Modes of Strategic Behavior

The following are different types of strategic behavior that are observed in practice today. In this section, we shall describe each and compare the conditions under which they are appropriate to the success of a firm.

Unmanaged Organic Adaptation

Sociologists and political scientists have studied organizations and firms as depersonalized homogeneous entities. As a result, their perception is that strategic change is unguided and unmanaged. Under certain conditions, changes are proposed by some part of the organization. Negotiations and political interactions occur, as a result of which the change is accepted or rejected. In the former case, implementation starts and proceeds, again unguided, by trial and error, to either a successful or unsuccessful conclusion.

Typically, the alternatives generated and accepted are incremental and logical extensions of historical dynamics. When the environment poses a discontinuous threat to the organization’s survival, the response follows the reactive pattern which will be described in Chapter 18. The organization exhibits strategic myopia until the impact of discontinuity progresses to a point where it is perceived to threaten survival of the organization.

This perception triggers a crisis, and incremental adaptation is abandoned in favor of a frantic search for a discontinuous response which will assure survival. Typically, the first step is to replace the now discredited power structure and to bring in a savior from outside, who has an idea for rescuing the organization.

In Chapter 22, we will discuss how the organization closes ranks behind the savior until signs of recovery appear. At that point, pressures build up for a return to incremental unmanaged behavior.

The significance of the unmanaged adaptation has been variously interpreted by observers. Certainly, it is a behavior widely observable in nonprofits, particularly in bureaucracies. But observers have argued that it is not only a natural organic process but also a process which should not be tampered with, because it is the optimal way to adapt to change. It assures both learning and adaptation to environment in complex organizations; it is self-designing, similar to biological adaptation; and the final, strategic posture arrived at by unmanaged adaptation meets the needs of both the organization and its participants.

It has been further argued (Lindblom 1959-G) that in a complex environment, unmanaged adaptive learning is the only feasible method for changing complex organizations, because the organization lacks the intelligence to comprehend the world around it.

Students of the business firm agree that unmanaged adaptation is also observable in some firms. These are either firms with ‘tired’ management in which general management ceased managing, or large complex firms, described by Galbraith, in which management has become a captive of ‘technocracy.’ Such firms are typically mediocre performers and continue to survive only in environments which are noncompetitive. Intensification of competition, or environmental discontinuities, induces a crisis which follows a course very similar to the nonprofits.

No experienced management practitioner would prescribe such unmanaged behavior as an example to be imitated, and few security analysts would recommend to their clients that they invest money in an unmanaged firm. The reasons are simply that unmanaged firms are poor profit-makers and are prone to strategic surprises.

Systematic Planning

The planning profession, and scientists whose roots are in mathematics, recommend a behavior which is at the opposite extreme from the unmanaged. This is planned behavior in which management plays a vigorous and rational role by predetermining in a systematic manner the directions in which a firm will develop and then guides and controls the execution in accordance with the established plans.

The planners argue that unmanaged adaptation is inefficient, ineffective and that it became antiquated when managers have developed systematic planning procedures. Their view is that change must be managed and that management of change is, in fact, the raison d’etre of management.

According to the planner’s view, whenever change is incremental and evolutionary, management of change should be delegated to the lower (divisional and functional) levels of management and corporate management should coordinate the functions.

In Chapter 16, a formal company-wide process called long range planning has been developed and used successfully in many firms, to guide decentralized incremental strategic adaptation.

For guiding and implementing discontinuous strategic change, practical planners have developed strategic planning in which guidance moves to the general management and corporate levels. But the process remains participative, involving all managers who have a responsibility for initiating and implementing change. Unlike LRP, early efforts to use strategic planning ran into serious difficulties.

This led proponents of unmanaged adaptation to argue that planning is artificial and unusable. In a classic article, Mintzberg (1976-C) joined Lindblom (1959-G) by arguing that, when environment is not complex or turbulent, planning will, at worst, do no harm; but, under high complexity/turbulence, planning no longer works, and managers must return to ‘intuitive managing.’

As we will be discussing in this book, there is now both empirical and practical proof that an appropriate type of planning (not the LRP which Mintzberg apparently has in mind) does work, when it is properly installed in the firm. Furthermore, it substantially improves performance (see Chapter 7).

These results disprove Lindblom’s assertion that firms are not sufficiently intelligent to comprehend and find their preferred paths in a complex environment.

