Strategic Management Theories BY Attendants Course paper: Strategic Management Theories Introduction The course in Strategic Management Theories provided a brief overview of the major theoretical approaches from the strategic management field that can inform my current research. We went through fundamentals like the industrial organization and Porter; ETC; the resource and knowledge-based views; the dynamic capabilities perspective; evolutionary, organizational learning and network theories.
Changing the lenses of exploration of strategy helped evaluate multiple possibilities of approaching the concepts of interest in my own research and the inherent methodological and analytical challenges to them. With this overview in mind, and my phenomena of interest, I have chosen to adopt the evolutionary perspective of strategy, suggesting some degree of managerial intentionality and developing my research through the prism of the Pascal model of internationalization. This paper will proceed as follows.
First, I will present the potential contributions of the research and the gaps in the literature it intends to tackle. Then, I will briefly review the heretical approaches I consider relevant, in view of the type of firm I have chosen to concentrate on. Thirdly, the research questions and framework will be presented and the constituent concepts, the relationships between them and the underlying mechanisms will be defined accordingly. Consequently, the methodological approach to gathering evidence to support the arguments will be discussed.
Contradictions in the literature and contributions of the research The purpose of my project is to explore the replication strategy in the context of the internationalization process of rims that base their business model on internet technology. The purpose of the research would be twofold: on one hand it aims to contribute to the theoretical conversations in the three scholarly fields on whose intersection the project lies: strategic management, international business and organizational behavior.
On the other hand, it will provide a framework of reference for practitioners which will guide them in the decisions regarding internationalization. The contributions of this research are intended to be threefold. Firstly, looking into the conditions under which internet-based firms use different replication formats can contribute to the refinement of the replication strategy literature and the scholar conversation on the organizational setup in the internationalization process. So far, Winter, Jensen, Slaking, Johnson, Lulls and Foss among others have looked in detail into the replication strategy.
While the former three concentrate mostly on knowledge characteristics and knowledge transfer, Lulls (2009) develops propositions about the conditions under which a replication strategy is more likely to succeed in a competitive setting. There are contradictions however regarding the most suitable ay to replicate – while Winter and Slaking (2001) posit fixed replication format and no subsequent change, Foss and Johnson (2011) suggest flexible replication format harnesses learning to achieve improved performance.
Furthermore, existing research connects the replication strategy to performance, the destination environment, the replication’s experience and the effect of reverse knowledge mechanisms on the specific industry or business-model has not yet been explored. Secondly, this research intends to concentrate on performance and managerial intentionality augmenting the value of learning for the financial results of the firm. Internationalization theories to date heavily emphasis path-dependency in firm development, paying little attention to managerial intentionality in the process.
This research puts knowledge management, as an expression of conscious managerial intervention, in central position affecting performance. Additionally, scholars so far have provided anecdotal insight on Macs using replication as their internationalization strategy Monsoons and Foss, 2011; Quinn, 1998; Schultz ; Yang, 1999; Watson, 1997; etc. ), but little is known on the mechanisms by which international replication balance global integration with local responsiveness.
The replication strategy offers excellent ground for the study of processes of understanding the market, adapting the business model to different settings (institution- and regulation-wise), exploration and exploitation of knowledge. Finally, Eisenhower and Santos (2002) urge future research to seek robust explanation of the emergence of learning processes, the shaping of learning behavior, structures and social norms influence on learning, governance of learning strategies (Oboist, 1998; Cool and Winter, 2002; etc. And the connection between knowledge/learning and firm performance. The design of this research project aims at exploring how interaction between the design of global work arrangements, learning processes, target markets, and organizational history influence the emergence and evolution of a strategy format and ultimately – organizational performance. The third contribution is empirical – there is only anecdotal evidence and few attempts at theorizing on replication, but no scale studies have been carried out so far.
The cross-border large-N research design (Pickier, Welch, ; Villainies, 2009) proposed here aims to test the claims put forth so far in the literature thus offering restrictions propositions on which to act. Theoretical lenses Theoretically, this project is at a crossroad of several disciplines thus offering a rich choice of theoretical perspectives which can inform it. It is considered essential to chose one theoretical lens and use it to deepen the analysis of the phenomenon of interest, rather than combining several and scattering the resources.
It is believed that this way the benefit would be both to the research project and to the chosen theoretical approach. However, given the main processes on which the research is to focus, several approaches strike as particularly relevant. This project could be essentially a story about organizational learning through internationalization. Hence, organizational learning and KGB would be the main perspectives informing it. This would imply concentration on the process of internationalization as a learning experience; knowledge processes; knowledge management practices; balance between exploitation and exploration.
