The Rational Process Approach
The environment within which the modern ICT companies currently operate is highly volatile and unstable (Downes and Nunes 2013) and is characterised by Schumpeterian competition (Schumpeter 1942), hyper-competitive rivalry (D’Aveni 1994) and transient competitive advantage (McGrath 2013). This is in stark contrast to the relatively stable environments in which firms operated during the evolutionary stage of the classical ‘rational process approach’ to strategy (Hitt and Tyler 1991).
If we revisit the key aims of classical scientific rationality (Cohen and Cyert 1973), as applied to management studies and strategy outlined at the beginning of the chapter, we will see that some of the key criteria included objectivity (free from distortion and bias), reductionism and linearity (i.e. reducing phenomena to simple linear cause and effect relationships). If we consider objectivity first, due to the enormous levels of volatility and change, we often need to make sense ofsituations in the face of incomplete information. The business world is growing more complex and unpredictable every day (Hitt et al. 2003) and in many industries strategizing (i.e. constantly re-making strategy on a continuous basis) has become the norm.
According to Lowendahl and Revang (1998), complete objectivity (and hence rationality) in strategic decision making, therefore, becomes impossible. This is particularly relevant where a technology firm in the ICT sector is undertaking the prototyping and launch of a new product (particularly if it is radical in nature). Rational decision making typically begins with a conceptual simplification of the problem and its context. According to Simon (1962), this enables decision makers to arrive at a ‘bounded’, constrained and partial understanding of the strategic situation. However, where innovation strategies are concerned, decision makers have to operate under conditions of ‘bounded rationality’ (Simon 1962) where they are unable to consider all the relevant information available due to the level of complexity and uncertainty.
In such situations, technology entrepreneurs and innovators often resort to ‘Sense-Making’ (Weick 1995). The sense-making process involves active agents constructing their own meanings from the situations that confront them. According to Weick (1995), sense-making is a process in which human beings are constantly engaged. Consciously and unconsciously they build pictures of the world in which they live so that they can decide what to do next. Weick (1995: 6) said that sense-making was about the placement of items into frameworks, comprehending, redressing surprise, constructing meaning, interacting in pursuit of mutual understanding and patterning. Rational models of strategy can provide the kind of frameworks to which Weick (1995) alluded and help construct and share meaning as they interact in pursuit of mutual understanding. One such framework designed for high technology firms is the Gartner Hype Cycle (Fenn and Raskino 2008). The Gartner Hype Cycle methodology provides a view of technological trends and how a technology or application will evolve over time, providing a source of insight to manage its deployment within the context of specific business goals. This model is discussed in more depth in Chapter 3.
We will now consider two other key aims of classical scientific rationality (as applied to management studies and strategy) which are inter-related and referred to as reductionism and linearity or the reduction of phenomena to simple linear cause and effect relationships. Causal explanation is an important goal of classical science. It seeks to explain regularities in the universe. Regularities are things that appear to happen repeatedly in a relatively if not completely predictable way. Causal understanding provides insights into how and why things happen and provides opportunities to exert control. Economics has had a particularly strong influence on the development of strategy and it is a discipline that has been developed in the classical science paradigm by seeking answers to causal questions. Industrial organisation economics asks causal questions and seeks to illuminate the determinants of firm performance over time. Understanding why the performance of firms differ has long been a mainstream concern of strategic management research. The bulk of this research has followed economics thinking in seeking to uncover causes for particular performance effects.
In order to understand how and why profits are captured by some firms and not others and why firms differ, economists have developed and researched causal and probabilistic models. The causal rationality of economics has therefore made a substantial contribution to strategic thinking. Causal reasoning is a central feature of the conventional approach to strategy and economics and has provided structured methods of strategic thinking about difficult issues and problems.
However, in the modern ICT ‘universe’ it is very difficult (if not impossible) to find any ‘regularities’ that occur in a ‘relatively predictable’ way. Quoting Hollis and Nell (1975), there is no rational economic man. Strategies that are successful at a given point in time are unlikely to persist.
