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The Age of Strategy: From Drucker and Design to Planning and Porter

  • Kevin D. TennentEmail author
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Abstract

By the 1990s, Strategic Management had emerged and consolidated itself as a “capstone” element of many business and management school degree programs, most notably on MBA courses. This chapter follows the development of the strategic management discipline from the late 1930s to the early 1990s by considering some of the most important works in the field, demonstrating how strategy detached itself from the broader managerial and societal concern of organizational purpose reflected in the works of authors in the field before 1975. It narrowed in focus to become a purely economic construct, with the effect of hiving off governance and leadership as entirely separate academic subfields.

Keywords

Strategic management Drucker Porter Mintzberg Design school Positioning school 

Introduction

The period from the Second World War until the 1980s was one in which the developed world grew more comfortable with the concept of the large organization as an integral part of the economy and society. It was, to a large extent, the dominant mechanism for the organization of the capital-intensive second industrial revolution industries then in their heyday as well as the emerging organizations of the third, as well as some of the increasingly important service industries. Scale was felt through the factors of capital, land, and labor as organizations had evolved to subsume and organize their own supply chains and distribution channels. Industrial and commercial organizations, typologized by Alfred D. Chandler (1962) as the “modern industrial enterprise,” were therefore becoming increasingly complicated, employing many more people than before, and typically developed hierarchies and managerial structures that involved a mix of decentralization and centralized authority, often with chains of managers or administrators who were increasingly removed from the shop floor. The modern industrial enterprise together with other large-scale corporate organizations was enjoying an increasing amount of authority over the everyday lives of the populace in western countries and gradually in the wider world too. This behemoth is needed to be controlled and directed in some way (although for whose benefit remained contested ground). The academic disciplines of administrative science, business policy, and then eventually strategic management emerged to rise to the challenge of providing theories and prescriptions to first make sense of and then provide instruction for this challenge. Generally speaking, this involved deliberate and conscious forward thinking of some form as to how best to direct and deploy these resources, through some rationalizing process.

This chapter aims therefore to discuss some of the major themes emerging from this cache of writers who attempted to provide schemas for the rationalization and control of the modern industrial enterprise, which undoubtedly involved the evolution of a business progressive paradigm with quasi-militarist overtones. The strategic management discipline, with its inherent disagreements and competing schools of understanding as it emerged from the 1950s and 1960s onward, has been heavily chronicled and critiqued by recent authors with an interest in the field including Mintzberg and Waters (1985), Mintzberg (1978, 1990, 1994, 2004), Mintzberg et al. (1998), Carter et al. (2008), as well as Chia and Holt (2009). The related acceleration of business school activity has been critiqued in the works of authors such as Kharuna (2007) and McDonald (2017). This account aims to be sympathetic and complimentary to the works of these authors and the themes they bring forward but also aims to broaden the discussion somewhat. It is difficult to escape the oeuvre of Mintzberg, perhaps the discipline’s most effective historian because of the reflexive character of his work. Mintzberg et al.’s (1998) work is an extremely valuable work as it charts the battles around what strategy ought to be, what we might consider the planning, position, and perspective wars. Mintzberg’s earlier work (1990; Mintzberg and Waters 1985) focused on a critique of the normative understandings of the design and planning schools (and the assumptions that later schools identified by Mintzberg, including the positioning and cultural inherited) that forward thinking around the deployment of resources was a necessity, showing that strategy could also be developed on the hoof or even retrospectively, and his thinking ultimately culminated in a critique of MBA education that suggested that strategic management had culminated in an empty process of strategic programming detached from the reality of running a large organization, with the consequence that strategy, rather than the success of the organization, became the overriding aim (2004). Segal-Horn (1998) and later Carter et al. (2008) follow in a similar mold, focusing on the military origins of the very notion of strategy as traceable back to antiquity in the warring city states of Greece, the very term deriving from “Strategia,” a subunit of Greek soldiers and their commander, a “Strategios.” This is then mapped through the work of Machiavelli (1515) and Clausewitz and Rapoport (1982) to demonstrate that strategy is ultimately about the projection of power in society, a characteristic often overlooked or underplayed by economically theorized approaches, perhaps most notoriously, but not exclusively, those of Michael Porter (1980, 1985, 1990). Chia and Holt (2009) further focus on the notion of deliberacy and strategic action as the projection of power, even suggesting that direct projection of power can ultimately end up having the opposite effect to that originally intended.