It could be further discussed to what extent it is about the knowledge per SE, or the capabilities of the organization to manage such knowledge, hence the DACCA. This project would then explore how organizational design (e. G. Y implementing knowledge management projects) influences the emergence and evolution of learning processes; how it interacts in learning processes and how different regimes of rules and routines influence the evolution of pace of learning.
Assuming that learning nears achieving better match between firm and environment (customers and competitors) which results in better performance, the research could be a story about firm evolution. Hence, I would be looking at adaptation to the environment, environmental and historical effects on strategic change, variation/retention/selection mechanisms, etc. In a way, this research is about all these phenomena interlaying in the process of internationalization of a specific industry through a specific strategy.
However, good scholar traditions frown upon eclectic theories and mash-ups of existing frameworks. Therefore, I have chosen the perspective of the Pascal model as a start of integrating the insights proposed by the three theoretical approaches above, how they relate to my topic and their strengths and weaknesses. Through revision of specificities of the business model in focus, main tensions and elements which will influence those tensions are identified.
Subsequently, the theories providing insights on those elements and their interactions are reviewed. The Pascal model and the internet-based business model The Pascal Model from 1977 suggests that firms proceed along the internationalization path through logical steps, based on their gradual acquisition and use of information about foreign markets, which determine successively greater levels of market commitment to more international business activities.
The Pascal Model assumes the more a firm knows about a foreign market, the lower the perceived market risk is, and hence the higher the level of investment in that market. Consequently one of the key elements of internationalization is organizational learning. Foreseen (2002) posits that perceived risk is a function of the level of market knowledge acquired through one’s own operations and as firms gain foreign experience, they tend to increase their foreign market commitment and entry into countries increasingly dissimilar to their own.
Therefore, firm experience is another key element of international expansion. Firms change by learning from their experience operating in foreign markets Masons and Value, 2009). Exploitation and exploration of knowledge overlap and re-enforce each other. Opportunities are discovered as a side effect of ongoing business relationships Masons and Value, 2009) and crafted at the boundary of the firm through relationships – the entrepreneurial initiatives of the subsidiaries (Brainwash, 1997; Shank, 2000; etc. ).
There is a strong component of path-dependency in the process of internationalization – previous learning, experience and commitment influence the subsequent development of the process, Johansson and Value (1977 and 2009) say lack of knowledge due to differences between countries (due to language and culture r to different business networks) is an obstacle to decision making relative to the internationalization. However, when we look at the internationalization processes of firms today, it seems the model does not always hold.
Different countries and networks still exist, but this does not seem to stop firms from initiating international operations – Macs do not always expand in countries with low psychic distance before entering more distant ones, and some firms do not subject their international expansion to a learning process, but to a conscious strategic choice to enter a specific foreign market. For instance, many Norwegian firms do not make initial foreign incremental steps (Bonito and Grippers, 1992).
Another well-known example are International New Ventures that do not follow the traditional internationalization process at all, but become multinational firms from the very start (McKinney, 1993). The Born Global phenomenon (McDougall et al. 1994; Obviate and McDougall 1994; born internationals, Kind and Katz 2003; early internationalization firms, Arial et al. AAA; etc. ) describes firms that, right from their birth, seek competitive advantage by using resources from, and by selling their products in, multiple countries.
The distinguishing feature of these start-ups is that their origins are international, as demonstrated by observable and significant commitments of resources (e. G. Material, people, financing, time) in more than one nation” (McDougall et al. 1994:49). Born Global firms are usually hi-tech firms that are able to offer very specialized products or services in global niche markets to global customers with minimum adjustments. There is an ongoing discussion between the proponents of the Pascal model and the defenders of the NV phenomenon regarding the explanation of the misfit teen the two perspectives.
Drilling deeper into the discrepancies that may be seen between the predicted internationalization process of the Pascal model and actual international expansion of some firms, leads to the suggestion that business model (industry) specificities may induce different patterns in the way firms become international. Internet-based firms seem to go through an idiosyncratic process of internationalization, with specific challenges stemming from the characteristics of the industry. The rationale behind choosing the internet-based industry as the subject of y research is threefold.
It is knowledge intensive, it has great impact on the current economy and it can benefit specifically from internationalization. The internet-based firms or digital service providers, such as social networks and search engines, are an organizational setting that employs the Internet at the centre of their business model. These new start-ups base their business models on solving problems of businesses, such as improved security or better insight into customer behavior, or enabling people to do something – purchase products on a platform, connect with each other, etc.