A linear unidirectional conception of causality is an unrealistic way of looking at the ICT sector, and it is, therefore, overly-simplistic. The ICT sector is characterised by Schumpeterian competition where R&D and technological innovation are constantly changing the competitive landscape (Hitt et al. 2003). The competitive advantages and Schumpeterian (1942) rents achieved by firms are transient (D’Aveni 1994; McGrath 2013) and eventually disappear in what Schumpeter referred to as a ‘gale of creative destruction’. Finally, firms within the ICT sector display high levels of heterogeneity in terms of their internal resources and capabilities (Grant 2013) and business models. Under these circumstances, cause and effect relationships based on theories designed in the 1950s add little if any value (Teece 2012). This was reinforced by Langlois (2003), who observed that since the late twentieth century, large vertical one-sided firms had become an increasingly small part of a landscape that featured a wide variety of market and network forms.
Another important element of the rational ‘process approach’ to strategy (discussed earlier in the chapter) was the concept of stage theory (Andrews 1971) and the separation of strategy formulation from implementation, involving different levels of the organisational hierarchy with senior managers cascading strategy down the scalar chain (unity of command) in a top-down manner (Chandler 1962). The linear nature of the strategy process was also a prominent feature of this paradigm and the manner in which strategic analysis preceded strategic choice which in turn preceded strategy implementation (Sloan 1963; Andrews 1971).
The rational ‘process approach’ to strategy was developed during an era when the macro and competitive environments of firms were relatively stable and predictable (Whittington 2002). However, half a century has now elapsed since these theoretical approaches were designed and according to Michael Hitt and colleagues, a ‘new competitive landscape’ has now evolved characterised by significant ‘strategic discontinuities’ and ‘disequilibrium conditions’ caused by ongoing globalisation and rapid technological change. In order to survive in the ‘new competitive landscape’, Hitt et al. (2003) proposed the adoption of approaches to decision making that permit ‘strategic flexibility’. The planning and design schools of strategy described earlier in the chapter are no longer appropriate. According to Doz and Kasonen (2008) - when studying Nokia - it was possible five to ten years ago for an organisation to set its vision and strategy and then to follow it. Today, however, this no longer works since firms now have to be alert every day and every month and be prepared to renew their strategy constantly.
The ICT sector has been both a driver of this disruption as well as a recipient. This means that the process of strategy formulation and implementation has also had to change to meet these new environmental conditions. The planning and design schools referred to earlier in the chapter, are no longer appropriate for firms competing in the ICT sector (Mintzberg et al. 1998).
Another important reason why flexible approaches to strategy are needed has been the impact of technology and ‘big bang’ disruptions on the shortening of the product life cycle (Downes and Nunes 2013). According to Downes and Nunes, in their Harvard Business Review article ‘Big Bang Disruption’ (2013), the classic Everett Roger’s five stage ‘Diffusion of Innovations’ model was no longer appropriate when developing and managing strategies in high-technology environments. Downes and Nunes (2013) proposed a new life cycle model consisting of only two segments. These segments were ‘trial users’ (who often participated in the development of the product) and ‘everyone else’. This replaced the original five-stage model consisting of innovators, early adopters, early majority, late majority and laggards. The new product life cycle is simplified into three basic stages: development, deployment and replacement.
According to the article, the change was occurring more quickly due to ‘big bang’ disruption. The ‘big bang’ disruptions came from the ‘left field’, and the innovations were frequently unplanned and unintentional. They did not follow conventional strategic paths and usually involved live beta testing in the marketplace before a final concept was agreed. Due to the nature of modern cloud computing, Internet platforms and mobile devices, this could be executed very quickly and cheaply. Innovators could undertake low-risk experiments using ‘crowdsourcing’ techniques and then abandon prototypes that didn’t work without incurring a financial loss (Downes and Nunes 2013). For example, Graze.com, the health snacks company, completes its product development cycle in just forty- eight hours by testing products with online customers, gaining feedback and then making a launch decision.
The implications are that strategy becomes a dynamic and continuous process where new decisions are being made and remade in an unending fashion (strategizing). The strategy formulation and implementation processes also become merged and decisions such as where the firm wants to go and how it gets there are more-or-less inseparable. This is a phenomenon that will be discussed further in Chapter 3 when analysing Brown and Eisenhardt’s strategy on the edge of chaos theory (Brown and Eisenhardt 1998: 7).
