Implications for Future Research

Abstract

On the basis of the three elements of strategy, this chapter puts forward some follow-up research questions and prospects mainly from the following aspects. The first is the study of factors that have influences on the quality of strategic decision. Factors include individual aspects of decision-maker, strategic decision-making information factors, approaches of strategic decision-making, etc. The second is about normative studies. They are about how the world ought to be or how strategy decisions ought to be in given situations. Outcomes of the studies can provide guidance to industry decision makers when facing development issues. Future research includePerhaps the impact of strategic decision-makers on the quality of strategies is far beyond our imagination.

Perhaps the impact of strategic decision-makers on the quality of strategies is far beyond our imagination.

We will only see the glory and greatness of a good strategy when its idea has been reflected, which cannot do without the decision-maker.

10.1 Introduction

• (1) Overview

This book probes into some of the most fundamental questions in strategy. For instance, what is strategy? What are the fundamental elements of the strategy concept? What are their internal links between the elements? How come strategy has more than 90 definitions? What is the relationship between strategy and tactic? What is the key extension of the strategy concept (or the crucial principle of making a strategy)? How can a strategy be evaluated based on the three elements? Etc.

The goal-oriented strategy and problem-oriented strategy presented in this book help us understand the origins of strategy. Strategy we generally refer to is goal-oriented. However, in reality, whenever the economy is sluggish, the latter may outnumber the former, and that’s why they are practically instructive in helping companies dig into the origin of strategic problems and take a positive stand against them.

The theoretical model of three elements of the strategy concept hopes to put an end to the controversial discussion over what is strategy in the discipline of strategic management for nearly half a century. The traditional understanding of strategy concept is linear thinking. It comprises two basic elements—the goal element and the guideline element for achieving the goal. However, studies in this book show that the strategic decision-making, whether it concerns military wars or business competition, it needs to identify the major problems in the way of achieving the target, while the guideline element is a programmatic general ideology on dealing with the major problems, providing guidance as to which direction should the specific tactics go. Hence, the strategy concept is comprised of three core fundamental elements. In other words, strategy is non-linear.

Chapter 1 introduces concerns of the literature about the concept of strategy. The discipline of strategic managementsuffers from having too many definitions,¹ semantic and ambiguous meanings in the literature of the strategy concept, of which Chap. 2 analyzed the reason and the interpretation. Studies of the book reveal that the reason lies in the complex strategic issues companies actually face, and in the limited ways some scholars take to view the concept. But it also shows that the strategy concept with too many definitions and meanings reflects the multiple practical strategies that companies hold. The key extension is also included in the definitions of strategy concept by many pieces of literature, thus making the confusion even worse. The most important extension is to make matching strategies regarding the resources and environment of a company, which I induce into the basic principles of making a strategy.

Which basic elements should be included in the definition of strategy? Or what is strategy and what is a strategic decision anyway? Chapters 3 and 4 in this book explain and answer these questions from the theoretical and practical angles respectively. They also propose the theory of three elements, and that the strategy shall be incomplete without any one of the three elements. Many books on strategy do not have chapters on what strategy is or the concepts of strategy. Contents in these two chapters make up for this gap in strategic management field.

The relationship between tactics and strategies is vital to understanding strategies. To some extent, understanding the relationship is the prerequisite for the comprehending of the strategy concept. Chapter 5 elaborates on the relationship between various strategies and tactics. The book also suggests that some strategies, such as the competitive ones, should include specific competitive tactics in order to form a comprehensive corporate competitive strategy. If strategy is thinking, then tactics are plans under the guidance of strategic thinking. Many strategic books do not have contents on tactic and its relationship with strategy, which is first discussed in this chapter of the book.

The sixth chapter introduces various strategies and their three elements. It proposes that the strategic names of the corporate level do not contain the expected guiding ideology. Therefore, to make the strategy of this level have the strategic attribute, the decision makers need to propose the guidelines to solve the development problem of the company, and provide guidance for tactics. Taking the principle of strategic matching into account, Chap. 7 puts forward such concepts as the internally blind (or externally biased) strategy, externally blind (or internally biased) strategy and dually blind strategy, etc., which help us understand the various biased errors that may occur in making real strategic decisions. Chapter 8 introduces some internal and external information needed for strategic decision-making.

Strategic evaluation is helpful for us to re-examine whether the strategy proposed by the company conforms to the requirements of the company’s resources and capabilities and the market development after the strategic decision, so as to evaluate the risk of the strategic decision. Chapter 9 tries to put forward the strategic evaluation based on the three elements of strategy concept and the principles of strategy formulation, including the evaluation of elements of “long-term goal”, “development problem”, and “general guiding ideology or guideline". It helps to assess the risks of strategic decision after re-examining whether the company’s strategy matches its resources and capabilities or meets the requirements of market development.

The three elements of strategy concept and the extension principle are of great importance to the future research in the strategy field.

• (2) Positives and normative studies in strategy area

Positive studies concern research questions about how the world is and its research statements and outcomes are descriptive. It explains the reasons contributing to the outcomes. From positive study point of view, research questions with regard to the reality of company strategic decisions or contributing factors to its outcomes, no matter it is good or not good would be of interesting to us.

We know that a high-quality strategic decision needs to be made under the comprehensive consideration of the company’s internal and external situation, which is to meet the basic principles of strategic decision-making. But in fact, a lot of strategic decisions are blind or biased as the decision-makers are human beings that may misjudge situations. Therefore, it will be of great help for us to understand the relationship between strategic decisions and decision makers, and other factors influence quality of decisions if we can figure out the factors that affect the decisions. Thus, from positive research point of view, the strategic decision-making model that reflects the mechanism of factors that have impacts on the outcome of a decision can be developed and studied.