The models are based on virtual technological platforms and the revenue is based on predictable revenue streams based on recurring monthly subscription fees for the products; advertising percentages; percentages on occasional purchases, etc. The knowledge intensity of the industry comes from its dependence on CIT innovations, such as the ever increasing capacity of microprocessors and data-storage components. Such innovations enable the increasing sophistication of customer facing products and services, and require more specialized knowledge (Demises, 1988).
Betties and Hill (1995) argue that the growing environmental dynamism (longitudinal environmental variation as a change in the availability of the resources required for their survival) requires higher levels of knowledge and greater access to information, which increase efforts in KM (APIPA and Gonzalez, 2008). Dynamism is one of the key dimensions used to capture specificities in reference to economies and industries (Child 1972; Duncan 1972; Des and Beard; 1984.
It has been associated with reduced firm performance as it renders inadequate the established firm capabilities and particularly strategy-making processes in which investment has been made (Schumacher 1942; Mueller et al. 007). It has also been potential of gains while limiting the downside risk through making real options and incremental investments more valuable (Davies 1994; Bowman & Hurry 1993). There are several studies rendering the digital services industry high on these indicators. This leads us to expect that pressures related on knowledge and speed will be specifically emphasized in the digital services industry.
Since the ass’s, interest in technology start-ups has grown and the US, Europe, even South America offer great amounts of venture-capital funds destined for new high-tech and Internet rims. For more than a decade, this is having a profound effect on Western business culture. Even then, the funds available for investment in European Internet and high- technology start-ups were estimated at around 10 billion Euro. Last year, there were several high-profile consumer Internet initial public offerings (Ipso) – Group, Gang, Linked, Backbone, Yelp, etc.
Ipso to be expected in 2013 are for example security- technology maker Palo Alto Networks Inc. , online human resources software company Workday Inc. ; tech-management software maker Servicemen Inc. And Atlantics Inc. , which provides software building blocks to developers. Funding does not follow only public-to-be fast-growing enterprise technology start-ups – the most notable examples of platform-technology firms which still remain private expect subsequent rounds of funding averaging above $manly in the US. New funding models have emerged – “incubator” and “accelerator” companies like RainMaking in Denmark (www. Rainmaking. K) or initiatives like Tessellates of the EX. Commission. These models support start-ups through funding, provision of office space and help to build a good, high-growth business model and enter new markets. Overall, it seems clear internet-based firms have economic importance and are changing the way business is carried out all over the world. What is then so specific about the way these firms internationalist? First, it is necessary to go back to the business model and consider the options an internet start-up has. Its product is virtual, easily scalable, difficult to produce but easy to replicate once created.
However, as technological knowledge currently is widely available (one can practically learn how to develop a mobile application for free over the internet and really quickly), the product is easily imitable. Additionally, frequently the firm is small and has few resources, hence rarely considers intellectual property protection close to inception. Therefore, and as research suggests, digitization of products is likely to increase firms’ inclination to internationalist (Petersen and Welch 2003), while the ability to use the Internet to deliver services fast and cheap may lead to faster internationalization (Mahoney and Venin, 2003).
Next, it is necessary to consider the challenges the start-up is facing. It has few resources and depends on subsequent rounds of funding from angel investors or incubator/accelerator companies. It may also be considering selling to the big firms in the industry. All this requires visibility. Investors expressly require that the model be scalable and to prove that firms are asked to expand quickly and in several countries. Hence, speed, low cost and international scale become the conditions for survival.
What is common about platform technology-based firms is, according to Steve Blank, that they are a temporary organization designed to search for a repeatable and scalable business model, and not so much to execute. This suggests several differences with the Pascal model regarding the nature of the rim expands into will be relatively faster and less costly. Three factors characterize global digital platforms’ internationalization process: internationalization by language; wholly owned site entry mode through a language/country version of one global platform; and high speed.
The necessary conditions for the establishment of a global Internet platform are: no location constraints and provision of a digital service that attracts a large user base (Yankton, 2012). The ease of online communication facilitates the access to information about markets, reduces the need for people to be lose together in order to work, facilitates dealing with customers and suppliers. Second, the path dependency of the internationalization is reduced by the entrepreneurial nature of the process – hence managerial intentionality will play a significant role in the internationalization process of internet-based firms.
Some say that a key skill for the entrepreneur nowadays is to know how to evolve. In other words adapting and reacting to the rapidly changing business environment, the ability to process and react to new information, to use available knowledge and to implement it is what brings about the survival of entrepreneurial projects. These ideas suggest that evolution of an internet-based start-up and its survival will depend on the Judicious Jump from effectuation to causation, from dealing with controllable options and purposeful action. Third, the trade-off between imitation risk and speed of expansion will be central to the internationalization.
