Schools Of Thought

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  1. 1042-2587^92-163$1.50 Copyright 1992 by Baylor University Strategic Management's Potential Contributions to a Theory of Entrepreneurship William R.…
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  • 1. 1042-2587^92-163$1.50 Copyright 1992 by Baylor University Strategic Management's Potential Contributions to a Theory of Entrepreneurship William R. Sandberg The article offers an overview of strategic management and its various schools of thought, followed by a summary of the field of entrepreneurship and its own disagreements over definition and boundaries, it suggests that strategic management might help resolve such disagreements through its focus on quot;the entrepreneuriai work of the organization,quot; which is based on variables that describe the organization's industry, resources, processes, and strategy. Finally, the articie both describes and proposes contributions of strategic management to entrepreneurship theory, specifically addressing issues of new business creation, innovation, opportunity seeking, risk assumption, top management teams, and group processes in strategic decisions. An considering how the field of strategic management might contribute to a theory of entrepreneurship, one faces two substantial obstacles. First, one needs a definition of entrepreneurship, which can no more be defined to everyone's satisfaction than can peace, justice, or pornography. Like Supreme Court Justice Stewart on the latter subject, I can't define entrepreneurship but I know it when I see it. Second, one must circumscribe the field of strategic management, an almost equally daunting prospect. This article skirts the first obstacle by being broadly inclusive, hoping thus not to exclude any important elements of entrepreneurship. Inasmuch as it addresses how entrepreneurship theory is (or might be) affected by strategic management, the latter field's real (and potential) contributions govern this article's specific coverage of entrepreneurship. And strategic management's boundaries are stretched to encompass perspectives from outside its mainstream that might bear on entrepreneurship. Finally, as requested by the editor, this article applies strategic management perspectives, insights, and approaches to new business creation, innovation, opportunity seeking, and risk assumption. This article consists of three major sections. The first describes strategic management in terms of its dominant paradigm and the multiple perspectives that paradigm comprises. Selected constructs, variables, and methodologies common to strategic management are described and related to the perspectives that employ them. The second section discusses contending definitions of entrepreneurship, then describes
  • 2. entrepreneurship in terms of the themes commonly attributed to the word. These themes later will serve to describe aspects of entrepreneurship that are open to contributions from the field of strategic management. The third section identifies contributions of strategic management to the themes of entrepreneurship identified earlier. It begins by tracing the treatment of entrepreneurship within strategic management's dominant paradigm, then links strategic management's Spring, 1992 73 current domain to themes in entrepreneurship. The coverage highlights potential applications of strategic management research to new business creation, innovation, opportunity seeking, and risk assumption. In addition, the third section points out strategic management's potential contributions to knowledge on entrepreneurial teams. The article concludes with speculation on the prospects for cross-fertilization between the fields of strategic management and entrepreneurship. THE FIELD OF STRATEGIC MANAGEMENT The field of strategic management descends from business policy and still earlier embodiments of a continuing interest in the tasks and responsibilities of general management. Although some organizational scientists deny the existence of a dominant paradigm in strategic management (Bowman, 1990) and other scholars dispute the field's origins (Mintzberg, 1990). most strategic management research today conforms to a paradigm articulated in 1979 by Schendel and Hofer. The following description of that paradigm and its associated process of strategic management is intended as an updated overview rather than a complete summary or critique. As will be seen below, many schools of thought contend within the bounds of this dominant paradigm. The Dominant Paradigm of Strategic Management Using as their point of departure a concept of strategy that had developed over the previous 20 years, Schendel and Hofer (1979, p. 11) proposed quot;the strategic management paradigmquot; to clarify the concept of strategy and link it with the tasks of managing strategy and the roles of the general manager. They described strategic management as a process that deals with the entrepreneurial work of the organization, with organizational renewal and growth, and more particularly, with developing and utilizing the strategy which is to guide the organization's operations. At the heart of this paradigm is the concept of strategy that prevails to this day in strategy-based theory and researcb. Strategy consists of four components: (1) scope, defined in terms of product/market combinations; (2) deployment of organizational resources as competitive weapons, perhaps creating a distinctive competence; (3) competitive advantage stemming from appropriate matches of competitive weapons and scope; and (4) synergy among activities, resources, and scope. Within an organization, up to four strategies may be present in a hierarchy: an enterprise, or institutional, strategy to ensure the firm's social and political legitimacy; a corporate strategy that governs the firm's choice of businesses, allocation of capital among them, and their integration into an effective whole; business strategies governing how it will compete in its various businesses and how functional areas will be integrated