Nonetheless, this chapter would like to contribute the idea that there is more to this story than the mis-adaption and application of rationalistic and militaristic ideology to complex business environments. In particular it would like to contribute the idea that managerialism is a “missing” school of strategic management from the normative classification put forward by Mintzberg et al. (1998). Mintzberg is right that the period running from the 1940s to the 1980s, and especially between the 1940s and 1970s when the influence of the Second World War was at its height, was the golden age of strategic planning. There was, further, a progressive obsession with political and economic planning as well as of urban space (see Jacobs (1962) for a contemporary critique of this), which spilled over into corporate strategy. An important part of the story to consider is that as the discipline defined itself, it gradually narrowed in scope and ambition, perhaps with destructive consequences – starting firstly through the work of pioneering authors such as Barnard (1938), Drucker (1946, 1955, 1967, 1974), and Selznick (1948, 1957) who incorporated strategy within the mid-century concept of managerialism (Doran 2016; Klikauer 2015), a broad concept of the corporation and organizational statesmanship in early attempts to define it, to a plan for the corporation under planning and design school authors such as Christensen et al. (1978) and Ansoff (1965), to an economically deterministic choice for the corporation by the time that we reach Porter (1979, 1980, 1985, 1990) and his resource-based view critics (Barney 1991; Dierickx and Cool 1989; Grant 1991; Prahalad and Hamel 1990; Wernerfelt 1984). By the 1980s “strategic management” had emerged as a distinct discipline out of “business administration” or “business policy,” but in its mainstream it had become almost entirely concerned with the holy grail of “sustained competitive advantage,” a relatively narrow conceptualization in which the aim of a successful firm was to create long-term economic rents for itself. These views assumed that there were no costs associated with cooperation and organization itself and that organizations were essentially malleable to the creation of strategy. This shift was to a large extent the consequence of a perceived need to remold managerialism to a Friedman (1962) style purpose of making a profit within the law, something furthered by Jensen and Meckling (1976), escaping both the Druckerian model and the design and planning-based approaches to strategic management. This chapter therefore begins with a discussion of some of the early authors who conceived strategy very differently to later authors, in a much more holistic fashion, before tracking the contraction down through design and planning to positioning and resources.

Proto-strategy: Organizational Statesmanship and Managerialism

In the USA of the 1920s and 1930s, a paradigm had emerged that the complex modern organization was becoming an increasingly hegemonic entity in society. The Great Depression following the Wall Street Crash of 1929 reinforced this Zeitgeist. Berle and Means (1932) identified the power gap created by the increasing control over American society’s resources enjoyed by large corporations. These corporations were increasingly characterized by the separation of ownership and control, and a major point of dispute following the Dodge v Ford case had been the extent to which management were obliged to run a corporation in the interests of creating a surplus for shareholders (Henderson 2007). This phenomenon spilled over into foreign policy, partly driving the US expansionary relations with Latin American states until the introduction of the “Good Neighbour” policy by Roosevelt in 1933. Adolf Berle was partly inspired by his experience of serving in the US military during the country’s occupation of the Dominican Republic, which was encouraged by corporations in the fruit industry (Russell et al. 2017). Nonetheless Berle, who had served in the military with his co-author Gardiner Means, saw value in the dispassionate character of military service as an entity of itself and viewed the separation of ownership and control in the large corporation as an opportunity to reorient management toward a similar ideology of dispassionate service in favor of the public good (Smith et al. 2018). This was expressed as a claim that “neither the claims of ownership nor those of control can stand against the paramount interests of the community” (Berle and Means 1932, p. 356), creating the expectation that the moral duty of senior management should be to provide stable and fair employment together with a steadiness and continuity of business itself. This arguably subverted the idea of shareholder primacy toward some form of stakeholder primacy. Berle and Means assigned an ideological, moral duty to the corporation to serve all its stakeholders equally but also, and critically, felt that this duty should be reserved to the manager as the professional (and perhaps university trained) expert rather than workers themselves (Smith et al. 2019, pp. 15–19). The Berle and Means book went through numerous reprints and had a significant and deep influence over American business culture for the next half a century or so (Bratton 2000; Bratton and Wachter 2009; North 1983; Pepper 2019; Thompson 2019; Tsuk 2005).

The expectation that managers should provide moral leadership capable of furthering the complex organization as a societal as well as economic entity was then taken up by early writers including Chester Barnard (1938), Philip Selznick (1948, 1957), and, perhaps most famously, Peter Drucker (1946, 1955, 1967, 1974) who attempted to consider how this synthesis could be achieved for the whole organization, rather than its individual functions. Barnard, a former president of the Rockefeller Foundation and the New Jersey Bell Telephone Company, used The Functions of the Executive to set out a theory of human cooperation and organization in the round, before discussing in more depth what the role of the executive might be in directing and shaping such systems. Barnard covered all forms of formal organization, not just the profit making (1938, p. 7), and made important contributions around the nature of decision-making in complex environments (1938, pp. 197–205) as well as in terms of the barriers to cooperation which he considered could be overcome through common purpose and communication achieved through efficiency (1938, pp. 82–92), essentially a continued communal enthusiasm for contributing to the organization (McMahon and Carr 1999). The essence of Barnard’s theorization was that increasing human cooperation required increased moral complexity with many different codes of morals (e.g., family, religious, social, organizational, and professional) coming together within individuals, which also necessitated an equivalent technical proficiency. Within this maze Barnard identified leadership or a high personal aptitude for both technical attainment (understanding of the technological basis for the business) and moral complexity as the “strategic factor” affecting the organization; thus to combine the two vectors successfully required a form of “moral creativeness” expressed in a dynamic process (1938, pp. 288–289).

Moral creativeness was not just the ability to reconcile conflicting ethical codes with each other but also the ability to design codes of ethics for others, which would hold the organization together (1938, pp. 272–284). This was difficult to do or properly comprehend in a complex organization, and ultimately Barnard suggests that while much prescriptive knowledge is known of the technical and functional sides of business, including accounting, finance, and personnel work (of the types already elaborated by people like Taylor (1911) and Mayo (1924)), what was required was a more general theory of organizational behavior. This would allow the five million or so people that Barnard estimated were involved in a form of executive work in the USA to share knowledge and ideas more readily (1938, pp. 288–290). Barnard saw organizations as complex institutions which meshed together many different priorities for individuals, and that strategy was about creating a shared, cooperative code or purpose that could consolidate these claims together. Barnard’s legacy and his focus on the character of cooperation and decision-making influenced by competing moral codes and priorities would go on to be further influential in the organizational behavior field (Mahoney 2005). This was not least in the works of Herbert Simon (March and Simon 1958; Simon 1947, 1982), who established the related field of organizational behavior by exploring the rationality of humans as decision-makers, leading to the idea that organizational context was so powerful that it could encourage bounded rationality.