A seminal research study by Mintzberg and Waters (1985) introduced the concept of deliberate and emergent strategies. The authors identified eight different types of strategy which they positioned on a continuum with planned/deliberate strategy at one end and emergent/imposed strategy at the other. Mintzberg and Waters (1985) also defined strategy as a stream or pattern of actions that may or may not have any prior intention. They defined a pure deliberate strategy as an intended (planned strategy) that is realised (successfully implemented as planned) and a pure emergent strategy as a pattern or consistency of action that is realized (successfully implemented), despite or in the absence of, intentions. Mintzberg and Waters (1985) said that for a strategy to be perfectly deliberate at least three conditions would need to be met. First, there would need to be precise intentions in the organisation that were articulated in significant detail (i.e. a business plan) before any actions were taken. Secondly, intentions would have to be shared and agreed upon by all the main stakeholder groups in response to some form of controls. Thirdly, the collective intentions would need to be realised exactly as intended, which would mean that no external force (market, technological or political, etc.) would have interfered with the initial intentions. Therefore, the environment would need to be perfectly predictable, totally benign or under the full control of the organisation.
Since it is highly unlikely that all three conditions would ever be met, a perfectly deliberate strategy is not likely to exist. If a strategy is to be perfectly emergent, there must be order - consistency in action over time - in the absence of intentions about it. However, it is very difficult to imagine how there is likely to be any action in the total absence of intention. This means that a purely emergent strategy is also unlikely to exist. Subsequently, Mintzberg and Waters (1985) concluded that all strategies would have some element of both the deliberate and emergent characteristics (deliberately emergent), and hence their continuum of strategies.
Analysing the continuum of eight strategies identified by Mintzberg and Waters (1985), the planned strategy is defined as consisting of precise intentions that are formulated and articulated by a central leadership and backed up by formal controls to ensure their surprise-free implementation in an environment that is benign, controllable or predictable (to ensure no distortion of intentions). These strategies are therefore highly deliberate. This definition of the ‘Planned Strategy’ is, therefore, strongly aligned with the rational classical approach to strategy and inappropriate for firms competing in the ICT sector.
However, the strategies that are located further along the continuum with more emergent characteristics appear to be more in line with the approaches currently adopted by firms within the ICT sector. For example, an ‘Entrepreneurial Strategy’ occurs when intentions exist as the personal, unarticulated vision of a single leader and are adaptable to new opportunities (Mintzberg and Waters 1985). Under these circumstances, the organisation is under the personal control of the leader. These strategies are relatively deliberate, but they can also emerge. This type of strategic approach could be observed when Steve Jobs returned to Apple in 1997 and set about reinventing the company, moving it from a PC platform and onto an Internet-enabled mobile platform. Jeff Bezos demonstrated a similar approach when he founded Amazon in 1995 and still runs the firm in a highly controlled manner. Bill Gates’ early strategic management style at Microsoft also mirrored these traits as did Andy Grove at Intel.
The ‘Umbrella Strategy’ and the ‘Process Strategy’ (Mintzberg and Waters 1985) also appear to be relevant in high innovation ICT companies. With an ‘Umbrella Strategy’, the leadership is only in partial control of the organisation’s actions. The role of senior management is to define strategic targets or boundaries within which others must act. Strategies are therefore partly deliberate (the boundaries) and partly emergent (the patterns within them). This approach is, therefore, deliberately emergent insofar as the leadership purposely allows others the flexibility to manoeuvre and form patterns within the boundaries. This is an approach that has been identified in the new twenty-first century high technology firms such as Google and Facebook. At Google, the strategic boundaries (or intention) are defined by the vision statement which is: ‘To organise all the world’s information and make it universally accessible and useful’ (Schmidt and Rosenberg 2014). The engineers within the company are then left to invent new products that gather data and information to meet the overall vision. Over the years, these products have included the original search engine, Google books, Google Earth and Street View, Android mobile software and more recently, connected cars and homes. Google now has seven products that claim a billion or more users each, including search, maps, Gmail, You Tube, the Google Play store, the Android operating system and the Chrome browser (The Economist 2016).
