bluedorn 1994 journal of management
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Journal of Management 1994, Vol. 20, No. 2, 201-262
The Interface and Convergence of the Strategic Management and
Organizational Environment Domains Allen C. Bluedorn
Richard A. Johnson Debra K. Cartwright Bruce R. Barringer
L%e University of Missouri-Columbia
Extending BluedornS (1993) review of environmental contin- gency theory, we examine the strategic management research conductedfrom 1980-1993 that explicitly deals with the environmental domain. Framing our approach as a constrained strategic choice perspective, ourfocus on this intersection of the strategic management and organizational environment literature leads us to examine six spectfk subsets of this literature: (1) strategic leadership and upper echelons; (2) scanning; (3) interorganizational relationships; (4) institutional theory; (5) organizational alignment; and (6) strategic control and evaluation. In our discussions of these topics, we identify research trends and generalizations as well as identify promising research possibilities and questions for future research. In this vein, we conclude the article with our identification of several possibilities
for theoretical syntheses and theory development.
A few years ago, one of this article’s authors proposed an article focusing on organizational size and environments for the Yearly Review of Management. The proposal was accepted and work proceeded on the article (Bluedorn, 1993). During the course of that work, the author discovered that the amount of theoretical and empirical research devoted to organizational environments was so voluminous that he had to restrict the coverage in his article to material directly related to the traditional environmental contingency model of organizations (e.g., Burns & Stalker, 1961; Lawrence & Lorsch, 1967). This choice, like so many other strategic choices, framed the discussion as far as what was included and what was excluded from that article. Conspicuous by its volume and focus was the set of excluded materials dealing with strategic management and the environment.
Direct all correspondence to: Allen C. Bluedorn, University of Missouri-Columbia, 225 Middlebush Hall, Columbia, Missouri 65211. mgmtblue@mizzouI .missouri.edu
Copyright @ 1994 by JAI Press Inc. 0149-2063
201
202 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
This material is most clearly exemplified in the debate between environmental determinism and strategic choice (Astley & Van de Ven, 1983) although other considerations obtain as well (e.g., Bourgeois, 1980). The focus of that debate concerns the relative role strategic choice plays compared to the role of environmental determinism in the affairs of organizations, with the most extreme position being taken by the population ecologists (e.g., Hannan & Freeman, 1989) that environmental factors acting as selection forces determine organizational survival. The strategic choice camp does not seem to offer as extreme and obverse a position, as the constraints of the environment and many other factors are usually acknowledged to be parameters within which strategic choices are made. Indeed, this recognition was made by Child (1972, pp. 2- 3) in perhaps the strongest statement of the strategic choice perspective as he described the “degree of strategic choice” and an organization’s dependency upon its environment as imposing “a degree of constraint upon those directing an organization.”
Other authors from a variety of perspectives (e.g., Boeker, 1991; Brunsman & Sharfman, 1993; Burgelman, 1990; 1991; Henderson, 1989; Hitt & Tyler, 1991; Hrebiniak & Joyce, 1985; Levinthal, 1991) have analyzed this often fatuous debate, but we believe the most sensible description and sophisticated integration of these perspectives can be found in the work of Hambrick and Finkelstein (1987). They addressed the strategic choice issue in terms of the decision-making discretion held by strategic decision makers, particularly CEO’s. Their analysis indicates that such discretion is subject to three sets of constraints originating in: (1) the task environment; (2) the organization; and (3) the CEO’s themselves, with their later research (Finkelstein & Hambrick, 1990) demonstrating the important moderating impact of discretion on several variables related to organizational performance. Prescott’s (1986) finding that organizational environments moderate the relationship between strategy and performance also supports this perspective.
Our position concurs with many of the authors who have joined this discussion; to wit: we believe important, that is to say, strategic choices are made for organizations, largely by members of their dominant coalitions, and these choices result in organizational strategies and structures that may then be acted upon by environmental forces that may operate in the manner described in the population ecology literature (Hannan & Freeman, 1989; Hannan & Carroll, 1992). Moreover, with Hambrick & Finkelstein (1987), Child (1972), and others, we believe that the degree of managerial discretion, hence the latitude for strategic choice, will vary from situation to situation and from time to time due to constraints in organizational environments and from other sources.
We will, thus, discuss the literature in the organizational environment/ strategic management domain from the perspective of constrained strategic choice that we have just described. This exploration will be guided by Child’s (1972, pp. 16-19) original framework and will parallel Bluedorn’s (1993) size- and-environment review by focusing on materials published during the period from 1980 to 1993.’ Child’s framework emphasized the strategic choices made by an organization’s dominant coalition, and the point that these choices will
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 203
be affected by what he terms the coalition’s “prior ideology.” Hambrick and Finkelstein (1987) expanded this concept to an entire set of organizational and managerial concepts. Thus, our exploration will begin with an examination of the strategic choice makers themselves.
Child then indicated that the process leading to strategic choices begins with an evaluation of the situation. We see this evaluation as consisting of two components: (1) gathering information or scanning; and (2) processing the scanned information. Thus, after considering the choice makers themselves, we will examine their scanning and information processing activities.
In Child’s view, strategic choices then follow from the interpretation of scanned information. As such, we will examine two especially important forms of strategic choice, the analyses of which received considerable attention during the period on which this article is primarily focused: (1) the strategic choices considered in interorganizational relationship decisions-merge? acquire? network? form of network? and (2) the strategic choices involved in dealing with the organization’s institutional environment.
Finally, Child’s framework specifies a feedback loop for the ultimate success or failure of strategic choices that will influence subsequent strategic choices. Consequently, we will conclude our explorations with a consideration of two elements directly related to this loop, the issues of: (1) organizational alignment or fit; and (2) corporate control.
Because we cover such a voluminous set of literature and so many issues, we present our conclusions and recommendation for each specific topic at the end of its respective section of the article rather than presenting them collectively, as is often customary, in a section at the end of the paper. We made this strategic choice due to the constraints we observed in our own information processing ability. That is to say, such an omnibus discussion located so far from the discussion of the specific issues would make it hard for most readers to remember the particulars upon which such a discussion would be based.
Strategic Leadership: The Upper-Echelon Choice Makers
Discretion is a product of experience.. . -Hambrick and Finkelstein, 1987, p. 373
Perhaps the central element in determining the fit between strategy and environment is the top management team (TMT) because the TMT, following Child’s (1972) model, is the primary agent that scans and interprets the organization’s environment, makes strategic choices, and monitors the results of those choices. Thus, strategic change may require the replacement of the top executive and other TMT members in order to be effective (Chandler, 1962; Hofer, 1980; Miller & Friesen, 1980; Tushman & Romanelli, 1985). Several authors have made the link between the characteristics of the managers who make strategic choices and strategy (e.g., Andrews, 1971; Hambrick & Mason, 1984; Szilagyi & Schweiger, 1984). Andrews argued for this link by stating that “there is no way to divorce the decision determining the most sensible economic
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
204 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
strategy from the personal values of those who make the choice” (Andrews, 1971, p. 34). March and Simon (1958) argued that each decision maker brings a unique knowledge base (experiences, skills etc.) to an administrative situation.
Our discussion of strategic leadership or upper echelons theory will proceed with an examination of the following two topics: (1) operationalization and measurement; and (2) relationships between characteristics and behavior of top management team members.
Measurement
There are almost as many ways to operationalize TMT characteristics and behaviors as there are studies examining these issues. One important point that needs to be made is that these characteristics and behaviors are, at best, proxies for cognitive processes. It may, for example, be unrealistic to assume that a CEO’s age will be directly related to strategy. A more appropriate argument might be that older managers may take more time in collecting and integrating information as well as decision making (Taylor, 1975) and may be more committed to the status quo (Stevens, Beyer & Trite, 1978). In general, these variables can be placed into one of two categories: (1) TMT demographic characteristics; and (2) TMT behaviors. Demographic characteristics are generally operationalized as average characteristics for the top management team (e.g., Hambrick & Mason, 1984) or the individual characteristics of the CEO (e.g., Helmich & Brown, 1972). Commonly used operationalizations include the following TMT data: (1) age; (2) industry, organizational or executive tenure; (3) education level; and (4) functional or occupational background. In addition, heterogeneity or homogeneity measures have been used in an attempt to proxy group processes as opposed to simple averages (e.g., Pfeffer, 1983).
Behavior has been operationalized in multiple ways, the more common ways of which include: (1) how the TMT defines business problems; (2) TMT member turnover; (3) their risk propensity; (4) decision making style; (5) internal/external locus of control; and (6) leadership style. Another issue that surfaces in many of these studies is that the choice of measure may ultimately influence the results. For example, executive tenure, organizational tenure and industry tenure may be proxies for different constructs, namely, TMT group interactions, socialization with the organizations and overall knowledge and experience in the industry respectively, but the operationalizations may overlap considerably causing problems in the analysis (e.g., a lack of discriminant validity).
Conceptual Framework
Research in the area of strategic leadership, upper echelons, or the top management team has examined multiple linkages between the environment, top management characteristics, behaviors and strategy. Hambrick (1989) provided an interesting and useful framework through which the effects of strategic leadership can be examined. Based on a modified version of
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 205
TMT or CEO Characteristics
TMT or CEO
Environment or Organizational
Firm Strategy,
Con text Structure or Conduct
Figure 1. The Relationship Among Leadership, Firm Strategy, and the Environment (modified from Hambrick, 1989)
Hambrick’s model (Figure l), we will focus on the relationships between strategic leadership, environment and firm strategy/ structure.
As depicted in Figure 1, three paths are of interest in this review. The first path examines the relationship between environmental context and managerial characteristics. The second path depicts the relationship between managerial characteristics and firm strategy. Taken together, paths one and two reflect the effect of strategic leadership on the environment/strategy link. The third path examines the link between managerial characteristics and strategy with environment as a moderator. Table 1 presents the articles examined in this review by path category.
In order to simplify the following discussion, high levels of firm performance are assumed to indicate a good “fit”(Venkatraman, 1989) between strategy and the environment. Therefore, in studies that find a positive relationship between managerial characteristics and firm performance, we have assumed that this relationship indicates these characteristics relate positively to strategy/ environment “fit.”
The Environment-to-Leadership Link. Research investigating the relationship between the environment and strategic leadership has focused primarily on selecting managers to fit the environment. The basic argument
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Stud
y
Tab
le
1.
Stud
ies
Exa
min
ing
the
Rel
atio
nshi
ps
betw
een
Lea
ders
hip,
Fi
rm
Stra
tegy
an
d E
nvir
onm
ent
Dat
a F
indi
ngs
or I
mpl
icat
ions
Cha
gant
i &
Sam
bhar
ya
(198
7)
79 m
anag
ers
from
3
toba
cco
firm
s.
Kec
k &
Tus
hman
(1
993)
L
ongi
tudi
nal
data
fr
om
104
firm
s in
the
ce
men
t in
dust
ry
betw
een
1900
-198
6.
Pfef
fer
(198
3)
Con
cept
ual
/ re
view
pa
per.
Song
(1
982)
53
lar
ge
dive
rsif
ied
firm
s be
twee
n 19
65 t
o 19
80.
Con
cept
ual
/ th
eore
tica
l pa
pers
:
Ban
tel
& J
acks
on
(198
9)
Cov
in
& S
levi
n (1
989)
Eis
enha
rdt
& S
choo
nhov
en
(199
0)
Hur
st,
Rus
h &
Whi
te
(198
9)
Jauc
h &
Osb
orn
(198
1)
Ker
r &
Jac
kofs
ky
(198
9),
Woo
d &
Ban
dura
(1
989)
Sz
ilagy
i &
Sch
wei
ger
(198
4) &
Wis
sem
a,
Van
D
er
Pol
& M
esse
r (1
980)
.
Pat
h 2:
Str
ateg
ic l
eade
rshi
p to
fir
m s
trat
egy
199
bank
s st
ate-
char
tere
d an
d R
esul
ts
sugg
est
that
m
ore
inno
vativ
e ba
nks
are
man
aged
by
mor
e ed
ucat
ed
natio
nal
bank
s in
the
m
id-w
est.
team
s,
with
di
vers
e fu
nctio
nal
back
grou
nds.
161
smal
l m
anuf
actu
ring
fi
rms.
Pe
rfor
man
ce
amon
g sm
all
firm
s w
as
posi
tivel
y re
late
d to
an
or
gani
c st
ruct
ure,
en
trep
rene
uria
l st
rate
gic
post
ure,
lo
ng
term
or
ient
atio
n by
top
m
anag
emen
t an
d co
ncer
n fo
r pr
edic
ting
indu
stry
tr
ends
. B
enig
n en
viro
nmen
ts,
perf
orm
ance
w
as
rela
ted
to
a co
nser
vativ
e m
anag
emen
t po
stur
e,
fina
ncia
l m
anag
emen
t, an
d a
mec
hani
stic
st
ruct
ure.
98 s
emic
ondu
ctor
fi
rms
foun
ded
Exa
min
ed
the
link
betw
een
foun
ding
T
MT
, st
rate
gy
and
envi
ronm
ent
to
betw
een
1978
and
19
85.
the
perf
orm
ance
of
ne
wly
fo
unde
d U
S se
mic
ondu
ctor
fi
rms.
T
he
size
of
th
e T
MT
, m
embe
rs’
past
ex
peri
ence
s to
geth
er
and
hete
roge
neity
in
in
dust
ry
expe
rien
ce
wer
e lin
ked
with
hi
gher
gr
owth
.
Pat
h 1:
Env
iron
men
t to
str
ateg
ic l
eade
rshi
p
The
pr
opor
tion
of
outs
ider
s (e
xecu
tives
hi
red
from
ou
tsid
e th
e fi
rm
in
pros
pect
or
firm
s w
as
sign
ific
antly
gr
eate
r th
an
in a
naly
zers
or
def
ende
rs.
Exe
cutiv
es
with
m
arke
ting
back
grou
nds
wer
e m
ore
prev
alen
t in
pr
ospe
ctor
s an
d an
alyz
ers.
A
naly
zers
te
nd
to
have
a
stro
nger
pr
oduc
tion
orie
ntat
ion
and
a w
eake
r fi
nanc
e or
ient
atio
n th
an
defe
nder
s.
Res
ults
su
gges
t th
at
mul
tiple
or
gani
zatio
nal
“clo
cks”
dr
iven
by
th
e en
viro
nmen
t ha
ve
dist
inct
ef
fect
s on
in
ertia
an
d ch
ange
. E
nvir
onm
enta
l jo
lts
are
asso
ciat
ed
with
in
crea
sed
chan
ge
in
team
st
ruct
ures
to
al
low
ad
apta
tion
to c
ompe
titiv
e co
nditi
ons.
Indu
stry
ag
e w
as
foun
d to
ha
ve
an
effe
ct
on
the
age
of s
enio
r ex
ecut
ives
w
ithin
th
e in
dust
ry.
CE
O
back
grou
nd
and
prio
r ex
peri
ence
is
sig
nifi
cant
ly
asso
ciat
ed
with
th
e di
vers
ific
atio
n st
rate
gy
of
the
firm
. T
his
has
impl
icat
ions
fo
r bo
ards
of
di
rect
ors
in t
heir
se
arch
fo
r an
d se
lect
ion
of t
op
exec
utiv
es.
Fink
elst
ein
(199
2)
Fred
rick
son
& I
aqui
nto
(198
9)
Gov
inda
raja
n (1
989)
Gre
iner
&
Bha
mbr
i (1
989)
Gri
mm
&
Sm
ith
(199
1)
Hag
e &
Dew
ar
(197
3)
Hel
mic
h &
Bro
wn
(197
2)
John
son,
H
oski
sson
&
H
itt
(199
3)
Mey
er
(198
2)
Mill
er
(199
1)
Nor
burn
&
Bir
ley
(198
8)
Surv
ey
data
fr
om
1763
man
ager
s.
Surv
ey
data
fr
om
45 f
irm
s in
the
pa
int
and
coat
ing
and
the
fore
st
prod
uct
indu
stri
es.
Dat
a fr
om
121
SBU
s.
Em
piri
cal
case
st
udy
855
man
ager
s fr
om
27 r
ailr
oads
.
Dat
a fr
om
320
staf
f m
embe
rs
and
16 e
xecu
tives
fr
om
16 h
ealth
an
d w
elfa
re
orga
niza
tions
.
Surv
ey
data
fr
om
204
pres
iden
ts
of
chem
ical
an
d al
lied
prod
ucts
fi
rms.
92 T
MT
/ in
side
r bo
ard
mem
bers
fr
om
rest
ruct
urin
g fi
rms.
19 h
ospi
tals
af
fect
ed
by a
phy
si-
cian
s st
rike
.
95 f
irm
s ba
sed
in Q
uebe
c.
953
top
man
ager
s fr
om
150
firm
s in
the
da
iry,
fo
otw
ear,
tir
e,
mob
ile
hom
e an
d m
achi
ne
tool
in
dust
ries
.
Top
m
anag
ers
pow
er
(str
uctu
ral,
owne
rshi
p,
pres
tige
and
to a
les
ser
exte
nt,
expe
rt
pow
er)
are
posi
tivel
y re
late
d to
st
rate
gic
choi
ce.
Bot
h ch
ange
in
fir
m s
ize
and
TM
T
tenu
re
wer
e po
sitiv
ely
rela
ted
to d
ecis
ion
com
preh
ensi
vene
ss.
The
le
vel
of c
ompr
ehen
sive
ness
pe
rsis
ts
over
se
vera
l ye
ars
sugg
estin
g co
nsid
erab
le
iner
tia.
Res
ults
su
gges
t th
at
SBU
st
rate
gy
inte
ract
s w
ith
func
tiona
l ba
ckgr
ound
, lo
cus
of c
ontr
ol,
and
prob
lem
so
lvin
g st
yle
to i
nflu
ence
SB
U
effe
ctiv
enes
s.
Stre
sses
th
e ne
ed
to m
atch
ge
nera
l m
anag
ers
to S
BU
st
rate
gy.
Thi
s pa
per
uses
an
em
piri
cal
case
st
udy
whe
re
a ne
w
CE
O
initi
ates
a
succ
essf
ul
stra
tegi
c ch
ange
. A
the
oret
ical
fr
amew
ork
is d
evel
oped
be
twee
n th
e C
EO
ac
tions
, ra
tiona
l pl
anni
ng
and
emer
gent
po
litic
al
beha
vior
.
You
nger
m
anag
ers
with
le
ss
expe
rien
ce
are
mor
e lik
ely
to
alte
r th
eir
stra
tegi
es
with
ch
angi
ng
envi
ronm
enta
l co
nditi
ons.
Val
ues
of t
he T
MT
af
fect
th
e or
gani
zatio
n’s
leve
l of
inn
ovat
ion.
Insi
de/
outs
ide
CE
Os
affe
ct
how
m
uch
stra
tegi
c ch
ange
w
ill o
ccur
. In
side
rs
are
asso
ciat
ed
with
le
ss c
hang
e w
ithin
tw
o ye
ars
of s
tart
ing.
Boa
rd
invo
lvem
ent
in r
estr
uctu
ring
(s
trat
egic
ch
ange
) is
neg
ativ
ely
effe
cted
by
T
MT
te
nure
, T
MT
or
gani
zatio
n te
nure
an
d T
MT
ed
ucat
ion
leve
l. R
esul
ts
sugg
est
TM
T
pow
er
can
min
imiz
e bo
ard
invo
lvem
ent
even
du
ring
pe
rfor
man
ce
decl
ines
.
In
a st
udy
of
firm
’s
adap
tatio
ns
to
envi
ronm
enta
l jo
lts
he
foun
d th
at
ideo
logi
cal
vari
able
s ar
e be
tter
pred
icto
rs
of a
dapt
atio
n th
an
are
stru
ctur
al
vari
able
s.