Selznick’s (1948, 1957) writing would continue to struggle with the moral problem of organizational complexity in a similar vein, by pointing to the essential challenge of unifying leadership in what were increasingly habitually ingrained and routine-bounded organizations. Selznick’s response, best developed in his pithy 1957 book, was the concept of institutional statesmanship creatively transcending everyday aims of efficiency and organization by instead using relationships between the stakeholders within and without the organization to direct it, realizing that these interactions were the potential sources of strength for the organization. The term “resources and capabilities,” later a central fixture of the resource based or cultural school, appears for perhaps the first time in a strategic management text, and certainly 2 years before its credited origin in Penrose (1959), as for Selznick the role of the institutional statesman is to create a unity of purpose to best use these existing facets of the organization (1957, p. 149). But again there remained a sense of moral purpose, or “institutional integrity,” that an organization should retain a “sense of security” and that the statesman’s role was to identify change that would only further contribute to the organization’s agreed and desired purpose through the building of cogent myth, not to radically reshape or contravene it (1957, pp. 150–153). Selznick thus continued to conceptualize strategy as a problem of social cooperation, arguing that leadership involved reshaping the social structure of an organization itself to achieve excellence. Thus his work could be applied to both for profit and not for profit organizations. Selznick’s contribution, which sees the organization as both an inelastic and intangible entity, would be underrated by later strategy writers, his book having only 95 citations on Google Scholar at the time of writing, but it clearly inspired the thinking of Alfred D. Chandler (1962) who based his research on the concept of seeking an explanation for the rise of the modern industrial enterprise as an institution. Chandler is a critically important early writer who spans the bridge between the organizational statesmanship and the design school, “Chandler and the Visible Hand of Management Chapter”, I do not deal with him explicitly here. But Selznick through Chandler would go on to inspire the institutional school of organizational analysis (Fligstein 1990; Gillett and Tennent 2018; Scott 2001; Skelcher and Smith 2015; Thornton and Ocasio 2008), which has become increasingly influential in the twenty-first century.

Barnard and Selznick both saw the organization and thus management as an isolated unit of analysis, with social purpose beyond the organization remaining more implicit, but the intellectual contribution of Peter Drucker, at least within his works on strategy, would be to more explicitly connect the purpose of management and the organization to broader societal purpose. Mintzberg et al. (1998, pp. 13–14) say relatively little about Drucker, concentrating mainly on his 1970 paper on entrepreneurship and a 1994 summary in Harvard Business Review (Drucker 1970, 1994), but do identify that his view was one compatible with the Minzbergian view of “strategy as perspective” or “an organization’s fundamental way of doing things” (Mintzberg et al. 1998, pp. 13–14). Perspective was inward looking not just to resources and capabilities but also upward looking, considering also the view of the organization held by the strategy makers. But this to some extent undersells Drucker’s strongest work on strategy, which was to essentially argue that the duty of management was to use its perspective to identify how best it could profit by serving the needs of society. Drucker thus prescribed strategy content to some extent, as well as process. This was a stream of research started with his ethnographic work on General Motors, The Concept of the Corporation, which focused on the internal structure and workings of the company more than the market side, suggesting that the company would be more productive if it further decentralized its management style (1946, pp. 120–125). So controversial was Drucker’s view that he saw the GM CEO, Alfred P. Sloan’s memoir My Years with General Motors (1967), as a rebuttal. But this book was merely the start of Drucker’s project to reform American business by consolidating and building the managerialist project.

Drucker’s Practice of Management (1955) is perhaps the most relevant of his works which touch on corporate strategy; while some of the ideas of the book may seem self-evident to modern practitioners, they may not have been so in the 1950s. Both prescriptive and philosophical, the book builds an egalitarian and progressive portrait of the potential of management as an open practice that anyone with new and innovative ideas should enter rather than a profession with entry to be closed by degree or certification. Its primary purpose was to manage a business, prioritizing economic performance (1955, pp. 7–9) and building a productive enterprise which “transmuted” human and material resources into something greater than their constituent parts. Critically for strategists, this was a process which was lengthening due to the technological sophistication of new plants and products (1955, pp. 11–15). A longitudinal case study of Sears (a company also later examined by Chandler) as it evolved from mail order firm to an out of town “big box” store through the early twentieth century is used to develop one of the earliest points of the book – that the role of management is essentially to adapt the organization to face the market, but this required a conscious adjustment of perspective to carefully consider what business the firm should be in (1955, pp. 25–41). Interestingly for the later thinking of Porter, this entailed some horizon scanning and thought around concepts of value together with the structure of the market and likely future changes within it and a broad belief that investment in marketing would deliver results as it was the defining constitutive factor which made a profit seeking business a business, leading Drucker (1955, p. 36) to make the startling claim that European industry was struggling compared to American industry because it was not market oriented enough. A similar claim was made for the American railroad and coal industries that had declined because managements had not thought carefully about what business they were in (Drucker 1955, pp. 48–49), which seems perhaps to naively overlook the concerns of long-term capital investment and sunk costs which could make switching the means of production costly. The idea that value was constituted from what the customer seeks would prove to be critical for the future development of the strategic management discipline. More broadly, a sense emerges that though Drucker saw the corporation as a social system, he did not conceptualize it as a slow evolving dogmatic institution in the way that Selznick did; enlightened managers would operate in concert to build and adapt the bureaucracy to the needs of the economy.

