Contemporary Corporate Strategy: Evolution, Features, and Paradoxes
In order to survive and grow, every company must develop a long-term concept for growing and operating in the market. This concept is generally called a strategy. Although strategy is a heterogeneous concept and its definitions vary in the literature (Furrer, Thomas, & Goussevskaia, 2008; Guerras-Martin, Madhok, & Montoro-Sanchez, 2014), it remains an object of interest for both theorists and practitioners of management. This ambiguity of the concept of strategy results from the evolution of strategic management and a different view of its essence based on different epistemological (scientific cognition), axiological (value theory), and methodological (scientific research methods) assumptions (Ronda-Pupo, G. A. & Guerras-Martin, L. A, 2012; Vargas-Hernandez, 2014).
The schools of strategy have most often been analyzed from the perspective of strategic management paradigms (Farjoun, 2002) and the historical context (Mintzberg, Ahlstrand, & Lampel, 2009; Obloj, 2007). There have also been attempts to classify strategies and strategic management based on bibliometric and quantitative analyses, taking into account both the semantics of concepts and the dominant trends and research topics (e.g., Furrer, Thomas, & Goussevskaia, 2008; Nag, Hambrick, & Chen, 2007; Ronda-Pupo, G. A. &c Guerras-Martin, L. A, 2012). The diversity in the perceptions about and definitions of strategy results from a shift in focus to other elements used to describe it.
As noted by Ronda-Pupo and Guerras-Martin (2012, p. 165), some authors consider the choice of long-term objectives and the selection of specific programs or plans for their implementation to be the key to a strategy through the appropriate allocation of resources. Others stress the importance of actions, plans, programs, or orientations needed to achieve the set objectives (David, 2003; Grant, 2016). In another group of definitions, strategy is a way of connecting a company with its environment (Katz, 1970; Mintzberg, 1979; Stoner, 1982). Still others focus on building a competitive advantage and improving the company’s performance (Barney, 1997; Bowman, Singh, & Thomas, 2002; Porter, 1996), the decision-making process for achieving the objectives (Whittington, 2001), the decision-making techniques used (Knights & Morgan, 1991), or on changes taking place both within the company and its environment (Ginsberg, 1988). Finally, we can find a group of eclectic approaches to strategy that integrate these elements (Nag, Flambrick &c Chen, 2007; Jenkins &c Williamson, 2015).
Strategy and our understanding of it have evolved, just as schools of perception and thinking about strategy have evolved. Initially, strategy was understood as a long-term plan (five years and more), and the process of creating one was formal and systematized. Strategies were created by extrapolating a company’s past and were meant to ensure the achievement of its goals, taking into account the conditions created by the threats, opportunities, strengths, and weaknesses of a company. The company’s main stakeholders were customers and shareholders, and the choice of products and markets was aimed at maximizing profits (Ansoff, 1965). The planning approach to strategy survived until the mid-1970s, losing importance in the 1980s, but it still occupies an important place in strategic management, especially in large corporations.1 The criticism of the planning approach has contributed to the emergence of the next trend in thinking about strategy. At the end of the 1960s, but especially in the 1970s, strategy was perceived as a coherent pattern of decisions and actions, evolving in the course of a company’s operation (Obloj, 2007), which was influenced by the emergence of behavioral concepts in management (Bromiley, 2009; Powell, Lovallo, & Fox, 2011). It was shown that the organizational reality is not so ordered and rational, and that a strategy results from deliberate and emergent strategic actions (Mintzberg & Waters, 1985). The school of incrementalists (Quinn, 1980) assumed that strategy is incremental, as experience and learning are acquired. However, on the other hand, numerous limitations in the process of learning (the need to “understand”, information dynamics, attribution errors, etc.) became reasons for criticizing the evolutionary perspective of strategy (Whittington, 2001).
In the 1980s, the concept of strategic position emerged, which influenced the perception of strategy through the perspective of an undertaking’s ability to achieve a competitive advantage and to take suitable competitive positions in the market (Porter, 1985). Therefore, fighting competition has become the essence of strategy in line with the assumption that economic rents result from the market share of a company in a specific sector. Such an approach to strategy required diagnostic tests to assess the strategic and competitive position of a company, where the starting point is the environment and especially the competitors who make up a given sector. The positional school was based on the paradigm of strategic rationality, without taking into account such phenomena as intuition, luck, or learning (Mintzberg, Ahlstrand & Lampel, 2009).
