General Approaches

The two main approaches are opposite but complement each other. The Industrial Organizational approach is based on economic theory and deals with issues such as competition, resource allocation and economies of scale. It assumes rationality and targets profit maximization. The Sociological Approach deals primarily with human interactions and assumes bounded rationality, satisfying behaviour and lower profits. An example of the second approach is Google.

Strategic management can be viewed as bottom-up, top-down, or collaborative. In the bottom-up approach, employees submit proposals to their managers who funnel the best ideas up the ladder. This is often part of a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Incorrect estimates of costs and benefits are common errors. Approved proposals implicitly form the substance of the strategy without a strategic design or architect.

The top-down approach is the most common by far. In it, the CEO and the Board of Directors, decides on the overall direction the company should take. The strategy flows down through the organization as each unit adapts to the new approach.

Some organizations employ collaborative techniques that surface new ideas in the process leveraging advances in information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. This notion of strategy has been captured under the rubric of dynamic strategy, popularized by Carpenter and Sanders. This work builds on that of Brown and Eisenhart as well as Christensen and portrays strategic management as the seamless integration of strategy formulation and implementation.

Simulation gaming is a tool for thinking through the ramifications of a particular strategy. Generalized games allow employees to experiment with an unfamiliar environment and try out ways to make decisions in accord with the strategy. Functional games create problematic situations and enable employees to explore ways to address them.