Drucker then moves on through a discussion of managerial objective setting to square the idea of corporate value creation with social contribution, which in his view should be the essential strategic objective of management. Here, Berle’s ideas are extended. Drucker argues for a broader focus of strategy than just profit making and, ultimately, that companies as the primary engine of wealth creation and indeed resource concentration had a broader responsibility to society. Modern industrial society was unable to exist without the legal personality of the company, and hinting at the influence of Adam Smith’s (1776) concept of self-interest, he argues that self-interest alone on the part of property owners was insufficient to further the public good. Thus, in an almost Millsian conception of liberty (1863), it was down to management to ensure the public good by using their powers to act within ethical standards in order not to infringe upon either the common weal or individual freedom (Drucker 1955, pp. 375–377). Echoing yet attempting to turn the famous quote of the General Motors President Charles E. Wilson on its head, Drucker maintained instead that it was business’ role to make itself good for the country or at least to combine the private and public good together by making the common good the same thing as self-interest. Thus Berle’s disinterested service was not enough; the ultimate aim point of managerial strategy should be that the public good determined the self-interest of capital, which we can interpret as manifesting itself in the provision of high-quality goods and services, in employment conditions, and in a general consideration for the wider community in the pursuit of business activity. For Drucker, this ethical synthesis was ultimately only achievable through management skill and improved practice, the shortcoming being perhaps being the implicit assumption that all managers should come to share Drucker’s vision.

Drucker continued to pursue this mission throughout his many publications until his death in 2005; The Effective Executive (1967) was a slimline volume which took a critical view of the challenge of organizational statesmanship, honing in on the problem of executive work, and specifically the idea that executives had to manage their time correctly to actually achieve their objectives, as much time was spent (or wasted?) on symbolic duties. This book, and his later tome Management: Tasks, Responsibilities, Practices (1974) which underlined and expanded many of the ideas of The Practice of Management, demonstrated an increased practitioner focus in Drucker’s work. Both books are written in fairly short, readable paragraphs designed for busy readers, with frequent (but sometimes quite oblique in terms of how they were put together) historical vignettes, and intensify his thesis around the ultimate social mission of management as a public good to be achieved through a sequence of objectives. To some extent Drucker’s work, as it became more concerned with functionalist areas, then veered away from strategic management in the pure sense, but his work remained concerned with management skill and its linkage to the overall ethical direction of management. Strategic management scholars have perhaps been poorer for neglecting Drucker as well as other strategic thinkers of the managerialist era.

The Golden Age of the Design and Planning Schools

One of the characteristics of the development of management studies in the USA in the 1950s was a split in approach between the two leading institutions – the Carnegie Institute of Technology’s Graduate School of Industrial Administration (which employed Herbert Simon among others), which favored a research-based approach, and the experience-based approach favored by the Harvard Business School (HBS) (Mintzberg 2004, pp. 22–26). HBS had developed a distinctive applied intellectual style based around the principle of “problem-based learning,” in which business practitioners were invited into the class to pose strategic problems for students to devise policies to solve. This approach was introduced in HBS’s Business Policy course in 1912 and proved popular with students such that it was rolled out onto the school’s other modules. By the 1960s, HBS was in a golden age of expansion and growth; a 14-week “Advanced Management Program” (AMP) aimed at senior executives aged between 30 and 50 had been introduced in 1945 and continued to succeed, cross funding the growth of the school’s MBA program and allowing for the construction of dedicated classrooms, dormitories, and “executive facilities.” By 1967 the AMP could boast 460 past or present chairmen or presidents of American companies among its alumni (McDonald 2017, p. 152). This teaching environment encouraged the development of a new rationalistic “strategy as process” approach embodied by the pervasive and influential textbook by Christensen, Andrews, and Bower (1978), Business Policy: Text and Cases, first published in 1965. This foundational text emphasized that strategy or policy as it was more properly conceived at the time should be made through a rational design process. Further, and in a major difference from the more theoretical thinking of the organizational statesmanship school, content was de-emphasized in favor of process, with the consequence that leadership was not something to be reflected on in itself but something to be developed through a process of “strategic analysis” (Christensen et al. 1978, pp. 9–11).

