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Early seminal contributions to strategic management

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Strategic management was identified as a separate field in the 1960s. Relevant contributions in this development can be seen in the seminal works by Chandler (1962) and Andrews (1971), as well as Learned et al. (1965) and Ansoff (1965).”

Depending on which of these contributions was consulted the strategy of firms was built up differently.

Chandler’s (1962) work forms the basis of the field since it was the first study in which strategy and structure were defined and thus can be seen as the work founding a new field of study (Rumelt et al., 1994).

With his seminal book Strategy and Structure, in 1962 the Nobel laureate Alfred Chandler provided a historical interpretative analysis of the rise and development of the modern business firm.

From this theoretical perspective organizational capabilities determine the performance of firms and influence the market structures, and organizations display internal consistency and coherence (in terms of fit).

Institutional arrangements are seen as impeding and facilitating organizational performance, while management style and nature of corporate headquarters influence organization performance and are associated with different strategies and structures.

Organizational capabilities are interpreted as something learned and unique to each organization.

Chandler, in Strategy and Structure, analyzed the development of four US business enterprises between 1909 and 195910 which emerged during the second half of the nineteenth century.

Chandler calls this period the second industrial revolution, because of the dramatic development of national communication and transport systems.

Internal movement of’ people and the distribution of resources and finished products were possible and became easier.

Innovation with regard to legal systems, new sources of energy, scientific discoveries and engineering advances were reached and changed the economic environment as well as the firms working in that environment (Chandler, 1962: 19-51).

The central conclusion that Chandler draws from the analysis of the business enterprises during this period is that structure follows strategy.

Even though newer research has come to different conclusions in that respect and states that the sequence can be a different one, the importance and influence of Chandler’s work should not be underestimated.

Chandler’s analysis does not derive from neo-classical economics but was conducted within the setting of American institutional economics, i.e. an economics heterodoxy.

Chandler investigated new ways of conceptualizing and perceiving organizations which were developing.

Chandler’s historical analysis of how the early business enterprises invented new organizational structures to help managers coordinate the various activities associated with their rapid growth and expansion to assume positions of market dominance contributed to and supported new ways of conceptualizing and perceiving organizations that were developing.

Changes with regard to the external environment or the internal systems interfere with the requisite internal stability that is necessary for the development of routines of tasks in the workplace.

The classic managerial model for managing bureaucracies was based on stability and certainty not change and uncertainty.”

When changes from various sources and directions occurred in the 1960s, alternative models of organization emerged.

Alfred Chandler’s second book, The Visible Hand, was published in 1977. In this work Chandler continues to analyze the historical development of capitalism.

He comes to the conclusion that market structures organized on the basis of oligopoly increasingly dominate over perfect competition characterized by the presence of numerous firms producing homogeneous goods and services were they have no control of the sale price.

Substantial numbers of smaller firms operating in these oligopolistic market structures are dependent not on the anonymous forces of’ the market, but on the larger oligopolies either as suppliers or distributors.

In contrast to the conventional view of neo-classical economics, Chandler finds that in the process of development firms are able to exert considerable influence over their markets. That influence includes creating new markets for products.

Chandler’s approach, however, is not able adequately to explain the development of service industries in which a different architecture of development appears to be working.

A further shortfall of Chandler’s work can be seen in the fact that there are relatively free-standing knowledge-based industries where specific knowledge assumes the dominant competitive weapon and organization capability developed, which does not fit into Chandler’s framework of thoughts.

Chandler’s work further does not deliver any real explanation for the recent rapid development of organizational forms such as franchising, different types of alliances, networks or other innovative forms of value-chain organization.

These relatively new organizational Corms do not try to develop internal economies of scale and scope, or to expand geographically by establishing their own internally created distribution outlets.

However, the fundamental principles of growth which Chandler identified are at work. What is different, however, is that the institutional arrangements have changed and the set of elements of primary importance need to be modified to understand more fully the formation of new forms of value-chain organization.

Once central message of Chandler’s work is that the achievement of competitive advantage via scale and scope economics is not determined by the market or the observed industry structures but by managerial structures, investment, capabilities and supporting infrastructure.

Capabilities here can be interpreted as largely firm specific. Chandler’s second core message with regard t this book has to be seen in the fact that he states that industry just movers create competitive advantages by simultaneous investment in production, distribution and management (Chandler, 1990: 697 601).

In this context Chandler further maintains that this investment derives from learning and the accumulation of knowledge, developing into distinctive competencies and capabilities.

These capabilities then are the reason for being able, as first movers with the described attributes, to maintain their own position over rivals in world markets.

Economies of scale and scope, according to Chandler, can further lead to product pricing – i.e. cost advantages as well as functional strategic efficiency.

Though Chandler’s insightful observations and explanations have not been central to the development of strategic management, those elements of his system that are compatible with particular advances were welcome and have been absorbed.

In important respects, Chandler’s explanations provide a more tangible representation of the more abstract explanations which are becoming pronounced in recent developments in the dominant resource-based and dynamic capabilities perspectives.