The ‘Process Strategy’ is also very similar to the ‘Umbrella Strategy’. With a process strategy, the leadership controls the process aspects of strategy (i.e. recruitment and structure) leaving the actual content of strategy to others. This type of strategy is partly deliberate (concerning process) and partly emergent (concerning content) and also deliberately emergent as in the case of the ‘Umbrella Strategy’. Both these strategic approaches are well suited to high-innovation companies in the ICT sector such as software, silicon chips, cloud computing, search and Internet- based platform companies including Google, Facebook, Amazon and Apple (in the US) and Alibaba, Tencent and Baidu (in China). The strategic process has a very strong bottom-up orientation rather than top-down and is iterative rather than linear in nature. These strategies also acknowledge the fact that the environment and the outcome of innovation cannot be predicted, and therefore, provide the ‘strategic flexibility’ that Hitt et al. (2003) referred to in the ‘new competitive landscape’. The ‘Entrepreneurial Strategy’ is also well suited to high growth start-up companies such as Uber and Airbnb where dominant entrepreneurs such as Travis Kalanick (the Uber founder), tightly control the future path of their firms.
Whittington (2002) identified four generic perspectives on a strategy which included the deliberate, classical approach based on profit maximization (discussed earlier) and what he referred to as processual strategy. ‘Processual’ strategy making was seen as a process that emerged from a combination of influences within the organisation. The objectives were not just profit-maximisation but also innovation. Whittington (2002) did not view this strategic process as being a linear sequence of one-off activities involving analysis, evaluation and implementation carried out in a logical sequence every few years. The strategy was actually seen as a continuous and iterative learning process - similar to Mintzberg et al.’s (1998) ‘Learning School’ - that reflected the internal and external complexity facing modern organisations. This approach also reflected the nature of strategy formulation within the modern ICT sector and built on Mintzberg and Waters (1985) deliberately emergent approach. In this way, the ‘Classic’ sequence of formulation first and implementation second gets reversed, and strategy is discovered in action.
Saras Sarasvathy (2001) also built on the theoretical approaches of Mintzberg and Waters (1985) and Whittington (2002) when she formulated the concepts of effectuation and causation. Her research revealed that when entrepreneurs approached strategy they did not utilise traditional planning tools and methods. Instead, the entrepreneurs relied upon ‘effectual reasoning’ or ‘effectuation’ rather than causal or deductive reasoning when formulating a strategy. This is what Sarasvathy (2001) referred to as the entrepreneurial-innovation mind-set.
Unlike the conventional approach to the strategy of Johnson et al. (2011), where analysis is followed by choice and implementation and planning precedes action; the entrepreneur would begin with a vision or broad set of goals and go to market quickly based on the resources and strengths that they already had. They would not wait for perfect knowledge or the perfect opportunity but learn by doing. This is very similar to Quinn’s (1980) logical incrementalism where the entrepreneur learns by implementing many small incremental steps and changes instead of a making a large extensively planned commitment. Action, therefore, precedes detailed formal planning.
With the planned approach to strategy, the firm would research opportunities first and assess potential returns before committing resources. The entrepreneur, however, would go to market as cheaply and quickly as possible and assess market demand first hand. They would set an ‘affordable loss’ rather than try to predict the potential returns using investment appraisal methods. Sarasvathy (2001) also found that entrepreneurs did not like extensive formal research and planning (particularly traditional market research) because of a lack of belief that the future was predictable and that any upside could be evaluated. Entrepreneurs, therefore, believed in their own ability to react quickly to changing circumstances and to creatively react to contingencies as they occurred.
Sarasvathy’s (2001) research also revealed that entrepreneurs used uncertainty to their advantage by remaining flexible. Entrepreneurs also partnered with stakeholders and used networks and ecosystems to leverage resources. This was in stark contrast to causation and the planned approach to strategy, particularly with respect to Porter’s (1980) monopoly rents and positioning approach. It was also revealed that entrepreneurs were less concerned about competitors since they saw themselves as being on the fringe of a market as the result of some form of disruptive innovation (Downes and Nunes 2013). Therefore, they believed that they had a strong form of differential advantage.