Res
ults
su
gges
t su
ppor
t fo
r a
fit
betw
een
the
envi
ronm
ent
and
firm
st
rate
gy
and
thei
r re
latio
nshi
p to
fir
m
perf
orm
ance
. L
ong-
tenu
red
CE
Os
wer
e le
ss
likel
y to
ach
ieve
th
is
fit
than
th
eir
coun
terp
arts
w
ith
less
ten
ure.
Top
pe
rfor
mer
s ha
ve s
igni
fica
ntly
di
ffer
ent
man
ager
ial
prof
iles
than
po
orly
pe
rfor
min
g fi
rms
as w
ell
as s
imila
r ch
arac
teri
stic
s ac
ross
al
l fi
ve i
ndus
trie
s.
(con
tinu
ed)
2 ?j
Tab
le 1
. (C
ontin
ued)
? St
udy
Dat
a Fi
ndin
gs o
r im
plic
atio
ns
: :
Pat
h 2:
Str
ateg
ic
lead
ersh
ip
to f
irm
str
ateg
y (c
ontin
ued)
Wei
ner
& M
ahon
ey
(198
1)
193
man
ufac
tu~n
g fi
rms
over
a
Man
ager
ial
stew
ards
hip
and
fina
ncia
l st
rate
gies
ex
plai
n va
rian
ce
in
P 2 19
yea
r pe
riod
. pe
rfor
man
ce
in a
dditi
on
to o
rgan
izat
iona
l an
d en
viro
nmen
tal
fact
ors.
8 W
iers
ema
& B
ante
l(19
92)
Arc
hiva
l da
ta f
rom
87
firm
s th
at
Cha
nges
in
corp
orat
e st
rate
gy w
ere
rela
ted
to T
MT
s ch
arac
teri
zed
by lo
wer
f un
derw
ent
som
e fo
rm o
f st
rate
gic
aver
age
age,
sho
rter
or
gani
zatio
nal
tenu
re,
high
er
team
te
nure
, hi
gher
g ch
ange
. ed
ucat
ion
leve
ls,
and
educ
atio
nal
spec
ializ
atio
n he
tero
gene
ity.
“-1
Con
cept
ual
/ th
eore
tica
l G
upta
(1
984)
, H
ambr
ick
& F
ukut
omi
(199
1),
Staw
, Sa
ndel
ands
&
Dut
ton
(198
1).
6 pa
pers
: .y
w
P
ath
3: S
trat
egic
le
ader
ship
to
fir
m s
trat
egy
mod
erat
ed
by t
he e
nvir
onm
ent
0 Fi
nkel
stei
n &
Ham
bric
k 5
(199
0)
“!
z P
100
firm
s in
the
com
pute
r,
chem
ical
, an
d na
tura
l-ga
s di
stri
butio
n in
dust
ries
.
Fom
brun
&
Zaj
ac (
1987
) 11
4 fi
rms
in t
he f
inan
cial
se
rvic
es
indu
stry
.
Gup
ta &
Gov
inda
raja
n (1
984)
58
SB
Us
with
in 8
For
tune
50
0 fi
rms.
Ham
bric
k (1
981a
)
Ham
bric
k,
Gel
etka
nycz
&
Fr
edri
ckso
n (1
993)
195
exec
utiv
es f
orm
20
orga
niza
- tio
ns o
pera
ting
in t
he h
ospi
tal
or
insu
ranc
e in
dust
ries
or
col
lege
s.
690
seni
or e
xecu
tives
fro
m l
arge
U
.S.
firm
s.
Hitt
& T
yler
(19
91)
Surv
ey d
ata
from
69
top
exec
utiv
es
of f
irm
s in
the
sou
thw
est
U.S
.
Exe
cutiv
e te
am t
enur
e w
as f
ound
to
hav
e a
sign
ific
ant
effe
ct o
n st
rate
gy
and
perf
orm
ance
, w
ith
long
-ten
ured
te
ams
follo
win
g m
ore
pers
iste
nt
stra
tegi
es,
stra
tegi
es
that
co
nfor
med
w
ith
indu
stry
te
nden
cies
an
d ex
hibi
ting
perf
orm
ance
cl
ose
to t
he i
ndus
try
aver
age.
The
se r
elat
ions
hips
w
ere
stro
nges
t w
here
man
ager
s ha
d hi
gh d
iscr
etio
n.
Inte
rind
ustr
y st
ratif
icat
ion
is a
fun
ctio
n of
str
uctu
ral
para
met
ers
and
top
man
agem
ents
re
spon
ses
to t
he e
nvir
onm
ent.
Mar
ketin
g ex
peri
ence
, ri
sk p
rope
nsity
an
d to
lera
nce
for
ambi
guity
on
the
pa
rt o
f th
e ge
nera
l m
anag
er c
ontr
ibut
e to
eff
ectiv
enes
s in
“bu
~d”s
trat
e~es
bu
t ha
mpe
r in
the
cas
e of
“ha
rves
t” s
trat
egie
s.
Exe
cutiv
es
had
high
pow
er i
f, b
y vi
rtue
ei
ther
of
thei
r fu
nctio
nal
area
or
scan
ning
be
havi
or,
they
cop
ed
with
the
dom
inan
t re
quir
emen
t im
pose
d by
the
env
iron
men
t or
lir
m s
trat
egy.
Exe
cutiv
e’s
indu
stry
te
nure
is
a d
eter
min
ant
of c
omm
itmen
t to
the
sta
tus
quo
(CSQ
) an
d ha
s a
muc
h st
rong
er
rela
tions
hip
with
C
SQ
than
do
es
orga
niza
tiona
l te
nure
. Fi
rm p
erfo
rman
ce
is p
ositi
vely
re
late
d to
CSQ
; th
is
rela
tions
hip
in s
tron
ger
in h
igh-
disc
retio
n th
an i
n lo
w d
iscr
etio
n in
dust
ries
.
Stro
ng
supp
ort
was
fou
nd
for
the
ratio
nal/a
naly
tical
ch
oice
per
spec
tive
in e
valu
atin
g ac
quis
ition
ca
ndid
ates
. In
dust
ry
and
exec
utiv
e ch
arac
teri
stic
s al
so a
ffec
t ta
rget
eva
luat
ions
.
Mic
hel
& H
ambr
ick
(199
2)
Mile
s &
Sno
w (
1978
)
Mill
er &
Dro
ge (
1986
)
Mill
er,
Dro
ge &
Tou
lous
e (1
988)
Mill
er,
Ket
s de
Vri
es &
T
oulo
use
(198
2)
Mur
ray
(198
9)
Sala
ncik
&
Pfe
ffer
(19
77)
Sing
h, T
ucke
r &
Hou
se
(198
6)
Con
cept
ual
/ th
eore
tica
l pa
pers
:
Arc
hiva
l da
ta f
rom
13
4 fi
rms.
Dat
a fr
om 4
9 el
ectr
onic
s &
foo
d pr
oces
sors
, 19
hos
pita
ls
and
16
colle
ges.
93 f
irm
s ba
sed
in Q
uebe
c.
Surv
ey d
ata
from
77
firm
s w
ith
500
or f
ewer
em
ploy
ees
base
d in
Q
uebe
c.
Mul
ti-in
dust
ry
stud
y of
top
ex
ecut
ives
fro
m 3
3 fi
rms
base
d in
Mon
trea
l.
84 F
ortu
ne
500
food
and
oil
com
pani
es
betw
een
1976
to 1
981.
Dat
a fr
om 3
0 U
.S.
citie
s ov
er a
n 18
yea
r pe
riod
. M
ayor
s ar
e be
tter
able
to
mak
e ch
ange
s w
hen
thei
r po
litic
al
cons
titue
ncie
s ar
e di
ffus
e.
389
firm
s of
whi
ch 1
07 “
died
” du
ring
th
e st
udy
peri
od
1970
-198
2.
Gra
y &
Ari
ss (
1985
), H
ambr
ick
& F
inke
lste
in
(198
7),
Ham
bric
k &
Mas
on
(198
4).
CE
O c
hang
e de
crea
ses
“dea
th”
rate
s in
you
nger
fir
ms.
Res
ults
sug
gest
CE
O
chan
ge m
ay b
e ad
aptiv
e.
Hig
h-in
terd
epen
denc
e fi
rms
had
mor
e T
MT
m
embe
rs
with
exp
ertis
e in
co
re f
unct
ions
(o
pera
tions
, m
arke
ting
and
R&
D)
than
di
d lo
w-i
nter
de-
pend
ence
fi
rms.
L
ow-i
nter
depe
nden
ce
firm
s w
ere
char
acte
rize
d by
TM
T
back
grou
nds
in f
inan
ce,
law
, ac
coun
ting,
an
d ge
nera
l m
anag
emen
t. H
igh-
in
terd
epen
denc
e fi
rms
disp
laye
d lo
wer
lev
els
of t
enur
e ho
mog
enei
ty
than
lo
w-i
nter
depe
nden
ce
firm
s.
Stra
tegi
es
are
self
-rei
nfor
cing
. Pr
ospe
ctor
s st
rate
gies
re
quir
e di
ffer
ent
com
pete
ncie
s th
an d
efen
ders
.
CE
O n
eed
for
achi
evem
ent
(nA
CH
) an
d si
ze h
ave
the
stro
nges
t re
latio
nshi
p w
ith s
truc
ture
. In
sm
all
firm
s, n
AC
H
and
stru
ctur
e/st
rate
gy
wer
e hi
ghly
re
late
d su
gges
ting
CE
O p
erso
nalit
y ef
fect
s st
rate
gy/
stru
ctur
e.
Res
ults
su
gges
t C
EO
ne
ed
for
achi
evem
ent
infl
uenc
es
the
inte
nded
ra
tiona
lity
of
the
stra
tegy
-mak
ing
proc
ess,
w
hich
in
tu
rn
infl
uenc
es
stru
ctur
al
form
aliz
atio
n an
d in
tegr
atio
n.
The
lat
itude
fo
r st
rate
gic
choi
ce
caus
es c
onte
xt
and
stru
ctur
e to
be
loos
ely
coup
led.
Loc
us
of c
ontr
ol
of t
op
exec
utiv
es
has
a si
gnif
ican
t re
latio
nshi
p w
ith
stra
tegy
an
d an
ind
irec
t re
latio
nshi
p to
env
iron
men
t. A
n in
tern
al
locu
s re
late
s to
ri
skie
r st
rate
gies
th
an
an
exte
rnal
lo
cus
of
cont
rol.
Thi
s as
soci
atio
n is
str
onge
r in
sm
alle
r fi
rms.
Hom
ogen
ous
top
man
agem
ent
team
s in
tera
ct
mor
e ef
fici
ently
un
der
inte
nse
com
petit
ion
whi
le h
eter
ogen
eous
gr
oups
fac
ilita
te a
dapt
atio
n in
the
fa
ce o
f en
viro
nmen
tal
chan
ge.
210 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
here is that executives are not selected for these positions randomly. Most of these studies do not address whether the selection process represents a purposeful selection of managers with specific characteristics to match environmental requirements or a political/ Darwinian process (Hambrick (1989).
For example, Song (1982) found that the background and prior experience of the CEO is significantly associated with the diversification strategy of the firm. Specifically, the firm’s diversification posture affects the number of different functional areas represented on the top management team. Pfeffer (1983) found that industry age has an effect on the age of senior executives within the industry. More recently, Keck and Tushman (1993) found that changes in the external environment affected the composition and heterogeneity of the TMT. Several conceptual articles have examined this relationship also (Szilagyi & Schweiger, 1984). For example, Jauch and Osborn (1981) identified four strategic profiles based on environmental conditions which in turn affect administrative philosophy. Hurst, Rush and White (1989) take this one step further and posit that TMTs should be composed of specific behavior types while Kerr and Jackofsky (1989) suggest that managerial development (as opposed to hiring executives with specific characteristics) may be a way to align strategy with the environment.
Strategic-Leadership-to-Strategy/Structure Link. This second path of the model examines the relationship between the TMT and firm strategy/conduct. This perspective argues that the firm is a reflection of its top managers. The values, beliefs, and group interactions between TMT members and their cognitions affect strategic choice. Both managerial characteristics as well as behaviors have been used to assess this relationship. The personal values of the TMT can affect the level of innovation (Hage & Dewar, 1973) and the introduction of an insider versus outsider CEO is positively related to strategic change (Helmich & Brown, 1972). Very little attention, however, has been given to the type of changes brought about by insiders versus outsiders and the long-term effects of such changes. More recently, Miller (1991) found that long-tenured CEOs were less likely to achieve a fit between firm strategy and the environment than their counterparts with less tenure. However, Wiersema and Bantel (1992) found that TMT tenure was positively related to strategic change. These findings suggest that results are mixed regarding tenure or, perhaps, that the relationships are more complex than previously thought. Further research is necessary to disentangle these apparently conflicting findings. Future research might examine firms in different contexts. For example, Miller’s study examined a sample of firms in a specific geographic area whereas Wiersema and Bantel examined a specific type of firm, those that were undergoing some form of strategic change.
Environment as a Moderator. The majority of studies have examined a more complex relationship between leadership and strategy by including the environment as a moderator. This path is characterized by the assumption that executive characteristics and behaviors may not affect strategic choices (i.e. strategy) in a uniform manner. The context (environment) in which the firm operates may restrict or constrain the range of choices available and limit managerial discretion (e.g., Hambrick & Finkelstein, 1987).
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 211
For example, Miller, Kets de Vries and Toulouse (1982) found that CEO personality exhibits a much stronger positive relationship with innovation in smaller firms than in larger firms. Hambrick, Geletkanycz and Fredrickson (1993) found that industry tenure exhibits a stronger relationship with managers’ commitment to the status quo in high-discretion as opposed to low discretion industries. Miller and Droge (1986) found that the CEO’s personality affects the structure of the organization. In small firms, the relationship between CEO need for achievement and structure/strategy were more highly related than in larger firms. Murray (1989) found that homogeneous TMTs are more effective under intense competition while heterogeneous TMTs facilitate adaptation in the face of environmental change. Most directly, Finkelstein and Hambrick (1990) found much stronger relationships between TMT tenure and performance, strategic persistence, and strategic conformity in a comparison of organizations in environments permitting high and low discretion respectively.
Future Directions
Overall, some generalizations can be made concerning TMT behaviors and characteristics. It is generally accepted that TMT age, organization tenure, homogeneity of functional background and an external locus of control are negatively related to a high degree of fit between strategy and environment. High levels of education, heterogeneity in functional background, internal focus and lower average tenure are positively related to adaptation and change. There are of course exceptions to these generalizations as in the aforementioned case of TMT tenure.
One area that has not received much attention is the relationship between the board of directors and top management. The characteristics of the board of directors has not been examined in much detail with the exception of Pfeffer (1972; 1973), Kesner (1988) and Johnson, Hoskisson and Hitt (1993). With the exception of Johnson et al. (1993), no other studies have attempted to examine the interplay of manager and board characteristics in strategic decisions. In the last few years, boards of directors have become more proactive and may begin to affect the relationship between leadership and strategy/environment fit. Another area that might prove interesting would be to factor in high-velocity environments (Eisenhardt, 1989), network structures (Jarillo, 1988) and decision speed (Eisenhardt, 1989) into the leadership/strategy/environment equation. For example, what characteristics promote the trust necessary to efficiently manage a network organization or provide quick-responses to environmental/ competitor changes?
Scanning
The manager must be aware of an optionfor it to be part of the discretionary set.
-Hambrick & Finkelstein, 1987, p. 373.
Originally conceptualized as a boundary spanning task, scanning was initially defined as the managerial activity of learning about events and trends
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Tab
le
2.
Rep
rese
ntat
ive
Scan
ning
St
udie
s
Stud
y D
ata
Find
ings
or
Impl
icat
ions
Ham
bric
k (1
981a
)
Ham
bric
k (1
981b
)
Ham
bric
k (1
982)
Kie
sler
&
Spr
oull(
l982
)
Cul
nan
(198
3)
195
exec
utiv
es
from
8
priv
ate
liber
al
arts
co
llege
s,
6 pr
ivat
e ho
spita
ls,
and
6 lif
e in
sura
nce
com
pani
es.
195
exec
utiv
es
(top
th
ree
leve
ls)
from
8
liber
al
arts
co
llege
s,
6 ge
nera
l ho
spita
ls,
and
6 lif
e in
sura
nce
firm
s.
165
exec
utiv
es
from
6
priv
ate
liber
al
arts
co
llege
s,
5 vo
lunt
ary
hosp
itals
, an
d 6
life
insu
ranc
e co
mpa
nies
.
Con
cept
ual/
theo
retic
al
pape
r.
Pear
ce
(198
3)
362
prof
essi
onal
s in
the
co
rpor
ate
HQ
of
a n
atio
nal
bank
ho
ldin
g co
mpa
ny
and
a la
rge
man
ufac
turi
ng
firm
.
137
boar
d m
embe
rs
and
top
offi
cers
fr
om
8 ba
nks.
Daf
t &
Wei
ck
(198
4)
Con
cept
ual
/ th
eore
tical
pa
per.
Farh
, H
offm
an,
&
406
top
man
agem
ent
team
s in
10
8 H
egar
ty
(198
4)
Eur
opea
n m
anuf
actu
ring
fi
rms.
Dut
ton
and
Jack
son
(198
7)
Irel
and,
H
itt,
Bet
tis,
&
Aul
d D
e Po
rras
(1
987)
Con
cept
ual
/ th
eore
tical
pa
per.
56 m
anag
ers
from
al
l ra
nks
of o
ne
Bra
zilia
n an
d tw
o V
enez
uela
n m
anu-
fa
ctur
ing
com
pani
es.
The
re
was
a
limite
d po
sitiv
e re
latio
nshi
p be
twee
n hi
erar
chic
al
leve
l an
d sc
anni
ng
and
betw
een
func
tiona
l ar
ea
and
scan
ning
.
Exe
cutiv
e po
wer
w
as
posi
tivel
y co
rrel
ated
w
ith
scan
ning
of
cr
itica
l en
viro
nmen
tal
sect
ors
but
not
with
sc
anni
ng
of
less
im
port
ant
envi
ronm
enta
l se
ctor
s.
The
re
was
ge
nera
lly
no
or
only
a
smal
l re
latio
nshi
p be
twee
n st
rate
gy
(pro
spec
tor
or d
efen
der)
an
d sc
anni
ng
freq
uenc
y,
inte
rest
, an
d ho
urs.
Dis
tingu
ishe
d au
tom
atic
an
d di
rect
ed-s
earc
h fo
rms
of s
cann
ing
and
seve
ral
sour
ces
of e
rror
in
pro
blem
se
nsin
g.
Use
of
an
in
form
atio
n so
urce
w
as
posi
tivel
y re
late
d to
pe
rcep
tions
of
so
urce
s’
avai
labi
lity
and
perc
eptio
ns
of t
ask
envi
ronm
ent
com
plex
ity.
A p
ositi
ve
rela
tions
hip
was
fo
und
betw
een
the
prop
ortio
n of
in
tern
ally
- or
ient
ed
mem
bers
of
th
e do
min
ant
coal
ition
an
d fo
ur
mea
sure
s of
th
e ba
nks’
fi
nanc
ial
perf
orm
ance
.
Bel
iefs
ab
out
the
envi
ronm
ent
and
orga
niza
tiona
l ob
trus
iven
ess
affe
ct
scan
ning
.
