Strategy Process

Contributed by Jan Rivkin

As the introduction to this reader emphasizes, a core aim of strategy research is to pinpoint what drives organizational performance and, in doing so, to explain why performance differs across organizations. Most strategy research examines how the content of an organization’s strategy, as embodied in the choices it makes, affect performance. A less prominent stream of research focuses on the process by which strategic decisions are made.

Strategy-making processes deserve the attention of scholars for at least two reasons. First, to the extent that processes differ across companies and influence organizational outcomes, an understanding of process helps us account for performance differences across firms. Second, if we strategy scholars aim to influence the strategic decisions of practicing managers, we must first have a realistic understanding of how managers make strategic decisions.

Though deserving of scholars’ attention, strategy-making processes are inherently challenging to research. The processes by which organizations make strategic decisions are complex and multifaceted, lending themselves to multiple interpretations. Theoretical work in this domain relies on natural-language arguments, and as the introduction to this reader highlights, such arguments are rarely unambiguous and rigorously derived. Empirical work usually faces a dilemma: To explore process, one must dive deeply into individual firms, but this makes it difficult to develop large enough samples to test hypotheses with statistical significance. Moreover, empirical research on process is fraught with the kinds of endogeneity problems discussed in the reader’s introduction. Process choices and performance may both be driven by other, unobserved factors, and this makes it challenging to pinpoint the impact of process choices on performance. Similarly, empirical work may be stymied by reverse causation: organizational performance may drive process choices rather than vice versa.

These challenges have not stopped generations of scholars from tackling process research. The reading list above introduces doctoral students to process research through five sets of readings. The first set takes students back to the original division in the literature between strategy content and strategy process. The readings by Andrews (1971) and Chandler (1962) introduce the content / process distinction and, importantly, emphasize that the two are deeply intertwined in practice. Simon (1957) and Cyert and March (1963) then focus on how managers make decisions. These two classics introduce foundational notions such as bounded rationality, satisficing behavior, local search, and standard operating procedures. They argue persuasively that managers are not simply omniscient profit maximizers. This is crucial, for if managers were all-knowing and did nothing but maximize profit, we might not need to understand the process by which they reached strategic decisions. We could just focus on the link between decisions and performance—essentially, the strategy content question. In the world that Simon, Cyert, and March describe, however, there is ample room for strategy process to affect performance.

The first set of readings also echoes the reader’s introductory comments about high-quality research in strategy. Chandler and Simon illustrate the frame-setting power of good verbal theory, but on reflection, the students should also see the ambiguity in these seminal works. Cyert and March provide a very early example of an effort to employ more formal methods, especially computer simulation.

The second set of readings introduces the debate between those who believe that strategies are discovered by an emergent process of search and those who see more deliberate, rational processes in play. The debate is captured most sharply in the exchange between Mintzberg (1990, 1991) and Ansoff (1991). Because this exchange does not represent high-quality research per se, I also include underlying research pieces by Mintzberg (1978) and Pascale (1984). The reading by Allison (1969), which predates the Mintzberg-Ansoff debate, suggests that we need not choose between the emergent and deliberate views. Instead, our theories may be richer if we embrace both. This possibility comes to life in Siggelkow (2002). In this account of the evolution of the choices of Vanguard, the mutual fund company, we see emergent and deliberate efforts combine over time to craft an intricate and effective strategy.

Allison’s rational policy and organizational process models of organizational decision making correspond closely to the deliberate and emergent views, respectively. Allison also introduces a third model, in which bureaucratic politics drives decision making. This corresponds well to Bower’s (1970) characterization of the resource allocation process. Accordingly, the third set of readings focuses on the resource allocation research of Joe Bower, his students, and Robert Burgelman. The Bower & Burgelman research stream constitutes the longest-running and arguably the deepest stream of work on strategy process in large, complex organizations. A premise of the research stream is that a firm’s strategy comes to be primarily via its process for allocating resources; the resource allocation process is argued to be the heart of the strategy-making process. Together, Bower and Burgelman introduce a model of the resource allocation process in which three levels of organizational hierarchy (front-line, middle, and top managers) engage in rounds of four subprocesses: definition of strategic initiatives, impetus for those initiatives, determination of structural content, and determination of strategic context. The first two are bottom-up while the second pair is top-down. To some degree, this integrates the emergent and deliberate views of Mintzberg and Ansoff.