  • 3. at the business level; anA functional area (e.g., marketing, production) strategies. Goals and objectives always are present but have been treated differently by various strategic management scholars: either they are an additional component of strategy at each level or they combine with these strategies to form an overarching, quot;masterquot; strategy for the firm (Schendel & Hofer, 1979, p. 11). This distinction need not concern us in this paper, as it does not cut to the heart of the strategic management paradigm. Recognizing that quot;administrative structure and processes [construed broadly to include numerous macro- and microbehavioral variables] . . . also influence strategy,quot; Schendel and Hofer acknowledged the possibility that quot;structure and processes should 74 ENTREPRENEURSHIP THEORY and PRACTICE be considered a component of strategyquot; (pp. 17-18). During the 1980s many researchers went on to incorporate both structure and processes in their frameworks of strategic management. The Process of Strategic Management Schendel and Hofer identified six interactive ''major tasksquot; that constitute the process of strategic management. These tasks are goal formulation, environmental analysis, strategy formulation, strategy evaluation, strategy implementation, and strategic control. Far more controversy has surrounded the nature of the process than has attached to the identity of its elements. The opposing camps generally divide on the question of whether strategic management can be studied as a rational-analytic process. Schendel and Hofer, as well as the most influential of the earlier thinkers about strategy, strongly reflected a rational-analytic orientation—so much so that Bygrave (1989, p. 16) joked that the uninitiated sometimes mistook diagrams of strategy formulation processes for quot;electrical control drawings for heating and ventilating the Empire State Building.quot; He (quite seriously) traced this perspective to the engineering and mathematics training of Schendel, Hofer, and many others among its most prominent advocates. Whatever its origins, the rational-analytic perspective remains overwhelmingly common in strategic management research (Hambrick, 1990). Those who doubt the rationality of organizational processes (necessarily including strategic management) instead posit several variant strains of incrementalism. In their models of decision making, issuesareaddressedandactions taken on the basis of inertia, political power and coalitions, organizational routines, or other nonrational factors. At the extreme there really is no room for strategy formulation, since no coherent strategy can be said to exist. A more moderate perspective describes a middle ground of quot;logical incrementalismquot; (Quinn, 1980) in which top managers move gradually hy building awareness and consensus, seeking a series of partial solutions rather than radical changes, and juggling analytical, behavioral and political processes along the way. Research Methodologies Two organization theorists (Daft & Buenger, 1990, p. 91) have taken strategy researchers to task for adher[ing] strongly to a belief in systematic, definable strategy procedures and structures that can be described, measured, analyzed, and compared. This assumption so dominates the discipline that it obscures any others that might compete with it.
  • 4. Moreover, they add, quot;positivist assumptions lead straightaway to dominance of research method over theory as the primary concern of investigation.quot; Their opinion notwithstanding, the field of strategic management comprises contending schools of thought and harbors divergent approaches to research. The following paragraphs sketch the field's main research methodologies as a prelude to detailing some of its principal schools of thought. In strategy research the total organization or one of its portfolio businesses typically is the unit of analysis, although the increased attention to structure and processes during the 1980s brought more studies of groups or individual managers. Based on an analysis Spring, 1992 , 75 of the 50 most-cited strategic management works published between 1980 and 1985, Hambrick (1990) concluded that the 23 empirical projects relied most often on archival data, notably from the PIMS database, followed by interview or observation data and survey data; no laboratory studies were included. The empirical projects leaned heavily toward deductive rather than inductive intent, and nearly all contained specific propositions or concluded with a model or theory. Only four of the empirical projects used longitudinal data, and only seven others used cross-sectionai data to test a dynamic model. Most tested static models with cross-sectional data. Research in the field of strategic management traditionally has been viewed as prescriptive. To organization theorists Daft and Buenger (1990, p. 92) this orientation is a ''fixationquot; that hinders discovery of knowledge and leads researchers to define performance so narrowly as quot;to oversimplify not only what it is but how it is achieved.quot; Most strategic management scholars would agree with Hambrick (1990), however, that their criticism misses the mission and distinctive competence of strategic management. Moreover, he found, the most-cited works in strategic management were about evenly divided between prescription (i.e., linkages to performance) and description (i.e., theoretical analysis unrelated to performance). Some Contending Schools of Thought To undertake a full exposition and classification of strategic management thought in this article would be foolhardy indeed. Fortunately Henry Mintzberg has provided a shortcut. His review of 1,495 works on strategic management—and, more broadly, on quot;systems of collective social action Ito] set direction and change itquot; (1990, p. 110)—-led him to identify ten schools of thought. He characterized each school by how it conceives of strategy formation, as shown in Table 1. According to Mintzberg, the first three schools (design, planning, and positioning) are prescriptive and normative, while the rest are mainly descriptive. The entrepreneurial and cognitive schools emphasize visionary leadership and the mental process associated with it. The remaining four schools of thought broaden strategy formation quot;beyond the individual and his or her cognition, to other forces and other actorsquot; (p. 109). The Table 1 Mintzberg's (1990) Schools of Thought on Strategy Formation School of Thought Sees Strategy Formation Process as E>esign conceptual