Transferability of experience and skill came from analysis (1978, pp. 247–259) while still involving explicit engagement with the moralities of organization (1978, pp. 524–533). The central concept was that the teaching of decision-making had to involve an awareness of the context so that learners could reach an informed judgment, however superficial an understanding this might be. Therefore Business Policy consisted mainly of a series of empirical case studies, intended to fully immerse students into context, but linked together by short theoretical chapters authored by Kenneth Andrews that emphasize strategic design rather than strategy content. Content was context specific, and the design of strategy considered more an art than science (1978, pp. 10–11). As Freedman (2013) notes, the strategist’s role was to bring the rationality of generalism to the table and to follow a sequential framework of external and internal analysis, strategic decision-making, and implementation, guiding the design of a strategy. This generalist and rationalist step-by-step approach would make it possible for strategists to foresee, intervene, and construct the future direction of an organization, perhaps for many years to come (1978, pp. 125–142). The case method attempted to bring reality into the classroom, enhanced by Andrews’ focus on SWOT analysis (1978, pp. 247–259), originally intended to be a sort of “look before you leap” organizing framework than a matrix in itself, which Hill and Westbrook (1997) would later deride as a mere list-making process. Rather the idea was for the strategist to use the SWOT analysis to inform their decision-making process (though the mechanics for this were left somewhat vague) as to how the company’s existing attributes could best be melded to “design” an appropriate “choice of products and markets” (1978, p. 258) and, echoing Chandler, a structure to support and deliver it. A design metaphor was used with Andrews calling the CEO or company president the “Architect of Organizational Purpose” (1978, pp. 19–21), who had the skill to choose both the optimal activities for a firm and the force of personality to see them carried through. Mintzberg (2004; Mintzberg et al. 1998) has long been sharply critical of the unreflexive character of the case method enshrined in this book, pointing out that a mere explanatory article on a company is not sufficient for students unfamiliar with its products, processes, or people to truly understand it and thus that it encourages “disconnected” decision-making among graduates when they move into the real world.

The Christensen, Andrews, and Bower (1978) textbook has fallen out of use in management teaching and learning since the 1970s, but an overall processual and thus design view of strategy remains dominant in pedagogy today, despite its implicitly paternalistic view of the strategist. Stakeholder management was a part of the process to be visited on the pathway between design and implementation. Christensen, Andrews, and Bower (1978) continued to some extent emphasize the moralistic concerns of the managerialists and clearly understood the political role of strategy yet at the same time assume strategy making to be entirely the role of the CEO. The book does include some consideration of “fit” in terms of the strategy’s relevance to the potentially unaligned aspiration of individual managers and the company’s potential contribution to society (Christensen et al. 1978, pp. 448–454, 524–533). However, while McDonald (2017, p. 260) suggests that this evidences Andrews’ ethical focus, there was a difference in approach from Drucker for whom societal contribution was not optional; for Andrews, it was an element of strategy to be judged and chosen in itself and most relevant to the CEO’s ethical compass. Further, these stages of the process came after a strategy had been chosen in relation to the SWOT analysis, somewhat closing the door to political discussion. The implication was a power relation granted to the CEO, not the strategy of statesmanship as skill alluded to by Barnard and Selznick. This perhaps has the dangerous implication that managers may take less seriously the need to embrace a process of coalition building, reducing the building of support to a box ticking exercise, before attempting to change an organization’s strategy.

The concept of processuality and thus the envelope of perceived rationality remains an almost taken-for-granted part of much strategic management pedagogy in the twenty-first century, perpetuated by mass market textbooks including Pettigrew (1988) and perhaps most pervasively Johnson and Scholes (1993). The Pettigrew book is conceptually underpinned by the concepts of context, process, and change, while Johnson and Scholes present strategy as a linear process of analysis, choice, and implementation. While using a Venn diagram to display the three concepts, rebranded in recent editions as “Strategic Position,” “Strategic Choices,” and “Strategy in Action” in an attempt to show that these concepts should not become a linear pathway, as choices may have to be reinterpreted in light of recent events, the chapters of Exploring Strategy, now in its twelfth edition (Whittington et al. 2019), still proceed in a manner which would be recognized by Andrews. While Mintzberg et al. (1998) present strategy as a conflict of interpretation between ten schools with very different and not always compatible intellectual assumptions and heritages, the Exploring Strategy series shoehorns concepts and frameworks almost shorn of context into parts of the process, so Porter’s Five Forces (1980) becomes an external analysis tool, while Barney’s VRIN (1991) becomes an internal analysis tool, facilitating an essential SWOT construction process, while Porter’s Generic Strategies (1985) are introduced as a tool for strategic choice. This structure bears a remarkable resemblance to Mintzberg et al.’s visual interpretation of the design school model (1998, p. 26), and with the textbook claiming sales of over a million cumulatively, it seems likely that repackaged versions of the Andrews model will continue to have impact in practice for a long time to come.

The danger inherent in strategy process was that the process would become an end in itself, an outcome most clearly fulfilled by the related, but different, planning school – different because it insisted on the explicit statement of objectives as a future outcome of the process rather than relying on implicit managerial values and judgment (Mintzberg 1994, p. 40). The planning school probably represented the apex of managerialism in practice; it took the assumption that rationalization rested on process from the design school and extended this premise considerably. Strategy formation was not to be a loose activity based around one CEO but now a mass activity involving the entire cohort of senior managers in the modern industrial enterprise, together with a staff of dedicated planners. These managers were expected to engage in strategy formation as a formal process, broken down into steps, and complimented by rigorous analysis techniques. This process would mean that new strategies emerged fully planned and cogent to the overall organizational purpose and objectives, often to be implemented through systems of budgetary control and objective setting (Mintzberg 1994, p. 42).