Normative studies are about how the world ought to be. Its statements are prescriptive. Outcomes of normative studies in strategic management field could provide normative guidance to industry managers who make strategic decisions.

One type of normative study is about the general guideline contained in each individual strategy such as that of the competitive strategies and of the corporate strategies. As mentioned before, competitive strategy contains rather mature thinking, but it still awaits us to further explore the corporate group-level strategies on the guideline contents that can provide guidance for companies’ practical use of strategies. For example, if a given company (with specific information in size, financial strength, R&D capability, employee characteristics, etc.) encounters a bottleneck in its development (assuming it is technology), given the economic and political environment, as well as the industry characteristics, is it possible to summarize some basic principles of decisions from a wide range of cases in order to provide guidance for the company’s practical strategic decision-making.

Besides above, the study on the risk of strategic decision-making will also be interesting to us. Strategic decision-making is about investment and about the future trend, so there are risks. How do decision-makers weigh the risks? What kind of strategic decisions are considered to be highly risky or less risky? How do decision-makers prevent risks? These questions are of both academic and practical value in strategic management field.

Now let’s look at these questions and content detailed that can be studied in future.

10.2 Research on the Three Elements

• (1) The content and basic types of “Long-term goal”

To maintain profit stability or growth is almost the financial goal of most companies, but the profits will not come out of nothing. So the key to forming a strategy is the overall ideology through which the company is going to achieve profit growth in the future. Therefore, the company needs to develop a good strategy, achieve the strategic goals and therefore gains market shares and fulfills its profit targets.

Strategic goals and financial targets are different, for example, the previously mentioned acquisition of Volvo by Geely is driven directly by “technology” and “brand". By acquiring high-end technology and brand, Geely is able to sell its products to the Chinese market so as to obtain market shares and profits. Thus, from the perspective of direct strategic goals, some aim for technology and brand, while others consider social responsibility (including consumer, community, employee benefits, etc.) in making strategic goals.

Different strategic goals sometimes represent different directions, which beg the following questions:

• From strategic point of view, what are the major types of companies long term goals?

• Does each goal have segmented targets or sub-goals?

• Are strategic goals different for different companies (industry, size, age, etc.)?

Study on the types of strategic goals can help us thoroughly and systematically understand the long-term development goal which is one of the three elements of strategy concept, and know whether companies of different types (or features) or in different environments would make various types of strategic goals. If, yes, how the goals are differing?

• (2) How far will a Long-term goal go?

As far as it goes, how far will a company’s strategic goal go (or point to)? By “far” I mean two things. One, time. In other words, for how long will a strategic goal remain effective (five, ten, or twenty years).

Second, quantity or quality. This concept can be explained by the following example. If a young man of 20 or so is to make a long-term goal, he might plan to make 400,000 RMB (a certain quantity) a year after ten years (a certain time). He might also expect to be an intermediate or even senior manager (a certain quality) or to own a self-employed company (a certain quality) a decade later. Ten years is the time limit for realizing the target while the raise of salary or rank, or one’s own company are the quality and quantity of the target.

There exist notions of “time” and “quantity/quality” in the goal element in strategic decision-making, i.e. how long will the goal take and what outcomes will the goal achieve? The study of the questions is of significance to our understanding of the strategy goal. On the basis of the time and quantity/quality, it can be known whether the strategy goals made by companies of different types (or features) or in different environments vary in time, quantity and quality?

• (3) The element of major issues in development

Geely was in need of core technologies when it tried to develop into the high-end market, and this problem was fixed by the acquisition of Volvo. BenQ was short of distribution channels and good brand image when it first entered the mobile-phone market, so it tried to obtain what is needed by purchasing Siemens. Baoneng (a local Chinese company) had land resources but lacked of experience or brand image in the real estate industry, that is why it wanted to hold the shares of Vanke, who was prestigious in the industry in China. All these are challenges and strategies made accordingly during the development of companies, and there are too numerous cases to mention.

Mintzberg has compared companies’ major development issue to jumping over the hedge in his writings about the 5Ps of strategy. It is known that a short child has difficulty in passing over a rather high hedge (suppose his aim is to do so), but for a tall grown man, this is not a problem, or we could say it’s not a major issue for him. Companies in a certain industry are different in size, cost control, management or R&D capabilities. A certain major issue might be the obstacle of one company but not of another.

Therefore, we can study the following questions:

• What are the major issues during the development of small-and medium-sized companies or the young ones?

• What major issues might come across the leading companies in their development?

• When the economy is developing rapidly, what are the development problems companies might face?

• In a sluggish (or downward) economic environment, what are the development problems companies have to deal with then?

• Will there be different major issues in different industries?

• What shock would new technologies or business models enforce on companies of the relevant industries? How would they cope with the new things? Would they make the different overall strategies when they differ in ownership, size or capital, etc.?

• In the past, at present and in the future, which industries were, are or will be seriously hindered or even devastated by the development of the Internet?

Studying the above-mentioned questions can help us foresee the obstacles in companies’ development.

• (4) Study on the element of guideline

From a military standpoint, when facing the invading enemy, if one does not have a good guiding ideology, there are two possibilities, either to escape beforehand or being besieged by the enemy forces. It’s the same story in business. If the decision-makers fail to put forward proper guiding ideologies (and tactic plans) when companies have major issues in development, the goals would not be achieved.

