September 29, 2014  
 
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Theories of Strategy Formulation

Written by Gregory Steffens for Gaebler Ventures

Past and current theories in the strategic management field are as varied as the industries they try to guide. These business climates may explain the lack of a universally accepted set of theories. Although numerous methods for companies to approach their strategic development exist, some are more widely used and accepted than others.

The idea of environmental determinism revolves around a company's external situation.
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Environmental Determinism

Effective management relies on its ability to adapt to the environmental, technical, and human forces affecting the company's position at any given moment. The company that best acclimates itself to these forces will emerge the most successful.

Principle of Enactment

Because environmental determinism limits the impact a company has on shaping its external forces, the principle of enactment was developed. The principle of enactment assumes that a firm can engage in a variety of activities, including advertising, strategic alliances, political lobbying, etcetera, to alter its external position. Large firms do not exclusively have the ability to shape their environments; however, smaller companies are limited in their influence. While larger companies can influence national government agencies and systems, smaller companies are able to influence local, municipal, and county policies.

While it appears that both theories are in direct conflict, both procedures need to be employed simultaneously for the benefit of the company's operations. If a company can influence an environmental force within a reasonable cost, it should jump at the opportunity. However, factors will exist that are either out of the company's control, or are too costly to change. The ability to adapt to such forces can have a dramatic impact on the firm's success.

Deliberate and Emergent Strategies

Some individuals believe tactical actions pursued by the firm are part of an overall broader strategy preconceived by management. However, this reasoning ignores opportunities that materialize from the implementation of deliberate strategies, called emergent strategies.

With emergent strategies, management recognizes an opportunity to exploit that was not predetermined nor intended. To take full advantage of these opportunities, companies must recognize them and act quickly before competitors do likewise. A classic example of an emergent strategy involves Honda. While contemplating the penetration of the U.S motorcycle market, which dealt exclusively with large-engine motorcycles, executives discovered an unidentified market for smaller-engine bikes. It was able to act swiftly on its discovery and secure two-thirds of the American motorcycle market.

Like environmental determinism and enactment, deliberate and emergent strategies need to be present for a company to fully capitalize on its opportunities. Relying solely on a predetermined strategy based on known information at the time, limits the company's ability to innovate. Without sufficient innovation, competitors could chip away at the firm's competitive advantage, thus leaving its operations vulnerable. Emergent strategies, however, do not arise often enough for a company to rely solely on their occurrence. Deliberate corporate and business-level strategies need to be in place to direct the company's operations, but management needs to pursue opportunities as they emerge.

Gregory Steffens is a talented writer with a strong interest in business strategy and strategic management. He is currently completing his MBA degree, with an emphasis in finance, at the University of Missouri.


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