I include this work on the resource allocation process not only because it has had enormous impact but also because it raises the question of quality standards in research on strategy process. Each of Bower (1970) and Burgelman (1991, 1994, 2002) engages in deep longitudinal research within a single organization: National Products and Intel, respectively. How can a researcher reach compelling conclusions on the basis of observing one organization? How have these researchers made tradeoffs among the attributes of high-quality research identified in the reader’s introduction (e.g., between an accurate depiction of the phenomenon under investigation and lack of ambiguity in terms, premises, and conclusions)?

The reading list includes a time series of Burgelman pieces as well as Bower and Gilbert’s (2005) retrospective chapter in order to show how these researchers have learned and how their perspectives have evolved over time. Bower and Gilbert also identify open questions in the field, questions that may interest doctoral students. Noda and Bower (1996)—writing on the basis of Noda’s dissertation—illustrate how much a doctoral student can accomplish when working on strategy process. Their work follows two regional Bell operating companies—organizations intentionally set up to be similar—as successive rounds of resource allocation lead the two to very different strategies for wireless communications. This approach of seeking and exploiting a natural experiment could address many of the empirical difficulties identified in the reader’s introduction.

The fourth set of readings is admittedly a potpourri. It includes a set of influential articles that have introduced other considerations into the study of strategy process, and it illustrates some of the methodological options open to process researchers. Hambrick and Mason (1984) identify ways that the personal characteristics of top managers may shape strategic processes and choices. This paper launched a stream of research on the impact of “upper echelons” of management on strategy, a stream that Hambrick (2005) reviews in a personal and engaging manner.

Ocasio (1997) focuses on cognitive aspects of the strategy process—particularly the allocation of managerial attention. The paper illustrates a tension mentioned in the reader’s introduction, between being true to a phenomenon’s core drivers (where the paper succeeds) and being parsimonious, unambiguous, and rigorously derived (where the paper has gaps). Like Ocasio, Tripsas and Gavetti (2000) emphasize the role of cognition in the strategy-making process. Specifically, they examine how cognitive processes underpinned inertia in the failed strategy of Polaroid, the film maker.

Eisenhardt and Bourgeois (1988) emphasize the role of power and politics in the strategy-making process. The inductive, multi-case work of Eisenhardt and Bourgeois is potentially important to doctoral students since this style of field research has become fairly common on the strategy job market. Szulanski (1996) also considers politics and, more broadly, intrafirm communication in his study of the transfer of best practices within a firm.

The final set of readings is a set of reflections by leading process researchers—Eisenhardt (1989), Pettigrew (1992), Van de Ven (1992), and Szulanski, Porac, and Doz (2005)—on methods and motivations for studying strategy process. The readings are intended to fuel a discussion of quality standards in this research domain. Indeed, while constructing the reading list and considering alternative readings, I repeatedly encountered a thorny issue: In the strategy field, the quality standards for process research, and perhaps for qualitative research in general, are unclear. Indeed, I can point to questions and doubts about many of the readings I have selected. It is important for all doctoral students to grapple with the quality questions and for students interested in process research to realize that they are entering an arena where standards are ambiguous.

Throughout the reading list, I have tried to include relatively influential research papers that came, at least in part, from doctoral research. (See the papers designated by mortarboards.) I have done so in order to inspire doctoral students to think about what they themselves might accomplish in process research during their doctoral days. The quality levels of these pieces can, and should, be debated with the students. The effort to include some dissertation-based papers, combined with the limit on the number of readings, had an unfortunate effect: Many influential pieces of process research were excluded from the reading list. Most appear in the references of the listed papers. Perhaps the biggest oversight is that I have excluded altogether a body of research on making decisions in groups. The literature on group decision-making might deserve its own, separate reading list for doctoral students.