Contemporary Topics in Strategic Management

This course focused on a series of topics that are relevant to strategic management. As mentioned before, strategic management is about the decisions an organization must make, based on the interaction between the environment and the firm's resources, in order to gain or maintain competitive advantage.

When thinking about general topics to research in the field, many come to mind including:

• How organizations choose their strategy and change
• How organizations are managed by directors and top managers
• How organizations create knowledge and learn
• How organizations deal with financial markets

The next set of posts will detail some of those topics and a few more.

Sociological Foundations of Strategic Management

Strategic management is, at its core, about how managers can transform environmental factors along with internal organizational resources to make decisions. These decisions should be based on goals and plans of action for reaching them.  The overarching goal is to guide the organization into the future in a dominant competitive position.

Given the importance of the environment in decision-making, sociology was a natural field for strategic management to draw on. The study of sociology centers around human social actions and social structure.

In 2004, W. Richard Scott published an article reviewing 50 years of organizational sociology. It this article, he detailed how the field has changed over time:

• During the early 20th century, the study of organizational sociology came from the engineering orientation (Taylor 1911, Fayol 1919/1949).  
• During the 1920s, the focus was on the historical view (Weber 1924/1968). 
• By the 1930s, social scientists focused on unofficial, informal patterns of cooperation, shared norms and conflicts .
• Then in the 1940s there was a shift in unit of analysis to organization (Barnard 1938, Selznick 1948). Researchers also looked at the paradox of manipulation and embeddedness. 
• The 1950s brought the Carnegie-Mellon School of thought typified by bounded rationality (Simon), and the Columbia School, which focused on unintended consequences of purposive action (Merton).
• The 1970s, researchers focused on perfect rationality vs. irrationality.
• And the 1980s brought a higher level of anlaysis (organizational population, organizational fields, and networks).

Since strategic management requires the understanding of the environment, many theories used place a strong focus on it. Some of the most relevant are:

• Contingency Theory: Galbraith 1973, Pfeffer 1982 
• Resource Dependence Theory: Pfeffer & Salancik 1978 
• Organizational Ecology: Stinchcombe 1965, Hannan & Freeman 1977 
• Neo-institutional Theory: Meyer & Rowan 1977, DiMaggio & Powell 1983 
• Networks: Granovetter 1985 
• Social Movements: David, Morrill, Rao and Soule 2008 (Review) 
• Organizational Identity: Dutton, Dukerich & Harguail 1994 
• Categories and Classification: Zuckerman 1999, Hsu 2005

Economic Foundations of Strategic Management

Strategy draws on many disciplines. As discussed in the Strategy Background post, two of the main influences come from sociology and economics.

Today I will focus on the economic foundations of strategy. This post will be a broad overview of how economics has shaped the study of strategy. Additional posts will discuss theories in much more detail.

Economists, particularly those focused on industrial organization, had been studying issues that are relevant to strategy. For example, they looked at market structure, competitive behavior, vertical integration, diversification, and mergers and acquisitions.

Their research centered around the economic welfare of society. Most importantly, economists had a large body of theory, methodology, and evidence that could be used to address strategy questions.

The leap from theorizing about the economy to the organization was not very difficult. Thus, people trained in economics began to enter this field.

Some of the theories in the field of economics had an immediate application to strategy:

• Industrial Organization Economics
• Managerial Theories of the Growth of the Firm
• Agency Theory
• Transaction Cost Theory
• Neo-Austrian Theories

Furthermore, some theories that have emerged in the field of strategy draw very heavily on economics:

• Resource Based View of the Firm
• Dynamic Capabilities
• Knowledge Based Theories of the Enterprise

(Adapted from course notes)
(Flashcards and other resources here)

Strategic Management Background

Strategy as a field is relatively new.

It emerged during the 1970s and the early 1980s out of a requirement to have a business policy capstone class. One of the key indicators of the legitimacy of an area of study as a field are specialty journals. One of the first strategy-focused journals, Strategic Management Journal, started in 1981.

Early in the field, the focus was on two core ideas: strategy content and strategy process.

Strategy Process
This research drew on sociology, social psychology, and cognitive psychology. Scholars were focused on questions such as:

• How are strategies chosen?
• See Andrews (1971), Bower (1970), Mintzberg (1978), Burgleman (1983)
• How do decision making biases factor into this process?  
• See Tversky and Kahneman (1974), Schwenk (1984), Mason, (1969)

Strategy Content

This research drew on economics concepts. Scholars were interested in asking:

• What is the best strategy to pursue?
• At the industry level: Porter (1980)
• At the corporate level: Chandler (1966), Rumelt (1974), Montgomery, (1981)

From this brief overview, it is possible to see that both sociology and economics are used in strategy research. Future posts will describe in more detail the economic and sociological foundations of strategy.