But comprehensive organization-wide planning is costly and time-consuming. And comprehensive planning reactions become too slow when confronted with fast-maturing threats and opportunities. Therefore, there are numerous decision occasions in which comprehensive planning may be either ineffective or not worthwhile. These occasions are:

1.
When the risk taken by foregoing planning is small, because the desirability and consequences of an action are clear and certain.
2.
When the information necessary to formulate concrete plans is insufficient or unavailable (see Chapter 20).
3.
When the cost of planning is so high that it is more cost-effective to take a direct plunge into action without the benefit of prior planning. It will be review in Chapters 9 and 14 that this situation occurs in internationalization and diversification, when it is sometimes less expensive to try than to plan.
4.
When the urgency is so high that there is no time to plan, this typically occurs during a crisis (see Chapter 2).

Under one or more of the above conditions, Mintzberg’s advice to use ‘plain managing’ may indeed be the preferred course of action. We next explore what such managing means.

Ad hoc Management

As already mentioned, managers who let themselves be carried by the natural dynamics of the firm, or let themselves be manipulated by the firm’s technocracy, can survive only in protected or noncompetitive environments. Managers who practice systematic strategic management are still few in number (see Chapter 7). Thus, the type of management behavior referred to by Mintzberg is the numerical majority. But, in literature on organizational behavior, this behavior, like the part of an iceberg below the water, had been hidden from view until a pioneering con tri but ion was made by Mintzberg (1973a-B) who studied how responsible managers manage when they do not use a formal planning system.

The behavior which we are about to discuss, and which, following the terminology of this book, is ad hoc issue management (or simply ad hoc management ) falls between the unmanaged and the planned.

On the one hand, the manager does not let organic adaptation determine the strategic development of this firm. On the other hand, he does not provide comprehensive deliberate strategic guidance. Instead, he addresses strategic issues one at a time, as he perceives them himself, or as they are brought to his attention by his colleagues and subordinates. In Chapter 18, we will discuss how managers differ in the time frame within which they perceive issues. Some are reactive and delay response until after an issue has had a significant impact on the firm; others are decisive and confront issues when their impact is imminent.

A characteristic of ad hoc management, which makes it an important alternative to comprehensive planning, is its shorter reaction time. This does not mean that managers do not plan their responses. On the contrary, good managers consult experts, order studies of profitability, feasibility, and potential impact issues, and they convene problem-solving and decision-making groups. But, compared to the cumbersome company-wide planning, this process typically involves a small number of people, the time consumed in deliberation and decision making is short, and initiation of action is prompt.

As the preceding discussion indicates, ad hoc management is a cost-effective alternative to systematic planning, under the following conditions:

1.
When issues develop slowly enough to permit a reactive or a decisive response (see Chapter 18).
2.
When incidence of issues is infrequent enough so that a conflict of issue priorities does not arise.
3.
When an issue is ‘local’ and does not affect other issues, or parts of the firm, other than the one in which the issue is being treated.
4.
When the underlying evolutionary thrust of the firm’s development will meet the objectives of the firm.

Whenever the first two conditions do not hold, the firm becomes an ineffective responder to the environment because of the lateness of response and issue overload. Under these conditions, systematic strategic issue management becomes necessary.

When conditions (3) and (4) do not hold, both ad hoc and systematic issue management become, at best, a means to help a firm to make corrections in its basic development thrust at a time when a revision of the thrust is necessary. At this point, comprehensive strategic posture management becomes necessary.

Choice of Strategic Behavior Mode

As the preceding discussion indicates, the unmanaged behavior has little interest for responsible managers. Among the managed behaviors, we have so far identified the following alternatives:

1.
Ad hoc management which treats issues as they arise, one at a time.
2.
Issue management which anticipates, assigns priorities, and systematically manages resolution of issue. It will be recalled that systematic issue management takes three forms:
1. a.
  Strong signal issue management (Chapter 19).
2. b.
  Weak signal issue management (Chapter 20).
3. c.
  Strategic surprise management (Chapter 3).
3.
Strategic posture management which provides comprehensive guidance to the firm’s strategic development. This has three distinct forms:
1. a.
  Long range planning (Chapters 3 and 16).
2. b.
  Strategic posture planning (Chapter 3 and Part II).
3. c.
  Strategic posture management (Chapter 3 and Part VI).