From the strategic management point of view, Chandler’s (1990) Scale and Scope call be interpreted as an alternative set of explanations to dominant strategic management thought which has its popular origin in the other two seminal publications of the 1960s by Learned et al. (1965) and Ansoff (1965).

Learned et al. published Business Policy -Text and Cases in 1965. In this book they considered strategy formulation and implementation. The authors analyzed problems from a management perspective.

The problems they focused on determined the success of the whole organization. Learned et al. (1965) posited that the strategy adopted by a firm is a conceptual process with weaknesses to identify and develop distinctive competencies to pursue competitive advantage.

The authors took the open system of Selznick (1957) and constructed a framework to enable students and practitioners better to understand and to consider external and internal aspects simultaneously, i.e. the SWOT framework.

The necessity of ‘a firm’s fit with its environment is presented in this context. A relevant contribution to the field by Learned et al. (1965) and Andrews (1971) was that they suggested that the firm’s structure and strategy have to fit with the competitive environment, after (:handler (1962) outlined the importance of it fit between strategy and structure.

The main objective of Andrews’ work can be summarized as focusing on the connection between a firm and its environment, taking into account that strategy has constantly to be monitored with regard to changes of the relevant environment.

Andrews’ model thus can be seen as appropriate for use in a changing environment with the rigidity (or flexibility) of control mechanisms embodied in the resulting strategy and dependent on the specific environment if the model is implemented as originally outlined by Andrews (1971).

Andrews contributed many concepts to the explanation of competitive advantages that went in later concepts.

He was the first to point out the necessity of monitoring environmental conditions (Andrews, 1971: 69-77).

Andrews (1971: 212-17) also pointed out the need regularly to monitor, evaluate and adjust strategy. In addition, lie early stated the need for distinctive competencies (Andrews, 1971: 89-102).

Further, Andrews (1971: 227-9) acknowledged managerial cognition. Filially, tile need to connect formulation and implementation was already outlined by Andrews (1971: 37 and 179-85).

Of course, Andrews in the late 1960s and early 1970s could not take aspects into account that were not current in his time, such as a high degree of globalization in business or new organizational forms such as virtual networks, franchising or strategic alliances.

However, lie still can be seen as an important contributor to today’s concept of strategic management.

The contributions of Learned et al. (1965) and Andrews (1971) lie in delivering a tool to think systematically about the realization of competitive advantages for a firm in its competitive environment.

Ansoff’s work differs from the outlined contributions with regard to stressing rigid, formal planning to a greater extent.

In his book Corporate Strategy, Igor Ansoff (1965) states that the strategy adopted by a firm entails a formal planning process to guide the expansion into existing markets and products and to assist in the development of new markets and products.

He was the first writer to mention that strategic planning does exist because of the realization that the profile of competencies of a firm has consequently to be adapted to the requirements of the firm environment (Ansoff, 1965: 97-102).

That was to come into being as tile thought of system-environment fit. Ansoff further put structure, cult tire and behavior at the center of attention.

The book Corporate Strategy had enormous influence on the practice and theory of strategic management, and is still influential today (e.g. Grainer-, 1998: 43).

This book gave insight into a few new theoretical concepts such as incomplete information, strategic decision, profiles of performance and synergy.

The concept of the product-market matrix became especially popular since for the first time it showed the difference between strategic expansion and diversification (Ansoff, 1994).

However, even though contributing to the understanding of the existence of competitive advantages, Ansoff’s early contributions show several weaknesses.

Corporate Strategy is highly normative and puts strong trust in analysis. Strategists relying on the insights of this book were often paralyzed by analysis; the more information they had about their firms, the more additional information they thought they needed.

This led to a vicious circle of strategic management for many firms making use of Ansoff’s concepts (Grainer, 1995: 14).”

Ansoff’s contributions to the explanation of competitive advantages of firms, however, can be seen in the fact that in Corporate Strategy he develops a rational model that helps to make strategic and planning decisions Ansoff here concentrates on firm expansion and diversification; not on the entity of strategic planning.

Gap analysis is central to Ansoff’s concept, which tries to give answers to the questions “Where are we?,” “Where do we want to go” and “How do we get there? Ansoff (1965: 1 10) also analyzed competitive advantages, that for him result front unique opportunities within the field defined by the product market scope and the growth vector.

Building on Ansoff’s (1965) seminal work, Ansoff and Sullivan (1993: 14-15) later developed a contingent “formula for strategic success,” thereby specifying conditions that lead firms to optimal profitability.

The described early contributions by Chandler (1962), Learned et al. (1965) and Ansoff (1965) bear messages that imply positive as well as negative significance.

The value of these early contributions was not fully appreciated or assessed until recently (Rumelt et al., 1994: 18).

Nevertheless, the scope and nature of inquiry initiated by these early writers remains the central concern.

The difference between strategic management and other managerial perspectives lies in the fact that the strategic management focus is on the role of general management, its treatment of the firm as a whole in the context of its external environment, and the direction of its inquiry which is concerned exclusively with the performance attributes of individual firms.

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