  • 5. Planning formal Positioning analytical Entrepreneurial visionary Cognitive mental Learning emergent Political power-based Cultural ideological Environmental passive Configurational episodic 76 ENTREPRENEURSHIP THEORY a n d PRACTICE following capsule descriptions are adapted from Mintzberg's detailed treatment of each school. Design School. This school was born of the original, Harvard-driven, case method with its belief in rational leadership to match organizations to their environments. Still the foundation of much prescription and of many business policy courses, it focuses on the CEO as architect of a strategy clear enough to be understood throughout management. Its leading early work was Andrews's The Concept of Corporate Strategy (1971). Planning School. This highly rational school of planning, programming, and budgeting developed parallel to the design school. Its formalized procedures, replete with checklists and the diagrams that Bygrave (1989) lampooned, favored the ascent of a planning staff distinct from top management. Ansoff s Corporate Strategy (1965) provided its momentum, but the school's influence waned in the 1970s because its advocates never established a research program to lend empirical support. (On the latter point, see Sandberg and Glueck (19801.) Positioning School. The third prescriptive school has a strong empirical foundation and roots in industrial organization economics. Its impetus can be traced to researchers (notably Schendel) at Purdue University and later to Porter's Competitive Strategy (1980). The positioning school emphasizes generic strategies and strategic groups based on them, analysis of industry structure, and identification of generic environments. Its research base includes studies using the case method and hybrid, quot;medium grainedquot; methods as well as those using large databases. Entrepreneurial School. This school conceives strategy as quot;the personal, flexible construct of one individualquot; (Mintzberg, 1990. p. 137), built on his intuition, judgment, experience, etc. Its initial impetus came from Schumpeter's Theory of Economic Development (1934), which portrayed the extraordinary visionary whose innovation destroys equilibrium. This entrepreneur could be a hired manager as well as an owner or founder, and the organization could be a large corporation. Mintzberg considers the Entrepreneurial School relevant to start-up and turnaround situations and to organizations of sustained small size. (This school also spawned numerous studies of the entrepreneur's personality which, though prominent in the entrepreneurship literature, are peripheral to strategic management.) Cognitive School. Even more than the Entrepreneurial School, the Cognitive School attempts to penetrate the strategist's mind. Strategy is a concept that emerges as limited cognitive capabilities cope with complexity. Progenitors of this school include March
  • 6. and Simon's Organizations (1958). Mintzberg believes the Cognitive School is applicable to the original conception or a reconception of a business. Learning School. Essentially the incrementalist perspective described earlier, this school's most influential sources include Lindblom's quot;The Science of Muddling Throughquot; (1959) and Quinn's Strategies for Change (1980). The strategic management process is informal, and strategy implicit; leaders respond to initiatives taken by whomever has ideas or insights. According to Mintzberg, the school most closely fits decentralized, professional organizations that face complex, dynamic situations. It is frequently applied to corporate venturing (quot;intrapreneurshipquot;). Political School. This school emphasizes the exercise of political (i.e., noneconomic) power either within or by the organization. Its origins are in political science; Allison's Essence of Decision (1971) brought its perspectives to strategy formation. Because political means are illegitimate or are legitimate, conflict usually accompanies them. Mintzberg sees applications of this school to strategic change within and around organizations. Cultural School. Strategy emerges from a process of collective behavior, according to the Cultural School, and takes the form of a perspective shared throughout the Spring, 1992 , 77. organization. Impletnetitation rests on normative pressures that grow out of shared beliefs. Although potent and effective in a stable environment, the culturally anchored strategy can promote resistance to change. Management's key challenge is to manage collective cognition. Environmental School. This school emphasizes all-powerful extemal forces that drive organizations into safe niches or to their death. Leadership, including strategic management, is futile, its apparent impact illusory. A more moderate approach within this school emphasizes the environment's contingent impact on organizations and their strategic management processes. The latter approach, says Mintzberg, can be applied to situations of severely constrained strategic choice, such as industry maturity. Configurational School. This school is Mintzberg's professed favorite, and his own. It conceives of an episodic process that configures various types/forms of strategy formation, environment, and organization at a particular time. Mintzberg sees this school as offering a means to integrate and make sense of other schools of strategic management, in the following way: Configurations tend to form pattems along a life cycle of strategy formation; specification of the configuration would help reconcile conflicting premises and findings among the other nine schools. [Readers may recognize that the configurational school promises essentially a frame theory (Rumelt, 1979) that tells when to apply each of the various limited domain theories represented by the other nine schools. 1 Summary The presence of so many contending schools of thought within strategic management attests to the field's highly permeable boundaries. Its openness to new ideas sometimes verges on susceptibility, but probably accounts for the durability of strategic managemetit's dominant paradigm. To a remarkable degree, new ideas are absorbed into existing constructs, sometimes giving birth to new schools of thought. Thus, for example,
  • 7. can the configurational school attempt integration of notably diverse approaches without discarding strategic management's dominant paradigm. WHAT IS ENTREPRENEURSHIP? If the boundaries of strategic management are permeable, those of entrepreneurship are downright porous. No dominant paradigm exists to repel new ideas; self-appointed defenders of the faith themselves disagree on doctrine. This section of the article tums to entrepreneurship, briefiy describing first a fundamental disagreement on definition and boundaries, then two potential routes to common ground. Convictions and Controversy Most attempts to define entrepreneurship begin with ati author's conviction as to its essence. Thus Gartner's advocacy of a quot;behavioralquot; approach to definition began by identifying quot;the primary phenomenon of entrepreneurship—the creation of organizations, the process by which new organizations come into existencequot; (1988, p. 21); indeed, quot;[ejntrepreneurship ends when the creat
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