In the 1990s, there was another shift in the approach to strategy, when the company’s resources, skills, and distinctive competencies began to be seen as the main source of competitive advantage, with competitive resources being rare, valuable, imperfectly imitable, and able to be exploited by a firm’s organizational processes (Barney &C Clark, 2007), as well as flexible and resistant to appropriation (Sigismund Huff et ah, 2008). The more a particular resource has of these characteristics, the greater the strength and durability of the competitive advantage won by the organization. The resource-based theory of strategy is still being developed by combining different concepts into one approach, such as the concept of core competencies (Hamel & Prahalad, 1990), distinctive capabilities (Kay, 1993), dynamic capabilities (Teece, Pisano & Shuen,
1997), knowledge-based theory of the firm (Grant, 1996; Sveiby, 2001), organizational learning (Dodgson, 1993), and others. Focusing on strategic resources and their scarcity in other areas led companies to strategic cooperation by forming various alliances (Das & Teng, 2000; Tjemkes, Vos, & Burgers, 2017). In turn, the emphasis on efficiency led companies to seek a competitive advantage by undertaking restructuring activities and process reengineering (Hammer & Champy, 2006).
The beginning of the 21st century forced a fresh look at what strategy is. The complexity and dynamics of the environment have resulted in many fleeting opportunities emerging, which should be recognized and seized by companies. According to Eisenhardt and Sull (2001), the strategy in the form of simple rules (principles) resulting from the operationalization of the process of building and implementing a strategy is conducive to quickly seizing fleeting opportunities. This requires innovative strategies to be built and implemented, under which the company will be able to take advantage of the opportunities (Brown, Davidsson, &C Wiklund, 2001).
The business logic built around innovation and entrepreneurship defines strategy in the context of creating innovative changes and generating value from the stakeholders’ perspective (Freeman, 2010). This approach includes the concept of a value network related to coopetition (Brandenburger & Nalebuff, 1997) and entrepreneurial strategy (Dess, Lumpkin, & Covin, 1997; Murray, 1984). Also, the rapid pace of technical and technological changes and the accelerated development of knowledge require strategies to increasingly take into account breakthrough technologies (Zhou, Yim, & Tse, 2005), to seek new business models (Teece, 2010; Yip, 2004), and to focus on innovation of values (Krawiec, 2003). Finally, in the first decade of the 21st century, as a result of increasingly intense globalization, strategy also began to have a global dimension, the essence of which was the desire to benefit from the global scale and standardization of products and the configuration and coordination of the international activities of a company (Ghoshal, 1987; Yip, 2001). Moreover, the financial crisis that appeared in 2007 and caused a strong recession prompted companies to update their business objectives and make strategic changes that would make companies resistant to crises (Booth, 2015; Romanowska, 2014). The concept of creating value mainly for shareholders was criticized again, and corporate social responsibility and ethics have become the key issues in the development and success of a company (Galbreath, 2009; Porter & Kramer, 2006).
The further evolution of the strategy has seen researchers’ attention turning toward stakeholders and a relational viewpoint. The former assumes that an organization’s strategy should take account of and be based on the needs of stakeholders (Ackermann & Eden, 2011; Maig- nan et ah, 2011), while the latter explains why organizations create and develop interorganizational relationships and networks (Kobayashi,
2014; Ritala & Ellonen, 2010), pointing out that building, maintaining, and developing interorganizational relationships can be a source of competitive advantage for a company (Dyer, Singh, & Hesterly, 2018; Lavie, 2006). The winner is the entity that configures such a set of relationships that allows them to operate better in the market. As a result, competition for the value from relationships is another pillar in the theory of strategy (Contractor & Beldona, 2002; Venkatraman & Subramaniam, 2002), and strategy began to be seen from the perspective of the network’s strategy and that of a company within the network.
An attempt to systematize the evolution of approaches to strategy was made by Guerras-Martin, Madhok, & Montoro-Sanchez (2014), who used the concept of pendulums (Hoskisson et al., 1999) to analyze the tensions between the external and internal domains of strategic management (pendulum 1) and between the macro- and micro-levels of analysis (pendulum 2), placing the relevant strategic management theories between them. These theories include the industrial organization, institutional approach, Austrian economics, agency theory, transaction costs economics, the resource-based view, knowledge-based view/resource orchestration, and behavioral strategy/micro-foundations. The researchers concluded that neither pendulum is positioned at the end, but that they move constantly and simultaneously, reflecting the complexity of strategic management as a scientific discipline. Therefore, the contextual dependence of a strategy requires different approaches in analyzing it, depending on the context, and future directions of research should combine the views of different schools of strategic thinking.
Although strategic management is evolving, the focus is still on value creation and the possibility of achieving a competitive advantage. It is difficult, however, to talk about building a sustainable competitive advantage today, due to the rapidly changing environment. That is why companies have started to develop flexibility, which allows them to create shortterm competitive advantages. Strategy itself, despite numerous studies on its essence, paradoxically remains one of the least-known phenomena (Ketchen, Boyd, &c Bergh, 2008). Due to the pendulum effect (Hoskisson et al., 1999; Guerras-Martin, Madhok, & Montoro-Sanchez, 2014) and the related dominance of a given theory of strategy and how it is perceived, it seems justified to abandon the search for a clear-cut definition of strategy and to focus instead on its essence and the key features of a good strategy.