Thus, there are, in effect, at least seven distinct modes for managing the firm. As discussed in the preceding pages, each mode has its advantages and shortcomings, and each is optimal under different conditions. Further, as we shall see presently, the conditions frequently require a combination of two of the modes. This is illustrated in Table 5.1. The figure deals with three conditions: predictability of strategic challenges, their complexity, and their novelty. It will be recalled that predictability is a measure of the completeness and unambiguity of the information which is available to the firm by the time it must respond, if its response is to be on time. High predictability means that information is adequate to define and evaluate specific business alternatives. Low predictability means that information is partial, action alternatives are not yet clear, nor are their consequences (see Chapter 20).

Table 5.1

Modes of strategic development appropriate under different conditions of predictability/complexity/novelty

Predictability	Appropriate development nodes
Low	Weak signal issue management	Quasistrategic planning: LRP + issue management	Strategic posture planning + issue management	Strategic learning^a
Moderate	Strong signal issue management	Quasistrategic planning: LRP + issue management	Strategic posture planning + issue management	Strategic posture management + issue management
High	Ad hoc management	Long range planning	Strategic posture planning	Strategic posture management
Complexity	Low	High	High/low	High/low
Novelty	Low/high	Low	Moderate	High

^aStrategic learning = strategic posture management + issue management + gradual commitment + parallel planning/implementation

Complexity is a dual measure of the pervasiveness of the impact of a challenge on various parts of the firm, as well as the frequency of occurrence of challenges.

Novelty is a measure of the extent to which knowledge gained from experience can be extrapolated to responses to new challenges.

Table 5.1 shows that, when complexity is low and predictability is high, ad hoc management is the suitable approach for dealing with strategic challenges.

As predictability decreases (left-hand column), ad hoc management must be progressively replaced by strong signal issue management (Chapter 19) and weak signal issue management (Chapter 20), both of which anticipate the challenges, assign priorities, and manage them systematically.

As complexity and then novelty increase (bottom line), ad hoc management must be replaced, first by long range planning, then by strategic posture planning, and finally by strategic posture management.

As shown in the figure, other combinations of predictability/complexity/novelty make it necessary to use a combination of an issue management system and of a comprehensive planning approach. The manner in which they can be related within a firm is illustrated in Figs. 5.1 and 5.2.

../images/435756_3_En_5_Chapter/435756_3_En_5_Fig1_HTML.gif — Fig. 5.1
Quasi-strategic planning: LRP + issue management

../images/435756_3_En_5_Chapter/435756_3_En_5_Fig2_HTML.gif — Fig. 5.2
Strategic planning and issue management

The combination of LRP with issue management, shown in Fig. 5.1, is called quasi-strategic planning , because it is a half-way point between LRP and strategic planning. As is seen from the figure, the extrapolative LRP system, shown on the left, is left undisturbed. But a parallel issue management system permits the firm to make a strategic response to the episodic strategic issues. Thus, a quasi-strategic planning system does not change the basic course of strategic development of the firm, but its issue management provides an autopilot which helps maintain this course.

Figure 5.2 shows that strategic planning and issue management must be linked together in three ways. The first is through inclusion of issues of moderate urgency into the annual planning process (see Chapter 19).

The second is through combining the projects generated by the annual planning and by the issue management system within an overall project management system (see Chapter 25). A third important connection, not visible in the figure, is a need to set aside, during annual planning, a reserve strategic issue budget which can be applied to resolution of new issues as they surface in the course of the year (see Chapter 25).

Strategic Learning

The upper right-hand box of Table 5.1 represents a condition which requires a management approach which goes beyond a combination of issue and position management. The reason is that, when low predictability is coupled with high novelty and complexity, information is inadequate for formulation of strategies. This occurs when a clear description of future prospects in an SBA cannot be made, either because such description would require prohibitively costly market research, or because the SBA is in the early stages of emergence and information about its future prospects is still imperfect.

We have already encountered this condition on the following occasions (Chapter 12):

1.
In developing and implementing the diversification strategy for the firm.
2.
In developing pioneering products and technologies.
3.
In diversifying a firm into poorly known foreign markets.
4.
In dispersed SBA positioning.

