Contingency of Strategic Corporate Management

Table of Contents

1. Introduction and Problem Statement

2. Approach and Objectives

3. Strategic Corporate Management and the Theory of Contingency
3.1. The Nature of Strategic Management
3.2. Contingency and Strategy

4. Empirical Examples
4.1. Facebook
4.2. Google

5. Conclusion

Bibliography

Executive Summary

This study evaluates the relevance of contingency under ontological and modal logical aspects for strategic corporate management. To emphasize the relevance of this approach, current conditions in economy, society and science are described in a context which leads to the problem statement. By using established textbooks and scientific papers, the meaning, purpose and structure of strategic corporate management is shown to provide an overview of the key elements that are relevant for this study. In this context, the contingency approach is differentiated from the well‐known situational approach (contingency approach), that was developed in the 60s of the 20th century by British and American scientists. The more general meaning of contingency is analyzed under ontological aspects by using the essential core of Richard Rorty's theoretical approach on contingency which leads to the most relevant factors: luck and serendipity. The theoretical and fundamental significance of this evidence for strategic corporate management is subsequently shown by two empirical examples. This practical view provides the contextual relevance and shows why the approach and statement of this study can be considered as the most relevant for the first major success and economic breakthrough of the chosen examples: Facebook Inc. and Google Inc. A conclusion finally recommends awareness to consider contingency in strategic findings under the premises of strategic foresight.

1. Introduction and Problem Statement

“Luck is what happens when preparation meets opportunity.”

Lucius Annaeus Seneca (attributed c. 4 BC – AD 65)

From this point of view, the more prepared the luckier one can be. Using famous Seneca’s statement literally, preparation for every conceivable situation leads to success. Exactly this is the way scholars, scientists and researchers generally argue if they try to explain and determine cause and effect, in short causality. By answering questions such as: “What is the best strategy for business success?”, “What is the key element of successful managers?” or: “Which factors lead to successful strategic management decisions?”, they try to explain successful courses of action for the future by using examples from the past, or they help themselves using strongly generalized frameworks which in turn can be considered as a schematic condensation of experiences. But reliable, logical and scientific justifications or at least theories, respectively theoretical approaches, are often missing (Schulenburg 2008, pp. 1 ff.). Hence, some literature is simple popular science trash or in a less serious case colored or characterized in the view of the author. Therefore, the author views for example the field of strategy in different ways and thus approaches the analysis or the discourse according to how he defines the core body of corresponding knowledge (Enz 1986, p. 237). Consequently, the determinism, initiated by natural sciences, does not tolerate to question popular approaches or theories in economic sciences without being stigmatized (Schmolke 2009). Nevertheless, it can be found out that contingency in the field of strategic management is more and more being paid attention, in this context concrete enough as embodiment of luck or more scientific as serendipity (De Rond 2005; Ong et al. 2010, p. 379). Though, luck is a term frequently used and generally understood, but rarely defined (Parnell, Dent 2009, p. 1002).

This study tries to give an impression of how relevant luck is (or more general: Contingency) in the field of strategic management. For this reason, this work will also not skimp on illustrating this topic on examples from the past. This study will also try to show when or in what phase of enterprise the factor of contingency must be considered in particular. And as befits as scientific work, a conclusion provides advice to consider contingency in strategic findings under the premises of strategic corporate management.

2. Approach and Objectives

The approach of this research is, to evaluate the relevance of contingency under ontological and modal logical aspects for strategic corporate management. By using established textbooks and scientific papers, the meaning, purpose and form of strategic corporate management is shown to provide an overview of key elements for this research. In this context, the contingency approach is differentiated from the well‐known situational approach (contingency approach) that was developed in the 60s of the 20th century by British and American scientists. The more general meaning of contingency leads after its analysis to its theoretical and fundamental significance for strategic management. Empirical examples provide the contextual relevance in recent economic success stories. They will even show why the approach of this research can be considered as the most relevant for their first major success and economic breakthrough. The early stages of Google Inc. and Facebook Inc. are therefore used to show the element of contingency as a crucial component of their success at that time.

3. Strategic Corporate Management and the Theory of Contingency

The following chapter elaborates the interdependence of strategic management and contingency. A brief outline of the meaning and purpose of strategic management reveals issues, which in turn create space for a serious consideration of contingency in the context of strategy and management.

3.1. The Nature of Strategic Management

Strategic management is concerned with the development, planning and implementation of substantive goals, objectives and orientations of market‐based organizations (Finlay 2000, p. 20). The two main levels of strategic management are: The Corporate and the Business (competitive) (Sadler 2003, pp. 13, 14). This categorization provides a framework for different questions, addressed to decision makers to ask in the finding of appropriate answers. The corporation is generally seeking to answer questions like “What business should we be in?” and “Which competencies do we need to develop?”, whereas the profit‐seeking business is dealing with questions like “How do we compete?” and “Which capabilities do we need to develop?” (Finlay 2000, p. 20). To answer questions like these, analysis, systems, plans or structures are used, for example Porter five forces analysis, SWOT, balanced scorecard, strategy map, PEST analysis, growth– share matrix or Six Sigma (Sadler 2003; Finlay 2000; Matzler et al. 2011). The phases within instruments like these are used to find and implement strategic decisions are: picturing the future, organization position determination, selecting strategy, implementation and control, and managing the internal context. This entire study elaborates and evaluates the core issue under the premises of the corporation, what is needed to consider precisely under chapter 4 of this study.