Tes
ts
of
the
conv
erge
nt
and
disc
rim
inan
t va
lidity
of
a
mod
ifie
d ve
rsio
n of
H
ambr
ick’
s sc
anni
ng
scal
es
reve
aled
m
ajor
pr
oble
ms
with
th
e ho
urs
met
hod
of m
easu
ring
sc
anni
ng,
but
stro
ng
supp
ort
for
the
freq
uenc
ies
and
impo
rtan
ce
met
hods
.
Spec
ifie
d th
e at
trib
utes
of
opp
ortu
nitie
s an
d th
reat
s.
Perc
eive
d en
viro
nmen
tal
unce
rtai
nty
vari
ed
sign
ific
antly
by
m
anag
eria
l le
vel
as d
id
the
rela
tive
impo
rtan
ce
of s
tren
gth
and
wea
knes
s in
dica
tors
.
Daf
t, So
rmun
en,
&
Park
s (1
988)
Gho
shal
(198
8)
Jack
son
& D
utto
n (1
988)
Salli
van
& N
onak
a (1
988)
Tho
mas
&
McD
anie
l (1
990)
Schn
eide
r &
De
Mey
er
(199
1)
Anc
ona
and
Cal
dwel
l (1
992)
Jenn
ings
an
d L
umpk
in
(199
2)
Saw
yerr
(19
93)
Tho
mas
, C
lark
, &
Gio
ia
(199
3)
CE
O’s
and
oth
er t
op m
ange
rs
in 5
0 T
exas
sm
art-
to-m
ediu
m-s
ized
in
de-
pend
ent
man
ufac
turi
ng
firm
s.
6 la
rge
Sout
h K
orea
n co
mpa
nies
.
83 M
BA
alu
mni
fr
om a
lar
ge u
nive
rsity
.
75 s
enio
r A
mer
ican
an
d 42
2 se
nior
Ja
pane
se
man
ager
s.
151
hosp
ital
CE
Os
from
a s
ingl
e A
mer
ican
st
ate.
303
exec
utiv
e an
d gr
adua
te
stud
ents
fr
om
16 c
ount
ries
at
a m
ajor
E
urop
ean
busi
ness
sch
ool.
Mem
bers
of
45
prod
uct
deve
lopm
ent
team
s.
44 C
EO
s fr
om T
exas
sav
ings
and
lo
an a
ssoc
iatio
ns.
Top
man
ager
s fr
om 4
7 sm
all
to
med
ium
-siz
ed
Nig
eria
n m
anuf
actu
r-
ing
firm
s.
156
CE
Os
from
15
6 pu
blic
acc
ess
hosp
itals
in
Tex
as.
Scan
ning
fr
eque
ncy
was
pos
itive
ly
corr
elat
ed
with
str
ateg
ic
unce
rtai
nty;
us
e of
all
mod
es
of i
nfor
mat
ion
was
pos
itive
ly
corr
elat
ed
with
str
ateg
ic
unce
rtai
nty;
an
d hi
gh p
erfo
rman
ce
firm
s re
veal
ed
stro
nger
co
rrel
atio
ns
betw
een
scan
ning
fr
eque
ncy
and
stra
tegi
c un
cert
aint
y th
an
low
pe
rfor
man
ce
com
pani
es.
Scan
ning
pr
actic
es
amon
g K
orea
n fi
rms
are
mor
e ho
mog
eneo
us
than
sc
anni
ng
prac
tices
am
ong
Am
eric
an
firm
s.
The
pr
esen
ce
of t
hrea
ts
was
mor
e lik
ely
to b
e ac
know
ledg
ed
than
th
e pr
esen
ce
of
oppo
rtun
ities
, an
d op
port
uniti
es
wer
e m
ore
likel
y to
be
di
savo
wed
th
an t
hrea
ts.
Japa
nese
m
anag
ers
wer
e m
ore
likel
y th
an A
mer
ican
m
anag
ers
to i
nter
pret
is
sues
as
thre
ats.
Dom
ain
offe
nsiv
e (a
s op
pose
d to
dom
ain-
defe
nsiv
e)
stra
tegi
es w
ere
asso
ci-
ated
with
gre
ater
var
iabl
e us
age
and
inte
rpre
tatio
n of
iss
ues
as c
ontr
olla
ble.
Lat
in E
urop
ean
natio
nals
w
ere
mor
e lik
ely
to i
nter
pret
is
sues
as
cris
es a
nd
thre
ats
than
G
erm
an,
Scan
dina
vian
, an
d N
orth
A
mer
ican
na
tiona
ls.
Dev
elop
ed
a sc
ale
for
“sco
utin
g”
(sca
nnin
g)
and
foun
d th
at
prol
onge
d sc
outin
g w
as n
egat
ivel
y re
late
d to
sev
eral
ind
icat
ors
of te
am p
erfo
rman
ce.
S &
L
’s w
ith
a di
ffer
entia
tion
stra
tegy
pl
aced
m
ore
impo
rtan
ce
on
eval
uatin
g op
port
uniti
es
and
cust
omer
s’
attit
udes
th
an
thos
e w
ith a
cos
t le
ader
ship
st
rate
gy;
S&L
’s w
ith
a co
st-l
eade
rshi
p st
rate
gy
plac
ed
mor
e im
port
ance
on
eva
luat
ing
com
petit
ors’
th
reat
s,
polic
ies,
and
ta
ctic
s th
an
S&L
’s w
ith a
dif
fere
ntia
tion
stra
tegy
.
The
tas
k en
viro
nmen
t w
as p
erce
ived
to
be m
ore
unce
rtai
n th
an t
he r
emot
e en
viro
nmen
t; th
e gr
eate
r th
e pe
rcei
ved
envi
ronm
enta
l un
cert
aint
y of
a
sect
or,
the
grea
ter
the
inte
rest
in
sc
anni
ng
the
sect
or;
the
grea
ter
the
perc
eive
d en
viro
nmen
tal
unce
rtai
nty,
th
e gr
eate
r th
e sc
anni
ng
freq
uenc
y of
a s
ecto
r;
and
little
re
latio
nshi
p be
twee
n so
urce
of
i~o
rmat
~on
and
perc
eive
d en
viro
nmen
tal
unce
rtai
nty
for
the
task
env
iron
men
t, bu
t so
me
for
the
rem
ote
envi
ronm
ent.
Top
m
anag
emen
t of
for
-pro
fit
hosp
itals
fo
cuse
d m
ore
on e
xter
nal
than
on
int
erna
l in
form
atio
n;
high
inf
orm
atio
n us
e w
as p
ositi
vely
re
late
d to
po
sitiv
e-ga
in
inte
rpre
tatio
ns
(opp
o~un
ities
) an
d th
e in
terp
reta
tion
of
issu
es a
s co
ntro
llabl
e.
214 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
in the organization’s environment (Hambrick, 1981a). As such, scanning becomes the first proactive step in the organization’s process of adapting to its environment (Child, 1972; Daft & Weick, 1984; Hambrick, 1981a), a process generically described as the scanning-interpretation-choice/ action sequence (Child, 1972; Thomas, Clark & Gioia, 1993). Although this conceptualization of scanning accurately describes most of the empirical and theoretical scanning research, one of the conclusions reached later in this section is that the concept of scanning activities can be usefully and appropriately expanded to include the scanner’s own organization in the field of scanned events and trends.
Scanning can be described in several ways. Ghoshal (1988) distinguished formal scanning (a system consisting of a special unit dedicated to scanning and interpreting the organization’s environment) from informal scanning (a system based on the daily scanning activities of individual mangers). Within this categorization, most scanning research has dealt with the more informal forms of scanning. Moreover, Kiesler and Sproull (1982) distinguished automatic from directed scanning. Directed scanning has specific intentions and objectives whereas automatic scanning is a less conscious, often unconscious perception of phenomena such as the frequency and timing of events. At least intuitively, one would suspect that formal scanning would involve more directed scanning whereas informal scanning would involve more automatic scanning.
Having introduced the scanning concept, the remainder of our examination of scanning will focus on the following topics: (1) scanning’s measurement; (2) the relationship between scanning and several other variables; and (3) the interpretation of scanned events and trends. The studies upon which the following discussion is based are summarized in Table 2.
Measurement
Aguilar (1967) pioneered scanning research and Kefelas and Schoderbeck (1973) conducted other important early research on this topic. (Ghoshal, [ 19851, thoroughly reviews the early scanning research.) Hambrick’s work (1981a; 1981b; 1982), however, established the methodological and conceptual archetype for contemporary scanning research, albeit his work was heavily influenced by Aguilar.
Hambrick’s work dealt with two scanning issues: (1) What is scanned? and (2) What behavioral dimensions constitute scanning? Regarding the latter question, Hambrick distinguished and measured (1) the frequency with which an environmental sector was scanned; (2) the managerial interest in scanning a sector; and (3) the time devoted to scanning specific environmental sectors. As for what was scanned, Hambrick followed Miles and Snow (1978) and distinguished environmental sectors relevant to output, throughput, administration processes and added regulatory matters as a fourth concern. Scanning researchers would later add the task/ general environment distinction to the concept of generic environmental sectors (Daft, Sormunen & Parks, 1988; Sawyerr, 1993).
Farh, Hoffman and Hegarty (1984) conducted a confirmatory factor analysis to examine Hambrick’s threefold approach to measuring scanning and
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 215
concluded that the frequency and interest approaches to scanning measurement were much more valid than the method of using estimates of hours devoted to the task. Their results provide a valuable caution to scanning researchers.
Relationships with Other Variables
Scanning research has investigated the relationships between scanning activities and several variables including managerial power, information sources, environmental characteristics, organizational performance, and business-level strategy.
Business-level strategy. Attempts to link scanning behavior to business- level strategy have produced mixed results. Hambrick (1982) found few systematic relationships between scanning behavior and firm strategy (prospector or defender [Miles & Snow, 19781); however, Jennings and Lumpkin (1992) were more successful. Using two of Porter’s (1980) strategic types (differentiation versus cost-leadership), they found that a differentiation strategy was associated with an emphasis on evaluating opportunities whereas the cost- leadership strategy was more associated with the evaluation of competitor-based threats. Conspicuously absent were studies that examined the relationship between corporate strategy and scanning behaviors. The small number of existing studies and their mixed results provide ample opportunities for future research to clarify the scanning-business strategy relationship; and the fundamentally unexplored area of corporate-strategy-scanning relationships provides even more freedom for exploration.
Power. Perhaps because only one study was identified that examined this issue, research on the relationship between scanning behavior and power tends to stand out. Hambrick (198 1 b) found that the scanning of critical environmental sectors was positively related to executives’ power, but their scanning of less important sectors was unrelated to their power in the organization. If a primary function of scanning activity is uncertainty reduction, this relationship between scanning critical (strategic) sectors and power suggests a possible relationship between power and technology, a topic discussed later in this section.
Uncertainty. Some of the most compelling scanning research results concern the relationships between uncertainty about the environment and scanning behavior. Daft et al. (1988) found that the greater the strategic uncertainty about an environmental sector, the greater the frequency with which it was scanned. Sawyerr (1993) replicated these results in a study of Nigerian organizations, by that not only replicating Daft et al.‘s results but increasing their generalizability to a wider domain of cultural and national traditions. Although the uncertainty about specific strategic environmental sectors differed between the two studies, the general proposition that uncertainty about strategic environmental sectors is strongly associated with scanning frequency and interest was strongly supported by both studies.
As will be discussed in a following section on the use of scanned information to interpret phenomena as strengths, weakness, opportunities, or threats, scanning of the scanner’s own organization also occurs. The proposition relating uncertainty about strategic environmental sectors and scanning just
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
216 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
discussed may be generalizable to uncertainty about any strategically important phenomena inside or outside the organization. That is, the greater the uncertainty about a strategically important phenomenon, the greater the scanning attention it will receive. Regarding internal scanning, departments or divisions may be regarded as natural analogues to environmental sectors. Indeed, they may be less of an abstraction to managers than the somewhat arbitrarily defined environmental sectors.
Information sources. Just as uncertainty and importance differentially draw scanning attention to specific environmental sectors, research has also investigated the possibility that similar variables would lead scanners to differentially employ specific types of information sources. Daft et al. (1988) however, found that perceptions of strategic uncertainty produced a mixed set of results in its ability to predict the use of internal versus external and personal versus written sources. They found positive correlations between perceptions of strategic uncertainty and all of these modes. Sawyerr (1993) similarly found mixed results. Thomas et al. (1993) did find external sources used more in high performing organizations. Investigating a different question, Culnan (1983) found a positive relationship between: (1) perceptions of source accessibility and the use of information sources; and (2) between task environment complexity and the use of information sources regarding it. Given Culnan’s findings and the generally mixed set of findings concerning information source utilization, future research would be prudent to include perceived information accessibility as a control variable, if not a moderating or mediating variable, in models of information sources use by scanners.
Performance. Several studies revealed results that related scanning behaviors and organizational performance in significant ways. Pearce (1983) found that the proportion of internally-oriented members of a firm’s dominant coalition was positively related to scanning. Daft et al. (1988) found stronger positive correlations between scanning frequency and interest and strategic uncertainty in their set of high performing companies than in their set of low performing companies. Ancona and Caldwell’s (1992) research produced the disconcerting finding that prolonged scanning was negatively related to the performance of product development teams. Perhaps this finding is an example of Peters and Waterman’s (1982, p. 49) injunction to avoid “paralysis-induced- by-analysis.” As Ancona and Caldwell noted, at some point, the teams needed to begin implementing product design. Scouting (scanning) by itself could not become an enduring pattern.
Ancona and Caldwell’s findings may have unearthed an important contingency in the relationship between scanning and performance. The proposition that more is always better may be incorrect, especially for organizations and units stalled in a pattern of continuous scanning, if the information the scanning produces is never utilized to generate action.
Information Interpretation As specified previously, scanning has been conceptualized as the first stage
in the scanning-interpretation-choice/ action sequence. This sequence underlies
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 217
the general strategic management premise that organizations should align their internal competencies with external opportunities. Distinguishing pure scanning from interpretation of scanned information is often difficult because, as the enactment paradigm (Daft & Weick, 1984) and Child’s (1972) model suggests, scanners will bring defining categories to their scanning activities before and as they scan. Thus, scanners are likely to be actively searching for opportunities and threats, or at least to simultaneously interpret information in the threat and opportunity categories, rather than follow the simple linear sequence of gathering information (scanning) and then interpreting it.
Several studies have investigated the correlates of the standard SWOT category interpretations (strengths, weaknesses, opportunities, and threats). Stevenson (1976) found that a manager’s level in the organization’s hierarchy was strongly related to the attributes that were perceived as organizational strengths and weaknesses. He also found that the criteria managers used to determine whether an attribute was a strength or a weakness also differed substantially from each other. Conversely, (Hambrick, 1981a) found only a limited relationship between level in the hierarchy and general scanning activity. Ireland, Hitt, Bettis, and Auld De Porras (1987) found uncertainty perceptions varied by managerial level as did the importance of various organizational strength and weakness indicators.
Regarding the interpretation of potential opportunities and threats, Jackson and Dutton (I 988) found that threats were more likely to be perceived than opportunities but that when perceived, opportunities were more likely to be disavowed than threats. Following Jackson and Dutton, Thomas et al. (1993) found high information use positively related to positive-gain interpretations (opportunities) and to the interpretation of these opportunities as controllable. Similarly, Jennings and Lumpkin (1992) found a differentiation strategy positively related to the evaluation of opportunities whereas companies with a cost-leadership strategy were more likely to focus on the definition and evaluation of threats. Thomas and McDaniel (1990) found that CEOs from hospitals with offensive strategies were more likely to use more variables to interpret an issue and were more likely to label an issue as controllable than were CEOs from hospitals with domain-defensive strategies.
National culture. Three studies have related the influence of national culture to scanning interpretations: one indirectly, the other two directly. Ghoshal (1988) found scanning practices by South Korean manufacturers to be much more homogenous than their American counterparts. This difference suggests that South Korean interpretations, ceteris paribus, should be more similar and homogenous than American interpretations. Schneider and De Meyer (1991) found that Latin European managers (from France, Belgium, Italy, Spain, and Portugal) were more likely to interpret an issue as a crisis and a threat than North American or Scandanavian and German managers. Similarly, Sallivan and Nonaka (1988) found that Japanese managers were more likely than American managers to interpret issues as threats. Thus, the cultural tradition in which an organization is embedded and in which its managers have been reared is strongly related to the interpretation of scanned information.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
218 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
Future Directions
Overall, the exploration of scanning phenomena has produced a solid foundation of basic research, a research base that seems poised for an expanded conceptualization that includes the scanner’s organization itself as a legitimate focus of scanning activity and research. Thomas et al. (1993, p. 241) have noted: “From a strategic perspective, however, scanning also involves searching an organization’s internal environment [emphases ours] to identify important elements that might bear on future performance.. .” Thus we anticipate a broadening of the scanning concept to include this larger set of phenomena, thereby also expanding the scope of scanning propositions.
For example, some findings (see the uncertainty section of this discussion for specific references) can be regarded as the foundation for basic propositions such as the aforementioned perceived strategic uncertainty is positively related to scanning interest and frequency. However, more research on internal scanning is required to establish the generality of this basic proposition. Such research could measure unit uncertainty directly by asking for omnibus perceptions about it; however, unit technology may also characterize the relative amount of uncertainty managers are likely to perceive about the unit. Perrow (1970) distinguished technology along two dimensions, solution search behavior and number of exceptions, which he used to specify four types of technology. The two extreme types were routine (few exceptions occur and procedures for dealing with them are well understood) and nonroutine (many exceptions occur and procedures for dealing with them are undeveloped). Units with routine technologies will be much more predictable, hence managers will be more certain about them. Conversely, units with nonroutine technologies will be perceived as less predictable, hence more uncertain. Applying the general uncertainty-scanning proposition to internal scanning and technology results in the following testable proposition:
Pl. the more nonroutine a strategic unit’s technology, the greater the interest in scanning it and the greater the frequency of scanning behavior in regard to it.
If the department is indeed an entity analogous to an environmental sector, Hambrick’s (1981b) finding of a positive relationship between scanning strategically important environmental sectors and managerial power suggests the following testable proposition for internal scanning research:
P2. scanning strategically important organizational units will be positively related to managerial power,
These propositions can be examined at both the business and corporate levels although the concept of technology might need to be replaced with omnibus perceptions of uncertainty for investigations of internal corporate-level scanning. This substitution could be necessary because each division a corporate executive would scan would be likely to contain several departments, each of
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 219
which would have a different technology, thereby making it difficult to characterize the technology of an entire division.
With a broader set of propositions, we also expect to see individual propositions becoming linked and developing into broader and broader middle- range theories following the process of theory development described by Bluedorn and Evered (1980). For example, the relationships between scanning and other phenomena are likely to be moderated by other factors as Boynton, Gales and Blackburn’s (1993) findings about the contingent nature of managers’ information-search behavior suggest. Thus, although scanning research has benefited from a steady, solid research stream produced by several researchers, its most exciting developments and findings seem yet to come.
Information Processing
It is important not to overlook thesejne distinctions between ‘reality’ and its evaluation because they can explain why organizational decision-makers in practice may not react to observable environmental changes.
-Child, 1972, p. 5
In order to make strategic decisions and choices, decision makers within the firm must seek out information in order to interpret relevant issues (Aguilar, 1967). Seeking out this information is the scanning process, a process we have seen that is strongly affected by managerial uncertainty about strategic matters. Galbraith (1977) argued that the level of information processing, the next step following scanning in Child’s (1972) framework, reflects uncertainty. The key assumption in this literature is that uncertainty and the level of information processed are closely related. Tushman and Nadler (1978) proposed that organizational effectiveness is related to the fit between information requirements for decision making and the ability of the organizational structure to provide that information.