On all of these occasions, a complex approach, which combines the planning and action in a novel way, becomes necessary. We shall refer to it as the strategic learning mode :

1.
The usual single-step (go-no-go) strategic decision process should be replaced by a subtler progressive commitment process (see Chapter 13).
2.
Each commitment decision should be designed to keep open as many options as possible, until a stage is passed at which the firm is prepared to make a firm commitment to the new strategic move (see Chapter 19).
3.
Each commitment decision should be designed to maximize strategic learning which will contribute to the next commitment decision (see Chapter 12).
4.
Implementation should be launched after each commitment decision and conducted in a way which will maximize strategic learning. Thus, as discussed in Chapter 25, planning and implementation cease to be sequential and become parallel processes.
5.
At each step in the decision process, a ‘to plan or to act’ decision should be taken. This choice will depend on three factors:
1. a.
  Which of the alternatives is most cost-effective for strategic learning?
2. b.
  The urgency of response which may make it necessary to launch action without a preceding detailed planning exercise.
3. c.
  The risk incurred in launching direct action. If the risk is small, direct action becomes preferable. Direct action does not mean that the decision analysis is dispensed with altogether, and a snap decision ‘to go’ is made by the ‘seat of the pants.’ But it does mean that a careful and time and money consuming decision analysis exercise is foregone in favor of a quick decision, made on the basis of the best readily available information.

It can be seen from the preceding discussion, and particularly from Table 5.1, that we arrive at a conclusion altogether different from Mintzberg’s. Ad hoc managing is recommended when environment is on a low turbulence level. As turbulence increases, various ways of assisting managers to react promptly, systematically, and to master novelty and complexity of challenges becomes progressively necessary.

One explanation for the disagreement arises from the fact that Mintzberg does not make a clear differentiation between the various types of planning. Certainly, in the early days of planning when extrapolative long-range planning was the only alternative to ad hoc management, Mintzberg’s advice was well given. In those days, when environment turned turbulent, it was better to revert to unassisted, unstructured but flexible managing than to assume (as is done in long range planning) that the future will be an extrapolation of the past.

A Map of Strategic Management

Figure 5.3 presents a global perspective on strategic management in the form of a logically connected tree of events which transpires subsequently to a major environmental challenge. The brackets adjacent to each branch contain references to the part of this book in which the relevant subject is discussed.

../images/435756_3_En_5_Chapter/435756_3_En_5_Fig3_HTML.gif — Fig. 5.3
Tree of strategic management

The appearance of a major threat or opportunity may at first be disregarded in some firms and eagerly anticipated in others. Thus, the triggering event, which starts the process of response, determines its timing. The trigger will depend on the environmental surveillance mechanism of the firm, on the techniques used for analysis and estimation of impact, on the mentality of key managers, and on the power structure within the firm. In this book, we have suggested that assuring change-receptive mentality/power structure is the key to assuring a timely trigger.

Beyond the trigger, strategic management branches, depending on whether it is managed or unmanaged.

In some firms, and most nonprofits, strategic change is not managed and occurs through organic adaptation. In most firms, combinations of different types of manager response are used.

In firms which do not have systematic planning analysis, the first step in the managed response is to act: Limited decision analysis is quickly followed by implementation. Firms with systematic planning may also choose to act, rather than to plan, when predictability is low and urgency is high.

Having chosen to forego decision planning, management may choose to continue with ad hoc implementation, or it may make a systematic choice of the action mode. In the latter case, urgency and predictability will determine the desirability of one of the four responses: crisis management, continued monitoring of the challenge, stepwise progressive commitment, or one-step decisive strategic response.

In the use of the systematic action mode, another important choice is made about the manner in which the change will be introduced into the firm. The choice is between rapidly forcing the change into the firm (coercion), managing resistance on a project by project basis, or institutionalizing within the firm a change-receptive culture, power structure, and competence. This choice is determined by the discontinuity of challenges, their frequency, and their urgency.

Returning to the ‘plan or act’ line, the prescription in the planning literature is to plan first. The validity of this prescription depends on the complexity, novelty, predictability, and the speed of the challenges.

If predictability is high enough to permit meaningful decision analysis, and if the challenges require a basic reorientation of the firm’s strategic development, position planning is necessary. This is a comprehensive, firm-wide process which consists of strategic planning and capability planning. The former is again in two parts: competitive posture planning for each of the firm’s distinctive businesses and portfolio planning for the totality of the businesses. The capability planning assures that the components of general management are mutually consistent and supportive or the chosen strategy. These include culture/mentality, information, structure, systems, and the personality and qualifications of the general managers.

In addition to or in lieu of positioning planning, the firm may need to engage in issue management. This will be undertaken when challenges are frequent and fast developing. When the challenges are predictable, strong signal issue management will suffice. Response to challenges of low predictability should be handled by weak signal issue management. In environments in which some challenges are unpredictable, the firm should expect to be periodically surprised. In this case, a built-in crisis preparedness system becomes desirable.

It goes without saying that, having planned, the firm must act. Thus, there should be an arrow leading from all of the planning branches back to ad hoc or systematic action choice of the method to be used for implementation. The arrow is omitted for lack of space in the figure.