The internationalization needs to maximize cost reduction, usually due to lack of funds in the beginning, and speed, due to the dependence on investors seeing a trustworthy scalable model before funding the firm. Contrary to the largely extended belief, internet-based firms bare relatively high costs when they enter a country – even when no infrastructure is necessary, they need to be established legally and abide by the specific, still not congruent across countries, internet laws and the product needs to be translated in to the language of the host country.
Comparably, these costs represent a big percentage of the finances available to the firm. Hence, a logical approach would be to use low cost, large scale expansion strategy like replication. Replication is possible with centrally controlled and developed product like an internet-based platform, requiring small or no adjustments to be appealing to a large enough audience. One of its dangers however is that, because it implies little adaptation – hence little tacit knowledge transfer, it exposes the firm to easy imitation by competitors.
In summary, firms which base their business models on a digital platform enabling a portfolio of services have characteristics setting their internationalization apart from firms in traditional knowledge- or capital-intensive industries, and thus challenging existing international business theories. Such firms also seem to be more vulnerable to imitation risk. Further, rapid growth through scaling the business models internationally seems to be especially critical for the firm’s survival. Finally, knowledge and organizational learning seem to be located at the core of the business model development in this industry.
From these conclusions it can be inferred that both a focus on replication strategy used by digital platform providers and the theoretical lens of evolutionary theories would be a suitable match to explore these phenomena further. Looking at the internationalization of digital arrive providers may illustrate how traditional international business theories have technologies. It will also provide insights on how to leverage benefits from stealth business model replication against risks of imitation from competitors. Concentrating on one industry will be a source of limitation for the research.
However, it is believed that there are specific advantages and enough arguments to chose this particular industry. This rather biased description of the kind of firm this research aims at studying has so far raised several question marks regarding relevant phenomena ND their behavior in the studied context. The central elements from the Pascal model – organizational learning, internationalization experience and country differences – interplay with managerial intentionality and the tension of maintaining low cost while protecting the business model from imitation.
I will next attempt to support with existing theory some of the processes suggested above. Replication strategy and Replication format Firms choosing the replication strategy as their internationalization approach aim at the perception of an organization in the same way indifferently from its location. Examples that we see daily are McDonald’s (Watson, 1997), The Body Shop (Quinn, 1998), Cataracts (Schultz and Yang, 1999), Hens and Mauritius (Benson, 2008), etc.
The main contributions in the literature come from Johnson and Foss (201 1), Baden- Fuller and Winter (2007), Jensen and Slaking (2007), Slaking and Jensen (2006, 2008), Winter and Slaking (2001), and Nelson and Winter (1982). Winter and Slaking (2001) define replication as the establishment and operation of several similar subsidiaries that deliver the products, or perform the service, of an organization. They argue that replication strategy has been proven to achieve and sustain growth and profitability through both economies of scale and scope.
The factors behind the success of this strategy are the access of the replicated to an already existing unique business core knowledge (the business model), the opportunity to learn through experience in a new market and the ability to exploit that knowledge in further replication. Two main challenges have been identified related to the replication strategy (RSI) – speed of replication versus the risk of imitation (for example, Lulls, 2008 and Benson and Lindquist, in press) and global errors local firm (for example Johnson, 2006).
These challenges suggest the concept of RSI relates to the balance between exploration and exploitation (March, 2001), organizational learning and knowledge management, cost economizing and value creation. Winter and Slaking (2001) contend the exploration phase of a replication strategy characterized by identifying and developing the successful business model is facilitated by knowledge flows from subsidiary to WHQL.
The exploitation phase – when the business model is stabilized and leveraged – is facilitated by the opposite flow of knowledge from WHQL to the subsidiaries. Hence the learning through the acquisition of knowledge in their model may be exploratory – increase of the variety and broadness of the recipient’s knowledge base (Inept, 1996; McGrath, 2001; Monika, 1994;Tsar, 2001) or exploitative – increase of the reliability and depth of the recipient’s knowledge base (Adler et al. , 1999; Levin, 2000).
However, according to Winter and Slaking (2001), revision, once the format has been decided upon, is not efficient and hence no subsequent learning is allowed. Two main questions stem from this – to what extent can then RSI be realistic, given that most of the dominating he success of the RSI is possible in internationalization in view of the knowledge replicated, e. G. Proprietary and specific to the firm but less specific to uses or locations (fungible – Gout and Gander, 1993).
