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Copyright © 2007, Emerald Group Publishing Limited
There is broad support for the notion of a hierarchy of strategies within the extant strategy literature (Grant and King, 1982; Hax and Majluf, 1984; Hofer and Schendel, 1978). Hierarchical levels include: international, corporate, business, and functional (Hitt et al., 2007; Dess et al., 1995). This hierarchical categorisation is all too evident in the stream of theoretical and empirical publications across both strategy process and strategy content (Dess et al., 1995).
The international strategy research focuses on the examination of factors that motivate organisations to diversify and the relationship between internationalisation and economic performance (Geringer et al., 1989; Kim et al., 1989, 1993). This stream of research is rooted in the theory of portfolio diversification (Kim et al., 1989) or transaction cost theory (Hennart, 1991). Geographic diversification is the international equivalent of domestic product diversification (Dess et al., 1995). As such it can be viewed as a component of corporate strategy.
Strategy at a corporate level is primarily concerned with domain selection, that is to say, seeking the answer to the question – what business is the organisation engaged in or should be engaged in? It is viewed in terms of the pattern of linkages among the different businesses constituting the corporate profile (Rumelt, 1974). Alternatively, corporate strategy may be viewed as a grand strategy (Pearce et al., 1987). A grand strategy may be defined as a comprehensive general plan of major actions through which a corporation intends to achieve its long-term objectives (Pearce, 1982). Although there is no consensus as to the definitive set of alternative grand strategies, four options are commonly mentioned. These are: stability (concentration on the existing activities coupled with efficiency and effectiveness improvements), internal growth (innovation, market and product development), external acquisitive growth (vertical and horizontal integration, concentric and conglomerate diversification, joint venture), and retrenchment (turnaround, divesture, liquidation).
Strategy at the business level (also referred to as business-unit or strategic business unit (SBU) strategy) is concerned with domain navigation, that is to say, how do we effectively compete in each of our chosen product market segment (Bourgeois, 1980). The focus of business strategy is the attainment of long-term competitive advantage (Porter, 1980, 1985) in a particular industry.
Strategy at a functional level focuses on the maximisation of resource productivity within each of the specific functions, for example, operations and marketing (Hofer and Schendel, 1978). It is generally assumed that functional strategies are derived from the business level strategy (Fitzsimmons et al., 1991; Hayes et al., 1988; Skinner, 1969, 1985; Slack and Lewis, 2002; Wheelwright, 1984). Ghobadian and O’Regan (2002) proposed a model for developing business level strategy. This model is extended to demonstrate the relationship between business level and functional strategy (see Figure 1).
According to this model, business strategy establishes an organisation’s strategic goals and its responses to environmental influences such as competitors’ moves, technological changes, entry and exit of competitors. The organisational goals are used to determine functional objectives and each function determines how it meets these objectives in terms of structure (brick and mortars), infrastructure (policy), process, interface, and behaviours.
The extant literature assumes linkages between different levels of strategy. For example, Wheelwright and Hayes (1994) argued that operations can support the business strategy by either developing “appropriate” operational resources to enable the organisation to effective compete in a product market or for the operations function to provide the foundation for competitive success. In the first instance, operations are “internal supportive” and in the second instance, operations are “externally supportive”. The difference is whether operations is geared towards achieving best in class or redefining the industry’s expectations. Similarly, Dess et al. (1995) argued that corporate strategy directly influences business level strategy because of its impact on SBUs’: market power, ability to understand market needs, ability to differentiate it product-service mix from those of competitors, cost structure, and earnings and cash flow stream. Implicit in most of these writings is a reciprocal relationship between the different levels of strategy (see Figure 2).
Given the importance of the concept of strategy hierarchy and the implied relationship between different levels of strategy, the aim of this special issue of Management Decision is to make a contribution to the strategy literature by addressing a number of key questions. These included:
What is the implication of hierarchical strategies for theories such as RBV, dynamic capabilities, and positioning?
What is the scope of strategies at different levels?
Who is responsible for making decisions at each level?
What is the implication of hierarchical level strategy for global/international firms?
What are the consequences of overlapping between each domain, coordination and planning?