The following discussion examines the linkages between information processing and strategic decision making. Our discussion will proceed with an examination of the following three topics: (1) problem identification; (2) interpretation and classification; and (3) information type and usage. Lastly, future research directions will be discussed. Table 3 presents the studies examined and organizes them into two sections: (I) problem identification/ interpretation; and (2) information type and usage.
Problem Identification
Any discussion of information processing assumes that the firm receives stimuli that can be interpreted by decision makers who then respond with information processing activity. Staw, Sandelands and Dutton (198 1) presented a model that examines threat-rigidity in group and organizational settings. They argue that external threats may lead to a restriction of information due to informational overload, reliance on prior knowledge, or a constriction of control (due to centralization and formalization). Although this restriction may
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Tab
le
3.
Stud
ies
Exa
min
ing
the
Rel
atio
nshi
ps
betw
een
Info
rmat
ion
Proc
essi
ng,
Firm
St
rate
gy
and
Env
iron
men
t
Stud
y D
ata
Fin
ding
s or
Im
plic
atio
ns
Sect
ion
1: P
robl
em
reco
gnit
ion
Buk
szar
&
Con
nolly
(1
988)
Dol
linge
r (1
984)
Ege
lhof
f ( 1
982)
Fred
rick
son
& I
aqui
nto
(198
9)
Jack
son
& D
utto
n (1
988)
Lin
dsay
&
Rue
(1
980)
Mor
row
(1
981)
Surv
ey
data
fr
om
two
sam
ples
of
48
and
26 M
BA
st
uden
ts
resp
ectiv
ely.
Surv
ey
data
fr
om
82 o
wne
r/
oper
a-
tors
fr
om
smal
l bu
sine
ss
firm
s.
Inte
rvie
w
data
fr
om
34 o
f th
e la
rges
t, su
cces
sful
(M
NC
s).
Surv
ey
data
fr
om
45 f
irm
s in
the
pa
int
and
coat
ing
and
the
fore
st
prod
uct
indu
stri
es.
Surv
ey
data
fr
om
78 g
ener
al
man
ager
s an
d st
rate
gic
plan
ners
.
Surv
ey
data
fr
om
199
firm
s in
15
indu
stri
es.
Pape
r hy
poth
esiz
es
that
a
subu
nit
wou
ld
be
mor
e ef
fect
ive
whe
n its
co
mm
unic
atio
n pr
actic
es
mat
ched
th
e le
vel
of u
ncer
tain
ty
conf
ront
ing
the
Dat
a on
com
mun
icat
ion,
ef
fect
ive-
ne
ss
and
envi
ronm
ent
from
90
sub
- un
its
in a
mid
wes
t ex
tens
ion
serv
ice.
su
buni
t. R
esul
ts
indi
cate
th
at
effe
ctiv
enes
s ca
n be
enh
ance
d by
inc
reas
ing
com
mun
icat
ion
unde
r tu
rbul
ent
or d
ecre
asin
g it
unde
r st
able
co
nditi
ons.
T
he
rela
tions
hip
invo
lves
th
e im
plic
it as
sum
ptio
n th
at
subu
nits
us
e th
e in
form
atio
n co
mm
unic
ated
to
the
m
to e
nhan
ce
effe
ctiv
enes
s.
Res
ults
of
th
is
stud
y su
gges
t th
at
stra
tegi
c pl
anni
ng
stud
ents
ar
e si
gnif
ican
tly
vuln
erab
le
to
hind
sigh
t bi
as.
retr
ospe
ctiv
e pr
edic
tions
of
pr
ojec
t su
cces
s w
ere
shif
ted
in t
he
dire
ctio
n of
kno
wn
outc
omes
.
Bou
ndar
y sp
anni
ng
activ
ity
was
st
rong
ly
rela
ted
to
orga
niza
tiona
l pe
rfor
man
ce.
Info
rmat
ion
proc
essi
ng
capa
bilit
y si
gnif
ican
tly
affe
cted
th
e pe
rfor
man
ce-b
ound
ary
span
ning
re
latio
nshi
p.
Thi
s st
udy
uses
an
in
form
atio
n pr
oces
sing
ap
proa
ch
to
deve
lop
a m
odel
fo
r ev
alua
ting
the
good
ness
of
fit
betw
een
stra
tegy
an
d st
ruct
ure.
R
esul
ts
gene
rally
co
nfir
m
that
in
form
atio
n pr
oces
sing
m
odel
as
a m
eans
fo
r be
tter
unde
rsta
ndin
g of
thi
s re
latio
nshi
p.
Thi
s pa
per
exam
ines
th
e lin
k be
twee
n de
cisi
on
com
preh
ensi
vene
ss
and
firm
pe
rfor
man
ce.
Bot
h ch
ange
in
fi
rm
size
an
d ex
ecut
ive
team
te
nure
w
ere
posi
tivel
y re
late
d to
de
cisi
on
com
preh
ensi
vene
ss.
The
se
leve
ls
of
com
preh
ensi
vene
ss
pers
ist
over
se
vera
l ye
ars
sugg
estin
g co
nsid
erab
le
iner
tia.
Thi
s pa
per
inve
stig
ates
th
e ch
arac
teri
stic
s an
d co
ncep
ts
of
thre
at
and
oppo
rtun
ity
used
by
org
aniz
atio
nal
deci
sion
m
aker
s to
und
erst
and
issu
es.
Res
ults
su
gges
t th
at
man
ager
s ar
e m
ore
sens
itive
to
is
sue
char
acte
rist
ics
asso
ciat
ed
with
th
reat
s th
an
thos
e w
ith
oppo
rtun
ities
.
Res
ults
su
gges
t th
at
firm
s te
nd
to
adop
t m
ore
com
plet
e lo
ng-r
ange
pl
anni
ng
proc
esse
s as
co
mpl
exity
an
d in
stab
ility
of
th
e en
viro
nmen
t in
crea
ses.
T
his
sugg
ests
th
at
top
man
agem
ent
may
ce
ntra
lize
plan
ning
in
sm
all
firm
s un
der
adve
rse
cond
ition
s,
man
ager
s of
lar
ge
firm
s te
nd
to
be
mor
e op
en
to i
nfor
mat
ion
from
m
any
sour
ces.
Tho
mas
&
McD
anie
l (1
990)
Tho
mas
, C
lark
&
Gio
ia
(199
3)
Wal
sh
(198
8)
Con
cept
ual
/ th
eore
tica
l pa
pers
:
Daf
t &
Mac
into
sh
(198
1)
O’R
eilly
( 1
982)
Surv
ey
data
fr
om
15 1
hos
pita
l C
EO
s re
spon
ding
to
tw
o sc
enar
ios.
Surv
ey
data
fr
om
156
hosp
ital
CE
Os
usin
g ca
se-s
cena
rio
met
hodo
logy
.
Surv
ey
data
fr
om
121
mid
care
er
man
ager
s en
rolle
d in
an
MB
A
prog
ram
.
Thi
s pa
per
exam
ines
ho
w s
trat
egy
and
the
info
rmat
ion
proc
essi
ng
stru
ctur
e of
the
T
MT
re
late
to
how
C
EO
s in
dif
fere
nt
orga
niza
tions
in
terp
rete
d th
e sa
me
situ
atio
n.
Org
aniz
atio
n st
rate
gy
was
po
sitiv
ely
rela
ted
to
vari
able
us
age.
In
add
ition
, T
MT
in
form
atio
n pr
oces
sing
w
as
posi
tivel
y re
late
d to
va
riab
le
usag
e as
wel
l as
iss
ue
cate
gori
zatio
n (p
ositi
ve/
nega
tive)
.
Thi
s st
udy
inve
stig
ated
st
rate
gic
sens
emak
ing
(sca
nnin
g,
inte
rpre
tatio
n an
d ac
tion)
an
d ho
w
thes
e fa
ctor
s ar
e lin
ked
to
perf
orm
ance
. St
ruct
ural
eq
uatio
n m
odel
ing
resu
lts
indi
cate
in
crea
sed
use
of
info
rmat
ion
sour
ces
lead
s to
hi
gher
pr
ofits
, is
sues
la
bele
d as
po
sitiv
e-ga
in
wer
e ne
gativ
ely
rela
ted
to
prof
its,
and
cont
rolla
ble
situ
atio
ns
wer
e po
sitiv
ely
rela
ted
to
prof
its.
Thi
s pa
per
exam
ines
m
anag
ers
wor
k hi
stor
ies,
th
eir
belie
f st
ruct
ures
an
d th
ree
inde
xes
of
info
rmat
ion
proc
essi
ng
in
an
ill-s
truc
ture
d de
cisi
on
situ
atio
n,
Res
ults
su
gges
t th
at
man
ager
s do
no
t se
em
part
icul
arly
bi
ased
to
war
d in
form
atio
n re
latin
g to
th
eir
func
tiona
l ba
ckgr
ound
. T
his
resu
lt is
con
trar
y to
arg
umen
ts
from
D
earb
orn
& S
imon
’s
wor
k.
Dut
ton
& D
unca
n (1
987a
; 19
87b)
, D
utto
n,
Fahe
y &
Nar
ayan
an
(198
3),
Dut
ton
& J
acks
on
(198
7),
Kie
sler
&
Spr
oull
(198
2),
Staw
, Sa
ndel
ands
&
Dut
ton
(198
1) a
nd
Zaj
ac
& B
azer
man
(1
991)
.
Sec
tion
2:
Info
rmat
ion
type
and
usa
ge
Surv
ey
data
fr
om
253
indi
vidu
als
Thi
s pa
per
test
s a
mod
el
that
re
late
s th
e am
ount
an
d eq
uivo
calit
y of
in
24
depa
rtm
ents
in
14
fir
ms.
in
form
atio
n pr
oces
sing
to
th
e va
riet
y an
d an
alyz
abili
ty
of
wor
k-un
it ac
tiviti
es.
Info
rmat
ion
proc
essi
ng
incr
ease
d w
ith
both
ta
sk
vari
ety
and
anal
yzab
ility
; th
e us
e of
eq
uivo
cal
info
rmat
ion
decr
ease
d w
ith
task
an
alyz
abili
ty.
Surv
ey
data
fr
om
163
subj
ects
T
he
freq
uenc
y of
use
of
fou
r m
ajor
in
form
atio
n so
urce
s is
exp
lain
ed
by
from
a
coun
ty
wel
fare
ag
ency
. th
e as
sess
ibili
ty
of t
he
sour
ce.
Thi
s re
latio
nshi
p m
ay
be d
ue
to:
(1)
soci
al
and
econ
omic
co
sts
asso
ciat
ed
with
ob
tain
ing
the
info
rmat
ion,
(2
) fi
rm
stru
ctur
e m
ay
rest
rict
ac
cess
to
qua
lity
sour
ces,
an
d (3
) in
cent
ive
syst
ems
may
bi
as
deci
sion
m
aker
s in
to
usin
g a
part
icul
ar
sour
ce.
Stud
y D
ata
Tab
le
3.
(Con
tinue
d)
Find
ings
or
Impl
icat
ions
Sect
ion
2: I
nfor
mat
ion
type
and
usa
ge (
cont
inue
d)
Surv
ey
data
fr
om
48 s
ucce
ssfu
l an
d 40
uns
ucce
ssfu
l fi
rms
in t
he
US
and
Can
ada.
Usi
ng
a sa
mpl
e of
suc
cess
ful
and
unsu
cces
sful
fi
rms,
th
is
stud
y ex
amin
es
the
rela
tions
hip
betw
een
stra
tegy
m
akin
g an
d en
viro
nmen
t. R
esul
ts
sugg
est
that
hi
gh
perf
orm
ers
are
mor
e lik
ely
to
boos
t an
alys
is
(inf
orm
atio
n pr
oces
sing
) in
re
spon
se
to
envi
ronm
enta
l dy
nam
ism
. In
ad
ditio
n,
unsu
cces
sful
fi
rms
seem
to
re
duce
an
alys
is
duri
ng
peri
ods
of
host
ility
(t
hrea
t)
whi
le
succ
essf
ul
firm
s sh
ow
a m
arke
d te
nden
cy
to i
ncre
ase
anal
ysis
as
hos
tility
in
crea
ses.
Mill
er
& F
ries
en
(198
3)
Rei
nsch
&
Bes
wic
k (1
990)
Su
rvey
da
ta
from
10
00 t
echn
ical
, pr
ofes
sion
al
and
adm
inis
trat
ive
wor
kers
in
a l
arge
in
dust
rial
fi
rm.
Rhy
ne
(198
5)
Surv
ey
data
fr
om
89 c
orpo
rate
pl
anni
ng
exec
utiv
es
or f
inan
cial
V
PS.
Rhy
ne
(198
6)
Surv
ey
data
fr
om
89 c
orpo
rate
pl
anni
ng
exec
utiv
es
or f
inan
cial
V
PS.
Thi
s pa
per
test
s hy
poth
eses
re
latin
g to
m
anag
eria
l pr
efer
ence
s fo
r in
form
atio
n ch
anne
ls.
Mes
sage
co
mpl
exity
an
d do
cum
enta
tion
wer
e m
anip
ulat
ed
duri
ng
the
stud
y.
Res
ults
su
gges
t co
st
min
imiz
atio
n is
po
sitiv
ely
rela
ted
to v
oice
m
ail
usag
e.
The
re
latio
nshi
p be
twee
n co
rpor
ate-
leve
l pl
anni
ng
and
info
rmat
ion
syst
ems
was
exa
min
ed
empi
rica
lly.
Res
ults
in
dica
te
that
pl
anni
ng
proc
esse
s ar
e po
sitiv
ely
rela
ted
to
exte
rnal
an
d en
viro
nmen
tal
info
rmat
ion
as w
ell
as i
nfor
mal
so
urce
s of
inf
orm
atio
n.
The
re
latio
nshi
p be
twee
n fi
nanc
ial
perf
orm
ance
an
d ch
arac
teri
stic
s of
co
rpor
ate
plan
ning
sy
stem
s w
as
inve
stig
ated
. Pl
anni
ng
syst
ems
that
co
mbi
ned
an
exte
rnal
fo
cus
with
a
long
-ter
m
pers
pect
ive
wer
e po
sitiv
ely
rela
ted
to s
uper
ior
shar
ehol
der
retu
rns.
Con
cept
ual
/ th
eore
tica
l pa
pers
: D
aft
& L
enge
l (1
986)
, D
uhai
me
& S
chw
enk
(198
5),
Schw
enk
(198
4) a
nd
Tus
hman
&
Nad
ler
(197
8).
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 223
not always be dysfunctional (Staw et al., 1981), it may affect the ability of top management to notice the problem, interpret it correctly and incorporate the stimuli (Kiesler & Sproull, 1982). Failure to incorporate the stimulus may leave environmental threats unchecked.
Noticing and interpreting the problem may not always be obvious. For example, Zajac and Bazerman (199 1) argued that decision makers typically have “blind spots” when they consider contingent decisions of competitors. They argued that a “winners curse” may ensue under conditions of information asymmetry and lead to escalation of commitment, overconfidence in judgement and a limited perspective. Hindsight bias (Bukszar & Connolly, 1988) may also distort the interpretation of past decisions and lead to ill-advised changes. This discussion of “blind spots” may be particularly timely given the recent events at General Motors, Sears and IBM.
At the operational level, Tushman and Romanelli (1985) argued that as strategic processes become routinized, commitment to standard practices increases as groups become more rigid in behavior patterns and decrease both the volume and diversity of information. This is consistent with Staw et al. (198 1) who argued that managers may rely on standardized rules and procedures when facing a threat. Along these lines, Lindsay and Rue (1980) suggested that top management may centralize planning in small firms as instability in the environment increases. Interestingly, managers of Iarge firms were found to be more open to multiple information sources. This somewhat surprising result suggests that large firms are more likely to detect problems that smaller firms. This of course does not mean that smaller firms are inherently inertia-bound, rather, it suggests that smaller firms may have specialized information sources that allow detailed analysis as opposed to relying on multiple sources of information. Our next topic, interpretation and classification, builds on problem identification and examines how the issue is interpreted.
Interpretation and ClassiJication
Strategic decision makers in organizations are continuously bombarded with an array of ambiguous data that they must interpret (Dutton, Fahey & Narayanan, 1983). Dutton et al. (1983) argued that strategic issue diagnosis (SID) is important in that it may help remove “blinders” affecting strategic decision making. Consistent with Child (1972) and Mintzberg, Raisinghani and Theoret (1976), Dutton et al. (1983) argued that it is difficult to engage in strategic decision making without diagnosing the information. Meyer (1982) found that how a strategic issue is interpreted may affect what actions a firm takes. SID would seem to be a key in determining what is a strategic issue and how it is interpreted.
Managers routinely deal with ill-structured problems that challenge their cognitive capacity (Mintzbeg et al., 1976). In response to this challenge, managers construct belief structures that are simplified representations of their world (cf. Child’s 1972 concept of prior ideology). Without these structures, managers would be overwhelmed by information of staggering complexity (Daft & Weick, 1984). Walsh (1988) examined belief structures, managers’ work
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
224 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
histories and information processing and suggested that managers’ belief structures are not particularly narrow. In fact, most managers used information from different functional domains to arrive at a decision, although managers with an external orientation (i.e., marketing) were more likely to request additional information from external sources.
These belief structures may affect Dutton and Duncan’s (1987b) urgency assessment and feasibility assessment in strategic issue diagnosis. Donaldson and Lorsch (1983) argued that shared understandings (organizational beliefs) act as lenses through which managers perceive the world. Managers’ belief structures will doubtlessly influence their appraisal of the urgency and feasibility of action. Dutton and Duncan (1987b) argued that perceived need for change and perceived feasibility for change affect the momentum for change. In their model, a high momentum for change leads to radical change while a low momentum leads to more incremental change.
How diagnosed issues are classified may be linked with the level of importance ascribed to the issue. Dutton and Jackson (1987) argued that issues labeled as opportunities or threats may have differential effects on the information search as well as on the motivations of key decision makers. Jackson and Dutton (1988) provided some support for these arguments because they found managers are more sensitive to issues classified as threats than those classified as opportunities. Thomas et al. (1993) found additional support in their study of hospitals. Using structural equation modeling, they found that increased use of information sources leads to higher profits as do issues labeled controllable. Interestingly, they found that issues categorized as positive-gain were negatively related to profits. This result suggests managers key almost exclusively on threats.
Thomas and McDaniel (1990) argued that a change in information processing capacity may alter CEOs conceptual lenses and range of possible actions. They found that firms pursuing differentiation/ innovator strategies were more likely to increase information processing. Fredrickson and Iaquinto (1989) found that decision comprehensiveness persists over several years suggesting there is considerable inertia in the process. A detailed examination of strategic decision processes will not be presented here as it has been reviewed elsewhere (e.g., Rajagopalan, Rasheed & Datta, 1993).
Information Type and Usage
Research in this area has centered on the type of information being collected and how it may be used. The information dimension frequently examined in organization theory is information amount (Galbraith, 1973; Tushman & Nadler, 1978). Miller and Friesen (1983) present evidence suggesting performance is positively related to the amount of information processed. Also, unsuccessful firms seem to reduce analysis during periods of hostility while successful firms increase analysis as hostility increases. Daft and Macintosh (1981) argued that the amount of information processed may not be the most appropriate method for examining information processing and argue for a new operationalization, “information-processing activity.” The
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 225
principal concern is that the amount of information processed may have little to do with the quality of the information. Daft and Macintosh (1981) suggest that information can be categorized as equivocal (multiple meanings) versus unequivocal information (leads to a single, uniform interpretation). The equivocality of the information is related to the variety and analyzability of the work-unit. They argue that the use of equivocal information decreases with task analyzability. This paper was followed by Daft and Lengel’s (1986), which posited a model linking uncertainty and information equivocality.