Returning to ‘act or plan’ at the top center of Fig. 5.2, in some cases, the answer is both. This occurs when urgency of response is high, predictability is low, complexity is pervasive, and novelty is high. The firm needs to reorient its strategic development, but the information and time are insufficient to prepare a complete position plan. As the figure shows, in this case response is the preferred strategic learning described in the preceding section.

The tree of strategic management presented in Fig. 5.3 can be used in three ways:

1.
As a descriptive diagnostic tool to identify the approach to strategic management being used within a firm.
2.
As a prescriptive design tool to select the approach needed by the firm in view of future environmental challenges.
3.
To identify the strategic mode preferred by the firm’s management.

Historical Development

The evolution of strategic management (SM) can be traced back to the contributions based on the seminal works of Andrews (1980), Ansoff (1965), Chandler (1962), Schendel and Hofer (1979), Miles and Snow (1978), Mintzberg (1979), Porter (1985), among others.

H. I. Ansoff (1979) defined strategic management as a process for managing a firm’s relationship with its environment, composed of strategic planning, capability planning, and management of change. Chandler (1972) provided generalizations about growth and management of certain large industrial firms which he examined. He posited that the fundamental purpose of structure is to integrate all the different activities of the firm in order to meet market demands; structure was examined as the combination of organizational structure, systems, and planning.

J. K. Galbraith (1973), in reference to the American industry, noted that change has always occurred and will continue to occur as a result of the inapplicability of traditional economic models; hence, new developments were needed in order to respond to these changes. He furthermore maintained that firms face technological consequences which are brought about by technological innovations which impact the relationships between other organizations, customers, and the state.

Hatten (1982) defined strategic management as a process which ‘(1) determines and maintains a viable set of relationships between the organization and its environment, (2) systematizes the evaluation of organizational performance, (3) sets directions for the organization’s long-term development, (4) uses major resource allocation programs to pursue the organization’s objectives, matching capabilities with the opportunities and threats of the environment, (5) provides guidelines for any appropriate change in the organizational structure to implement further development, (6) gives diverse participants, from varied and sometimes contentious functional areas, a common experience and concepts on which to base discussions of future development, (7) explicitly matches strategies and situations in an active and administrative process, and (8) requires a systematic evaluation of the position of the organization in its environment (p. 102).’

It should be noted that various studies use strategic planning and strategic management interchangeably. For the sake of clarity, strategic planning is the analytical process whereas strategic management is the systems perspective defined by Ansoff as consisting of strategic planning, capability planning, and the management of change.

Ackoff (1974) proposed a philosophy of planning which focuses more on the objectives and logic of the planning process than on planning techniques. Strategic planning was distinguished from tactical planning, the former being long-range corporate planning that is ends-oriented but not exclusively so. Three philosophies of planning were analyzed: satisficing, optimizing, and adaptivizing. The latter adaptivizing signaled a new planning concept requiring scientific methods, tools, and techniques. Planning is divided into five ‘parts,’ including ends—specification of objectives and goals; means—selection of policies; programs; resources—determining needs, and how they can be attained and allocated; implementation; or detecting and correcting failures in the plan.

D. Channon (1973) focused on the sequence of strategy, and structure in order to achieve normative performance. His study was based on the pioneering work by Chandler (1962). Based on a survey on British enterprises, Channon wrote that the adoption of new strategy, caused by changes in the environment, resulted in a dramatic change in the administrative structure of large corporate enterprise. The reorganization of the enterprises into various divisions provided the administrative mechanism to control, consolidate, and institutionalize the new strategy (Channon 1973: 238).

Thorelli (1977) discussed the issues of strategy, structure and performance. He made the distinction between the internal and external environment of the firm. He talked about performance but did not mention how the performance is affected when changes occurred in strategy and structure and furthermore mentioned bargaining power/‘politics’ in achieving the goals of the firm.

E. H. Schein (1980) emphasized ‘organizational effectiveness.’ He stressed that ‘good communication, flexibility, creativity, and genuine psychological commitment,’ are the background for effectively organizing the firm, and coping with environmental changes.