The planning school’s foremost proponent was H. Igor Ansoff, who’s text Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (1965, 1988) sets out perhaps the most extensively detailed manual for corporate expansion and diversification. Building on the ideas of Chandler around capabilities, and Drucker around objectives, as well as sharing Drucker’s essential paradigm that management was a skill to be learned, the book is far more precise and systematizing than the Business Policy series. Written in a very “matter of fact” style with the positivist epistemological feeling of an engineering manual, the book is proudly prescriptive and is paradoxically both broad and narrow in scope all at once; Ansoff claims that strategic decisions are almost entirely related to growing the firm and how this will be achieved, either through present products or markets or through diversification (1988, p. 24). This focus has had the ironic impact that the most widely diffused and replicated element of Ansoff’s work has been the “growth vector components” matrix which illustrates these choices (1988, p. 109), but this diagram was only part of a much broader series of steps intended to engineer firms to bridge the “impedance match” between firm and environment. A range of schematics and flow diagrams, breaking everything into steps, choices, and classifications, are provided, including, for instance, a “Decision Schematic in Strategy Formulation” which pathed the strategist through a consideration of whether capabilities suited diversification or organic growth, which was intended to help the reader analyze the “gap” between firm and objectives (1988, p. 46). One of the most complicated was the 19-point “Decision Flow in Project Selection” intended to appraise strategic projects for synergy (identifying and measuring this being another key concept of the book) and portfolio fit, which proposed 16 decision points in itself (1988, p. 186)! These planning schematics may have encouraged managers to think more carefully about what they were doing and certainly provided the enveloping security of recipes and methods. Ansoff was followed by other authors in proposing frameworks for forward strategic planning, most notably Steiner (1969).

From a historical perspective, it is hard to escape the conclusion that the foremost weakness of the planning school, and indeed by extension the design school, was that the future rarely works out in exactly the way we intend. Mintzberg and Waters (1985) were foremost in critiquing the limits of “deliberate” strategy, suggesting that the consistency in patterns of decision and intraorganizational cooperation were insufficient to deliver intended strategy if it was blown off course by the emergence of unforeseen environmental conditions. Empirically, the challenge of emergence overtook corporate as well as social and political planners as the 1960s turned to the 1970s, as competition from Asian economies started to threaten the viability of second industrial revolution manufacturing in North America and Europe, and the 1973–1974 oil crisis caused a general inflationary shock. Planners evolved techniques such as scenario planning, in which a number of different futures were designed to attempt to cope with uncertainty, most famously at Shell, where it was claimed that the scenario planners had foreseen the oil crisis as a possibility, allowing the company to turn the crisis to its relative advantage (Cornelius et al. 2005). One of the most high-profile failures of planning was outside the corporate sphere. The US Secretary of Defense and HBS graduate Robert McNamara mismanaged the Vietnam War, based on the assumption that the planned maximum application of force, including the rational calculation of “kill ratios,” would win out in the end over the Vietcong, a force using more spontaneous, emergent guerrilla tactics which suited the local landscape (McCann 2017; Summers 1981). The McNamara case also emphasizes the detachment between planner or strategist and on the ground events or implementation, inherent in planning-based approaches, with a dangerous disconnect coming into effect which may blind the strategist to the ineffectiveness of direct action.

In its creation of rationalizing roles for managers, design and planning can be seen as stage at which managerialism was at its foremost influence in strategic management, but it also had more pernicious effects. Core among them was the Ansoffian assumption that growth was the normative objective of all firms and that no other outcome was worthy of being considered a sufficiently great “engineering” problem in business policy. Thus while Ansoff took on Drucker’s interest in objectives, he dropped out the broader sense of aligning corporate purpose with society’s needs and even to some extent neglects the profit making and value creating potential of business. At its worst, in terms of corporate policy, the soft diffusion of planning school ideas perhaps exacerbated an obsession with increasing corporate size and diversification in the later 1960s and early 1970s, leading to the formation of conglomerate firms with an increasingly blurred sense of core capability. In 1970, 430 out of the 500 largest US industrial companies had three or more product divisions with forms of decentralized management; even as early as 1966, 46 of the largest 500 industrial companies had eight or more divisions (Blackford 2008, pp. 197–198). Despite the best intentions of theoreticians such as Ansoff, this forced the initiative toward what generalized managers could control, the financial side of companies, and thus a focus on economization and operational efficiency over innovation. In some ways, this last phase of corporatist managerialism may have hastened the rise of its antithesis, financialization. Not surprisingly, the 1970s and especially the 1980s saw an attempt to refocus strategy around the unitary business unit with specific competencies.

Positioning Strategy: The Impact of Michael Porter

The strategy academic who would lead the change toward the refocusing of strategy around the unitary business unit was Michael Porter. Porter took the rationalist and analytical apparatus of the design and planning schools and completely subverted it by introducing a new concentration on market logics and prescriptive strategy content. Porter achieved a genuinely transformational paradigm shift, successfully rebranding the discipline from “business policy” to “strategic management” or even just “strategy,” one which has also been credited with establishing the field as a serious space for rigorous scholarly endeavor (McDonald 2017, pp. 414–415; Mintzberg 2004, p. 35). Indeed, one of the biggest critics of Porter’s theories, Jay Barney (2011, p. 25), credits Porter with defining the academic field in several ways – he defined the “appropriate dependent variable” (and in the process shifted it toward quantitative analysis), with establishing theoretical frameworks, defining the correct unit of analysis, defining the role of social issues to the field, and generally with taking a field defined by loose and uncertain frameworks into a serious academic discipline but one still able to influence the work of managers. Further, Porter respectfully encouraged a conversation with his critics in the aim of more properly establishing the discipline (Barney 2011, pp. 30–31).