The guideline or overall ideology of the three elements aims at solving the major issues companies face in development, the study of which serves as the core of the strategy discipline. The outcomes of the study could provide industry executives with normative guidance for the strategic decision-makings of their companies. For example, suppose a company has a plan to enter into an unrelated diversification. Which industry to enter? The company’s decision makers will be certainly benefited from adopting a theory (or a mature overall ideology) in this respect. The contribution of the theory will depend very much on research outcomes.

In general, study on the element of guideline or overall ideology can be conducted by taking into account the above-mentioned issues that are related to the element of major issues. The research questions are as following.

• What guidelines or overall ideologies would the small- and medium-sized companies or the young ones adopt when they come across all sorts of major problems in development?

• What guidelines or overall ideologies would the leading companies make when they face various major issues in development?

• Would companies take different overall ideologies respectively to deal with the development issues in booming or sluggish (or downward) economic environments? How guidelines or the ideologies differ from each other?

• When some companies are battered by new technologies or business models, what overall ideologies would the others adopt?

• Some industries are seriously hindered or even devastated by the development of the Internet. What overall ideologies would the relevant companies usually resort to?

• Under what circumstances (internal or external) might the companies baffled by major issues are unable to find the suitable ideologies or solutions?

Studying of these questions means a lot to us for apprehending the element of guideline or overall ideology. And if there are outstanding results in the future study, we could establish the core theories of the strategic management discipline, and thus provide guidance for various companies in their strategic decision-making.

• (5) The measurement of the three elements

A complete strategy has three basic elements. The quality of a strategy is directly determined by the fact that whether the corresponding decisions on the three elements match the company’s actual condition, and whether they are in line with the external environment. To know the overall quality of a strategic decision, study on whether the senior executives can make the right decisions on the “long-term goal”, “major development problem” and “overall guiding ideology” should be carried out. Thus, it is necessary to develop the items to measure the three elements respectively, which will be the basis of studies on the core meaning of strategy concept.

The development of the measurement scale is not always easy as the strategic decision-making predicts the future. In this case, we can investigate in the three elements by referring to the real business cases of strategic decision-making or (liberal) disciplines of decision-making, or depending on the satisfaction brought by decisions of three elements.

The theory of three elements unveils strategic decision-making, and the measurement scale of three elements helps uncover all the elements, i.e., to make us understand more of the strategic decision-making and to know the profound mystery within.

10.3 A Strategic Decision-Making Model and the Related Questions

The traditional model of strategic decision-making explains the method of making strategic decisions, which is to evaluate the internal and external environments of a company and then come to the matching strategy. In reality as we can see from wars and cases of companies making strategic decisions that some strategic decisions are practical while some are not.

What factors influence and how they influence the quality of a strategic decision? A theoretical model of strategic decision-making is required to have an answer to this question. It involves the process, the mechanism and the influential factors on the result of strategic decision-making. The mechanism concerns about the positive or empirical aspects of strategic decision-making. The understanding of the mechanism is thus also the core of the strategy discipline. It will tell us when a strategic decision is good and when it is not good.

On the basis of the traditional model and the three elements, this section tries to create a model that wishes to explain the mechanism of strategic decision-making. Besides that, the factor of the decision-makers is also considered in the model so as to explain its influence on the process and result of decision-making, or why different people make correct, partial or incorrect strategic decisions.

Three groups of factors influence the quality of a strategic decision. They are the quality of decision information, (the maturity of) the decision maker and the practice of a company’s strategic decision-making.

• (1) The decision qualities of the three elements

Previous chapters have discussed that one strategic decision should be made by the integration of three decisions bearing on the destiny of the company, i.e., one on the long-term development goal or direction of the company, one on the identification of major issues or obstacles, and one on the general ideology that guiding the solve major issues. The appropriateness of each decision will affect the quality of the complete strategic decision-making.

For example, although Kodak realized that the digital camera might be a shock to the traditional roll film (i.e. the decision at the lower left corner of the strategic triangle is correct), its overall thinking (or decision) to address this key problem was generally wrong, so the overall decision² thus formed came as a disappointment. As another example, at the early stage of Chinese Revolution, Commander Wang Ming made the decision of confronting the enemy in regular warfare (the overall ideology), which was a misleading estimation of Communist Party’s military power and the “major issues” at the lower left corner of the triangle.

As a result, it’s evident that the three decisions involved in the three elements and their qualities (whether they are right or wrong) directly influence the overall outcome of the strategic decision.

Hence the relationship between the strategic decision-making of the three elements and the overall quality of the strategic decision will be worth of studying.

• (2) The influence of the quality of the internal and external information

In the part of strategic principles in this book, it has been noted that the strategic decision will not be correct when the internal and external information of a corporate, as well as the situation, is not considered thoroughly. So the strategic decision could only be integrated by taking the internal and external information into full account. Strategic decisions are mainly made on the basis of the macro-environment (population, regional GDP growth rate, per capita GDP, etc.), the industry situation (present stage of development, size, competitive situation, etc.) and the company’s unique resources and capabilities (size, nature, financial strength, R&D capabilities etc.) and other information. If a decision-maker is so slothful as to know nothing about the industry or the real situation of the company, he/she could hardly make any strategic decisions that are in line with the actual situation. The only way to win a war is to try to know your rival completely. However, in the age of information explosion, various massages are flooding people’s life, and tons of information will not lend a hand in decision-making (Speier et al. 1999).