A somewhat different perspective was taken by O’Reilly (1982) who found, similar to Culnan (1983-see the related discussion of information sources in the scanning section) that the frequency of use of four information sources is related to the accessibility of the source. O’Reilly examined three factors that may lead to limited accessibility: (1) social and economic costs associated with obtaining the information; (2) restricted or limited access to quality sources; and (3) incentive systems that may bias decision makers into using a particular source. This finding was somewhat supported by Reinsch and Beswick (1990) who found that costs may also influence the type of data gathered and used. These authors examined under what conditions decision makers would adopt voice mail and found when costs were deemed very important, use of voice mail was emphasized.
Even after the information has been collected, managers may have to resort to cognitive simplification procedures to further reduce available information into some usable amount. Due to bounded rationality, managers may resort to heuristics in order to simplify their information processing tasks. As described earlier, managers must identify gaps between expectations or standards and performance (Schwenk, 1984). Given that the major purpose of gathering information is to assess these gaps, such heuristics may affect issue diagnosis and the type of information collected. In fact, the threshold point at which stimuli are interpreted as indicating a problem may vary from manager to manager, indicating managerial characteristics, cognitive biases and politics of the decision setting may affect decision outcomes (Schwenk, 1984). Duhaime and Schwenk (1985) posited that top managers use cognitive simplification processes when dealing with ill-defined problems such as acquisitions and divestitures. They argued that managers may suffer from illusion of control, engage in escalating commitment and use reasoning by analogy.
More extensive planning processes were positively related to increased external and internal information (Rhyne, 1985). Planning systems that combine an external focus and a long-term perspective were positively related to shareholder returns. A detailed examination of strategic planning was not undertaken here as Rhyne (1986) and Pearce, Freeman and Robinson (1987) reviewed articles between 1970 and 1984. Pearce et al. (1987) suggested that the utility of formal strategic planning has not been borne out in empirical studies and that serious methodological problems may be the root of the problem. They suggested that contextual influences, lack of uniformity in measuring strategic planning, using an adequate time frame, controlling for moderating variables as well as how the plans are implemented has been largely overlooked.
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226 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
Future Directions
Future researchers could address several relevant issues within this area. For example, Dutton and Duncan (1987b) argue that feasibility and urgency affect the momentum for change. What happens if the issue is diagnosed as a threat and no changes are initiated? Has there been a breakdown in the system? Are politics or personal ambitions of top managers impeding change?
Jackson and Dutton’s (1988) results suggesting a threat bias contradicts research showing that decision makers often fail to recognize threats, with disastrous consequences for the organization (Starbuck, Greve & Hedberg, 1978). Jackson and Dutton (1988) identified the problem for the decision makers thereby removing identification from their analysis. It would be interesting to examine how well managers would be able to identify problems and then categorize them. Top management team locus of control, top management team characteristics and organizational ideology may affect responses and how the issue was interpreted.
A separate issue here is whether the information requirements of the firm fit with the information processing capabilities of the firm (Tushman & Nadler, 1978). What does it take to match information requirements and processing capabilities? What is the role of environmental context? Large diversified firms operating in rapidly changing industries may have problems interpreting the volume of information they collect. What mechanisms facilitate the efficient simplification and distribution of this information?
To this point in our discussions, we have been concerned with several factors and stages in the steps leading to strategic choices: (1) the characteristics of the top management team; (2) scanning; and (3) information processing. We have now arrived at the point in Child’s (1972) framework where strategic choices are made. In the following two sections we will consider two generic categories of strategic choice: (1) the choices involving the institutional environment; and (2) the choices involving specific kinds and degrees of relationships with other organizations.
Interorganizational Relationships
Similarly, the distinction between environment and the organization itself (the ‘inner ‘boundary of the environment) is relative to the goals and actions of organizational decision makers.
-Child, 1972, p. 9
Although the need to neutralize uncertainty and manage change is clear (Andrews, 1986; Miles & Snow, 1978; Child, 1972), the question is how to do it. One alternative, grounded in the organizational perspectives of resource dependence and transaction cost economics (TCE), is through the formation of interorganizational relationships. These relationships, which involve the cooperation of two or more organizations, are collective strategies initiated to exploit emerging opportunities and manage environmental uncertainty (Bresser, 1988; Thorelli, 1986). In addition, through collective lobbying and similar
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STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 227
activities these relationships can be proactive in shaping the context in which the firms operate (Oliver, 1990). Thus, interorganizational relationships offer a large array of strategic choices to top managers.
The purpose of this section is to synthesize the literature on interorganizational relationships, particularly in regard to how these relationships help firms adapt to environmental change. Initially, the theoretical underpinnings of interorganizational relationships are articulated and discussed. As mentioned, the organizational perspectives of resource dependence and TCE provide important insights. Next, a framework for discussing the different forms of interorganizational relationships is advanced. Finally, our discussion of this topic concludes by exploring extensions to current research in this increasingly important area.
Theoretical Background Firms have been engaging in interorganizational relationships to manage
uncertainty throughout the history of American business (Chandler, 1977). Oliver defines the collective strategies that emerge from these relationships as “the relatively enduring transactions, flows, and linkages that occur between an organization and one or more organizations in its environment” (1990, p. 241). These relationship forms are distinct in that they represent an approach to uncertainty reduction that is “in-between” Williamson’s (1975) popular dichotomy of markets and hierarchies (Jarillo, 1988; Thorelli, 1986). Interorganizational relationships such as joint ventures, strategic alliances, and federations are neither open market nor vertical integration solutions to uncertainty reduction. Rather, these are hybrid forms of organizing which reflect the extraordinary lengths that firms will go to in their efforts to grapple with environmental change.
Researchers have suggested a number of substantive ways in which interorganizational relationships may help organizations cope with environmental change. For example, these relationships may facilitate information flow (Osborn & Baughn, 1990) stabilize resource availability (Aiken & Hage, 1968), and increase organizational bargaining power (Pfeffer & Salancik, 1978). The following organizational perspectives provide theoretical insight into the manner in which interorganizational relationships achieve these and other desirable objectives.
Resource dependence. Resource dependence is an organizational perspective grounded in sociology-based exchange theory (Cook, 1977; Levin & White, 1961; Weber, 1947). Within this perspective, the environment is assumed to contain scarce and critical resources that are essential to an organization’s survival (Pfeffer, 1978). According to Thompson (1967), an important source of uncertainty that organizations experience is the degree to which they are dependent upon other organizations for the resources they need in order to function. These other organizations may be suppliers, competitors, creditors or any other relevant entity in a firm’s external environment. In order to successfully manage this dependence, resource dependence theorists argue that organizations pursue two courses of action: (1) they acquire control over
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228 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
resources that decrease their dependence on other organizations; and (2) they acquire control over resources that increase the dependence of other organizations on themselves (Pfeffer, 1981). Thus, an organization strives to increase its power (thereby reducing its dependence) relative to other organi- zations in its relevant environment (Thorelli, 1986; Kanter, 1979; Benson, 1975).
Engaging in interorganizational relationships is one way for firms to achieve these objectives. Linkages are sought with those organizations that control critical resources or with other, equally dependent organizations. In both cases, an individual organization can increase its power relative to other organizations. For instance, joint ventures can transfer technical knowledge across firms, providing an advantage to joint venture partners relative to other industry participants (Kogut, 1988). Similarly, membership in a trade association (another form of interorganizational linkage) may provide member organizations with special services at low costs, along with legal and technical advice which may provide members an advantage in business negotiations with other organizations (Bresser, 1988). In addition, interorganizational linkages may be pursued to gain otherwise unavailable insights and information, as in the case of interlocking directorates (Schoorman, Bazerman & Atkin, 1981).
In essence, interorganizational relationships form to enable organizations to interface more effectively with their relevant environments. Thompson (1967) argued that “cooperative strategies achieve power through the exchange of commitments, and hence the reduction of uncertainties for both parties” (p. 35). These relationships are not without costs, however. To varying degrees, they are prone to failure (Harrigan, 1988) and demand a high level of managerial input (Berg & Friedman, 1980). The contribution of the resource dependence perspective is that it provides insight into why firms pursue an increase in organizational power as a means of ensuring access to critical resources. Interorganizational linkages are one alternative for achieving this objective.
Transaction cost economics (TCE). TCE is an organizational perspective which focuses on how organizations choose to transact based on the criterion of minimizing the sum of production and transaction costs (see, for example, Robins, 1987, for a review). Production costs vary across firms as a result of a number of industry and organizational factors (Porter, 1980). Transaction costs refer to the expenses involved in negotiating, implementing, and enforcing contracts. In his early writings, Williamson (1975; 1985) identified markets and hierarchies as the two modes of organizing, and later acknowledged the additional role of interorganizational forms (1991). It is assumed that the most efficient alternative will prevail for any given transaction confronting a firm.
In the context of this section, the TCE perspective helps explain why, under certain circumstances, interorganizational relationships are the most efficient mode of organizing, and a number of researchers have provided valuable insights. Jarillo (1988), in his seminal article on strategic networks, argued that network forms of organizing are more efficient than markets or hierarchies in two conditions: (1) when it is technologically more efficient to perform activities in more than one firm; and (2) when a network arrangement minimizes the transaction costs for participating firms (Jarillo, 1990). Essential to Jarillo’s
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 229
concept of a strategic network is the existence of a ‘hub firm,’ which is the organization that initiates and maintains the network. The hub firm, in particular, benefits by specializing in those activities essential to its competitive advantage, while farming out peripheral activities to those firms in the network that specialize in those respective areas. All the firms in the network benefit by specializing in their particular areas of expertise, which lowers overall costs. A related argument was made by Kogut (1988) in reference to joint ventures. According to TCE, one of the principle features that characterizes high transaction cost situations is small numbers bargaining, which results in high switching costs as a result of the fact that assets are specialized to support trade between a small number of organizations. Joint ventures in these situations lower potential diseconomies of exit per firm. In addition, under specific conditions joint ventures are conducive to organizational learning and the transfer of tactical knowledge from one organization to another (Shan, 1990) and reduce costs for the joint venture partners through economies of scale in production (Henna& 1988).
The TCE explanation for interorganizational relationships further emphasizes how these relationships help firms effectively interface with their environments. Particularly for risky endeavors, TCE seems to suggest that interorganizational relationship may be an essential alternative to traditional forms of organizing (Ring & Van de Ven, 1992).
The forms of interorganizational relationships most commonly pursued in practice and discussed in the literature are shown in Table 4. These forms of organization vary significantly by the degree to which the participants are coupled. Tightly coupled forms of organizing, such as joint ventures, are those in which the participants are bound together by formal structures and may involve joint ownership. In contrast, loosely coupled forms of organizing, such as trade associations, involve a minimum of structure and seldom involve joint ownership. A brief discussion of each of the forms of interorganizational relationships identified in Table 4.
Tightly Coupled Forms of Interorganizational Relationships
Joint Ventures. Joint ventures are shared equity relationships between two or more otherwise independent organizations. Berg (1982) reported three primary reasons for the creation of joint ventures: (1) the creation of greater market power by combining resources or generating economies of scale; (2) risk sharing; and (3) the acquisition or sharing of information. In addition, joint ventures with foreign partners may be required for entry into some overseas markets (Kent, 1991) and, as mentioned previously, they may lower per firm exit costs for ventures involved in small numbers bargaining situations.
In a synthesis of the literature on joint ventures, Oliver (1990) concluded that competitive uncertainty and industry concentration are predictors of joint venture activity. In particular, risk sharing in equity joint ventures reduces the uncertainties associated with initiating entrepreneurial activities.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Tab
le
4.
Inte
rorg
aniz
atio
nal
Coo
rdin
atio
n M
echa
nism
s
Inte
rorg
aniz
atio
nal
For
m
Tig
htne
ss
of
Cou
plin
g R
epre
sent
ativ
e St
udie
s
Join
t V
entu
re
Net
wor
k St
ruct
ure
Fede
ratio
n
Tig
htly
co
uple
d.
Tw
o or
mor
e fi
rms
form
a
sepa
rate
B
erg
&
Frie
dman
(1
981)
, D
unca
n (1
982)
, H
arri
gan
entit
y fo
r a
vari
ety
of s
trat
egic
pu
rpos
es
(e.g
., m
arke
t (1
985)
K
ogut
(1
988)
, M
cCon
nell
& N
ante
ll (1
985)
. po
wer
, ef
fici
ency
, tr
ansf
er
of l
earn
ing)
.
Tig
htly
co
uple
d.
A h
ub
and
whe
el
conf
igur
atio
n w
ith
a Ja
rillo
(1
988)
, L
arso
n (1
992)
, Po
wel
l (1
990)
, T
hore
lli
foca
l fi
rm
at t
he
hub
orga
nizi
ng
inte
rdep
ende
ncie
s of
a
(198
6).
com
plex
ar
ray
of f
irm
s.
Tig
htly
co
uple
d.
Est
ablis
hed
to m
anag
e an
d co
ordi
nate
Fo
ttler
, Sc
herm
erho
rn,
Won
g &
Mon
ey
(198
2)
Pfef
fer
the
activ
ities
of
aff
iliat
e m
embe
rs
(com
mon
in
hos
pita
ls).
&
Sal
anci
k (1
978)
, O
liver
(1
990)
, Pr
ovan
(1
980,
19
83).
T
he
fede
ratio
n co
ntro
ls
all
or p
art
of t
he
man
agem
ent
activ
ities
of
the
m
embe
rs.
Coo
pera
tive
Agr
eem
ents
L
oose
ly
coup
led.
A
rran
gem
ents
be
twee
n tw
o or
mor
e H
arri
gan
(198
8),
Oliv
er
(199
0).
firm
s th
at
have
st
rate
gic
purp
oses
bu
t do
no
t in
volv
e sh
ared
ow
ners
hip.
Tra
de
Ass
ocia
tions
L
oose
ly
coup
led.
D
istr
ibut
e tr
ade
stat
istic
s,
anal
yze
Gup
ta
&
Lad
(1
983)
, O
liver
(1
990)
, St
able
r (1
987)
, in
dust
ry
tren
ds,
offe
r le
gal
and
tech
nica
l ad
vice
an
d St
able
r &
Ald
rich
(1
983)
. pr
ovid
e a
plat
form
fo
r co
llect
ive
lobb
ying
.
Inte
rloc
king
D
irec
tora
tes
Loo
sely
co
uple
d.
Info
rmat
ion
shar
ing,
ex
pert
ise
and
Baz
erm
an
&
Scho
orm
an
(198
3),
Boy
d,
(199
0),
enha
nced
or
gani
zatio
nal
repu
tatio
n.
Penn
ings
(1
980,
198
l),
Scho
orm
an,
Baz
erm
an
& A
tkin
(1
981)
an
d Z
ajac
(1
988)
.
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 231
Network organizations. Network structures are not precisely defined in the literature. A relationship as simple as a manager’s personal tie to a business associate which leads to an exchange of information or resources constitutes a network (Dubini & Aldrich, 1991). In general, however, researchers see networks as a hub and wheel configuration with a focal organization at the “hub” organizing the interdependencies of a complex array of firms (Jarillo, 1988). The benefit of organizing in this manner is that each participating firm is permitted to focus on its specialty, leaving secondary activities to members of the network that specialize in those activities or other suppliers. In addition, time and money is saved if participation in the network lessens the need on the part of individual members to search for resources through normal organizational channels. The survival of a network is based on mutual trust, which is generated by the intrinsic advantage of remaining in the network rather than behaving opportunistically. The pervasiveness of this mode of organizing is unclear. Network organizations typically do not involve joint ownership.
Federations. Federations consist of two or more independently owned organizations which have activities and services coordinated by a central management organization (Provan, 1984; Pfeffer & Salancik, 1978). All members must act on behalf of the interests of the federation as a whole, at least in regard to the activities under federation management. In return, the members benefit through lower supply costs resulting from the collective purchasing power of the federation members, professional management, and uncertainty reduction resulting from an increased availability of information. A disadvantage of federation membership is a partial loss of organizational autonomy. An example of a federation is a hospital consortium. As reported by Provan (1984), according to the American Hospital Association one-third of all nongovernmental not-for-profit hospitals in the U.S. are organized in this manner.
Loosely Coupled Forms of Interorganizational Relationships
Cooperative agreements. Cooperative agreements (or joint programs) are arrangements between two or more organizations that have a strategic purpose but do not involve shared ownership. This is a broad category that can include a number of interorganizational forms. For instance, Harrigan (1988) reported that General Electric has cooperative arrangements with Northern Telecom, Hitachi, and a number of other companies which do not involve shared ownership. These agreements may be established for a number of reasons including information sharing, efficiency considerations, and employee development (Oliver, 1990). An example of a cooperative agreement is two related but separately owned biotech firms that jointly lease expensive but infrequently used scientific equipment to share the lease expense and eliminate redundancy.
Trade associations. Trade associations are a common form of interorganizational cooperation, especially among small manufacturing firms (Dollinger & Golden, 1992). The principle function of a trade associations is to provide members with special services at low costs (Olson, 1965) relevant
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
232 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
industry information, legal and technical advice (through trade journals and magazines), and provide a platform for collective lobbying (Oliver, 1990). These associations are particularly prevalent in industries where the threat of government intervention is high and lobbying activity is strong (Gupta & Lad, 1983). An example would be an industry that is protected by high tariffs on foreign imports. The breadth of services offered by most trade associations should provide participating organizations one additional means of reducing environmental uncertainty.
Interlocking directorates. Interlocking directorates are the final form of interorganizational relationship presented in Table 4. This arrangement occurs when a director or executive of one firm sits on the board of a second firm, or when two firms have directors who also serve on the board of a third firm. A large body of literature exists on this topic (i.e., Schoorman, Bazerman & Atkin, 1981). As an indication of the pervasiveness of this issue, Bazerman and Schoorman (1983) characterized interlocking directorates as “the most widely used environmental management strategy” (p. 206).
The principle benefit of interlocking directorates is uncertainty reduction for all parties involved (Boyd, 1990). Schoorman et a1.(1981) identified four potential ways in which this can happen: (1) through horizontal coordination linking competitors; (2) through vertical coordination linking an organization with suppliers; (3) through the expertise provided by the interlocked director; and (4) through enhancing the organization’s reputation if the interlocked director is a prestigious individual. As a result of uncertainty reduction, firms with interlocking directorates may formulate policies that are more precisely in tune with their environments than competitors without a similar advantage (Palmer, 1983). The only apparent disadvantages associated with interlocking directorates is a partial loss of organizational autonomy and flexibility, along with the possibility of a legal challenge to the appropriateness of a particular interlock (Schoorman et al., 1981).
The advantages of each of the interorganizational relationships described above are consistent with the theoretical perspectives of resource dependence and TCE articulated earlier in this section. In each case, the interorganizational relationship, pursued in its proper context, has the potential to either reduce uncertainty, increase organizational power, or provide a mechanism that permits a firm to interface with its relevant environments in the most efficient manner possible.
Future Directions
There are several areas involving the interface between interorganizational relationships and the environmental domain that may benefit from additional conceptualization and empirical research.
