classical approach is highlighted by Systemists in the considerable differences between national cultures which place a question mark on how truly global companies can be. Michael Porter’s model of industry analysis concentrates on economic forces and gives little room for labour, government and cultural factors in determining a good industry to be in.
The type of ownership comes into the equation for Systemists. For them strategies have to match the kind of corporate governance followed by a company, or they will founder for lack of backing from the ultimate decision makers, such as shareholders. Family ownership is a different setting from that of a large quoted multinational.
The extent to which a company is actually run by professional managers is another aspect which affects strategy. Much has been written about the way in which in some companies professional managers may manipulate the policy of a company in favour of their own self interest, such as the inflating of shares, of which they may own many. This is rational in one way, but not in the sense of the Classical school of thought which is about profit maximising for the company.
The Systemic approach challenges the validity of any one strategic approach, for even if one adopts one of the other three, it is still essential to take into account the sociological context. It modifies Classical rationality; it provides some paths through the Evolutionary jungle of markets; it is the key to much of what emerges in the Processual way of perceiving business. There is no one pure form of strategy formation.
The focus of these four schools of thought are well summed up:
The four categories proposed by Whittington are based on different concepts of leadership; they require different approaches to leadership and produce different kinds of leader.
The Classical perspective "projects the image of strategists as managerial professionals, dedicated to their firms, impersonal in their judgements and promoted on their merits. These are the expectations and attitudes embedded in every MBA degree; managerial skill and hard work can take anybody to the top". (Some MBA programmes are exceptions, eg Ashridge, Roffey Park and Lancaster.)
Classical and Systemic approaches have a top down philosophy of leadership; the people at the top rule and command; strategy descends from them and is the key element of their leadership, even if in the Systemic perspective the social context shapes the leader’s actions and decisions are culture bound.
Some versions of the Classical model think of leaders as having inspired visions which "transcend the dessicated calculations of the humdrum professional", which are, however, used to justify the vision.
The Processual school is sceptical of the view of the leader based on hierarchical decision-making. They see a gap between strategic decision and action. Whatever the intent of top management, the actual strategy frequently emerges from a combination of accident and slow changing routines in the middle level of an organisation. Middle level initiative or inertia can impede or improve on top level intentions. One writer speaks of ‘middle-up-down’ management. The Processual perspective doubts whether leaders are really heroic and gifted charismatics, inspiring the whole organisation with their visions and assured in their command.
The Evolutionists have a limited view of the proactive role of leaders, seeing them as controlled by the markets, rather than controlling them.
The Classicist school, with its emphasis on clear direction, individualism and performance, tends to see today’s fast changing environment as requiring heroic leaders, not just ‘plain old management’. Management provides the order and procedures necessary to cope with the everyday complexity of big business, but John Kotter sees most US corporations as ‘overmanaged and underled’.
Sometimes, however, the Classical tradition can be uncomfortable with these visionaries, whose magnificent obsessions may impede the rational application of strategic planning and the outcome of profit maximization. These reservations illustrate the fact that although we may talk of four categories for convenience, in practice there are more variables than one might suppose.
One probably cannot finally attach leadership to any one of the four categories. Whittington quotes Nadler and Tushman, writing about leaders like Jack Welch at General Electric and David Kearns at Xerox:
"[they] are important catalysts in their organisations. Their successes to date, however, are not based simply on strong personalities. Each of these executives has been able to build teams, systems and managerial processes to leverage and add substance to his vision and energy. It is this interaction of charisma, attention to systems and process and widespread involvement at multiple levels that seem to drive large system change".
It is interesting to note that Jack Welch got rid of the complex strategic planning system at GE. Did they even bother their heads about four categories of strategy?
Whittington has a useful section on the way in which business elites have a powerful effect on business strategy, suggesting a Systemic approach. He traces periods when marketing elites have ruled; then at other times the finance elites have commanded. The type of strategy has moved with the professional bias of the leaders and their need to maintain their standing with their peers in their world. For example, it is suggested that where accountancy and financial professionals have risen to the top, there has been a "focus on the extraction and distribution of profits, rather than on the building of value creating activity itself".
When reading leadership literature, it is useful to bear in mind Whittington’s comment that it has an individualistic bias that downplays the collective efforts which go to make an organisation what it is. Being a good strategist is not enough to make a good leader. "Leadership is about more than fitting strategy to the market environment; it is about fitting yourself to the social environment and often about belonging to the right social elite in society."
