Future Directions in Business Strategy Theoretical Development

As the survey of major theories summarized in this chapter illustrates, there is an incredibly wide variety of theoretical approaches to business strategy development that have emerged over the past several decades. There is no one "best" theory of business strategy. Each theory presented has its own frame of reference, its own view of the firm and its environment, and its own set of assumptions, mechanisms, and explanations for firm-level strategic dynamics. Each has its own proponents, challenges (and challengers), and research agenda.

In general, the product-market-based views of business strategy provide parsimonious typologies for analyzing possible product and market positions that are easy to apply and understand, but they are not strongly theoretically grounded and may have limited applicability at the corporate level. The industry-based strategic approaches helped raise awareness of establishing competitive advantage within a particular industry, a perspective that may remain particularly relevant for entrepreneurial decisions. But the assumption that there is one "best" industry position to be pursued combined with the lack of inclusion of firm resources and internal workings may limit its applicability, particularly as we move from manufacturing-centric to knowledge-centric paradigms. Although RBV emphasizes the importance of internal capabilities, its weaknesses include a lack of consideration of the external market environment as well as possible tautological, operationalization, and testing gaps. And though competition-based theories of business strategy are particularly relevant as competition is fueled by the pressures associated with today's shrinking and rapidly changing markets, care needs to be taken that business strategy is not reduced to a series of moves and countermoves.

Although it seems difficult to imagine, there was a time in the not-too-distant past where there was not yet a need for "strategy." But in today's highly competitive and complex business environment, businesses need guidance more than ever to help them understand which strategic approaches can help them compete most effectively. Thus, the research attention in support of refining and expanding approaches business strategy is expected to continue to accelerate. But rather than focusing on the development of "new" theories of business strategy or pitting theories against each other to determine which one may be "best," the emphasis at this stage in the life cycle of strategy research should be on the integration of and empirical testing of existing theory.

Managerial Implications

Business leaders may not necessarily directly or deliberately rely on "theory" in identifying and implementing strategies for their firms. Many may believe that theories are useful for academic exercises only. But many of the strategic frameworks, tools, and techniques that they employ as practitioners have been grounded in the theoretical approaches discussed within this chapter. For instance, IBM's transformation from a technology/hardware company to a broad-based global solutions firm is an excellent example of how a dynamic capabilities approach can help a firm adapt its core competencies to a rapidly changing environment.32 Likewise, the pharmaceutical industry and the strategic resource value of patents as firm sustainable competitive advantages provide a relevant context for understanding RBV. Competitive dynamics can be seen where there are widespread industry paradigm changes and shrinking markets, such as in the airline industry.

Thus, as we just illustrated, although it is often unknowingly and indirect, strategic managers depend upon the foundations laid by theories of business strategy. It has been said that "Nothing is as practical as a good theory."33 Managerial understanding of and appreciation for the theoretical traditions underlying applied practices in setting strategy can further enhance the value of business research and its practical relevance to the business community.

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