Jackson’s (2006) take on Winter and Sealskin’s (2001) framework suggests that in an internationalization process, to manage standardization and adaptation firms need to understand how to balance exploitation and exploration – or in other words – to achieve ambidexterity (Dustman and Reilly, 1996). These issues relate the RSI to experiential knowledge in Macs’ internationalization Masons and Value, 1977), and the balance between local responsiveness and global integration (Bartlett and Shoal, 1989; Deviancy et al. , 2000).
As Bartlett and Shoal (1989) maintain, a NC needs to develop a structure that acknowledges the importance of both local responsiveness and flexibility, and global coordination and economies of scale. The other important challenge for replication is the increased risk of imitation of the business model by competitors. Gout and Gander, focusing on replication and imitation of technology, capabilities, ND knowledge, sustain that the process of codification and transfer of the knowledge (or capability) positively correlates to imitation (Gander and Gout, 1995).
In his exploration of replication, Irvin (2001) find that with simple problems, the replication’s initial informational advantage does not last for long as imitators can reach the same solution quickly. At the same time, the supposed advantage of complexity (the more complex, the more difficult to imitate) does not hold when challenges to replication are considered as high levels of complexity pose the risk of mall errors in information spoiling the replication attempts altogether. Therefore, a replication’s relative advantage is greatest with respect to intermediate complexity.
Irvin suggests future research to look into managerial efforts to influence the replication process by preserving secrecy or managing information, as an on-going effort to refine one’s knowledge of the deeper roots of success (Winter and Slaking 2000). In Else’s (2009) interpretation of the replication strategy, inimitable firm resources are a form of relationship-specific (not re-deployable) assets. Therefore, to facilitate replication in foreign markets firms need capabilities to convert inimitable knowledge into sufficiently re-deployable and locally adaptable business models (Lulls, 2009).
For Lulls (2009) related costs include both initial search costs (exploration phase) and replication costs (converting sticky knowledge into replicable solutions, and transferring and adapting these to local conditions). To enhance performance, Macs need to make their business model less costly and more replicable. The higher the re-dependability of the knowledge, the easier the transfer. At the same time, higher re-dependability leads to more leakage hazards.
To summaries, the conditions determining the success of such a strategy are exploitation of competitive advantage through cost economizing, exploration or adaptation to local environment, and the environment itself (Lulls, 2009). To answer both the speed-imitation and exploration-exploitation challenges, Johnson and Foss (2011) suggest the concept of flexible replication – some features of the business model may stay fixed, while others may change in response to local demands, allowing for scale economies from the reuse of procedures, routines, principles, rand’s, etc. Cross countries, but still being aware of the actual environment. This of a business model international replication replicate across countries, to what extent they allow for local variation, does the environment or the firm’s internationalization history influence these decisions, and finally – what does that mean for firm performance. Given that knowledge issues pervade a significant part of the research and questions reviewed so far, in the next section knowledge and organizational learning will be examined in search for perspectives and possible explanations on the questions above.
Knowledge, knowledge processes and learning Trucker (1992) holds that in the future knowledge will represent the primary resource for individuals and for the overall economy and obtaining all other resources will be dependent on holding specialized knowledge. In line with Penrose (1959), growth would result from the ability of an organization to use, combine and develop resources. Both academia and practitioners see the capability of Macs to create, transfer and combine knowledge from different locations as an important determinant of competitive advantage, corporate success and survival (for example:
Doze, Santos, and Williamson, 2001; Guppy and Governance, 2000). For Penrose, this knowledge defines the rate of efficient expansion to achieve profitable growth (Penrose, 1959). Hence, Macs have been regarded as networks whose units are creating knowledge and transferring it throughout the network for its use (Bartlett and Shoal, 1989; Guppy and Springboard, 2000; Mahoney and Petersen, 2004). The research within the knowledge-based view (KGB) proposed numerous insights into the processes through which knowledge is acquired, transferred, integrated by the firm and its people.
There is generally a lack of agreement about what knowledge is, but the value of KGB thinking is clearly visible for the understanding of strategy (Eisenhower and Santos, 2002). Where there is an agreement (alas not sustained empirical results) is on the fact that knowledge and knowledge management capability creates and exploits cross-unit synergies from resources as the product, customer and managerial expertise to increase the financial performance of the firm (Attainders, 2005).
When considering diversification, Penrose contends “diversification and expansion based primarily on a high degree of competence and technical knowledge… Together with the market position (this) ensures is the strongest and most enduring position a firm can develop” (1959:119). Grant (Bibb) where he poses the ability to integrate the specialized and tacit knowledge of individuals as a critical element of sustained competitive advantage for the firm. Furthermore, the idiosyncratic firm knowledge functions as an isolating mechanism as rival firms cannot successfully imitate another firm’s diversification strategy.
In other words, knowledge management can