What is the impact of the multiplicity of environmental and organisational factors that may lead to divergence rather than convergence?
How do coordination and dispute resolution mechanisms to ensure convergence rather than divergence between different levels of strategy?
How does the definition and measurement of the concept of fit differ between the various levels of strategy?
What is the direction of fit? While it is assumed that the fit happens top-down, is this necessarily the case?
What empirical evidence supports or rejects the hypothesis that fit between the different levels of strategy leads to better performance?
What strategies are available for attaining a close fit between different levels of strategy?
The structure of contributions
The special issue generated a high level of interest, which was reflected in many excellent papers we received. Despite having an opportunity to publish a double issue we were left with no option but to reject many high quality papers. We have clustered the papers included in this special issue under the following headings:
“The changing context of strategy”;
“Competitiveness, trade-offs and value creation”;
“Competencies, capabilities and resources”;
“Hierarchical strategies and the resourced-based view”;
“People in the hierarchical fit”; and
“Moving on: from hierarchy to heterarchy”.
Table I shows the contributions clustered under each of these headings.
An overview of papers
Section 1. Changing context of strategy
The first paper is by Kazem Chaharbaghi and examines the changing context of strategy. The paper is entitled, “The problematic of strategy: a way of seeing is also a way of not seeing”. It considers the emerging complex environment facing organisations and questions the post-rational observations and traditional constructions of strategy in terms of what they achieve and what they fail to achieve. It contends that while strategy is a multi-dimensional, dynamic concept, it is often a misused term. His paper shows that failure to understand the multidimensional aspect will result in an illusive strategy. He contends that managers can derive significant benefits from strategy by understanding the multiple dimensions and their interrelatedness. This understanding will in turn lead managers to align the corporate, business and functional dimensions more effectively in the pursuit of competitive advantage.
Section 2. Competitiveness, trade-offs and value creation
The next three papers broadly examine the competitiveness and trade-offs and value creation. Ulrich Lichtenhaler in his paper, “Hierarchical strategies and strategic fit in the keep-or-sell decision” takes the issue of strategic fit outside the firm and explores how firms exploit their knowledge assets by means of licensing out technology. The paper considers strategic fit from the perspective of buy-or-sell as a means of potential external knowledge exploitation. In particular, the paper conceptually explores how firms may respond to potential conflicts in the keep-or-sell decision by achieving strategic fit. Both approaches have attendant risks and inherent conflicts at distinct levels within the organisation in aspects such as knowledge and/or product strategies, potential conflict in the corporate and business unit strategies, and also at an operational level where R&D and marketing strategies potentially collide. This paper provides an examination of the strategic challenges in the realisation of competitiveness, from a hierarchical strategies and strategic fit. It concludes by suggesting that the decision to keep or sell will be determined largely by the degree of emphasis given to the following characteristics of a firm’s strategic approach: coordination, centralisation and collaboration.
Bowman and Ambrosini in their paper “Firm value creation and levels of strategy” explore a value creation perspective and consider the implications for corporate and business (competitive) level strategy. They begin by identifying how value is created within a firm and consider the distinction between competitive and corporate strategy in considering the processes of value creation. They identify three main activities: current profit flows, creation of future value and activities that serve to reduce current profit flows. By distinguishing between the value-creating roles of these activities, they examine the usefulness of distinctions between corporate level and business level activity using the concept of loose or tight coupling of activities. They contend that when firms extend their scope beyond the single product situation “corporatising” issues arise concerning the integration or separation of value activities.
Furrer, Pandian and Thomas in their paper “Corporate strategy and shareholder value during decline and turnaround” examine the impact of strategic conduct on shareholder value using beta excess return measures. They test the contention that this is more appropriate that case or event studies by comparing the performance of declining and non-declining firms. Their findings indicate that during decline, shareholder value is reduced largely as a result of a lack of efficiency. They also found that during the beginning of a decline phase, strategic actions focused on improving long-term competitiveness had a negative effect, where later in decline phase, they had a positive impact.