Like Christensen, Andrews, and Bower, Porter’s scholarship emerged in the executive education dominated environment of HBS, where he completed an MBA in 1971. In redefining the field, he took inspiration from the field of industrial economics, or more properly “industrial organization,” completing his PhD in Harvard’s economics department under Professor Richard Caves, who was influenced by the work of Joe Bain (McDonald 2017, pp. 411–413). Differing starkly from authors such as Barnard, Selznick, Drucker, Penrose, and Chandler who took the organization as a starting point, Bain (1956) took a neoclassical black box view of the firm, assuming away the idea that they could internalize transactions, and saw markets as the main unit of analysis. Bain thence argued that in the long run, the return on capital in all sectors should converge, because excess profits in any one industry would naturally cause an inflow of capital and competition into it, bidding down prices as supply increased. Bain’s interest was informing competition policy, to attempt to rectify monopolism in markets, but Porter was intellectually entrepreneurial, taking the idea back to HBS and reversing it (McDonald 2017, pp. 412–413). The essential direction of Porter’s scholarship would be that the aim of firm strategy was to identify markets or positions within markets where the forces of competition were weak and then exploit them to generate monopoly rents. This elegant simplicity of purpose provided intellectual compatibility with the claim of Jensen and Meckling (1976) that firms were essentially legal fictions while proving extremely popular with HBS’s practice focused students. This reconceptualization would allow Porter to eclipse the design and planning school scholars while adapting the “frameworks as tools” approach, both inside and outside the walls of HBS.

Porter’s first “blockbuster” framework, generally known as the “Five Forces,” first appeared in a Harvard Business Review article in 1979, essentially acting as a preview for his first major book, Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980), which centers around the concept, introducing it as early as page 4. This all-enveloping framework was designed to facilitate a structural analysis of a target industry to help strategists understand the fundamental characteristics which affected the supply and demand economics of the industry and thus to identify possible “defensible” and “offensive” strategies within that industry. The most important insight was to broaden the focus from simply thinking about the firms competing within an industry to more broadly factor in the impact of buyers, suppliers, and the threat of substitutes and barriers to potential new entry. Thus some industries, such as the provision of oil tankers, might be characterized by high buyer power as there were only a limited number of buyers (the large oil companies), while others, such as steel manufacturing, might see more acute competitive pressure from other industries producing a substitute product (Porter 1980, p. 6). This was not necessarily a new ground for strategy; both Drucker (1955, pp. 53–54) and Chandler (1962, pp. 9–11), for instance, have drawn attention to careful analysis of the industry and market structure, but Porter centered his thesis on it and avoided lengthy case studies, keeping real-world examples very pithy.

The second major framework introduced in Competitive Strategy was the three generic strategies (Porter 1980, pp. 35–44), a somewhat militaristic framework which claimed there were only three truly viable firm strategies, whether offensive or defensive – overall cost leadership, differentiation, and focus – any firm trying to mix them would fail in the long term, as it would be “stuck in the middle,” unable to defend its position, and thus “almost guaranteed low profitability” (Porter 1980, p. 41). Thus the task of management was to decide how value could be created and exploited based around the cost and price interplay of the market and to occupy that part of the market by erecting mobility barriers such that no one else could compete. While the book goes into considerable detail as to how these competitive positions might be achieved, the character and structural rigidity of the organization itself are assumed away; it is assumed that everything a manager needs to do is achievable without any process of organizational statesmanship or broader thought around implementation using the resources of the firm itself. This is a consequence of the re-imagination of the firm as merely an economic person. The very empirical basis of the framework, which claims that only one firm can successfully hold each position in a given industry, has been attacked by Speed (1989, p. 10). Speed points out that Porter provides only two examples of the U-shaped relationship between market share and profitability that underpins the concept (1980, pp. 43–44), while D’Aveni (1994) claimed that companies would simply be unable to resist eroding the optimal positions of the generic strategies, leading to a destructive phenomenon known as “hypercompetition” in which any rents would be competed away.

Porter’s second volume, Competitive Advantage: Creating and Sustaining Superior Performance (1985), continues in a similar vein and indeed repeats the five forces and generic strategies frameworks in the first few pages (1985, pp. 7, 12). What was new in the book was a deeper delve inside the firm in which Porter considered the organizational basis for competitive advantage, although this remained exclusively a matter of economic optimization. A new framework, the Value Chain (1985, pp. 46–47), was proposed which allowed for the analysis of industry and market to be extended to the economic configuration of activities inside the firm, with the proposition that economically alike activities and functions ought to be placed together to optimize the linkages between them, driving the firm’s chosen generic strategy. Thus the firm-level implementation question left open by Competitive Advantage was answered, and a profound point was made around implementation – competitive advantage did not just come from the production activity of a firm but was a fully fledged project involving all functions and support activities, such as logistics, procurement, human resource management, and research and development (1985, pp. 113–115). This opened up the potential for outsourcing or economization outside of noncore activities, though again the assumption appears to be that these activities could be costlessly reshaped to meet the needs of the organization. By the mid-1980s, political leaders such as US President Ronald Reagan had picked up on the compatibility of Porter’s ideas with the “neoliberal” project to make western economies more “competitive,” appointing Porter to a President’s Commission on Industrial Competitiveness in 1985 (McDonald 2017, p. 419). This created the opportunity for his vision to be further expanded through a third volume, The Competitive Advantage of Nations (1990). This book attempted to expand the unit of analysis to the national level, by introducing another new framework, “The Determinants of National Advantage” (often known as “Porter’s diamond”) (1990, p. 72), which became influential in the international business sub-discipline, essentially that a competitive and dynamic market within a country in a given industry would make it easier for firms from that country to establish a global competitive advantage in the same industry. For Porter, the world truly could be described in terms of neoclassical supply-demand economics.