Therefore, here comes the model of relationship between the quality of decision-making information (the macro-environment, industry situation, and the firm resources and capabilities) and the quality of a strategic decision (Fig. 10.1).

Fig. 10.1

Information quality and strategic decision quality

Strategic decision-making needs information, data and the forecast of the future. The quality of the information, as well as the precision of the prediction directly affect the quality of the strategic decision. But it is known that there are hundreds and thousands of pieces of information concerning environment, industry and corporate internal situation, among which:

• What information would be used as the external information of strategic decision-making?

• What information would be applied as the internal information of strategic decision-making?

• Does information used in strategic decision-making process vary in different industries?

• How to measure the quality of the macro-environment and industry information known by the decision-makers?

• How to measure the quality of the information of the corporate resources and capabilities collected by the decision-makers?

• How do the quality of the macro-environment and industry information known by the decision-makers affect their evaluation on the macro-environment and industry situation?

• How does the quality of the internal information of an organization obtained by the decision-makers affect their evaluation on the company’s resources and capabilities?

Further research can be carried out to study the above questions.

• (3) The influence of the individual factors of decision-makers

Judgments are needed in making strategic decisions. They are made by decision-makers who differ from one another in age, personality, and cognitive ability, past experience, social network and resources he or she posse, all of which will affect one’s judgment and the result.

For example, in the early days of the Chinese Revolution, Chairman Mao and other revolutionaries made the right judgment on the situation at that time, and also more practical military policy compared with that of Wang Ming. Therefore, even in the same situation (or in command of the same information), different people will make different judgments (Barr et al. 1992; Bourgeois 1985; Tripsas and Gavetti 2000) or even opposite ones on the environment. Beach, Connolly (2005) and Kim et al. (2006) also noted that different levels of judgment ability with respect to the information for decision-making lead to different strategic decision choices.

One’s judgment is closely related to his or her cognitive ability. Cognition refers to the process by which people recognize and understand the outside world, interpret the information that the external things act on the sensory organs of human beings, and acquire knowledge by the use of the psychological activities such as concept, perception, judgment and imagination. As early as 1963, Cyert and March (1963) introduced the concept of cognition into decision-making. Haynie and Shepherd (2009) developed the measurement scale of meta-cognition which shows that the stronger one’s cognitive ability is, the fewer decision errors he or she will make (Mitchell et al. 2011).

Take the war of Longwan between Zhu Yuanzhang and Chen Youliang as another example. When Chen sent troops to attack Yingtian (Nanjing today), most of Zhu’s counselors advised to escape because the hostile forces were much powerful while Liu Bowen insisted garrison. Escape and defense were two decisions made by judgment. During this process, Liu Bowen and other counselors made the same decision (or identification) of the three elements on the major issue, but disagreed on goals (other counselor’s goal was “to give up Yingtian”, while Liu’s was “to station troops to defend”) and overall ideology (other counselors’ was “to escape” while Liu’s was “to ambush”). It can be seen that with the same situation and judgment (the enemy is too strong to fight), the responsive strategies (here referring to guiding idelogy) are different. In other words, different decision-makers would make different decisions under the same circumstances. History has seen the right decision of Liu Bowen as Longwan War ended up with the triumph of Zhu Yuanzhang side which not only defended Yingtian, but also beat Chen Youliang side to bite the dust.

In this sense, the factor of individual decision-maker affects the relationship between the decision information and result of a strategic decision. Or individual factors moderate the relationship between quality of decision information and quality of strategic decision. We thus could have the following model (Fig. 10.2).

Fig. 10.2

The influence of the decision-makers on the strategic decision quality

Questions concerning the model can be further studied:

• How do the personal characteristics of the decision-maker (age, experiences, intelligence quotient, industry experience, personality, and education) affect the quality of the strategic decisions of the three elements and the overall strategic decision?

• How does the social cognitive ability of the decision-maker influence the decisions of the three elements of the strategic decision-making and the overall strategic decision?

• What kinds of decision-makers (or decision-makers with what characteristics) are prone to make internally blind (or externally biased) strategic decisions?

• What kinds of decision-makers (or decision-makers with what characteristics) tend to make externally blind (or internally biased) strategic decisions?

• What kinds of decision-makers (or decision-makers with what characteristics) are inclined to make dually blind strategic decisions?

• What kinds of decision-makers (or decision-makers with what characteristics) are apt to make integrated strategic decisions?

The answers are still unknown, but the influence of each strategic decision-maker on the quality of the strategic decisions might beyond our imagination. In the war of Longwan, were it not for Liu’s decision of ambush, or Zhu and Liu’s detailed tactical plan based on the geographic features of Yingtian and the characteristics of the vessels of Chen Youliang’s troop, it shall never be revealed what are the strategy and tactics that defeat the powerful Chen Youliang; nor shall we ever know the strategic thinking and tactical plan of this war.

The brilliance of a good strategy might only be uncovered when its ideas behind is reflected, which inseparable with the decision-maker. Kuper et al. (2013) suggested that strategy can be better understood if it is explained as a story. Considering the influence of the decision-makers on strategies, I couldn’t agree more.

• (4) The influence of the information management practices

Of all the information related to strategic decision-making, it’s rather difficult to obtain full messages of the industry and the competitors. Some companies set up specialized departments or hire personnel to collect and analyze the development trend shown in the information about the industry, market, competitors and consumers. But some companies, especially the small ones, do not have such organizations, so the decision-makers have to acquire information by all means themselves.