Certainly, strategy consists of making choices (Grant, 2016) aimed at using the company’s resources and opportunities in the environment to improve the company’s outcomes. As the environment becomes increasingly complex, volatile, and unpredictable, the strategy must be flexible and the process of creating and implementing it must be dynamic. Therefore, for the purpose of this monograph, I adopt a general framework for understanding strategy as a dynamic process of making choices under conditions of uncertainty (limitations, pressure, and opportunities) in order to maintain development potential in the long run. In this context, the strategy must take into account the company’s dynamic, complex, and multidirectional relationships with its environment, including the expectations of external stakeholders and the available resources and capabilities of the company paired with the expectations of internal stakeholders, which all determine the company’s activities for gaining a competitive advantage and increasing performance. A good strategy must be coherent and coordinate actions, rules, and resources in such a way as to achieve the objectives, while simultaneously creating new advantages by changing perspectives and discovering new opportunities (Rumelt, 2011). A good strategy is characterized by certain features, which are timeless in their nature and which determine its essence.2 A breakdown of these features is shown in Figure 1.1.
These features show that a good strategy should combine courage, vision, clarity, and changeability with correctness, pragmatism, comprehensiveness, and stability (Kaleta, 2013). This, in turn, means that in order to succeed, companies must manage contradictions, reconciling and often pursuing opposing goals (Magnusson & Martini, 2008).
Figure 1.1 Key Features of a Good Strategy
Paradoxes in strategic management are ubiquitous (Dameron & Torset, 2014) and managing them has now become the function and responsibility of strategists (Smith &C Tushman, 2005). In a general sense, paradoxes point to tensions3 that coexist and persist over time, posing competitive challenges that require sustained responses rather than one-off decisions (Lewis, 2000). Strategic paradoxes occur at many levels of analysis, result from divergent stakeholder objectives, and result in competitive strategies (Smith & Lewis, 2011). Typical tensions and dichotomies in the area of strategy, often discussed in literature, include global integration vs. local adaptation (Berchtold, Pircher, &C Stadler, 2010), high commitment vs. high performance (Beer, 2009), emergent vs. deliberate approaches to strategy (Mintzberg &C Waters, 1985), inductive vs. deductive strategies (Regner, 2003), and collective vs. individual focus in strategic work (Chakravarthy & White, 2002). The typical tensions that accompany the process of strategy creation have also been pointed out by Dameron and Torset (2014), distinguishing the time tension (action vs. thinking), the focus tension (exogenous vs. endogenous), the cognitive tension (intuition vs. analysis), and the social tension (solitude vs. sharing). These tensions confirm the paradoxical nature of strategy by combining its transcendent with an immanent approach.
The dualism of paradoxes makes it possible to use them to build a theoretical multidimensional space of all possible strategies. Such a comprehensive proposal, taking account of the purpose, the strategy process, strategy content, and strategy context was presented by De Wit and Meyer (2010). Researchers distinguished ten strategic tensions that should be treated as paradoxes, which strategists must deal with by actively balancing between one extreme and another. These tensions include (De Wit &C Meyer, 2010, p. 14): [1]
- 9. International Context: Globalization (global convergence) vs. Localization (international diversity)
- 10. Organizational Purpose: Profitability (value for shareholders) vs. Responsibility (value for stakeholders)
It should be noted that in each company, particular paradoxes must be resolved individually, forcing creativity in combining the advantages of both opposites.
Managing strategic paradoxes is a challenge for executives because even if a company seeks to maximize both contradictory factors, managers must decide on the allocation of resources between these alternatives, setting clear guidelines for other members of the organization (Smith, 2014). This requires acceptance of the existing strategic tensions and balancing in time between extreme solutions (Smith & Lewis, 2011). Therefore, strategic management is increasingly the art of seeking “the golden mean”, and strategy is a dynamic process of making choices.
Successful strategies create new values using previously unknown resources and activities while striving for added value through the use of existing resources and activities (Sigismund Huff et al., 2008). This means that effective strategies must take into account both exploration and exploitation, which form the basic paradox of modern strategic management due to their different natures and opposing objectives. Balancing between these contradictions and seeking equilibrium between them was called ambidexterity, and the concept today is a sign of success and an idea of successful business development. Therefore, the next part of the monograph explains the genesis of ambidexterity, which, according to the paradox-based approach, is the current perspective for strategic management and how we perceive the strategies of contemporary companies.
- [1] Strategic Thinking: Logic (rational reasoning) vs. Creativity (generative reasoning) 2. Strategy Formation: Deliberateness (strategic planning) vs. Emergence (strategic incrementalism) 3. Strategic Change: Revolution (discontinuous renewal) vs. Evolution(continuous renewal) 4. Business Level Strategy: Markets (outside-in) vs. Resources(inside-out) 5. Corporate Level Strategy: Responsiveness (portfolio organization)vs. Synergy (integrated organization) 6. Network Level Strategy: Competition (autonomy organization) vs.Cooperation (embeddedness organization) 7. Industry Context: Compliance (industry dynamics) vs. Choice (industry leadership) 8. Organizational Context: Control (organizational leadership) vs.Chaos (organizational dynamics)
