Theories of Action in Business Strategy

Richard Whittington's book 'What is Strategy and Does it Matter' delineates and differentiates 4 approaches to strategy - classical, evolutionary, processual & systemic.

"What is Strategy - and Does it Matter?(2002)" by Richard Whittington revolves around four different views on strategy or the "theories of action" in business strategy : the classical planning approach; the efficiency-driven evolutionary approach; the craft-like processual approach; and the internationally-sensitive, systemic approach.

The Classical Approach to Strategy

According to Whittington, for classicists profitability is the highest goal of business and rational planning as the means to attain it. Whittington quoted Alfred Sloan, former President of General Motors, who laid out the cornerstone for the Classical strategy based on profit. In his biography My Years with General Motors he said:

The strategic aim of a business is to earn a return on capital, and if in any particular case the return in the long run is not satisfactory, the deficiency should be corrected or the activity abandoned. (1963:49)

To sum it up, Classical approach to strategy requires that managers be ready and capable of adopting profit-maximizing strategies through rational long-term planning.

Evolutionary Approach on Strategy

Evolutionary approaches do not rely on top management’s skill to plan and act rationally. Instead of depending on managers, they believe that markets will determine profit maximization and not the managers. Whatever methods the managers will adopt, the best performance will be the ones that survive. Rational methods are not the basis for this approach because it is ‘evolution thatis nature’s cost-benefit analysis’ (Einhorn and Hogarth 1988:114).

In evolutionary perspectives, competition is not overcomed by detached calculation such as in classical perspective but by constant struggle for survival in the jungle. The biological principle of natural selection is at the core of evolutionary theory wherein the most apt strategies often translate in the best performance allowing them to survive and progress. The weaker performers are driven out of the market.

Processual Approach to Strategy

Processual approaches also do not subscribed to rational strategy-making forwarded by Classical approach. However they do not agree with the evolutionary perspective either of leaving the profit-maximizing outcomes to the market. To them, organizations and markets are wrought with confusion and mess. The best Processual method is not to strive for the ideal but to work with what the reality offers.

The Processual Approaches were formulated by American Carnegie School most notably by Richard Cyert, James March and Herbert Simon. They believe that rational economic man is not possible because we cannot overlook all factors at the same time. Human nature is simply flawed.

Micro-political view implies that firms are not united towards a single goal such as profit. Instead it is made up of a number of individuals with different interests and bring them to the organization. The members of the organization bargain between themselves to arrive at a set of goals that is acceptable to them all. The main strategy for this approach is to simplify complex processes.

Systemic Approach on Strategy

Sytemic theorists believe that the organization is capable of planning and acting effectively. According to them economic activity cannot be separated from social relations such as family, state or religion. These social factors influence the the means and ends of a systemic approach and define what is the suitable behavior for their members.

In a systemic approach, the organization is not just made up of individuals but of social groups with interests. The variables that Systemic contend with are class and professions, nations and states, families and gender. The strategy then depends on the social environment of the firm.

The four theories of action in business strategy offer us an insight into the motivation behind the company’s vision and what strategies they most likely implement.

Reference:

Whittington, Richard. "What is Strategy - and Does it Matter?” (2002) Thomson Learning, UK.