Although the internal information of companies can be easily got, some still have specialized departments to extract and analyze the key information.

In that way, do companies that have specialized strategic departments acquire better decision-making information with regard to quantity and quality than those that don’t? In other words, does the management method of decision-making information affect the quantity and quality of the information held by the decision-makers? The influence of the information acquisition and management ways on how well the decision-maker acquire information can be then added in the decision-making model (see Fig. 10.3).

Fig. 10.3

The management of the decision-making information and the information quality

Questions that can be studied in the model include:

• Do companies with specialized departments collecting and analyzing information have better decision-making information with regard to quality?

• How does the decision-maker’s own habit of collecting information (such as joining the associations, reading the professional information and checking the corporate reports, etc.) affect the information for decision-making and the quality of the information?

• (5) The influence of decision-making practice

Since the strategy touches upon the future direction of an enterprise, many companies take cautious steps while making a decision. Strategic decisions are made in different processes and methods by different companies. Some would hire the third party such as a consulting company to analyze the strategic plan and argue about it. Smaller enterprises or those with equity concentration, or those centralized firms would probably make more personalized decisions. Some scholars believe that large businesses are more rational during the process of strategic decision-making (Hart and Banbury 1994; Elbanna and Child 2007), while small companies would rely more on intuition (Brouthers et al. 1998; Khatri and Ng 2000).

It is generally thought that the collective decisions, though time-consuming, are better than the individual decisions in terms of quality. However, the strategic decisions, unlike the daily ones, needs to be made on the basis of deep and comprehensive understanding of the internal and external environments of the company. The study of McNamara et al. (2002) shows that positive correlation exists between the complexity of the decision-makers’ knowledge and the performance of the companies.

Questions are raised therefrom:

• Is every participant involved in the collective decision-making familiar with the internal and external situations of the company? Or how familiar is every member of decision-making with the decision information?

• Do the collective decisions always surpass the individual ones in terms of setting the goals, identifying the major issues of development and making the overall ideology? If so, then under what circumstances?

• How does the maturity of a company’s senior management team affect the quality of strategic decision (setting the long-term goals, making the overall ideology, etc.)?

• Under what circumstances would a certain decision-making method contribute to making the right strategy?

Studies show that there is no significantly positive correlation between the uniformity of the senior management when making strategic decisions and the performance of the company (Bourgeois 1985; Grinye and Norbarn 1975). Priem (1990) believes that when the environment remains stable, the uniformity of collective decision-making should be positively correlated to the performance of the company, but when the environment becomes complicated, low uniformity of collective decision-making should contribute to the performance of the company instead. It can be explained that when the environment is rather stable, most people can give fairly accurate prediction on future development, and thus make comparatively right decisions. But when the surrounding is full of uncertainties or complexities, special insight and judgment are needed to foresee the developing trend, while only a few are equipped with such skills. A complete strategy decision is composed on three sub-decisions. If the accuracy of each sub-decision is 50%, the set accuracy of the three sub-decisions will only be 12.5%. According to a reported (The Ministry of Commerce, 2016), only 13% of Chinese companies’ overseas projects are profitable and 63% are non-profit or loss-making. Chinese entrepreneurs are not as familiar with the foreign business environment as China’s native environment. The low success rate of Chinese enterprises’ internationalization strategy shows the complexity of some strategies to a certain extent.

The following question can be thus drawn forth:

When the environment is complicated, are the individual decisions made by decision-makers who know the company and the industry better than the collective ones in terms of quality?

Studying the above question would be helpful in understanding the effects played by different ways of making decisions in the strategic decision-making.

Above introduced research questions are about positive aspects related with strategy decision. These questions concern with objective facts and the outcome of strategy decisions. They reveal the mechanism of strategy decision making process and factors that have influence on the outcomes. The following figure shows a theoretical model and factors influencing quality of a strategic decision. In the figure, the quality of decision information has a direct impact on the quality of strategic decision-making. Personal factors of decision makers play a moderate role between information quality and strategic decision quality. In addition, a company’s strategic decision-making practices impact on the relationship as well (see Fig. 10.4).

Fig. 10.4

A theoretical model of the strategic decision-making

For strategy to have the theoretical function of providing guidance for company practices, we need to understand normative aspects of strategy decision. Normative aspects relate with questions of “how company strategies should be”.

There are many books about military such as The Art of War and Sun Bin’s Art of War, etc. summarizing the basic military strategies and tactics that should be taken under various circumstances including when the enemy is weak, strong or well-matched in strength. The strategy and tactics are refined and profound military thinking that tell the ways to achieve victory (including the laws of military management and of logistics, etc.) and humanitarianism in war (avoiding war to the greatest extent and conquering without a single fight, etc.), and thus can provide guidance for the overall ideology of wars. A commander who has a good knowledge of the art of war, can use the thought of the art of war according to the specific situation and put forward the idea of solving the problems when encountering problems in the war.

If we can summarize the regularity of enterprise strategic thoughts and provide guidance for senior managers in making strategic decisions, we will make great contributions to the discipline of strategic management. The guiding ideology of war is called the art of war, we can name the guiding ideology of commercial competition as the Art of Business Strategy. The art here mostly refers to the guiding ideology element of strategy.

I mentioned early in the book that due to the contributions of Professor Porter and Professor Boman, the art of competitive strategy (or the art of strategy at business unit level) is relatively mature. The art of strategy at corporate level needs our development and research refining. Following I will present some research questions.