The chapter bearing this heading moves from who takes strategic decisions to how they are taken, as seen by each of the four perspectives. There is a degree of scepticism about the value of the sophisticated financial and planning techniques leading to the ranking of options, favoured by the Classical school and filling the text books. If everything was so rational and if strategic decisions were so easy to take by using well known tools, then no one would win the competitive race and nobody would get rich. So are the Classical tools so beneficial? Does corporate planning actually work?
Or, as the Processualists suggest, do strategies just emerge out of the pattern of events? They say that markets are so imperfect that in the complex reality of managerial life, managers who assume that strategies get chosen simply on financial criteria face confusion and disappointment. Effectiveness in the real world requires an acknowledgement of human frailty. Examples are given of ways in which financial appraisal techniques have failed to deliver.
Systemic theorists will engage in planning, but more as a useful ritual to give a sense of legitimacy to their activity, to enable them to convey the impression to society that they really are making choices, to give a show of rationality even though the substance is lacking.
Those sceptical of the Classical school point out that in practice "decisions are not taken, but happen" - often when problems, solutions, organisational actors and choice opportunities are milling around at the same time. This is called "the garbage can" view of decision making. Examples are also given from history, such as the way in which the Vietnam war escalated. Decisions firmly made are often followed by no action or action which peters out, just like our own New Year resolutions! Planning can be of value in some circumstances as a form of group therapy, little related to the planned outcomes.
How and why do firms grow in the way they do? The four perspectives answer differently. Classicists see rational initiative as the key. Evolutionists see efficiency. Processualists see emerging patterns. Systemists see managerial empire building.
These views are discussed in the areas of innovation, diversification and internationalisation.
In innovation the main debate is between Classicists and Processualists. The former see the need for close and rational direction of innovation, well researched and planned to meet the market. The latter doubt the capacity of markets to absorb rational technical advances and the ability of managers to control the creative serendipitous processes of innovation in practice.
Over diversification, takeovers and integration, vertical and horizontal, the debate is largely between the Classicists and Evolutionists on the one hand, the Systemists on the other. The former see the opportunity for greater efficiency, though for different reasons. The latter are cynically suspicious of managerial motives; they see self interest as the key, impeding rationality and profit maximisation for the firm.
Rational thought suggested that railways should have moved into other forms of transport in face of potential decline. But Processualists would ask whether human and technological assets can be effortlessly reshuffled to maximise market positions. Also, many a takeover may look good in the rational activity of strategic planning, but then founder on lack of real synergy in two different cultures as the Systemists would be quick to point out. Likewise, many diversifications may be undertaken to stop others from stealing a march on one’s company, rather than for actual profit maximisation. GE’s entry into transportation itself was to keep control of what buses and diesel engines the transport companies purchased, not to get rich from running them.
On internationalism, Evolutionists talk of discovering efficiency in the jungle like situation. The Classicists talk of game theory in which they try to predict rationally the direction of the competition so as to maintain an oligopoly for themselves and deny it to their competitors (following the prisoner’s dilemma game).
The Systemists understand culture and point out that a rational approach which assumes that international competitors are like themselves, will have a rude awakening. They are also able to point to the way in which firms engage in foreign inward investment for reasons other than profit maximisation. For example, a threat to enter a competitor’s market can preserve one’s own plans from erosion. The outcome can be some sort of collusive equilibrium, where an exchange of threats ensures a rough kind of peace in which established multinationals can continue to enjoy their oligopolistic profits. Sometimes efficiency is sacrificed to maintain the capacity and credibility of retaliation, which also has the flavour of the Evolutionists’ jungle.
Whittington offers a chapter on the actual job of managing strategy, that is how to implement it - to organise it and change it. The question of the relationship between strategy and structure is addressed; which comes first and under what circumstances?
The author begins this chapter with a significant comment on a major problem in creating and implementing strategy. Organisations are "mindless"; they have no inherent unity and are basically rather stupid. Yet the notion of strategy implies that all the multitude of individuals who compose an organisation can be united around the effective pursuit of a coherent goal.
Classical strategists and Evolutionists believe it is essential that strategy and structure should be matched and that structure should follow strategy. But Processual theorists point out that, in practice, structures often fail to match strategies; indeed strategies can actually be shaped by structures. Mintzberg insists that strategies can rarely be decided in isolation from existing structures, but he allows that the relationship between strategy and structure is reciprocal. You need two feet to walk. There is no law of nature about which is put forward first.
Where firms operate in different societies, Systemic theorists point out that the link between strategy and structure may not follow the precise form of the textbooks. It can be dangerous to impose a particular structure upon diversified businesses. Systemic advice is to be sensitive to context.
Systemic theories suspect that organisational efficiency is often defined in terms of what suits the personal interests of top management and in any case would be affected by societal contexts.
