The four quadrants of strategy formation
Whittington (2001) devised a table containing four quadrants displaying various schools of strategy. Each quadrant contains an archetype of strategy formation. Whittington fills in the quadrants by asking two questions: What goal does the strategy serve? How is the strategy created?
The vertical axis addresses the question of goals. The extremes on this axis are the profit perspective (goal: maximizing profits) and the combined social and economic perspective (goal: social progress).
The difference is the amount of perspectives used: one perspective or multiple. The profit perspective is placed opposite the plural perspective. The how-question is addressed on the horizontal axis, with the extremes being deliberate and emergent.
This article will explain each quadrant of strategy-formation by Whittingon.
1. The classic approach
The guiding principle of the classic approach is getting an advantage over the competition. The ultimate goal of a company is profitability.
The best way to achieve this is rational planning. Strategy-formation is therefore the same as strategic planning. What is required to achieve the strategic goals can logically be deduced from the goals. The goals are explicitly formulated and set in stone before starting the planning process.
Achieving above-average profitability
Planning goes according to a controlled thinking process: rational, distant, and sequential. This way of formulating strategy was pioneered by Ansoff. Other authors, like Sloan, Chandler, and Porter, can also be considered classic strategists. Their goal is to secure a company’s future by achieving above-average profitability.
The surroundings of the company are seen as the most important factor; that’s why people think “outside-in”. The classic approach sees people as homo economicus. On the vertical axis in Whittington’s table, the economic mono perspective is dominant.
No interference from day-to-day
It’s best to develop a strategy from a distant vantage point: using rational analysis, from a place where there’s no interference from the day-to-day operation of the business.
Separation between formulation and execution
A typical hallmark of the classic approach is the consistent separation between strategy formulation and strategy execution. Formulating is exclusively management’s job. But the execution is delegated to lower levels of the company. The assumption from the classical strategists is that it will then be executed without any problems.
2. The evolutionary approach
The evolutionary approach also starts from the economic mono perspective. The difference with the classic approach is that the strategy is formed spontaneously, rather than being determined beforehand.
Biology as inspiration
The thinking is that you can’t plan a strategy ahead of time. The foundation for the evolutionary approach was established by Hannan & Freeman (1989). They looked at biology: why do some species survive changes in their environment, and others don’t?
Planning is futile
Spontaneous strategy formation is provoked by the environment, because it’s both hard and unpredictable. Competition is aggressive and dynamic, therefore hard to predict. Planning is futile.
Take advantage of the situation
That leaves one possibility for management: continuously taking advantage of the environment and the competition. The market is “perfect” and determines whether or not the strategic answer is successful, and thus if profits are being maximized.
Continuous search for maximal ‘fit’
Strategy is management’s search for the company’s fit in a continuously changing environment. After every step it has to be determined which next step offers the most opportunities. It’s about differentiating and experimenting. Only when looking back can you see a certain pattern in the actions developed by the company. This pattern developed over a period of time, after which new developments followed.
3. The processual approach
The processual approach is about spontaneous strategy formation and the assumption that the market decides.
The difference with the evolutionary approach is that this selection isn’t completely cold-hearted, but “mild” (Vrakking, 2001). Because the market isn’t perfect. An economically maximized result therefore isn’t achievable.
Exploit market imperfections
You can achieve an optimal result by exploiting market imperfections and successfully implementing the strategy. That’s why a lot of attention should be paid to implementation. But the organization also has to be flexible enough to adapt.
People are lazy
Adaptability can be problematic. Cyert and March (1963), who laid the foundation for the processual approach, see people as lazy. That’s why markets and organizations can start to behave as slow, lumbering institutions who can’t adapt to a changing environment quickly enough.
People are partially rational
Cyert and March also think people are prejudiced, and so only partially rational. Their politics get in the way of rational decision-making. That’s why the social perspective plays an important role in the processual approach, aside from the economic perspective.
Every group has its own goals
The company is seen as a coalition of groups of participants. Social and political processes lead to every group pursuing its own goals. You can’t expect that such a coalition will strive for profit maximization as its only goal.
A process of learning and adjusting
The groups of participants won’t get behind one logical plan for the long term without caveats. That’s why management should see strategy formation as a process of learning and adapting. The only thing you can do is learning as you go from a strategic vision.
Continuous process of adjustments
This approach increases the chance of lasting strategies, because not all participants will recognize the need for change equally. That’s why strategy formation is a continuous process of adjustments.
4. The systemic approach
This approach is also called the institutional approach. It was founded by Mark Granovetter (1985) in an article where he discusses the concept of embeddedness.
Embedding strategy in social networks
Economic relationships between individuals or companies are always embedded in actual social networks. Granovetter puts the exclusively economic approach in this perspective.
Organizations all have to deal with specific markets, political relations, and cultural systems. The organizational strategy is shaped by the character of all these factors.
Goal connected to local culture
Within the social system, the goals are determined, the strategy is developed, and matters other than profit are given priority. Goals and means are always connected to local culture.
Society determines higher interests
People are, contrary to what is presupposed by the processual approach, capable of making rational plans, but society determines which higher interests must be served by the strategy.
Big differences between countries
Strategy is also influenced by values and expectations from those who have a relationship to the organization, like employees and suppliers. This also explains why there are big differences between strategic approaches in various countries. That’s why the strategies of similar companies are different in, say, Japan, than in the United States.