Section 3. Competencies, capabilities and resources
Ljungquist in his paper “Core competency beyond identification: presentation of a Model“ propounds empirical identifiers for core competences and their associated concepts. He found that core competences do not need empirical identification, as they can be identified by their contribution to consumers’ benefits from a product, are competitively unique and provide potential access to a wide variety of markets. The paper includes a comprehensive discussion on core competence as a concept including associated concepts (competence, capability and resource).
Bitar and Hafsi in their paper “Strategizing through the capability lens: sources and outcomes of integration” examine the role of capabilities in the quest for competitive advantage. Their paper seeks to address aspects such as where do capabilities come from and how does capability development affect performance – aspects that are under researched in the extant literature. The importance of capabilities from a hierarchical perspective lies in bridging the gap between the internal and external environments gap through managers’ cognition. The authors contend that companies need to achieve first, better alignment between long-term objectives, short-term objectives and organisational design, second, a better coordinated management effort between identifying the types of capabilities that can support a new strategic initiative and the nurturing and development of these capabilities, and third, the increased synergies among capabilities when new strategic initiatives are grounded in an organisation’s existing capabilities.
Johnson and Thomas in their paper “Resource margin accounting: an elucidation and preliminary empirical testing”, outline a conceptual framework to measure cash-flow or resource valuation known as Resource Margin Accounting. They contend that economic performance, measured in terms of the economic profit derived from the consumption of economic resources, drives valuation. Resource margins are potentially of significant interest to strategists as it extends the current strategic approaches to individual firms.
Naesens, Gelders and Pintelon in their paper “A swift response tool for measuring the strategic fit for resource pooling: a case study”, examine the reluctance to implement horizontal collaboration in business. Many firms are now faced with the choice of keeping various functions in-house, outsourcing or seeking cooperation with other companies to exploit synergies. Collaboration with others can be vertical, horizontal or lateral. Horizontal collaboration is an area that is currently under researched.
Naesens et al. have developed a tool to help management ascertain initially if collaboration with a potential partner is feasible and determine if a further in-depth analysis should be carried out.
Section 4. Hierarchical strategies and the resource-based view
Sheehan and Foss consider approaches to “Enhancing the prescriptiveness of the resource-based view through Porterian activity analysis”. They contend that the resource-based view (RBV) of strategy does not clarify the link between resources and value creation as it lacks a full consideration of activities and their drivers. They conclude by suggesting that by formally including the concepts of activities and activity drivers, the RBV can significantly overcome its current lack of managerial guidance.
Chmielewski and Paladino in their paper “Driving a resource orientation: reviewing the role of resource and capability characteristics”, examine the role of resource and capability characteristics as drivers of a resource orientation.
They see RBV as a strategic orientation, which is the extent to which a firm practises a RBV and is oriented towards the development of valuable and unique resource bundles. In this study, they identify and define resource and capability characteristics and assess their relationship to resource orientation. Findings indicate that resource and capability characteristics are significant drivers of resource orientation. They conclude by stressing the need to further examine the characteristics that resources and capabilities possess that enable a firm to implement a RBV.
Section 5. Hierarchical fit
Megicks in his paper “Levels of strategy and performance in UK small retail businesses” looks at the way smaller retail firms face increasing competition. He investigates the way in which small retailer performance is influenced by strategy at both business and functional levels. His findings indicate that a hierarchy of effects exists in the relationship between strategy and performance. Business level strategies were found to be more important to success than functional level strategy as they enable small retailers to distinguish their business from competitors.
Kathuria, Joshi and Porth in their paper “Organizational alignment and performance: past, present and future”, examine the concept of organisational alignment in the pursuit of performance and competitive advantage. The importance of coordinating the corporate, business and functional priorities and strategies of the firm is well established. While the concept of organisational fit is not new, the area of horizontal (cross-functional and intra-functional) alignment is under researched. The benefits of horizontal alignment are encapsulated in the success of Southwest Airlines and the failure of others to imitate their underling horizontal alignment. Their contention that the role of horizontal alignment is increasing as larger businesses are becoming more complex is timely.
