bluedorn 1994 journal of management

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 contingency 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



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



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


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.


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).



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


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

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g K

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pr

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hrea

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port

uniti

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likel

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savo

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an t

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ts.

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nese

m

anag

ers

wer

e m

ore

likel

y th

an A

mer

ican

m

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ers

to i

nter

pret

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as

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ats.

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ain

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w

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dina

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, an

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mer

ican

na

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ls.

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elop

ed

a sc

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for

“sco

utin

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(sca

nnin

g)

and

foun

d th

at

prol

onge

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outin

g w

as n

egat

ivel

y re

late

d to

sev

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ind

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of te

am p

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rman

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m

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on

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port

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attit

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rate

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on

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and

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ctic

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tas

k en

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as p

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a

sect

or,

the

grea

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inte

rest

in

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anni

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the

sect

or;

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perc

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th

e gr

eate

r th

e sc

anni

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freq

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ecto

r;

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little

re

latio

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p be

twee

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urce

of

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~on

and

perc

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d en

viro

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late

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(opp

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) an

d th

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terp

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issu

es a

s co

ntro

llabl

e.


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



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



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



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.



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



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


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).


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



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



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.



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



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



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 organizations 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



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.


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)

.


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



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



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 interorganizational 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.



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 interorganizational 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.


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

.


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.



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.



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 interorganizational 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.


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



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



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.



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.



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


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.


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.



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



(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.



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



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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