The Porterian view of the world is one that is attractive to practitioners in the form of senior managers and policy-makers alike in that it offers a fairly straightforward and simple to understand set of prescriptions about the state of the world. Porter sets out his mission to go beyond the design school in offering strategy content in the introduction to Competitive Strategy, pointing out that the emphasis of formal strategic planning processes had been about asking questions of industry analysis in the right way, rather than answering them (1980, p. xxii). This he had certainly done while appropriating the formal mechanics of strategy. His “outside-in” approach, however, in borrowing from neoclassical economics, inherited the ahistorical assumption of the gnomic present (McCloskey 1998), building in the assumption that the past culture and heritage of a firm did not matter when setting its future direction. This assumption was challenged to some extent by the scholars of the resource-based view (Barney 1991; Dierickx and Cool 1989; Grant 1991; Prahalad and Hamel 1990; Wernerfelt 1984), who argued for a different version of competitive advantage – firm resources, both tangible and intangible, were valuable and inimitable since their exact configuration was impossible for others to replicate – Porter, of course seeking to set out an economically optimal configuration. Teece et al. (1997) would later seek to meld the two views together into a “dynamic capabilities” approach, suggesting that unique firm resources were themselves vital in building competitive advantage. Porter himself attempted to answer his critics in an article in which he claimed that “operational effectiveness is not strategy” (1996, p. 61), defending the idea that competitive advantage was achieved through a conscious process of value creation, not by falling back on resources inherent within the firm. His response was essentially that firms were not sticking to his prescriptions closely enough. None of this refocusing and consequential disciplinary narrowing of strategic management around the economic determinants of firm advantage would have developed without Porter’s contribution.

Concluding Remarks

The history of strategic management into the 1980s and 1990s saw a narrowing of focus, from a managerialist paradigm of the manager as a “renaissance man” (and they were usually men) directing productive resources for societal and organizational good to a much tighter definition around the achievement of “sustained competitive advantage.” This shift has encouraged the academic growth of the discipline, bringing it closer to economics, yet at the same time has made it more specific, ignoring the relationships between strategy and governance and strategy and leadership. It also to some extent echoed the growing sociopolitical interest in economic competition for its own sake after around 1975. This vision has been perpetuated and implanted into the consciousness of business people and perhaps to some extent mainstream culture not just by university teaching but also by management consultants (McKenna 2006), including Porter’s own company, Monitor (McDonald 2017, p. 420). The work of Porter and the RBV scholars, in particular, has ironically given its militaristic antecedence, ceded the field of governance to the intellectually compatible sub-discipline headed by the “law and finance” view scholars (La Porta et al. 2000; La Porta and Lopez-De-Silanes 1998), while leadership has been taken over by a field of scholars following the work of Burns (1978) and Bass (1985). This narrowing has undoubtedly been problematic; it has led to a progressive and unreflexive denial that strategy involves power relations at all.

This is not to contest that thinking about market position and the unique creation of value is a desirable thing for business or indeed perhaps for not for profit contexts too – it clearly is, and it is important for managers to think carefully about what their organization can offer that others cannot. As so often with ideology, it is the extreme view that becomes damaging – the narrow focus upon competitive advantage and thence the creation of monopoly rents to the exclusion of all else. This approach is justified through the neoclassical economic belief that wealth created by firms would trickle down to all of society, but this is incompatible with Bain’s original concern with the monopoly problem which was that monopolies appropriate excessive resources from consumers and thence society, as well as potentially stymying resources. This concern has to some extent been echoed by critical governance scholars arguing for a return to some form of managerialism (Lazonick 2013; Lazonick and O’Sullivan 2000; Stout 2002, 2012), who have pointed to increasing inequality in society since 1980 caused by an overconcentration on shareholder value. Severing the explicit link between strategy and governance first identified by Berle and Means in the 1930s has created the intellectual space for the strategic activities of managers to be subverted to this ideology. Focusing on one’s core activities, for instance, creates the perfect justification for downsizing and outsourcing, both drivers of economic and thence political instability in the west.

One final caveat – despite the broader focus on the strategy of the organization and its role within society of Barnard, Selznick, Drucker, and Andrews, this has as a whole been a very narrow story. Space has to some extent precluded a broader treatment of other authors, but I have tried to deal with the authors that I consider the most important, particularly those who influence the pedagogy of strategic management most. This has been a very white, male, essentially paternalist and American story, with most of the protagonists based within the (north eastern) USA and a particular focus on HBS. It is clear that a more “gestalt” approach to strategic management is required, echoing the broad focus of the work of Drucker to some extent, rather than the narrow focus of Porter, but a twenty-first-century approach drawing upon a broader and more diverse range of perspectives could be more profitable for both organizations and society as we move forward.

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Copyright information

© The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.The York Management SchoolUniversity of YorkYorkUK

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