According to Sarasvathy (2001), once a strategic move by the entrepreneur started to bear fruit and the enterprise or product started to grow or scale-up, then the entrepreneurial firm needed to move towards a causation or planned strategy in order to orchestrate the necessary resources and move to the next level. This can be linked to Burns’ (2013) Entrepreneurial-Innovation Strategy Formulation Cycle where action precedes planning and the process begins with a strong entrepreneurial vison or strategic intent and an emergent strategy (the Growth Cycle) which, through continuous strategizing, then evolves into a deliberate or planned strategy (Consolidation Cycle) provided it is a success. This would also be an iterative process since the firm would need to continuously innovate and re-invent itself and to revert back to effectual reasoning in order to launch new products and services in the future (see Fig. 1.2 the Entrepreneurial-Innovation Strategy Formulation Cycle).
Sarasvathy’s (2001) approach is reinforced in the book The New Entrepreneurial Leader: Developing Leaders Who Shape Social and Economic Opportunity (2011). In the book, three types of approach or logics are identified when formulating a strategy. These are referred to as the ‘Prediction Logic’ (Davenport and Lang 2011), the ‘Creation Logic’ (Fixson and Rao 2011) and the need for ‘Cognitive Ambidexterity’ to manage these two different types of logic (Neck 2011).
The prediction logic is goal-oriented with analysis preceding action. Forecasts and attempts to predict the future are made on the basis of the analysis of historical data. The analytical frameworks and tools used are similar to the ones referred to earlier in the rational analytical model.
Fig. 1.2 Entrepreneurial-innovation strategy formulation cycle (adapted from Burns 2013)
There is a strong competitive lens and a focus on risk avoidance and optimising behaviour (Davenport and Lange 2011).
With the creation logic, there is action before analysis. The process is means-oriented rather than-goal-oriented. The creation logic is grounded in reality rather than hypothesis (Fixson and Rao 2011). Due to the absence of historical data, entrepreneurs (particularly technological entrepreneurs) observe the environment looking for opportunities. They think big - Big Hairy Audacious Goals (BHAGs) or vison statements (Collins and Porras 1996) - and start small. The mantra adopted by technology entrepreneurs is to fail fast, fail smart, fail cheap and learn quick (i.e. learn the unknown variables). This is often achieved through rapid prototyping. It is only when the entrepreneur achieves final proof of concept that resources are fully committed and scaling-up occurs.
According to Heidi Neck (2011), the two approaches are complementary rather than alternatives. Therefore successful entrepreneurs are the ones who can switch between the two logics and achieve a state of cognitive ambidexterity. This is a similar process to that identified by Sarasvathy (2001) and Burns (2013) where the emergent growth cycle and effectuation are followed by a consolidation cycle of causation and planned deliberate strategy (Fig. 1.2).
David Collis (2016), in a recent Harvard Business Review article entitled, Lean Strategy: Start-ups Need Both Agility and Direction, proposed a similar methodology to the approach discussed earlier. Collis (2016) said that by combining traditional strategy with lean start-up practices, ventures could align employees around a common purpose in order to exploit limited resources, learn from the market and adjust their strategy accordingly. However, unlike the approaches discussed earlier, Collis (2016) still placed deliberate strategy at a relatively early stage in the process ahead of any feedback and emergent strategy developments.
These new approaches to strategy can also be observed in the modern contemporary ICT ecosystem. Both Amazon, Google and Facebook began small by occupying niche segments and developed using emergent strategies and strong strategic intent. Amazon only sold books during its first two years of operation, and its vision statement was to be the earth’s biggest bookstore. Google, meanwhile, focused purely on search, to begin with, and its vision statement was to organise all the world’s information and make it universally accessible and useful. Facebook, meanwhile, was initially only accessible to US students with a university email address.
Table 1.2 Strategy as a rational plan and strategy as an emergent process (Walton 2017)
Strategy as a rational plan
Strategy as an emergent process
(Mintzberg and Waters 1985)
Causation (Sarasvathy 2001)
Prediction logic (Davenport and Lang 2011)
(Mintzberg and Waters 1985) Effectuation (Sarasvathy 2001) Creation logic (Fixson and Rao 2011) Logical incrementalism (Quinn 1980)
Cognitive ambidexterity - combining both approaches (Neck 2011)
All three companies have since extended their reach far beyond their core businesses and oscillate between deliberate and emergent strategies (Mintzberg and Waters 1985) and predictive and creation logics (Davenport and Lange 2011; Fixson and Rao 2011). The different approaches discussed in this section have been summarised in Table 1.2.