Ackoff (1981) emphasized four basic traits in strategic planning:

1.
Reactive: typifies those who avoid change, respect history, as well as preserve tradition.
2.
Inactive: typifies those who have stability and survival as their objectives. Their response to crises is delayed until their objectives are threatened. They want things to be like in the past.
3.
Proactive: typifies those who anticipate the future, are willing to minimize the impact of predicted threats, and take advantage of predicted future opportunities. They are change seekers who like to detach from the past.
4.
Interactive: typifies those who bring about the future, learn new developments, adapt to sudden changes. They are highly capable of responding to high levels of environmental turbulence.

H. I. Ansoff (1965, 1979, 1984) analyzed the relationship of capability, strategy, environment, and performance and presented theoretical propositions; whereby for different types of environments, different solutions are applied. Various studies have attempted to examine the relationships between strategic planning and performance. Two groups have emerged as a result of their findings:

1.
Strategic planning does contribute to a better performance (Ansoff et al. 1970; Burt 1978; Herold 1972; Kager and Malik 1975; Rue and Fulmer 1973; Rhyne 1986; Wood and LaForge 1979; and others).
2.
Strategic planning does not contribute to better performance (Kudla 1980; Leontiades and Tezel 1980; and others).

Five weaknesses were pointed out by Greenly (1986) regarding studies concerning strategic planning and performance as follows:

1.
Not identifying other variables associated with the implied relationships.
2.
Subjectivity in paradigmic conceptualization.
3.
Personal and methodological bias.
4.
Uncommon parameters of assessments were evident.
5.
Statistical significance of results varied and was not reported in some cases.

Day (1983) suggested that institutions have employed various strategy analysis instruments. Furthermore, he noted that a skillful combination of the various theories and models would aid in clarifying even the most complex strategy. In ‘the stages of planning,’ he classified strategy analysis in four steps. The first step is situation assessment, whereby business definition, current position, assumptions, and issues represent the variables to be examined. The second step is strategy generation evaluation, which is composed of alternatives (“directional indicators”), objectives, and the allocation of resources. The third step is the implementation of the generated strategy—programs, budgets, and timetables. The final step is the monitoring of the above.

Environment

Modern firms and organizations operate in a highly competitive and dynamic environment. Additionally, the traditional role of the firm is being challenged by society which places many conflicting demands on organizations. As such, the environment could thus be classified as being very turbulent. The fundamental ability of top management’s accurate anticipation or perception of future turbulence would enhance the firm’s ability to survive in such turbulent environments.

R. M. Steers (1977) asserted that the capability of an organization to adapt to its environment is facilitated to a great extent by its ability to know what the external environment is going to be like in the future. Aguilar (1967) identified the environment as an important variable for a firm’s survival. Adapting to the environment is the core of survival. He divided the environment into four elements: social, economic, political, and technological. Stodgill (1966) asserted that the survival of an organization is based on the relationships it maintains with its external environment in which it exists. The organization must be capable of coping with environmental discontinuity by providing the mechanisms to identify and evaluate the present and trend of environmental change in relation to its internal condition.

Duncan (1972) defined the environment of a firm as being physical as well as social. These two elements are directly considered when decision making arises in the firm, according to Duncan. Furthermore, he maintained that the environment is divided into internal and external components. The internal is composed of social and physical elements inside the firm, while the external is composed of the same two elements outside the firm. In conclusion, he emphasized the importance of environment when decisions are made. Furthermore, he maintained that as the turbulence of the environment increases, the level of uncertainty increases, and as the environmental turbulence decreases, the level of uncertainty decreases likewise.

Jurkovitch (1974) suggested that the rate of change of the environment can be defined by measuring the amount of changes and alternatives to major goals in a given period. He found that the higher the change rate of the environment, the higher the number of major organizational goals that must be altered and vice versa.

Miles et al. (1974: 263) addressed the extent to which the environment shapes the organization. In their article on organizational environment, they maintained that ‘we have no doubts that organizations must, and do adjust their strategies, technologies, structures, and processes to meet changing environmental demands.’ Furthermore, they added that managerial perceptions of the environment are a key variable in deciding how to adjust to the environment.

Smart and Vertinsky (1984) asserted that modern organizations exist in turbulent environments which cause survival and growth threats. The relationship between strategy and environment was examined. Based on their findings, they emphasized that perception of the environment, and the cost to respond, are critical elements of success. Javidan (1984) examined the relationship between strategic planning and environmental perception. The result of the study implied that perception of the environment is a strong moderator for responding to the environment.

Cyrt and March (1963) found that organizations learn to adapt their behavior over time by changing their goals, refocusing their attention, revising procedures for search, as well as learning what to strive for in the environment whereas Miller (1969) asserted that systems are generally kept in tune with their environments by a process of mutual inputs and outputs, which helps to prevent inconsistencies in the environment from destroying the systems either by a collapse or explosion.