Initially, while the motivations for engaging in interorganizational relationships are fairly well understood, there is virtually no empirical research that we are aware of that examines how the participants initially come together or how the relationships once established are maintained. A conceptual model of the developmental process of interorganizational relationships offered by
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 233
Ring and Van de Ven (1994) proves a starting point for this research. For instance, do firms include in their routine environmental scanning an assessment of potential “partners” as well as potential adversaries? Similarly, the organizational literature is virtually silent in regard to the manner in which cooperative arrangement are managed. Joint ventures are similar to mergers in that they involve the meshing together of elements from two previously separate firms. We know from the more mature literature on mergers that they often involve a host of administrative problems (Lubatkin, 1983). To what extent do these problems occur in joint ventures? Can we empirically demonstrate that transaction costs are actually reduced through interorgani- zational relationships? And specifically, under what circumstances can mutual trust among partners be relied upon as an effective governance mechanism? On an unrelated point, in a tightly coupled relationship like a network, does a joint planning process take place among the participants on a periodic basis? Once the network is established, how does it adjust to environmental change? If participation in a strategic network allows a firm to focus on its distinctive competencies and thereby improve efficiency, under what conditions do managers reinvest their savings in R & D? Are interorganizational relationships more prevalent in firms that pursue related diversification strategies as opposed to unrelated diversification, in large firms versus small firms, and in international firms versus strictly domestic firms? An investigation of these questions may further develop our understanding of interorganizational relationships.
Institutional Theory
In other words, the predictive power of the argument from environment is further qualiJied by the fact that decisions about organizational structure depend upon the prior processes of perception and evaluation and that the evaluation may well have other important referents apart from those of a purely economic nature.
-Child, 1972, p. 5
The institutional approach deals with the choices made in response to or in compliance with the organization’s institutional environment. With roots back to Selznick (1957), it has recently been rejuvenated and modified within the organizational theory literature. Reviewers attribute the development of the “new” institutional theory to research published by Meyer (1977), Meyer and Rowan (1977) and later clarified and applied to formal organizations by Meyer and Scott, (1983). Most of the research in this area comes from sociology, including several comprehensive reviews (DiMaggio & Powell, 1991; Scott, 1987; Zucker, 1987), three influential books of institutional theory based readings (Meyer & Scott, 1983; 1992; Powell & DiMaggio, 1991; Zucker, 1988), as well as numerous articles. In addition, the ideas are beginning to infiltrate the strategy and management-based organizational theory literature as well.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
234 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
Traditional conceptualizations of an organization’s environment focused almost exclusively on the organization’s task or technical environment. Institutional theorists add a new dimension to the concept of organizational environment by distinguishing between the organization’s technical and institutional environments (Meyer & Rowan, 1977; Scott & Meyer, 1983). The technical environment provides for the exchange of products or services and rewards based on effectiveness and efficiency. In contrast, the institutional environment furnishes the rules and requirements with which individual organizations must comply to gain the desired rewards of support and legitimacy.
Institutional theorists do not agree on all aspects of the theory. One stream views the organization as an institutional form and emphasizes the process of institutionalization based on shared common understandings (Zucker, 1977; 1983; Tolbert & Zucker, 1983; Tolbert, 1985). Institutional factors develop from within the organization, by imitating similar organizations, or through network ties, but not from coercive state influences (Zucker, 1987).
A concurrent stream, initiated by Meyer and Rowan (1977), studies the environment as an institution and how the elements of institutionalization provide explanations for organization structure and processes. They explore the mechanisms that motivate organizations to become isomorphic with their institutional forces. DiMaggio and Powell (1983) proposed the classic typology of isomorphic processes: coercive, mimetic, and normative and emphasized the roles of the nation-state and professions in shaping institutional forms.
Broadening Explanations Through Theory Integration
Institutional ideas and variables are frequently incorporated into research designs as either supplementary or alternative explanations to other theoretical perspectives. The discussion below describes compelling evidence that institutional theory broadens our understanding of how organizations interact with their environments strategically. The most common theory combinations are with population ecology, resource dependence, contingency, and strategic choice theories. These theory combinations help to explain the diffusion of innovation, organizational death rates, performance, the “liability of newness,” board involvement, organizational structure, isomorphism, and interorganiza- tional relations. Studies we drew upon for the following discussion are presented in Table 5.
Diffusion of innovation. One area where combining institutional theory with other theoretical explanations has enhanced understanding is the diffusion of innovation. Tolbert and Zucker’s (1983) study regarding the adoption of civil service reform identified a difference between the motives of early and late adopters. Early adopters “rationally” select an innovation to increase organizational “performance.” On the other hand, later adopters pursue an innovation to gain legitimacy. This pattern appears conceptually in the explanation of managerial “fads and fashions” by Abrahamson (1991). He incorporated the ideas of coercive and mimetic isomorphism and the pursuit of legitimacy as potential explanations for the adoption of innovations.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Stud
y
Tab
le
5.
Stud
ies
Exa
min
ing
the
Rel
atio
nshi
ps
betw
een
Stra
tegy
an
d th
e In
stitu
tiona
l E
nvir
onm
ent
Dat
a F
indi
ngs
or I
mpl
icat
ions
Mey
er &
Row
an (
1977
) C
once
ptua
l /
theo
retic
al
pape
r,
Row
an (
1982
) D
ata
from
Cal
ifor
nia
scho
ol
dist
rict
s.
DiM
aggi
o &
Pow
ell
(198
3)
Con
cept
ual
/ th
eore
tical
pa
per.
Tol
bert
K
c Zuc
ker
(198
3)
Tol
bert
(1
985)
Ado
ptio
n of
civ
il se
rvic
e pr
oced
ures
in
167
citi
es b
etw
een
1883
-193
5.
281
publ
ic
and
priv
ate
inst
itutio
ns.
5 Fl
igst
ein
(198
5)
2 Si
ngh,
Tuc
ker
& H
ouse
2
(198
6)
; 2
Fenn
el
& A
lexa
nder
(1
987)
100
larg
e U
.S.
corp
orat
ions
fr
om
1919
-197
9.
107
volu
ntar
y se
rvic
e fi
rms
that
“d
ied”
bet
wee
n 19
70-1
982.
901
hosp
itals
.
%
Scot
t (1
987)
$ 2 Z
ucke
r (1
987)
3 -i 9 G
hosh
al(l
988)
“8
3 O
liver
(19
88)
“N
Con
cept
ual
/ th
eore
tical
pa
per.
Con
cept
ual
/ th
eore
tical
pa
per.
6 K
orea
n fi
rms.
156
volu
ntar
y so
cial
ser
vice
or
gani
zatio
ns.
Form
al
stru
ctur
es
refl
ect
the
“rat
iona
lized
m
yths
of
in
stitu
tiona
l en
viro
nmen
ts”
rath
er
than
th
e te
chni
cal
requ
irem
ents
. D
istin
guis
hes
betw
een
tech
nica
l an
d in
stitu
tiona
l en
viro
nmen
ts.
Bal
ance
d in
stitu
tiona
l en
viro
nmen
ts
prom
ote
mor
e ra
pid
diff
usio
n of
new
ad
min
istr
ativ
e se
rvic
es t
han
imba
lanc
ed
envi
ronm
ents
.
Intr
oduc
ed
the
coer
cive
, m
imet
ic
and
theo
retic
al
norm
ativ
e is
omor
phis
m
typo
logy
. Pr
opos
ed
pred
icto
rs
of i
som
orph
ic
chan
ge.
Ear
ly
adop
ters
ad
opt
inno
vatio
ns
for
effi
cien
cy
reas
ons,
la
ter
adop
ters
ad
opt
to g
ain
legi
timac
y.
Sepa
rate
of
fice
s ar
e es
tabl
ishe
d to
han
dle
high
dep
ende
ncy
rela
tions
hips
on
ly i
f th
e re
latio
nshi
ps
wer
e no
t in
stitu
tiona
lized
.
Prov
ides
in
stitu
tiona
l an
d st
rate
gic
expl
anat
ions
fo
r di
vers
ific
atio
n st
rate
gies
.
Ext
erna
l le
gitim
acy
is m
ore
stro
ngly
re
late
d to
dec
reas
ed
orga
niza
tiona
l de
ath
rate
s th
an
inte
rnal
co
ordi
natio
n.
Mem
bers
hip
in a
n in
tero
rgan
izat
iona
l ne
twor
k in
crea
ses
the
likel
ihoo
d of
us
ing
brid
ging
st
rate
gies
.
Inst
itutio
nal
envi
ronm
ents
, pa
rtic
ular
ly
the
actio
ns
of
the
stat
e an
d pr
ofes
sion
s sh
ape
inst
itutio
nal
patte
rns
and
mec
hani
sms.
Dif
fere
nt
defi
nitio
ns,
leve
ls o
f th
eore
tical
an
alys
is
and
conc
eptu
aliz
atio
ns
of i
nstit
utio
nal
mec
hani
sms
exis
t ev
en w
ithin
th
e or
gani
zatio
nal
theo
ry
liter
atur
e.
Dis
tingu
ishe
s be
twee
n th
e “e
nvir
onm
ent
as i
nstit
utio
n”
and
“org
aniz
atio
n as
ins
titut
ion”
pe
rspe
ctiv
es.
Env
iron
men
tal
scan
ning
pr
actic
es a
re h
ighl
y ho
mog
enou
s in
Kor
ean
firm
s vs
. U
.S.
firm
s du
e to
mim
etic
an
d no
rmat
ive
isom
orph
ic
pres
sure
s.
Bet
wee
n po
pula
tion
ecol
ogy,
in
stitu
tiona
l an
d st
rate
gic
choi
ce
expl
anat
ions
of
isom
orph
ism
, th
e st
rate
gic
choi
ce p
ersp
ectiv
e re
ceiv
ed t
he
mos
t su
ppor
t.
(con
tinu
ed)
Tab
le
5.
(Con
tinue
d)
Stud
y D
ata
Fin
ding
s or
Im
plic
atio
ns
Mar
cus
(198
8)
13 n
ucle
ar
pow
er
plan
ts.
Gal
aski
ewic
z &
Was
serm
an
(198
9)
198
nonp
rofi
t or
gani
zatio
ns.
Abr
aham
son
(199
1)
D’A
unno
, Su
tton
& P
rice
(1
991)
Oliv
er
(199
1)
Ros
enzw
eig
& S
ingh
(1
991)
Judg
e &
Zei
tham
l(19
92)
Con
cept
ual
/ th
eore
tical
pa
per.
Top
2
man
ager
s of
48
men
tal
heal
th
trea
tmen
t un
its,
195
drug
ab
use
trea
tmen
t un
its
and
90 h
ybri
ds.
Con
cept
ual
/ th
eore
tical
pa
per.
Con
cept
ual
/ th
eore
tical
pa
per.
25 o
rgan
izat
ions
in
4 p
opul
atio
ns.
Abr
aham
son
& R
osen
kopf
(1
993)
Bur
ns
& W
hole
y (1
993)
Con
cept
ual
/ th
eore
tical
pa
per.
1375
hos
pita
ls
betw
een
1961
-197
8.
Hau
nsch
ild
(199
3)
327
med
ium
an
d la
rge
size
d fi
rms
in 4
ind
ustr
ies
betw
een
1981
-199
0.
Hav
eman
(1
993)
A
pop
ulat
ion
of 3
13
S&L
’s
in
Cal
ifor
nia
betw
een
1977
and
19
87.
Dis
cove
red
a cy
clic
al
patte
rn
whe
re
poor
ly
perf
orm
ing
orga
niza
tions
de
mon
stra
ted
mor
e ru
le-b
ound
re
spon
ses
to e
xter
nally
in
duce
d in
nova
tion
prop
osal
s,
whi
ch
tend
ed
to s
usta
in
thei
r po
or
perf
orm
ance
an
d m
ake
them
m
ore
likel
y to
res
pond
in
a r
ule-
orie
nted
m
anne
r.
In u
ncer
tain
en
viro
nmen
ts,
deci
sion
m
aker
s ar
e m
ore
likel
y to
im
itate
th
e be
havi
or
of o
rgan
izat
ions
to
whi
ch
they
ha
ve
som
e re
latio
nal
netw
ork
tie
thro
ugh
boun
dary
sp
anni
ng
pers
onne
l.
Dev
elop
s a
typo
logy
fo
r th
e ad
optio
n of
in
nova
tions
in
clud
ing
effi
cien
t ch
oice
, fo
rced
-sel
ectio
n,
fad,
an
d fa
shio
n ex
plan
atio
ns.
Div
isio
ns
of a
div
ersi
fied
or
gani
zatio
n fa
ce
dual
is
omor
phic
pr
essu
res.
Is
o-
mor
phis
m
with
the
tra
ditio
nal
sect
or
is p
ositi
vely
re
late
d to
ext
erna
l su
ppor
t fr
om
the
pare
nt
firm
an
d ot
her
acto
rs
with
in
the
pare
nt
firm
’s i
ndus
try.
Dev
elop
s a
typo
logy
co
mbi
ning
re
sour
ce
depe
nden
ce
and
inst
itutio
nal
pers
pect
ives
to
exp
lain
re
sist
ance
to
ins
titut
iona
l pr
oces
ses.
Firm
s in
mul
tinat
iona
l en
terp
rise
s fa
ce d
ual
isom
orph
ic
pres
sure
s w
ith
the
loca
l in
stitu
tiona
l en
viro
nmen
t an
d th
e pa
rent
or
gani
zatio
n.
Tes
ts
stra
tegi
c ch
oice
an
d in
stitu
tiona
l ex
plan
atio
ns
of b
oard
in
volv
emen
t. B
oard
si
ze,
insi
der
repr
esen
tatio
n an
d le
vel
of d
iver
sifi
catio
n ar
e ne
gativ
ely
rela
ted
to l
evel
of
boa
rd
invo
lvem
ent.
Prov
ides
a
mat
hem
atic
al
mod
el
com
pari
ng
inst
itutio
nal
and
com
petit
ive
“ban
dwag
on”
effe
cts
on i
nnov
atio
n di
ffus
ion.
Bot
h in
form
atio
n pr
oces
sing
an
d in
stitu
tiona
l pe
rspe
ctiv
es
help
to
exp
lain
th
e ad
optio
n,
but
not
the
aban
donm
ent
of t
he
mat
rix
stru
ctur
e.
Dir
ecto
r in
terl
ocks
in
flue
nced
co
rpor
ate
acqu
isiti
on
beha
vior
by
se
rvin
g as
mod
els
for
imita
tion
and
prov
idin
g ac
quis
ition
in
form
atio
n.
Firm
s im
itate
d di
vers
ific
atio
n de
cisi
ons
of
larg
e an
d pr
ofita
ble
orga
niza
tions
. L
arge
or
gani
zatio
ns
imita
ted
the
actio
ns
of
othe
r la
rge
firm
s,
but
med
ium
- an
d sm
all-
size
d fi
rms
did
not
copy
th
e ac
tions
of
si
mila
rly
size
d fi
rms.
T
he
infl
uenc
e of
im
itatio
n w
as
offs
et
by c
ompe
titiv
e pr
essu
res
in c
row
ded
mar
kets
.
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 237
Unfortunately, these processes may lead to the adoption of inefficient, as well as efficient innovations. Two more recent empirical studies test this principle as well. One uses mathematical modeling to compare institutional and competitive “bandwagon” effects on innovation diffusion (Abrahamson & Rosenkopf, 1993). In the other study, multivariate analysis compares information processing and institutional explanations of the adoption and abandonment of the matrix structure (Burns & Wholey, 1993). Both theories help to explain the adoption, but not the abandonment, of the matrix structure (Burns & Wholey, 1993).
Marcus (1988) modified this approach slightly by exploring the concept of externally induced innovation. Rather than mimetic processes at work, he looked at coercive isomorphic processes created by regulatory agency recommendations for innovation in reaction to external threats. This study demonstrates the impact of prior performance on institutional responses- poorly performing organizations respond to government agency proposals with rule-oriented behavior. The rule-oriented response does not enhance their poor performance. Then, as poor performers, they are in the cyclical position to have external pressure for rule conformity once again. Higher performers maintain their autonomy, which reinforces their performance.
Organizational death rates and performance. In a population ecology- based study of newspaper organizations from 1870 to 1980, Carroll and Huo (1986) conclude that institutional, not task variables, appeared to affect founding and death rates of newspapers. On the other hand, task variables affected performance strongly, but institutional variables did not. Using a surgical hospital sample over a shorter time span (1959 to 1979), Zucker (1986) supported the effect on firm exits, but found that performance and survival covary.
In a related study regarding the “liability of newness” concept, Singh, Tucker, and House (1986) found that external legitimacy is more important than internal coordination in decreasing organizational death rates. In fact, most internal organization changes were unrelated to death rates, with the exception of chief executive change, which also decreased death rates.
Board involvement. Judge and Zeithaml(1992) combine institutional and strategic choice perspectives to broaden knowledge regarding external influences on board involvement. Board involvement was defined as “making nonroutine, organization-wide resource allocation decisions that affect the long- term performance of an organization.” Institutional influences were measured in terms of organizational age and the level of diversification. In line with Oliver’s (199 1) principle of “constituent multiplicity,” the level of diversification and the level of board involvement were negatively related. Higher levels of diversity indicate exposure to multiple environments, which in turn leads to a diffusion of the isomorphic pressures. The anticipated inertial effects from organizational age were not found. In fact, the relationship between organizational age and board involvement is positive, indicating a potential experience factor or that the results are confounded by a previous environmental “jolt” that has encouraged norms for increased board involvement.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
238 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
Organizational structure. Looking at the development of organizational structure, Rowan (1982) found that size does not provide a complete explanation of the addition and deletion of administrative positions in California public schools. The concept of isomorphism is required to understand the structural changes. Balanced institutional environments promoted more rapid diffusion of new administrative services than imbalanced environments.
In another study regarding organizational structure, institutionalization (shared common understandings and social norms about appropriate behavior) helped to determine the conditions under which resource dependence hypotheses explain the process of structural differentiation in public and private institutions (Tolbert, 1985). Resource dependence theory would predict the establishment of separate administrative offices to cope with the requirements of a high dependency relationship. The research here demonstrates that this relationship exists, but only when dependent relationships were not institutionalized. The process of institutionalization corresponds to the isomorphism of an institutionalized structure. These arrangements tended to be adopted regardless of the level of dependence the organization faces.
Fligstein (1985) incorporated the institutional and strategic choice theoretical perspectives to explain the diversification strategies of the 100 largest U.S. corporations from 1919-1979. He supported a combined theoretical explanation where strategic change occurs for one of two reasons: Either organizational leaders had both the ability to communicate and the power to implement a strategic shift in their diversification posture, or firms imitated other trend-setting organizations within their organizational field. This latter point reminds us of Rumelt’s (1974, p. 149) epigram (less quoted than Chandler’s [ 1962, p. 141 “structure follows strategy”) that “structure also follows fashion.” In a separate study, Haunschild (1993) also investigated potential institutional influences on corporate acquisition behavior. Concentrating on the impact of director interlocks, her results indicated imitation based on modeling and information exchange provided a more powerful explanation than institutional interpretations.
Zsomorphism. In addition to the examples already provided above, Oliver (1988) compared institutional, population ecology, and strategic choice explanations for isomorphism in an interorganizational field. Her findings demonstrated more support for the strategic choice model, but indicate that isomorphism affects organizational attributes differently.