The management focus of the Classical school is on choice, whereas Processualists see change rather than choice as the key element of strategy. To get that change takes a lot of patient coaxing and political compromise; rational planning of the Classical mould will not secure it. Evolutionists consider that the best way to achieve change is to be tough and persuade people of the serious threats of takeovers, bankruptcy or dismissal.
Processualists see corporate learning as the key to desirable change. You have to learn faster than your competitors. This is too fast and messy for compression into rational Classical strategic planning. It has been recognised, for example, at Shell, where corporate planning is primarily about flexibility, about changing of minds, rather than rigidity in the making of plans. The leader’s new work in these circumstances is to create the conditions where everybody can learn, because everyone must adapt. And it may be best to delay change, putting up with some local inefficiencies, rather than risk unravelling the whole intricately interwoven gestalt of the organisation by some ill judged tinkering. If change is to be undertaken, the Processualist will have you be modest in your expectations. Organisations do not change simply by decree, but by patient processes of coaching, bargaining and manoeuvre.
Systemists, with their political and social sensitivity, also aver that strategic change is a matter of delicate political manoeuvring as well as changing people’s minds. Change then emerges as an undramatic, unglamorous process of continuous manoeuvre, punctuated by brief moments of opportunism and achievement.
This is the title of the last chapter. The significance of the debates which the book has been highlighting is brought into focus.
The four different approaches with which Whittington has been dealing are based on widely varying assumptions about the processes and outcomes of strategy. Each has quite opposite implications for management action. All four can find plenty of supporting evidence and they offer managers some hard choices. Certainty is stolen from every side:
"Classical confidence in analysis, order and control is undermined by Processual scepticism about human cognition, rationality and flexibility. The incremental learning of the Processualists is challenged in turn by the impatient markets of the Evolutionists. But even Evolutionary markets can be bucked, if as Systemic analysts of social sytems allege, the state is persuaded to intervene."
Each manager has to decide which theoretical portrayal of human activity and environment fits most closely with his or her view of the world.
Is there sufficient access to information and capacity to analyse, together with enough organisational control and environmental certainty, to make it worthwhile to invest in the Classical approach?
Or, is the environment characterised by ruthless competition and unpredictable fluidity to such an extent that grand strategy should be abandoned and concentration on operational efficiency should be the focus, in readiness for whatever the market indicates as opportunity?
If neither Classical precision nor Evolutionary ruthlessness are appropriate then Processual thinking would recommend respect for organisational integrity, where the value of corporate competences is recognised and cherished as the "unreproducible sources of sustainable advantage". Real understanding leading to competitive advantage comes from the intimate knowledge of those who have made their lives in the business, where top down command is not the norm, but deep involvement which permits learning and incrementalism.
But then none of these perspectives will satisfy Systemic theory, which is based on sociological imagination, realistic recognition of the self- interested nature and elitism of professional management, indeed of the power objectives which lie at the root of so much strategy and its implementation.
Whittington considers that there is no one best way. Strategy has to be matched to market, organisational and social environments, all of which have many elements that do not lend themselves to pure rationality. In other words strategic choice is contingent and not, as textbooks often suggest, clear and well defined.
There is also a useful analysis of the way in which national characteristics feed into strategic approaches and in turn these influence national prosperity, or lack of it.
The purpose of the book is not to prescribe a single answer, but if we are clear about the philosophies which underpin our approaches, then we stand a chance of being more effective. The Classical approach relies on better thinking and planning. The Processual nurtures developments from the bottom up. The Evolutionary stands back and turns to the winnowing processes of oompetitive markets to give general advantage. The Systemic perspective sees the social context and individual self interest as crucial, to be manoeuvred by social engineering.
This book raises fundamental questions about our capacities and purposes as human beings, individually and collectively, affecting every level of existence from the individual to the national and the international. We are encouraged to read the abundant literature on strategy with a critical mind, not taking anything for granted just because it is frequently propounded.
We will therefore be better equipped to follow the approach, or combination of approaches, to strategy which best suits our situation.
We will listen to the Classical school of strategy with caution. We will not suppose that irrationality is to be approved, but we will be aware that a purely rational strategy cannot exist, and that textbook precision can be misleading.
With the Evolutionary school of thought, we will recognise that markets rule in the business jungle and will seek efficient readiness for whatever hostile forces or favourable opportunities chance across our paths.
With the Processual school of thought, we will seek to know our business so well that we will be able to recognise a good strategy when it emerges.
And we will be constructively cynical enough to understand that with the Systemic school of thought, social considerations and managerial self interest enter into strategy development even at the expense of profit maximisation.