Eisenstadt (1969) asserted that the internal structure and the relationship a firm maintains with the environment in which it operates are affected by the firm’s major goals, the place of the goals in the social structure as well as the type of dependence of the firm on external forces. Sullivan (1987) tested the environmental dependence hypothesis of Ansoff (1979) in his study on not-for-profit government agencies. He found that a reduction in subsidy dependence was accompanied by increase in efficiency and better market response.

Mitiku (1992) conducted her research in Ethiopia and studied the relationship between strategic behavior and the performance of 54 state-owned industrial NFP enterprises, with most of their environmental dependence generated through transactional income. She concluded that the performance of enterprises that had better alignment between the environmental turbulence, strategy, and capability was better than those of worse alignment.

Moussetis (1996) examined the alignment between firm’s societal strategy and capability with turbulence of the regulatory environment of 133 for profit companies of the Fortune 500 corporate headquarters in Washington, DC. Moussetis confirmed that optimal performance occurred when the three variables of the Strategic Success Hypothesis aligned the turbulence level of the regulatory environment, the societal strategy, and capability.

Strategy

Ansoff (1984) defined the response of an organization or Environment serving Organization (ESO) to the environment as strategic thrust. Strategic thrust is composed of two elements, namely marketing strategy and innovation strategy.

Andrews (1980) defined strategy as the ‘pattern of major objectives, purposes, or goals and essential policies and plans for achieving those goals, stated in such a way as to define what business a company is in or is to be and the kind of company it is or is to be.’ The general manager’s task is viewed in terms of four functions: supervising current operations, planning future operations, coordinating the functions and human capabilities of the organization, and making a distinctive personal contribution. Coordination of these functions is the primary job of the general manager: supervising the process for formulating, refining, and realizing the organization’s strategy.

Argenti (1974: 121) described the philosophy and the technology of planning. He defined corporate planning as ‘a systemic approach to clarify corporate objectives, make strategic decisions and check the progress of those decisions.’ He maintained that the key distinction between strategic planning and other planning is the corporate nature of strategic planning.

Rothschild (1976: 125) approached strategic management from an investment standpoint. Strategy was defined as ‘a statement of an organization’s investment priorities, the management thrust, and the ways that it will use its strengths and correct its limitations to pursue the opportunities and avoid threats facing it.’ Strategy is made up of three different levels: investment decisions, resources decisions, and a specific set of programs describing how resources will be employed to build on strengths and correct limitations.

Smith (1977: 65) defined strategy as ‘the plan for getting the best returns from resources, the selection of the kind of business to engage in, and the scheme for obtaining a favorable position in the business field.’ Strategy encompasses three areas:

1.
Perspective strategy: the investigation of the nature of the market, industry, and environmental structures and the development of informational tools.
2.
Optimizing strategy: the process of fitting the organizational programs into the industry structure and the way in which the resources can be utilized to maximum benefit.
3.
Prospective strategy: a means for dealing with change either expected or unexpected and a plan for adjusting to new environmental developments. Guidelines were provided in order to minimize potential errors in strategy formulation.

Gluck et al. (1980: 154–161) postulated that the best firms are those which plan their future formally and explicitly. They stressed that their ‘findings indicate that formal strategic planning does indeed evolve along similar lines in different companies.’ Furthermore, extrapolations of past trends, and attempting to predict future political, economic, and social events, would be of great importance in order to provide the most appropriate strategy for the future.

Jauch et al. (1980) conducted an examination of the short-term success of 358 large business firms over a 45-year period. Their findings suggested that short-term success occurs when environment and strategic change are linked in the organization.

Miller and Friesen (1983: 221–235) investigated the strategy and environment relationship among two distinct samples. They emphasized that an increase in environmental change should be positively correlated with the strategy. Furthermore, their findings implied that positive correlations between strategy and environment are stronger in successful firms. In summation, they said that ‘a third link, that between strategy and environment, must also be carefully managed.’

Capability

Capability is composed of four diagnostic elements: (1) managers, (2) climate, (3) competence, and (4) capacity (Ansoff 1979, 1984). The ability of an organization to sustain a certain level of strategic thrust is its general management capability.

Researchers express the concept of capability as being the organizational structure of a company. Structure is just one of the many elements of capability. Ansoff (1979: 79) incorporated structure as an attribute of ‘general management competence,’ which is a part of capability. He furthermore provided a conceptual framework for the integration of environment, strategy, and capability and their relation with performance.