In a later article by the same author (Oliver, 1991), she switched perspectives by using resource dependence theory to supplement the institutional perspective. Most researchers implicitly assume a passive actor status to organizations confronted by institutional pressures for conformity. Just as firms attempt to cope with environmental uncertainty and constraining interdependencies, it is unlikely that firms would not try to discover strategies to handle institutional pressures. Oliver presents a potential taxonomy that ranges from acquiescence to manipulation, providing for variations in firms’ resistance, awareness, proactiveness, influence, and self-interest.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 239
Haveman (1993) combined organizational ecology and neoinstitutional perspectives to study isomorphic effects on market entry decisions in the California savings and loan population following deregulation. Her findings supported the institutional hypothesis that firms imitate successful (i.e., large and profitable) firms within their industry but provided only partial support for the hypothesis that firms were more likely to imitate similarly-sized organizations. This hypothesis held true only for large firms. In addition, the density-dependence model from the organizational ecology perspective enhanced institutional explanations by demonstrating the countervailing influences of legitimacy and competition on market entry rates. Haveman (1993, p. 624) concluded that “The pull of imitation, on which neoinstitutional theory focuses, is balanced by the brake of crowded markets.”
Interorganizational relations. Several studies investigate the influence of organizational linkages on institutional processes. Fennel1 and Alexander (1987) compared the boundary spanning activities of independent hospitals as opposed to hospitals that are part of multiorganizational networks. Membership in the network increased the likelihood of using bridging or linking strategies as opposed to buffering strategies (Thompson, 1967). In a related study, Galaskiewicz and Wasserman (1989) showed that firms were more likely to imitate firms to which they had some relational tie through boundary-spanning personnel.
Ghoshal’s (1988) study comparing the environmental scanning practices of Korean and American firms demonstrated that the Korean firms exhibit much more similarity in their scanning processes than their American counterparts. This finding furnishes additional evidence that the mimetic and normative isomorphic factors found in interorganizational relationships influence firm behavior. The higher degree of homogeneity found in Korean firms comes from the outside influence of a small consulting firm, Business Intelligence and Research Institute (BIRI), which established the model scanning unit within the Samsung group of companies. This became the accepted model throughout the country. Ghoshal expressed concern regarding the effects of this isomorphism on future needs for innovation. It would seem from these three studies that interorganizational relationships tend to increase the influence of mimetic and normative isomorphism on members of the network.
Another area of study combining institutional pressures and interorgan- izational relationships is the idea of “dual pressures.” Firms that operate in multinational environments (Rosenzweig & Singh, 1991) or as a division within a diversified organization (D’Aunno, Sutton & Price, 1991) face conflicting institutional pressures. The local environment or industry in which they operate creates isomorphic pressures, as does the parent organization. The strength of these competing forces can influence financial support, organizational structure and processes, and the need for loose coupling in either of the networks, or perhaps in both.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
240 BLUEDORN. JOHNSON, CARTWRIGHT, AND BARRINGER
Future Directions
There are multiple conceptualizations of institutional theory. Most of these perspectives are complementary and predict similar responses; however, the assumptions, definitions, and perspectives differ considerably. It is important for researchers to clearly define their frame of reference-particularly their conceptualization of institutional processes.
Future research will likely continue to integrate institutional theory with more competition-oriented approaches such as population ecology and resource dependence theories. Both groups of theories can benefit from the broadened perspective. Institutional theory perspectives may pursue potential responses such as those suggested by Oliver (1991). From this perspective, research should attempt to identify what characteristics of the organization or the institutional environment generate more active responses. For example, what firm and environmental characteristics encourage an organization to pursue a manipulation strategy, rather than an avoidance or acquiescence strategy? Even within the same strategic category, what determines whether a firm pursuing a manipulation strategy selects a co-optation, influence, or control tactic to accomplish their goals? Oliver presents a series of hypotheses predicting increased resistance and provides some suggestions regarding empirical testing of these hypotheses. Future research should pursue empirical tests of these relationships. Competitive approaches benefit from understanding the pressures toward homogeneity and external influences on firm behavior.
Powell (1991) suggested that researchers attempt to expand the scope of institutional theory. He felt that institutional researchers should explore the variation in institutional environments created by complex resource environments, industry structure, and competing demands. In addition, he proposed that contrary to current assumptions, the potential exists for innovation to develop from highly institutionalized organizations. These opportunities may develop from unsuccessful imitation efforts, novel combinations created by imitating dissimilar organizations, and incomplete institutionalization.
Other avenues for promising research would be a more in-depth exploration of the influence of interorganizational networks and parent- company relationships in diversified and multinational organizations. The idea of dual pressures presents a need to explore how organizations prioritized conflicting pressures.
Finally, a natural area for exploration from the institutional perspective is the field of corporate social performance, an area recently and thoroughly reviewed by Wood (199 1 a; 199 1 b). It would be a natural extension because both areas are concerned with the issue of organizational legitimacy (Davis, 1973; Wood, 199lb). The conflicting findings about the relationship between economic performance and corporate social responsiveness (Alexander & Bucholtz, 1978; Aupperle, Carroll & Hatfield, 1985; Arlow & Gannon, 1982; Bragdon & Marlin, 1972; Cochran & Wood, 1984; Davidson & Worrell, 1988; Fogler & Nutt, 1975; Moskowitz, 1972; Sturdivant & Ginter, 1977; Ullmann, 1985; Vance, 1975) strongly suggest more research is needed, and the results
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 241
of the analysis from McGuire, Sundgren, and Schneeweis (1988) provide a potential avenue for research in this area. More specific tests are needed to determine if institutional pressures based on risk reduction provide helpful explanations of socially responsive behavior. Do these pressures lead to coercive, mimetic, or normative isomorphism?
After making strategic choices such as those involving interorganizational relations and the institutional environment, the final portion of Child’s (1972) framework indicates that organizational performance levels will be affected and knowledge of these impacts will begin the choice-and-alignment cycle anew. Because the central premise of this perspective is that increased organizational alignment will produce higher levels of organizational performance, we will focus our discussion of the final portion of Child’s choice model on two issues: (1) control and evaluation systems; and (2) organizational alignment itself.
Organizational Alignment
If organizational structure is not adapted to its context, then opportunities are lost, costs rise, and the maintenance of the organization is threatened.
-Child, 1972, p. 8
Strategic “fit” refers to a situation where an alignment exists between an organization’s strategy and its context (Venkatraman, 1989; Venkatraman & Prescott, 1990). The concept of organizational alignment or fit comes from the organizational contingency theories and conveys the idea that organizations must align the internal aspects of their organization with their environment (see Bluedorn [1993] for a review). When this alignment is present, corporate performance should increase (Venkatraman, 1989; Venkatraman & Prescott, 1990). In this section, we will examine the concept of alignment and its relationship to organizational environments.
Measurement
Extensive research in both the strategic management and the organizational theory literature falls into the category of, or at least considers the concept of “fit.” However, the results from these studies have been somewhat mixed. Confusion lies in the definition and operationalization of the fit concept. A number of critiques and/or recommendations for improvement have been written regarding the study of fit and contingency theories (Ginsberg & Venkatraman, 1985; Harrigan, 1983; Melcher & Melcher, 1980; Schoonhoven, 1981; Venkatraman, 1989; Venkatraman & Camillus, 1984; Venkatraman & Prescott, 1990).
Venkatraman and Prescott (1990) provide a thorough review and critique of methodological approaches to the measurement of fit. They separate these approaches into reductionistic (looking at one to a few of the dimensions in a single study) and holistic (looking at the total package of variables simultaneously). Within the reductionistic perspective, fit can be conceived and operationalized as a moderator or interaction variable, a mediator or
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
242 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
intervening mechanism (where both direct and indirect effects are considered), or a match between two related variables (Venkatraman, 1989). Holistically, fit could be researched as a gestalt or cluster of attributes, the degree of adherence (lack of deviation) to an ideal profile specification, or the degree of internal consistency or covariation in a set of theoretically related variables (Venkatraman, 1989). Venkatraman and Prescott (1990) claim that the primary cause of conflicting findings and interpretations in this area is the different conceptions and operationalizations of this research.
Arguing for the profile deviation method of determining fit, Venkatraman and Prescott (1990) looked at the degree to which strategic resource deployments coaligned with the ideal profile for a given environment. They demonstrated empirically that a misalignment between strategy and the environment was negatively related to performance.
An especially important concern involves the statistical testing of fit propositions. Recent work by Edwards (1993; 1994; Edwards & Harrison, 1993; Edwards & Parry, 1994) is producing a revolution in the way researchers should examine fit hypotheses. This work basically calls into serious question all “fit” examinations that employ approaches based on either difference scores of any type or profile similarities. Unless stringent assumptions are met, these approaches are invalid and should be replaced with polynomial regression techniques, of which moderator regression is but one. In addition to being sounder statistically, Edwards’ approach allows for a much more precise specification of the form the fit relationship will take, thus allowing for greater precision in theoretical statements.
Organizational Adaptation to the Environment
Contingency theory researchers stipulate that organizations must adapt their internal structure and processes to the conditions that exist in their environment. Several researchers have suggested that the idea is intuitively appealing, but difficult to implement. Much of the work in organizational alignment looks at the condition of environmental change and proposes internal mechanisms to enhance organizational flexibility. Suggestions include organizing using an organic (Burns & Stalker, 1961) or network structure (Jarillo, 1988) flexible manufacturing systems (De Meyer, Nakane, Miller & Ferdows 1989; Gerwin, 1993; Nemetz & Fry, 1988; Parthasarthy & Sethi, 1992; Swamidass & Newell, 1987) a culture that emphasizes flexibility-oriented values (Zammuto & O’Connor, 1992), decentralized decision-making, problem-solving teams, generalized personnel skills, increased emphasis on proactive training (Devanna & Tichy, 1990), enhanced information systems (Mascarenhas, 1982) and maintaining slack resources (Sharfman, Wolf, Chase & Tansik, 1988).
Chakravarthy (1982) proposed a process model of adaptation, incorporating the idea of slack as a destabilizing force. Strategic managers must consider adaptation to changes in the external environment as well as changes created through internal processes. Lenz (1980) provided empirical results from a study of savings and loan associations that the alignment of environment, strategy and organization differs among high and low performers.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 243
Miller (1992) discussed the difficulty created when the internal requirements contradict the external requirements. He argued that firms in these situations must make a choice between the two types of alignment. His data showed that organizations that fit the requirements of their external environment demonstrated the least alignment among their internal structural and process variables. He concluded that the adaptive tasks may need to be performed sequentially.
Powell (1992) combined strategic fit factors such as industry, market share, generic strategy, and strategic group membership with the organizational alignment between environment and structure and tested for the impacts on financial performance. His study of two manufacturing industries indicated that these alignments create a sustainable competitive advantage and profits above those accounted for by industry and strategy variables.
Smallfirms. Interest in small firms and their ability to adapt stems from the belief that size is negatively related to adaptability. Neilson (1974) empirically demonstrated that smaller firms exhibited greater interdepartmental interaction and faster response time to environmental changes. Meredith (1987) argued that small firms gain more than large firms from flexible manufacturing technologies because these new technologies enhance the small firm’s speed and flexibility. To offset this perceived disadvantage and improve firm profitability, many large firms are trying to downsize through layoffs and restructuring efforts. Some research exists that explores the organizational alignment of small firms in different environmental contexts. Covin and Slevin (1989) show that small firms in hostile environments exhibit higher performance levels when they have an organic structure, entrepreneurial strategic posture, a long-term orientation, and a proactive approach. In benign environments, higher performance comes in firms with a mechanistic structure, conservative strategic posture, conservative financial management practices, a short-term financial orientation, and a strong dependence on single customers.
Fiegenbaum and Karnani (1991) focus on small firms and their ability to gain a sustainable competitive advantage through volume flexibility, or the capability to vary output volume in a market that experiences demand fluctuations. They do not have the advantages of scale and therefore, have less to lose by using volume flexibility. This competitive advantage is definitely stronger in volatile and capital intensive industries.
Future Directions
Future research will likely continue to pursue additional contingency variables that moderate a firm’s relationship between its strategy and the environment. In addition, different combinations of variables need to be explored because they will not appear in isolation. So far, most environmental conceptualizations have looked at broad dimensions of environmental uncertainty. As these definitions narrow to specific types of uncertainty, the appropriate firm response will vary as well. The roles of interorganizational networks and network structure are also prime candidates for future research.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
244 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
Control and Evaluation Systems
fiat is, no manager knows for sure just what is allowable. -Hambrick and Finkelstein, 1987, p. 374
In order to know whether the organization is properly aligned, managers, especially the top management team, must evaluate and attempt to control the performance of units within the organization as well as the performance of the overall organization. Thus, one of the critical factors in improving firm performance (maintaining an alignment between strategy and the environment) is the set of controls top management uses to evaluate firm progress and strategies.
Organizational control has many meanings and has been interpreted in multiple ways. Tannenbaum (1968) interpreted control as any process that helps align the actions of individuals with the interests of their employing firm. Firms usually use a “cybernetic” system (Boulding, 1956) based on: (1) superiors’ intentions; (2) an influence mechanism; and (3) evaluation and feedback. In general, most researchers have focused on the evaluation component of control systems although some (e.g., Cheng & McKinley, 1983; Hofstede, 1978; Kerr, 1985), have examined all three aspects of control. For the purposes of this review, our discussion of control centers on the evolution of research on control systems as well as the general target of the research. We will first examine early empirical and conceptual research that deals with broad categories of control (e.g., Ouchi, 1977). Our second concern is for how these ideas have been translated into strategic, financial and bureaucratic control mechanisms. Our third concern deals with research at the divisional or SBU level. Following our discussions of these three issues, we will examine research directions for control systems. Table 6 presents a description of the articles reviewed in this section.
Behavior and Output Control
Early studies in this area focused on the basic need for control systems due to decentralization (Khandwalla, 1973), as well as the basic modes of control (Ouchi & Maguire, 1975). Ouchi and Maguire identified two modes of control: behavioral and output. Edstrom and Galbraith (1977) argued that managers of multinational firms (MNCs) develop a process of control based on socialization. They also contended that controls are cumulative, not substitutes (as opposed to Ouchi & Maguire [ 19751 who contend that output and behavioral controls are substitutes). Edstrom and Galbraith further argued that as firms become larger they retain centralized control procedures for non-routine problems and implement a system of bureaucratic controls (formalized rules and procedures) to manage routine problems. The socializing control strategy is implemented when non-routine decisions must be made at the subsidiary level.
Ouchi (1979) advanced this perspective by suggesting a link between task characteristics, outcome measurability and control strategies. Three cells in Ouchi’s two-by-two matrix are based on performance based evaluations while the fourth, defined as imperfect task programmability and low outcome
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
Tab
le
6.
Stud
ies
Exa
min
ing
the
Rel
atio
nshi
p be
twee
n C
ontr
ol
Syst
ems,
Fi
rm
Stra
tegy
an
d E
nvir
onm
ent
Stud
y
Kha
ndw
alla
(1
973)
96
man
ufac
turi
ng
firm
s.
Ouc
hi
& M
agui
re
(197
5)
Ouc
hi
(197
7)
2 2 E
isen
hard
t (1
985)
f 0’
2 C
once
ptua
l /
theo
reti
cal
%
pape
rs:
$ f
Che
ng
& M
cKin
ley
(198
3)
g “4
3 _g
Ettl
ie,
Bri
dges
&
O’K
eefe
3 (1
984)
“Y
Z
P
Dat
a Fi
ndin
gs o
r Im
plic
atio
ns
Par
t 1:
Beh
avio
r an
d ou
tput
co
ntro
ls
329
man
ager
s ra
ngin
g fr
om
assi
stan
t de
part
men
t m
anag
ers
to s
tore
m
anag
ers.
Surv
ey
data
fr
om
78 f
ull-
line,
no
n-
disc
ount
re
tail
depa
rtm
ent
stor
es.
95 s
peci
alty
re
tail
stor
es
in a
su
burb
an
shop
ping
ce
nter
.
Res
ults
in
dica
te
com
petit
ion
posi
tivel
y af
fect
s so
phis
ticat
ed
man
agem
ent
cont
rols
an
d de
lega
tion
of a
utho
rity
. T
he
mor
e de
cent
raliz
ed
the
firm
is
, th
e m
ore
cont
rols
it
need
s to
use
.
Pape
r ex
amin
es
two
mod
es
of
cont
rol,
pers
onal
su
rvei
llanc
e (b
ehav
ior
cont
rol)
an
d m
easu
rem
ent
of o
utpu
ts
(out
put
cont
rol)
. R
esul
ts
sugg
est
that
ou
tput
co
ntro
l oc
curs
w
hen
man
ager
s ne
ed
to p
rovi
de
legi
timat
e ev
iden
ce
of
perf
orm
ance
w
hile
be
havi
or
cont
rol
is
exer
ted
whe
n m
eans
-end
s re
latio
ns
are
know
n an
d in
stru
ctio
n is
pos
sibl
e.
Res
ults
su
gges
t th
at
stru
ctur
e is
rel
ated
to
co
ntro
l. L
arge
or
gani
zatio
ns
deve
lop
mor
e co
mpl
ete
mea
sure
s of
ou
tput
. H
omog
eneo
us
task
s w
ithin
de
part
men
ts
decr
ease
s th
e ne
ed
for
outp
ut
cont
rols
. Fi
rm
size
m
ay
lead
to
con
trol
lo
ss.
Res
ults
su
gges
t th
at
high
tas
k pr
ogra
mm
abili
ty
and
beha
vior
m
easu
rem
ent
lead
to
beha
vior
ba
sed
cont
rol
usag
e.
As
the
cost
of
out
com
e m
easu
rem
ent
or u
ncer
tain
ty
incr
ease
s,
beha
vior
ba
sed
cont
rol
is m
ore
likel
y.
Eds
trom
&
Gal
brai
th
(197
7)
Ouc
hi
(197
9;
1980
) an
d Ja
eger
&
Bal
iga
(198
5).
Par
t 2:
Cor
pora
te
leve
l st
udie
s ln
tern
atio
nal
sam
ple
of 2
88
Thi
s st
udy
exam
ined
th
e co
ntin
genc
y ef
fect
of
bu
reau
crat
ic
cont
rol
on
acad
emic
re
sear
ch
units
. or
gani
zatio
nal
perf
orm
ance
. R
esul
ts
supp
ort
the
hypo
thes
is
that
bu
reau
crat
ic
cont
rol,
exer
cise
d th
roug
h in
flue
nce
from
na
tiona
l sc
ienc
e po
licy
on t
he c
hoic
e of
uni
t re
sear
ch
them
es
will
hav
e a
(+)
effe
ct o
n re
sear
ch
unit
prod
uctiv
ity
in
fiel
ds
with
hi
ghly
de
velo
ped
para
digm
s.
Thi
s ef
fect
de
clin
es
and
beco
mes
ne
gativ
e in
fie
lds
with
le
ss d
evel
oped
pa
radi
gms.
Surv
ey
data
fr
om
147
firm
s A
cqui
sitio
ns
resu
lt in
lar
ger
orga
niza
tions
. L
arge
r or
gani
zatio
ns
prom
ote
oper
atin
g in
the
m
eat,
fish
an
d m
ore
stru
ctur
al
com
plex
ity,
form
aliz
atio
n an
d de
cent
raliz
atio
n w
hich
w
ere
cann
ing
indu
stri
es.
nega
tivel
y re
late
d to
new
pro
duct
in
trod
uctio
ns.
Cen
tral
izat
ion
is n
eces
sary
fo
r ra
dica
l in
nova
tions
to
be
adop
ted.
(con
tinu
ed)
Stud
y D
ata
Tab
le
6.
(Con
tinue
d)
Find
ings
or
Impl
icat
ions
Par
t 2:
Cor
pora
te le
vel
stud
ies
(con
tinue
d)
Rom
anel
li &
Tus
hman
(1
986)
C
once
ptua
l i
theo
retic
al
pape
r ou
t-
linin
g a
quas
i-ex
peri
men
tal
desi
gn
for
long
itudi
nal
rese
arch
on
adap
tatio
n.
Hos
kiss
on
SC H
itt (
1988
) 12
4 di
vers
ifie
d fi
rms.