10.4 Questions Concerning the Competitive Strategy

Chapter Six mentioned that the strategy at business unit level concerns mainly the question of how to compete. From this perspective, the keynote of a strategy aims at attracting the consumers in the market. Competition is bound to happen in every industry as long as it is not monopolized. All the companies in competition are faced with the question that what makes their products more appealing than that of their rivals so the customers are more willing to buy their goods instead of those of other companies. In other words, how to attract the consumers in the market and what could I use to attract the consumers? Or it could be interpreted as what better added values I (my products or services) can bring the consumers, compared to the competitors. These questions share the same core content, and are of great significance for companies to make decisions in terms of products and services.

• (1) The element of guideline of the competitive strategy

It can be seen from the strategy clock that the competitive strategy of a company could be measured from two dimensions: the price of the products (or services), and the added values brought to the consumers by the products or services. The way that a company sells its products or services with middle and high added values to the market in low prices is called Hybrid Strategy. So when a company formulates its competitive strategy, it defines its targeted customers in the market. It is clear that even in the same market, enterprises would adopt various strategies to deal with the great challenge of by what means to attract consumers, such as the competitive strategy of cost-leadership, the hybrid, the differentiation and even the focused differentiation. Here is a question that can be studied:

For what reason would different companies of the same industry choose different competitive strategies? What are the roles of such factors as the corporate history, company capabilities and the values of the head or founder of the company, etc.?

Throughout the competitive strategies of all sorts of companies, it can be found that they (or the company’s positioning in the market with regard to the prices of its products or the added values the consumers enjoy) have their traditions and heritage related closely to the founder of the company. For example, Louis Vuitton was founded in 1854 by Mr. Louis Vuitton who won the trust of Queen Eugenie. This brand has attracted the upper class with chic taste, and has always uphold the concept of producing perfect products.

According to resource based view, a company’s strategy is mainly determined by its resources and capabilities. Mr. Louis Vuitton has the capability of producing and selling elegant and exquisite products to the market, so his company launches high-end products.

The principle of strategic matching suggested that a company needs to consider the external environment as well as its resources and capabilities. Calingo (1989) and Zajac and Shortell (1989) also believe that the competitive strategy of a company is affected by the environment. When the environment changes or is contrary to expectation, would the company alter its basis competitive strategy or work out a new one accordingly? Or what is the role of the external environment in determing a company’s product position?

For instance, in the manufacturing industry, the qualities of the products cannot be improved within a short period, which is why an auto manufacturer who has never produced high-end cars would not enter such a market before acquiring the technologies needed. If a company has been following the competitive strategy of cost-leadership, would it develop its technologies and introduce new competitive strategies when the demand for quality products increases significantly in the market as time passes? If the answers are yes for some companies and no for others, then we would wonder why some change their basic competitive strategies while others don’t?

Similarly, if a company only provides products and services for the high-end market, would it enter the mid- and low-end market when the demand is huge?

• (2) The dissociation of the clients and consumers on the internet platforms

The development of the Internet has given rise to numerous network platforms where the definition of traditional clients and final consumers change, and the clients are no longer equal to the consumers. Take Baidu, the search engine, for example, its clients are companies who could pay for its services (those who advertise themselves on baidu.com), but its consumers are people who need the information. In that case, the needs of the clients and of the consumers are not the same to Baidu. In the case of Wei Zexi (who was misled by the search results on Baidu, and died of synoviosarcoma), the doctor information listed on the top was not the information the patient needed, which shows a contradiction between the demand of the clients and the consumers.

As another example, P2P platform companies have two kinds of users, project launcher (those in need of funds) and investor (those who provide funds). Some companies used to conceal the actual situation of the projects in order to attract investment, leaving investors suffer from property lose.

Today, the development of the Internet sees many new business modes in which the clients are separated from the consumers.

In the incident of Wei Zexi, Baidu regards the advertisers as its clients, instead of the final consumers who use the information on the platform, and wishes to provide them with more added values. Questions worth studying here are:

If the clients are not the final consumers, what kind of overall strategy would companies choose in competition when there is conflict of interest between the two?

When there are contradictions between the interests of the clients and the consumers, would there be obvious performance differences between companies who ignore the interests and demands of the final consumers and those who don’t?

Studying the questions above would help to better reveal the competitive thinking presented by the competitive strategy, especially the business ethics and thinking.

• (3) The competitive tactics

When it comes to military affairs, the details of each and every tactic are vital to the result of a war. Take the battle of Chibi during the Three Kingdoms Period (208 A.D) of China for example, after making the overall plan of attacking Cao Cao’s vessels with fire, Zhu Geliang had to think carefully the tactical details. For instance, how to trick Cao into chaining his vessels together so that they could not move during the fire attack? When would there be Southeast wind to blow the fire unto the enemy’s vessels since in winter the wind normally comes from the Northwest? In face of defeat, which way would Cao choose to flee? The correctness and perfection of tactic making is decisive in a war.

In business competition, the competitive tactic plans are equally important.

For example, when a company chooses the competitive strategy of differentiation, how can it differentiate its products or services so as to make theme preferable for the clients and consumers in the market? Although picking differentiation themes only concerns the tactics, however, if a company goes to the unwelcome one, it will seriously impede the achievement of the competitive goal. So the following questions can be asked:

Given a certain industry, what basic differentiation themes (competitive tactic plan) do the products or services have?

When a company chooses to compete with differentiation thinking, how does it determine or pick the competitive tactics (or differentiation themes)? In other words, which factors (such as the idea, artistic culture of the manager, and his/her familiarity with the clients and the technologies) have influence on the differentiation themes of the products or services?