Witcher and Chau in their paper “Balanced scorecard and hoshin kanri: dynamic capabilities for managing strategic fit” propose the use of the balanced scorecard (longer term performance) and hoshin kanri (shorter term capabilities) to integrate dynamic capabilities for the strategic management process. The balanced scorecard is normally associated with achieving strategic performance over a period of time, whereas hoshin kanri is focussed on deployment of strategic initiatives. Both concepts use a limited number of attributes to drive and capture performance related activities. They propose a form of nested hierarchies of dynamic capabilities as a new strategic fit perspective.
Section 6. Knowledge
McGee and Thomas in their paper “Knowledge as a lens on the jigsaw puzzle of strategy: reflections and conjectures on the contribution of a knowledge-based view to analytic models of strategic management” focus on the growing interest in knowledge management and organisational learning and consider how knowledge can be captured, interpreted and used effectively. They consider knowledge from four perspectives: as an asset to safeguard, embedded in routines, achieved through learning and achieved through innovation. They propose the knowledge web to identify the ways that knowledge is used and aligned with strategic theories of the firm.
Connelly, Hitt, De Nisi and Ireland in their paper “Expatriates and corporate-level international strategy: governing with the knowledge contract”, consider the relationship between expatriate managers and MNC headquarters from an agency perspective. So far there is no consensus on how to gauge the success of such assignments, with different measures of success at different levels of analysis. In addition, matters are further confused when some authors see success at the subsidiary level while others focus on the individual level. In line with the concept of hierarchical fit, the authors focus on organisational concerns and conclude that the distribution of decision making, in the forms of delegation and managerial discretion, is central to understanding opportunistic behaviour. The paper provides the basis for measuring expatriate effectiveness and success.
Santala and Parvinen in their paper “From strategic fit to customer fit”, extend the strategic fit discourse by proposing a customer-based perspective and suggest that from a customer perspective, the firm and its activities are separate units of analysis, which have a fit-like relationship. The authors approach the issue from the perspective of changing customer level knowledge and seek to ascertain how this knowledge can be captured, interpreted and used effectively. The authors have developed a multidimensional contingency framework of the customer perception process.
Section 7. People in the hierarchical fit
Pesämaa and Hair in their paper “More than friendship is required: an empirical test of cooperative firm strategies” consider the approaches to competitive advantage undertaken by smaller firms and in particular the role of personal relationships.
Their findings indicate that smaller firms considering shared competitive strategies should also consider cooperative relationships as part of the relationship. They found that long-term orientation has a positive effect on friendship, loyalty, trust and commitment, with friendship associated with loyalty and commitment, and loyalty related to trust.
The findings support a greater emphasis on establishing relationships using loyalty, trust and commitment to develop successful higher order strategies. But relationships based on friendship also can be an important consideration in strategy development. Accordingly, they have no hesitation in suggesting that firms should consider the role of loyalty, trust and cooperation in selecting business partners.
Martins in her paper “A holistic framework for the strategic management of first tier managers” examines the key factors influencing the human resource management (HRM) performance of first tier managers (FTMs), and the vital importance that a holistic strategic framework can have in this regard. She focuses on the pivotal role of FTMs on the deployment of human resource practices and suggests that their performance is less than satisfactory largely due to conflicts with their primary responisbility to achieve operational targets.
Nevertheless, employers are seeking to establish more devolved management structures that place more emphasis on local level managerial decision-making, with a resultant re-configuration of the role of FTMs to encompass a wider range of people management responsibilities.
Her findings suggest that organisations need to adopt a holistic strategic approach to ensure effective coordination of strategic direction and HRM, to encompass both “vertical” and “horizontal” dimensions. Such an approach will include FTM empowerment, clear performance criteria, effective communications and appropriate reward systems.
Section 8. Moving on: from hierarchy to heterarchy
Chakravarthy and Henderson in their paper “From a hierarchy to a heterarchy of strategies: adapting to a changing context”, contend that the hierarchical view of strategies does not really reflect where decisions are made within the organisation. They contend that corporate, business and functional strategies are not hierarchical anymore, and instead are contemporaneous and interactive. Accordingly, they see decision making as more heterarchical than hierarchical. Increasing interactions both inter and intra firm will add a new dimension to strategy formulation and enhance the heterarchical orientation now emerging.
Abby Ghobadian, Nicholas O’Regan, Howard Thomas, David Gallear
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