The origin of strategy is still a matter in the design of management. Strategy has its origin in the military and was developed in the context of fighting war and devising ways and approaches for winning war (Prasad 2009, p. 2). Deriving the concept of strategy from ancient Greek, it appears exactly what substance the term includes: Ancient Greek " στρατηγία (stratēgus)" means "commander / army commander". The environment within strategic management takes place is still characterized by conditions that are warlike and militant: chaotic, complex, dynamic, turbulent and uncertain (Finlay 2000, p. 20). Even the staff is nowadays again being “recruited” and not being “hired”. For this reason, strategic management tends to use models as simplifications. It is necessary to simplify the world within a corporation makes business. Or, citing Finlay: "[...] they must develop models of their world." (Finlay 2000, XVIII). And exactly here is a mayor issue. Models are simplifications of reality. They are used in science to discard unnecessary details so that the fundamentals can be seen more clearly (ibid.). Rabin, Hiller and Hildreth (2000) are addressing this issue with dozens of pages in their handbook for strategic management under the topic of complexity theory and chaos theory. However, they are influenced in their conclusions about the importance of the aforementioned aspects for strategic management as usual by the omnipotent determinism. From their point of view "Environmental uncertainty is defined as the lack of knowledge of future conditions in an organization's environment that results from the complexity and rapidity of change." (Rabin et al. 2000, p. 203). Though, at least they admit that uncertainty limits the ability of the organization to act or to make a rational strategic decision (ibid., p. 207). Founder and namesake of strategic management Harry Igor Ansoff had addressed the entire issue of complexity. He even treated basic axioms in the context of complexity within a philosophical and psychological approach to avoid dependency to determinism (Ansoff 1979, pp. 224 ff.). However, many of his approaches were not taken up and developed again, probably owed by the addiction to ostentation in the business world.

3.2. Contingency and Strategy

During the 60s of the 20th century, a new orientation within the management theory and management research originated. This orientation emphasizes the importance of situational influences to the management of an organization and questions the existence of a single, best way to organize and manage (Zeithaml et al. 1988). This orientation is nowadays known as the contingency approach. The most cited scientists in this context are on the English spoken side Joan Woodward (Great Britain), who analyzed production technology and contingency in industrial organizations, Peter Michael Blau (Austrian‐American citizen) who wrote about sizes of organization within the contingency approach, and on the German spoken side Alfred Kieser (Germany), who developed a conceptual model of the contingency approach (Blau, Schoenherr 1971; Kieser 2002; Woodward 1965). There is still a difference of opinion whether this approach is useful, practical or even applicable. In the English spoken management literature, the contingency approach still dominates theory and research while on the other hand the German spoken management literature thinks that this approach is outdated (Zeithaml et al. 1988, Introduction; Schreyögg 1998, pp. 54 ff., pp. 63 ff.). Though, all scientific disquisitions have so far in common that they all focus a deterministic structure. Even the aforementioned scholars argued within a causal chain by using models or examples. But since the late twentieth century, a scientific discipline overarching approach has been recognized as an important component in scientific discovery. Since the seminal work of Barney (1986), the approach of using luck or more scientific serendipity is explored by numerous researchers from various streams, for example social science, psychology and management research (Ong et al. 2010, p. 379). The main characteristic of luck and serendipity is that both terms are highly contingent and in some cases even equated with contingency. In 2009, Parnell and Dent published an article about the role of luck within the strategy‐performance relationship. In their article, they stated that from the management school perspective, "[...] luck may play little or no role, a view consistent with scientific inquiry assumption of causality." (Parnell, Dent 2009, p. 1001). Following this logic, the performance of a firm may be perceived as a function of relatively controllable factors, including strategies. However, there are factors which are not under the organization's control, they are virtually unoccupied. This view in turn is consistent "[...] with the statistical notion of explained and unexplained variance. The notion of luck is associated with the latter category." (ibid., p. 1002). Parnell and Dent furthermore use different perspectives to unveil the object of luck. From the practitioner's perspective, they describe the subjective notion of luck which leads even to chance‐categories in which the sense of self and awareness highly infer luck and its recognition. Unfortunately, the scope of this study does not allow to elaborate in more detail the very interesting individual categories. In terms of strategy in general, Orcullo (2007) realized that managers nowadays should consider "[...] a variety of external factors as well as a multitude of environmental considerations and a number of changes in which the conduct of the business is done." (Orcullo 2008, p. 7). Especially in relation to the environmental considerations it is appropriate to refer to Richard Rorty. Rorty is the most cited and referred scientist (philosopher), educated at the University of Chicago and Yale University, in regard of the contingency theory of truth on an ontological basis. He pleaded to say goodbye to the concept of truth and objectivity (Horster 1991). Truth is, from his point of view, not simply random but also a random mode of speech, so contingent. Using his approach in the context of strategy, corporate management and contingency, it is impossible to make “right” decisions in regard to the implementation of strategies for corporate management. Even if one draws decisively deterministic the right conclusions, should that not mean that they are “true” and will be reality or the event will occur. After all, even the reality is contingent, a fortiori models which even reduce the content of reality.

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