How do the company’s capabilities and the characteristics of the main clients in the market affect the selection of differentiation themes?

These questions are of great significance in further explaining the differentiation strategy.

For companies that choose the strategy of cost-leadership, the next move is to determine the specific tactics which aim at lowering the cost after making the overall strategy. Some industries need large scale and investment (such as aircraft manufacturing, automotive mount, etc.), while some want large amounts of labor input (such as construction, catering, etc.). Does every industry have a different way of lowering the cost? On the basis of traditional cost management, given a specific company, what other methods remain available to reduce the cost? Studying these questions would also help to discover the strategy of cost-leadership.

10.5 Research Questions of the Corporate Strategy

Now let’s see what research questions remain to be studied concerning some of the specific strategies at corporate level. And in this part, I only investigate the following three strategies.

• (1) Questions of the backward integration strategy

The strategy of backward integration is a company’s aim to enter the field of suppliers. The three elements of this strategy have been introduced in Chapter Six, and related research can be carried out from the following perspectives.

Study on the element of major development issue.

Normally, a company would consider entering the field of suppliers when the prices of the raw materials or accessories are so high as to increase the procurement cost, or when the qualities of the raw material or accessories which could be purchased from the market are not stable so as to affect the quality of the products. Apart from these reasons (or major issues in the development of the company), are there any other important reasons for the company to take backward integration into account?

Study on the element of overall guiding principles.

The element of the strategic triangle at the lower right corner involves two basic guidelines, whose specific content needs to be decided by the company’s senior management.

The first guideline (guiding principle 1, see Fig. 10.5) is to decide on choices of the following three: to development the new business by its own, or acquire or hold the shares from the market. Then the following questions are raised (or could be studied):

Fig. 10.5

Study on the guidelines of the strategy of backward integration

• How would a company generally decide on its basic guidelines? Or what factors would affect a company’s decision choices (self-development, share-holding and acquisition)?

• What are the characteristics that make a company inclined to choose self-development? If such characteristics do exist, does it mean that the companies having no such characteristics have made the wrong strategic decisions when they choose self-development? Or what would the result be?

• What are the characteristics that make a company intend to choose share-holding or acquisition? If companies having no such characteristics choose share-holding or acquisition, does it mean that they have made the wrong strategic decisions? Or what would the result be?

• In addition, with what characteristics would a company never consider backward integration but to accept the given prices and qualities in the market when it comes across the development problems including high prices and unstable qualities?

The second guideline (guideline 2 in Fig. 10.5) is to put forward guiding thinking or policies on “how to”. For example, on the assumption that the guideline 1 prefers acquisition, the question would be asked:

• What are the differences between the requirements or standards of different companies (with respect to scale, profitability or status in the industry) in deciding (or choosing) the target enterprises? Is there a regular pattern?

Studying these questions is important for explaining the strategy of backward integration because this process is instructive in establishing the basic acquisition principles of the strategy of backward integration.

Study on the risks of the decision.

Even though by adhering to the strategy of backward integration the company enters an industry that is related to its own, the two industries are not the same. For instance, when a company of iron and steel melting enters the industry of iron ore, it enters into the mining industry. Since the two industries are abruptly different, if the company has no experience with regard to the field of the supplier, then such a move could be risky as the company enters into an unfamiliar field.

Therefrom questions can be asked (or could be studied): from which aspects would the company ponder over the risks (such as the risks of management, technologies, funds, market demand, etc.) of the backward integration strategy? What are the features of the highly risky decisions that adhere to the strategy of backward integration? How about the low-risk ones? Would companies normally choose the highly or the moderately risky ones? How do they control or manage the risks?

Study on the satisfaction of strategic decision.

Would the strategic decision of backward integration without clear guideline 1 and 2 in Fig. 9.7 or risk control scheme bring about significantly lower satisfaction than those opposite ones?

• (2) Questions of unrelated diversification strategy

The strategy of unrelated diversification means that the company enters a business field which is not related to its own. From the perspective of the strategic decision-making of the three elements, the following questions of the strategy are worth studying.

Study on the drivers and the company features of unrelated diversification.

What are the problems during the development of a company that make the senior management think about entering a field that is not related to the main business? Would the main reasons for many companies to consider unrelated diversification be that the target industry can bring about development potential or high profits and that the main business of the company is on the decline?

When the Chinese economy was progressing rapidly in late 1990s and early 2000, the real estate industry boasted high profits and return as to attract many enterprises from other industries. Therefore, the high profits of the target industry make some senior managerial staff think about a major development question, which is whether the company should enter the industry that bears no relation to its main business. But the fact is that many competent companies did not enter the real estate field even the industry was at its peak. So here come the questions that what kinds of enterprises would consider entering the target industry when there are high profits? What kinds would not? What are the effects of the company’s scale, capital and leaders’ characters, etc.?

Apart from the high profits of the target industry and the decline of the main business, are there any other development problems that make it necessary for the company to enter an industry which is irrelevant to its own? Would the hobbies and interests of the decision-makers and fund surplus of the company also be factors for considering unrelated diversification?

Study on the research questions of guideline 1.

In China, there are lot of private coal bosses in Shanxi Province in China. Due to the slump in the coal mining industry, many have turned to other businesses such as the real estate, catering or transportation. From study perspective, how do they manage to find new industries and businesses? What are the basic principles of doing so? Based on what principles would the decisions of unrelated diversification succeed? What roles do the original resources, social connections and individual personalities play? What’s more, what are the principles for a company to decide between acquisition, share-holding and self-development when it is determined to enter a new industry or business? What are the effects of its original capital and social connections? All these can be concluded in Fig. 10.6.