Bay
sing
er &
Hos
kiss
on
(198
9)
971
larg
e m
ultip
rodu
ct
firm
s.
Cha
ndle
r (1
991)
C
ase
stud
y of
6 f
irm
s ut
ilizi
ng
diff
eren
t co
ntro
l pr
oced
ures
.
Hos
kiss
on
& J
ohns
on
(199
2)
Mul
ti-in
dust
ry
stud
y us
ing
101
rest
ruct
urin
g fi
rms.
Hitt
, H
oski
sson
, Jo
hnso
n &
Moe
sel(
l993
) Su
rvey
dat
a fr
om 2
83 f
irm
s cl
assi
- fi
ed a
s co
ntro
l fi
rms
(no
activ
ity),
re
stru
ctur
ing
and
acqu
irin
g.
John
son,
H
oski
sson
&
Hitt
Su
rvey
dat
a fr
om 9
2 in
side
r (1
993)
di
rect
ors
of r
estr
uctu
ring
fi
rms.
Con
cept
ual
/ th
eore
tica
l pa
pers
: R
uefl
i &
Sar
razi
n (1
981)
, L
oesc
her
(198
4),
Hill
& H
oski
sson
(1
987)
, H
itt,
Hos
kiss
on
& I
rela
nd
(199
0),
John
son,
H
oski
sson
&
Mar
gulie
s (1
990)
, an
d H
oski
sson
, H
itt &
Hill
(19
91).
Bur
eauc
ratic
co
ntro
ls
resu
lt in
mor
e ri
gid
and
stan
dard
ized
m
anag
eria
l be
havi
or
that
may
con
trib
ute
to o
rgan
izat
iona
l in
ertia
.
Res
ults
su
gges
t th
at
stra
tegi
es
and
cont
rol
syst
ems
desi
gned
to
pu
rsue
sy
nerg
y ar
e re
late
d to
hi
gher
R
&D
in
tens
ities
. T
he
mar
ket
nega
tivel
y ev
alua
tes
R&
D f
or h
ighl
y di
vers
ifie
d fi
rms.
Thi
s su
gges
ts h
ighl
y di
vers
ifie
d fi
rms
emph
asiz
e fi
nanc
ial
cont
rols
w
hich
m
ay
incr
ease
m
anag
eria
l ri
sk
aver
sion
an
d a
focu
s on
sho
rt-t
erm
pe
rfor
man
ce.
The
cho
ice
of d
iver
sifi
catio
n st
rate
gy s
yste
mat
ical
ly
effe
cts
R&
D i
nten
sity
. T
he
furt
her
argu
e th
at
stra
tegi
c co
ntro
l in
le
ss-d
iver
sifi
ed
firm
s m
ay
faci
litat
e R
&D
ex
pend
iture
s w
hile
fin
anci
al
cont
rol
proc
edur
es
serv
e to
de
crea
se R
&D
int
ensi
ty
(esp
ecia
lly i
n hi
gh d
iver
sifi
ed f
irm
s).
Pape
r lin
ks t
wo
top
exec
utiv
e fu
nctio
ns
(ent
repr
eneu
rial
an
d ad
min
istr
a-
tive)
to
the
leve
l of
div
ersi
fica
tion
and
the
type
s of
con
trol
us
ed,
nam
ely,
st
rate
gic
plan
ning
, st
rate
gic
cont
rol
and
fina
ncia
l co
ntro
l.
Dec
reas
ing
dive
rsif
ied
scop
e th
roug
h di
vest
iture
le
ads
to a
n in
crea
se
in
R&
D i
nten
sity
. T
hey
argu
e th
at t
he r
elat
ed-l
inke
d fi
rms
are
the
dom
inan
t re
stru
ctur
ing
type
due
to
an i
ncom
patib
le
mix
of
fina
ncia
l an
d st
rate
gic
cont
rols
.
Res
ults
ind
icat
e th
at s
trat
egic
con
trol
s ar
e po
sitiv
ely
rela
ted
to i
nnov
atio
n an
d fi
nanc
ial
cont
rols
ar
e ne
gativ
ely
rela
ted
to i
nnov
atio
n in
con
trol
fir
ms.
In
nova
tive
activ
ity i
ncre
ases
in
rest
ruct
urin
g fi
rms
if s
trat
egic
con
trol
s ar
e im
plem
ente
d.
Bur
eauc
ratic
co
ntro
ls
have
a n
egat
ive
effe
ct o
n in
nova
tion
in a
ll ca
tego
ries
.
Res
ults
sug
gest
tha
t st
rate
gic
cont
rol
usag
e by
top
man
a~m
ent
decr
ease
s th
e ne
ed f
or b
oard
in
volv
emen
t to
for
ce r
estr
uctu
ring
. T
op m
anag
emen
t is
mor
e lik
ely
to i
nitia
te
rest
ruct
urin
g w
hen
stra
tegi
c co
ntro
ls
are
in p
lace
.
Par
t 3:
Div
isio
nal
and
SB
U l
evel
stu
dies
Daf
t &
Mac
into
sh
(198
4)
Gup
ta (
1987
)
Tw
o-st
age
qual
itativ
e m
etho
dolo
gy
invo
lvin
g in
terv
iew
s w
ith m
iddl
e an
d up
per-
mid
dle
man
ager
s.
58 S
BU
s w
ithin
8 d
iver
sifi
ed f
irm
s.
Gov
inda
raja
n (1
988)
12
1 SB
U m
anag
ers
from
24
firm
s.
Gov
inda
raja
n &
Fis
her
(199
0)
121
SBU
man
ager
s fr
om 2
4 fi
rms.
Snel
l ( 1
992)
Su
rvey
dat
a fr
om
102
seni
or e
xecu
- tiv
es f
rom
sin
gle-
busi
ness
fi
rms.
Con
cept
ual
/ th
eore
tica
l pa
pers
: G
upta
&
Gov
inda
raja
n (1
991)
.
Thi
s pa
per
iden
tifie
s fo
ur m
anag
eria
l co
ntro
l sy
stem
com
pone
nts
at t
he
mid
dle
man
ager
le
vel:
(1)
budg
ets,
(2
) po
licie
s an
d pr
oced
ures
, (3
) pe
rfor
man
ce
appr
aisa
l sy
stem
, an
d (4
) st
atis
tical
re
port
s.
Pape
r fo
cuse
s on
cor
pora
te-S
BU
re
latio
ns.
Ope
nnes
s in
cor
pora
te-S
BU
re
latio
ns
and
subj
ectiv
ity
in
perf
orm
ance
as
sess
men
t ar
e po
sitiv
ely
asso
ciat
ed w
ith e
ffec
tiven
ess
in f
irm
s tr
ying
to
build
mar
ket
shar
e or
pur
sue
diff
eren
tiatio
n as
a c
ompe
titiv
e st
rate
gy.
Pape
r ex
amin
es
whe
ther
bus
ines
s us
ing
diff
eren
t st
rate
gies
ar
e su
bjec
t to
di
ffer
ent
cont
rols
pr
oced
ures
. R
esul
ts
sugg
est
that
an
app
ropr
iate
m
atch
be
twee
n al
l th
ree
adm
inis
trat
ive
mec
hani
sms
(bud
get
eval
uativ
e st
yle,
de
cent
raliz
atio
n an
d lo
cus
of c
ontr
ol)
with
st
rate
gy
is a
ssoc
iate
d w
ith
high
er
SBU
ef
fect
iven
ess.
A
m
ism
atch
w
ill
be
asso
ciat
ed
with
lo
w
effe
ctiv
enes
s.
Inve
stig
ates
th
e re
latio
nshi
ps
amon
g co
ntro
l sy
stem
s, r
esou
rce
shar
ing
&
com
petit
ive
stra
tegi
es a
nd t
heir
eff
ect o
n SB
U p
erfo
rman
ce.
Out
put
cont
rol
and
reso
urce
sha
ring
ar
e as
soci
ated
w
ith h
ighe
r ef
fect
iven
ess
for
low
-cos
t st
rate
gies
an
d be
havi
or
cont
rol
and
high
res
ourc
e sh
arin
g ar
e as
soci
ated
w
ith h
ighe
r ef
fect
iven
ess
for
a di
ffer
entia
tion
stra
tegy
.
Pape
r te
st h
ypot
hese
s re
latin
g in
put,
beha
vior
an
d ou
tput
co
ntro
ls
with
pr
oduc
t-m
arke
t va
riat
ion,
m
anag
ers
know
ledg
e of
cau
se-e
ffec
t re
latio
ns
and
the
crys
talli
zatio
n of
sta
ndar
ds
of d
esir
able
pe
rfor
man
ce.
Prod
uct-
m
arke
t va
riat
ion
is p
ositi
vely
re
late
d to
beh
avio
r co
ntro
l us
e. W
ork
flow
in
tegr
atio
n is
ass
ocia
ted
with
low
use
of
beha
vior
an
d ou
tput
co
ntro
ls.
248 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
measurability, was identified as socialization or “clan” control. The next stage in the development of these ideas was Ouchi’s (1980) paper in which the transaction costs perspective was used to identify three mechanisms of control; markets, bureaucracies and clans. Clan based systems imply that individuals in the firm have low goal incongruence. This mechanism may replace bureaucratic mechanisms when the costs of measuring performance outcomes is high. Ouchi and Johnson (1978) identified US organizations which closely resemble “clan” forms.
Eisenhardt (1985) tested a model which involved the integration of organization theory approaches with agency theory. Task programmability, information systems and uncertainty are combined to predict which control strategy, behavioral or outcome, is used. High programmability implies a knowledge of cause and effect relationships and therefore, leads to behavior based control. When behaviors cannot be fully observed, additional costs such as surveillance mechanisms, cost accounting measures, budget systems, or additional layers of management may be necessary. The alternative is to evaluate and reward based on outcomes (e.g., profitability). The result is a trade-off in which outcome measures are surrogates of behavior measures. After 1985 studies shifted away from this research direction to one directed more towards corporate controls and one towards divisional/ SBU research. Despite this shift, the basic assumptions have remained the same.
Corporate Level Studies
Another complementary stream of research emerged in the early eighties that focused on examining which control systems are most appropriate for a given strategy. This line of research also examines the pitfalls of using inappropriate control mechanisms. Ettlie, Bridges and O’Keefe (1984) presented evidence that firms using acquisition strategies become more complex, formal and decentralized. These changes were found to be negatively related to new product introductions. They further argued that centralization is necessary for radical innovations to be adopted. This increase in formalization and firm size leads to a greater emphasis on bureaucratic controls which leads to standardized behavior and inertia (Romanelli & Tushman, 1986).
Hill and Hoskisson (1987) examined three different types of economic benefits from multiproduct structures. They argued that synergistic, financial and vertical economies require different control arrangements. Financial controls require financial control systems (analogous to output controls (Eisenhardt, 1985). Decision making is decentralized and divisional mangers are evaluated on divisional profits or ROI (Hoskisson & Hitt, 1988). Pursuit of synergistic economies may be more appropriate for related diversification strategies in which tangible and intangible interrelationships are sought (Hill & Hoskisson, 1987; Porter, 1985). Vertical economies require a degree of central coordination and linkages between divisions (Child, 1984). The imposition of these linkages in order to achieve vertical or synergistic economies decreases the ability of the firm to realize financial economies.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 249
Hill and Hoskisson (1987) argued that as interrelationships increase and diversified scope increases, managers may be increasingly unable to process this information (required for strategic control use) and may rely more on financial evaluative criteria. This reliance on financial criteria may lead to risk avoidance and an emphasis on short-term profitability (Hoskisson, Hitt & Hill, 1991). Baysinger and Hoskisson (1989) and Hoskisson and Hitt (1988) provided evidence that high levels of diversification decrease R&D expenditures. A more extensive review of the unintended consequences of the multidivisionsal firm (M-form) can be found in (Hoskisson, Hill & Kim, 1993).
Schreyogg and Steinmann (1987) proposed a more comprehensive model of strategic control that involves a feedforward process that includes strategic surveillance, premise control as well as implementation control (feedback process). This process is similar to that described by Ruefli & Sarrazin (1981). Chandler (199 1) examined this issue and concluded that strategic planning firms use very comprehensive control mechanisms embodying several of the concepts promoted by Schreyogg and Steinmann (1987). All three of these authors maintained that managers need to have detailed knowledge of firm operations in order for this system to work. Hill and Hoskisson’s (1987) information processing arguments support this assertion.
More recently, Johnson, Hoskisson and Margulies (1990) argued that corporate restructuring (refocusing) may be linked to managerial control loss. Large diversified firms may have “overdiversified” and need to restructure in order for managers to regain strategic control. Hoskisson and Johnson (1992) presented evidence that suggests downscoping may reduce the span of control and the amount of information to be processed such that top management can reimplement strategic controls. Their examination of restructuring firms pre and post-restructuring indicated firms increase R&D post-restructuring. In addition, they also argued that many firms restructuring in the 1980s did so due to incompatible control procedures (strategic vs. financial controls) (Hill & Hoskisson, 1987). Consistent with this finding, Johnson, Hoskisson and Hitt (1993) found that managers were more likely to restructure the firm prior to drastic performance declines and board of director involvement if strategic controls were in place. Hitt, Hoskisson, Johnson and Moesel (1993) provided additional data which indicated that bureaucratic controls consistently inhibit R&D expenditures and that an emphasis of financial controls reduces innovation while strategic controls are positively related to innovation.
Divisional and SBU Level Studies
A stream of divisional/ SBU research developed concurrently with research on corporate control. Gupta (1987) examined fifty-eight SBUs from 8 diversified firms and found that openness in corporate-SBU relationships and subjectivity in performance assessment were positively associated with effectiveness. Openness and subjectivity in performance assessment are analogous to the strategic controls discussed by corporate control researchers (Hill & Hoskisson, 1987; Hoskisson & Hitt, 1988; Hitt, Hoskisson & Ireland, 1990; Kerr, 1985). Govindarajan (1988) found that a match between administrative systems
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
250 BLUEDORN, JOHNSON, CARTWRIGHT, AND BARRINGER
(including controls) with strategy is associated with higher SBU effectiveness while a mismatch is associated with lower effectiveness.
In a similar vein, Gupta and Govindarajan (1991) suggested that the nature of corporate control may vary across subsidiaries. Using multinational firms (MNCs) as an example, they argued that global innovators and integrated firms rely more on behavioral controls (strategic controls); implementors rely more on outcome (financial) control use. Lastly, Snell (1992) examined the relationship between input, behavior and output controls with product-market variation, managers knowledge of cause-effect relations and well developed standards of performance. Interestingly, Snell’s input control systems are in some ways similar to “clan” controls (Ouchi, 1979; 1980), but more closely aligned with input control (Jaeger & Baliga, 1985) in that they relate to selection and training of individuals.
Future research might examine how control systems and pay are linked. Kerr (1985) provided some interesting insights but more work is needed in this area. Schreyogg and Steinmann’s (1987) operationalization may represent a more complete picture of strategic control. What is lacking now is a clear definition of strategic control. In addition, what type of information is used to assess performance?
Future Directions
Discussions in previous sections have suggested that managerial characteristics are related to diversification posture (Michel & Hambrick, 1992) and that managerial locus of control may affect strategy and structure (Miller et al., 1982). Fligstein (1985; 1987) found that managers organize firms to reflect their perceptions of the world. He examined the relationship between the characteristics of managers and M-form adoption and found that managers with sales or finance backgrounds were more likely to switch to the M-form structure. In addition, top management teams may not, given the choice, use the same types of information given the same situation. Thus, managerial characteristics and ambitions may, in fact, influence the decision as to what types of control systems are implemented. Since managers have different personalities, some may be more suited to a strategic planning style analogous to Schreyogg and Steinmann (1987) or Goold and Campbell (1987) as opposed to a financial control style. Managerial functional backgrounds may determine the ability managers have of interpreting different types and modes of communication. Changes in management style may be most evident in tirms in which successions have occurred.
Given the recent restructuring wave, it would be interesting to examine how potential conflicts with regards to control and reward systems have been resolved, if they have been resolved. Major restructurings may be another opportunity to examine the effect of managerial characteristics on the control system post-restructuring. Many firms initiate restructuring due to performance declines which may be brought about by inconsistencies in control systems (Hill & Hoskisson, 1987; Hoskisson & Johnson, 1992). One question that might be further explored would be whether managerial predispositions to a particular control type are overcome or whether they retain the same systems of control.
JOURNAL OF MANAGEMENT, VOL. 20, NO. 2, 1994
STRATEGIC MANAGEMENT AND ORGANIZATIONAL ENVIRONMENT 251
Conclusion
Bluedorn and Evered (1980) developed a framework for describing a theory’s position in the theory-development life cycle as well as for charting different paths of theory development. This framework specified general tendencies for theories to increase in their scope (breadth of phenomena addressed) and explicitness (precision of theoretical statements) along a variety of paths. We see the topics covered in this article as subject to these same tendencies and possibilities.
We expect the strategic leadership/ upper-echelons perspective’s explicitness to increase as research begins to test the processes underlying the empirical correlations between upper echelon factors such as age and functional background and variables such as strategy and organizational performance. If variables and propositions from areas such as group dynamics and organizational culture are used to more directly explain variables such as the effects of top management team tenure, the upper echelon perspective’s scope could also increase.
Our discussion of scanning has anticipated this exploration of theoretical development. It identified trends toward the growing scope of the scanning concept as well as propositions for testing the scope-expansion suggestions. Scope could also increase if the streams of scanning and information processing research would begin to merge. Our discussions of these streams indicated that they were at times difficult to distinguish, and a unified model of the two phenomena would certainty cover a larger array of phenomena than either stream covers currently. Because the streams seem so closely related and often overlap in specific studies, we believe the potential for theoretical synthesis is especially promising between these two streams.
The area of interorganizational relationships has relied considerably on the relatively broad and explicit transaction cost and resource dependence theories for much of its theoretical underpinning. It may be that a unique theory of interorganizational relationships is unnecessary, even though their investigation may yield new propositions and findings that could expand either or both of the theoretical perspectives upon which interorganizational relationship research is based. And as we noted, institutional theory could be applied to interorganizational relationships research, an application which would expand the theory’s scope as it is applied to their new domain. Indeed, the application of transaction cost, resource dependence, and institutional theories to the phenomena of interorganizational relationships represent a combination that could produce a synthesis that would represent a genuinely new theory.
Although we have identified many theoretical opportunities in both this discussion and our previous discussions, threats have also been defined. For example, the revolution just beginning in the statistical treatment of the “fit” or “match” concept with polynomial regression seems threatening because it indicates that work based on difference scores or profile similarity indices may be invalid, thereby requiring reanalyses. This revolution seems likely, however, to spur researchers and theorists to make much more precise theoretical
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statements, thereby increasing the explicitness of fit propositions in theories based on the fit concept. This revolution thus provides opportunities for greater theoretical precision and explicitness as well.
Given the similarities between models of business-level and corporate-level control, a synthesis of models developed for these two different levels would entail a major increase in scope. The similarities and to some extent the overlap between these models also makes the synthesis seem to be more than just a possibility.
We have tried to identify many of the possibilities for increasing the scope and explicitness of the theories and models dealing with the phenomena we have covered in this review. We emphasize that we have identified possibilities, and some of them seem more likely than others. None of them are certainties, however, for we hold with the physicist Niels Bohr, that prediction is difficult, especially about the future.
Note
1. We examined every issue of the following journals from 1980-1993 to prepare this article: Academy of Management Journal, Academy of Management Review, Administrative Science Quarterly, Journal of Management, Organization Science, and Strategic Management Journal.
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