This paper is picking up a combination of three perspectives on strategy that are trying to perform a shift of paradigm towards a new way of strategic thinking serving as the basis for a strategy process in dynamic markets. The combination of these three perspectives has been termed the complexity theory of strategy by Davis and Eisenhardt. This theory combines Austrian economic thinking, the dynamic capabilities view, and complexity theory. Austrian economics perceive markets as a rapid flow of heterogeneous and surprising opportunities that need to be captured by strategic managers. The dynamic capabilities perspective perceives organizational resources as simple capabilities that enable quick, flexible, and creative improvisation to respond effectively to this rapid flow of opportunities. Complexity theory perceives organizations and the economy as simple systems, which produce complex and adaptive responses to environmental change. The complexity theory of strategy, in general, focuses on “[…] simple rules in guiding improvisational actions in the effective execution of a series of often fleeting opportunities.” The three particular theories contribute to strategic management thinking to overcome the shortcomings of traditional strategic management thinking in dynamic markets.
The purpose of this paper is to create a strategy process from the perspective of the complexity theory of strategy which meets the requirements of dynamic markets. How do the three underlying theoretical approaches from this theory contribute to form a strategy process for dynamic markets? In order to answer this question, elements from the three theories will be analyzed and assembled in a new framework for creating strategy which is more adequate in dynamic markets than classical process models.
The major result of this paper is that there cannot be a process model of sequenced steps for creating strategy because it would be too rigid to consider critical features for creating strategy in dynamic markets. Rather, the result is a loose framework for creating strategy in dynamic markets that is formed out of elements from the complexity theory of strategy. The framework does not rely on a single strategic process sequence nor is it completely reactive. Rather than ignoring change it helps creating a relentless pace of change and, thus, may be able to meet the requirements of dynamic markets.
Table of Contents
1 Introduction
1.1 Background and objectives
1.2 Outline and structure of the paper
2 Strategic paradigms
2.1 Traditional approaches to strategy
2.1.1 Strategic positioning
2.1.2 The resource-based view
2.2 Complexity theory of strategy
2.2.1 Austrian economics
2.2.2 Dynamic capabilities
2.2.3 Complexity theory
3 Market dynamism
3.1 Determinants for market dynamism
3.2 Necessity of considering market dynamism
4 Strategy process in non-dynamic markets
4.1 General characteristics
4.2 Steps
4.3 Critics of the classical process model and deficiencies in dynamic markets
5 Contributions from the complexity theory of strategy to the strategy process in dynamic markets
5.1 Austrian economics
5.2 Dynamic capabilities
5.3 Complexity theory
6 Design of a new framework for strategy creation
6.1 Setting
6.2 Content
6.2.1 Coordination within system two
6.2.2 Internal control and optimization within system three
6.2.3 Innovation and adaptation within system four
6.2.4 Simple rules within system five
6.3 Comparison of the new framework with the classical process
6.4 Check for validity in dynamic markets
7 Conclusion and implications for research and practice
Objectives and Core Topics
The primary objective of this thesis is to develop a new framework for strategy creation that addresses the requirements of dynamic, unpredictable markets. It moves away from rigid, linear process models towards a loose framework embedded in the Viable Systems Model (VSM), effectively synthesizing insights from Austrian economics, dynamic capabilities, and complexity theory.
- The inadequacies of traditional, static strategy processes in highly dynamic environments.
- The integration of complexity theory, Austrian economics, and dynamic capabilities into a unified strategic paradigm.
- The role of the Viable Systems Model (VSM) in providing an optimal organizational structure for real-time strategy adaptation.
- The implementation of "simple rules" to guide improvisational strategic actions.
- Transitioning from a centralized, top-down approach to an emergent, networked organizational structure.
Excerpt from the Book
3.1 Determinants for market dynamism
Davis and Eisenhardt “[…] define highly dynamic markets as environments with a turbulent flow of surprising market opportunities […]” Velocity is defined by the pace of opportunity flow in a given market. The velocity of opportunities is perceived to be a critical factor in the process of strategic decision making and firm performance. Complexity describes the difficulty of capturing these opportunities. Various factors like institutional norms, geographic or material-resource constraints, or technical challenges can increase the complexity of opportunities because they increase the number of opportunity features that must be correctly executed. Ambiguity is the degree to which the key features of the environment are difficult to understand. It is also an important aspect of the environment regarding adaptation and performance of strategic decision making. Finally, entropy is the degree of unpredictability in the features of opportunity flow over time. Thereby, low entropy means that the features of opportunities are similar across time and that an ordered pattern of opportunity flow exists that is relatively predictable, whereas high entropy stands for more often changing configurations of opportunity features across time. The higher these four conditions the more dynamic a market is. The lower these conditions the more static a market is.
Summary of Chapters
1 Introduction: Provides the background and objectives, highlighting the need for new strategic paradigms in an era of rapid, unpredictable change.
2 Strategic paradigms: Reviews traditional approaches like strategic positioning and the resource-based view, and introduces the complexity theory of strategy.
3 Market dynamism: Explains the characteristics of dynamic markets (velocity, complexity, ambiguity, and entropy) and why traditional management foundations are shaking.
4 Strategy process in non-dynamic markets: Examines classical sequential strategy process models and their deficiencies in contemporary, high-velocity environments.
5 Contributions from the complexity theory of strategy to the strategy process in dynamic markets: Derives key insights from Austrian economics, dynamic capabilities, and complexity theory to inform a new strategic process.
6 Design of a new framework for strategy creation: Proposes a new, loose framework based on the Viable Systems Model, focusing on internal coordination, innovation, and the use of simple rules.
7 Conclusion and implications for research and practice: Summarizes the findings and provides guidance for researchers and managers on applying the new framework.
Keywords
Strategy Process, Dynamic Markets, Complexity Theory, Austrian Economics, Dynamic Capabilities, Viable Systems Model, Simple Rules, Strategic Positioning, Resource-Based View, Strategy Creation, Organizational Structure, Adaptation, Innovation, Emergence, Self-Organization
Frequently Asked Questions
What is the fundamental problem addressed by this thesis?
The work addresses the observation that traditional, sequential strategy process models are too rigid and mechanistic to function effectively in highly dynamic, unpredictable business environments.
What are the primary theoretical pillars of the proposed framework?
The framework is built upon three main literature streams: Austrian economics, the dynamic capabilities view, and complexity theory.
What is the core objective of the research?
The goal is to create a more flexible, loose framework for strategy creation that enables organizations to effectively adapt to the rapid and unpredictable flow of business opportunities.
Which scientific methodology is primarily applied?
The author performs an analytical synthesis of existing strategic management theories and organizational models to assemble a new framework, subsequently validating it against the characteristics of dynamic markets.
What topics are covered in the main body of the paper?
The body analyzes market dynamism, the limitations of classical strategic processes, the specific contributions of the three underlying theories, and the architectural design of a new framework using the Viable Systems Model.
Which keywords best characterize the research?
Key terms include Strategy Process, Dynamic Markets, Complexity Theory, Dynamic Capabilities, Viable Systems Model, and Simple Rules.
How does the VSM help in strategy creation?
The Viable Systems Model provides a structural template for organizing a firm's operations and strategy, allowing for both the stability needed for daily business and the flexibility required for rapid strategic adaptation.
Why are "simple rules" recommended instead of detailed plans?
Simple rules provide sufficient guidance for improvisational action while avoiding the paralysis caused by thick manuals and complex, rigid structures in fast-changing environments.
- Quote paper
- Katja Kanngiesser (Author), 2006, The Strategy Process in Dynamic Markets, Munich, GRIN Verlag, https://www.grin.com/document/83652