Hatziatoniou (1986) examined the strategic posture of 59 firms in the USA engaged in different strategic business areas. The study found that optimum financial performance occurs when the environment, strategy, capability gap is smallest. Firms which had no gap were significantly different, in terms of their financial performance, from firms which had a gap, and they performed better than those with a gap.

Salameh (1987) examined the strategic posture and the financial performance of the banking industry in the United Arab Emirates. The study found that optimum overall financial performance occurred when levels of environmental turbulence, aggressiveness of strategy, and openness of capability matched each other. Furthermore, banks which were not strategically myopic outperformed banks which were strategically myopic.

Chabane (1987) studied restructuring and performance in Algerian state-owned enterprises. He found that the organizations that had aggressiveness of strategy and capability that were aligned with the prevailing level of turbulence performed better than those that were misaligned. Sullivan (1987) studied the relationship between proportion of income derived from subsidy and strategic performance. He found that the concepts and constructs of strategic management can be applied to public not-for-profit organizations and are meaningful in terms of their dependence on transaction or subsidy income. Numerous studies have tested H. I. Ansoff’s strategic success hypothesis in numerous settings as follows:

1.
Different industries.
2.
Government Enterprises.
3.
Not-for-profit organizations.

All the studies provided strong empirical support for the strategic success hypothesis of Ansoff. While the vast majority of the research cited above has been conducted in the private sector, certain concepts may be particularly relevant to not-for-profit organizations.

Another contribution to the field of strategic management is the resource dependency theory introduced by Pfeffer and Salancik (1978) is generally classified as belonging to the descriptive stakeholder school. Resource dependency theory provides a framework for determining the relative importance of the primary stakeholder groups of an organization given that management will attend to the needs of the key actors and will pay little attention to those stakeholder groups who do not have control over the critical resources.

Berman, Wicks et al. (1999: 491), suggested that ‘attention to stakeholders’ interests is necessary because it is the stakeholders that control resources that can facilitate or enhance the implementation of corporate decisions’. Consequently, stakeholder groups tend to utilize their resource relationship with an organization to leverage their demands, and organizations likewise tend to pay attention to the demands of stakeholders who have control over critical resources.

The resource dependency theory is founded on managerial decisions being based on resource acquisition for the organization (Pfeffer and Salancik 1978). Pfeffer (1982) explicated this view as such; ‘resource dependence theory suggests that organizational behavior theory becomes externally influenced because the focal organization must attend to the demands of those in the environment that provide resources necessary and important for its continued survival’ (p. 103).

Another contribution in the field of strategic management is the resource-based view (RBV) also referred to as resource-advantage theory, Barney (1991). The RBV is composed of elements from various social science fields. Essentially, the RBV is based on the firm’s internal resources (tangible and intangible) as a central competitive asset pool that provides a long-term or sustainable advantage over competitors whereby the firm develops valuable, rare, imperfectly imitable and not easily substitutable strengths (VRIN criteria). Tangible resources are composed of assets such as financial and human resources, real property, equipment, branding, patents, trademark, etc. Intangible resources include firm’s reputation/goodwill, culture, know-how/experience, relationships with suppliers and stakeholders (Lev 2001).

Mintzberg et al. (1999) conducted a comprehensive study of the many contributions in the field of strategic management and thereafter categorized them into ten schools as follows:

The DESIGN school, which sees strategic management as a process of attaining a fit between the internal capabilities and external possibilities of an organization.
The PLANNING school, which extols the virtues of formal strategic planning and arms itself with SWOT analyses and checklists.
The POSITIONING school, heavily influenced by the ideas of Michael Porter, which stresses that strategy depends on the positioning of the firm in the market and within its industry.
The ENTREPRENEURIAL school, which emphasizes the central role played by the leader.
The COGNITIVE school, which looks inwards into the minds of strategists.
The LEARNING school, which sees strategy as an emergent process—strategies emerge as people come to learn about a situation as well as their organization’s capability of dealing with it.
The POWER school, which views strategy emerging out of power games within the organization and outside it.
The CULTURAL school, which views strategy formation as a process rooted in the social force of culture.
The ENVIRONMENTAL school, which believes that a firm’s strategy depends on events in the environment and the company’s reaction to them.
The CONFIGURATION school, which views strategy as a process of transforming the organization—it describes the relative stability of strategy, interrupted by occasional and dramatic leaps to new ones.

5. Modes of Strategic Behavior