Fig. 10.6

Study on the guidelines of the strategic decision-making of unrelated diversification

Studying these questions is helpful in establishing the basic principles for the strategic decision-making of unrelated diversification, and it is crucial for explaining strategy theoretically and for guiding future practice.

Study on the risks of the strategy of unrelated diversification.

Just like the backward integration, the strategy of unrelated diversification instructs companies to enter an unfamiliar industry. The following questions might be raised (or studied): from which aspects would the company think over the risks (of technologies, funds or market demand, etc.) brought by the strategy? What are the characteristics of a highly risky strategy of unrelated diversification? How about the low-risk ones? How do companies control or manage the risks?

• (3) Study on the questions of the peer acquisition strategy

Peer acquisition means that the company purchases an enterprise who has the same main business. Generally speaking, the aim of such acquisition is to obtain key technologies, brand or economy of scale. The following questions of the strategy is worth digging.

Study on the element of major issues in company development.

A company acquires another enterprise of the same industry to gain some new advantages in the market such as advanced (or core) technologies, marketing channel, brand, economy of scale, or rapid expansion, etc. In other words, the company cannot develop further because it lacks advanced technologies, a brand recognized by the market or scale, so it wishes to solve the problems through acquisition. In that case, apart from the major issues in development, are there any other challenges that must be tackled through acquisition?

Actually,technologies, brands, marketing channels and the expansion of market shares could be achieved through companies own effort. For example, Huawei basically depends on itself and works with the western companies to improve its technological ability of products and solutions. In 2006, it cooperated with Motorola to establish the Joint R&D Center in Shanghai for the purpose of developing UMTS (Universal Mobile Telecommunications System) technology. In 2007, it founded a joint venture with Symantec to develop the products and solutions of storage and security. And in the same year, it cooperated with Global Marine to jointly invest in working out the solutions for developing the end-to-end network of cable. By 2010, Huawei R & D personnel accounted for 46% of the total number of employees in the company. The company also set up 20 research institutes in the United States, Germany, Sweden, Russia, India, China and other places, and founded more than 20 joint innovation centers with the leading operators.³ Questions worth asking (or digging) are as follows: when companies are facing major issues (or bottlenecks) such as technology and brand in development, which of them would take (or not take) acquisition as the solution? What are the roles of the factors of a company such as the age, size, profitability, relations with the government, interpersonal networks, past acquisition history, and personal characteristics of the high-level decision-makers?

If a company does not take advantage of acquisition to solve development problems in terms of technology and brand, etc., it seems that the decision has nothing to do with the acquisition strategy. But if we look at it from the angle of the strategic decision-making of the three elements, or if we do not take the word of acquisition into account, it can be found that the strategy is born out of the problems met by companies. But why do some companies use acquisition while some choose other ways to solve the obstacles encountered? Understanding this question can illustrate the influencing factors of the decision of acquisition and non-acquisition, and thus further explains the acquisition strategy.

Study on the questions of the element of guidelines for acquisition.

The company’s guidelines or principles regarding the requirements of the target company are essential to the choice of the acquisition target. In addition to the monopolized and oligopoly industries, there are many companies in other industries, then why is the certain company being selected? What are the basic principles of companies’ peer acquisition? How do they determine these principles? What are the roles of the acquisition purpose, the resources available, the profitability, the social relations and the interpersonal network, and the personality of the decision-maker? All the questions are included in Fig. 10.7.

Fig. 10.7

Study on the principles of the peer acquisition for choosing the target company

Studying these questions helps to establish the basic principles of the strategic decision-making of peer acquisition. And it is crucial for understanding the strategy and for guiding the future practice.

Study on the risks of the strategy of fraternity acquisition.

Strategic decisions concern investment. Usually the investment involved in the acquisition strategy is relatively large. What risks of the acquisition strategy (such as the market risk, technological risk, funding risk, and the risk of being boycotted by the acquisition target, etc.) would generally be considered by companies? How do companies control or manage the risks?

Study on the satisfaction brought by or performance of the strategy of fraternity acquisition.

If the decision violates the acquisition principles, is it destined to fail? Do acquisition decisions that have no clear guidelines or risk control schemes bring about significantly lower satisfaction than those that do?

10.6 Research Questions on the General Principles of Strategic Decision-Making

In Sun Zi ‘Art of War, there are several chapters concerning principles on war, such as “initial plan, battle section, attach and seek, military contention, march and topographical work”.

In the chapter of “attach and seek”, there is a principle of “subdue the enemy without fighting”. The supreme end of war is to keep the country at peace and protect the people. “Subdue the enemy without fighting” is to serve this end. This theory or principle is applicable to any war that wishes to avoid the suffering of the civilian people.

Enlightened by the military thinking, I have been thinking about two basic issues. One is from academic point of view, do we have such principles for helping managers to make various business strategies? If yes, what are they? In Chapter Seven, I introduced three principles that need to be followed in strategic decision-making including matching the external environment and the internal resources. Are there any other principles apart from the ones in Chapter Seven? The answer should be positive. And they can be refined and summarized to guide the strategy of companies.

• (1) The factors of macro environment and industry

Since 1980s, the development of China’s economy has witnessed the change of consumer groups, and I am also one of them. In 2003, I went to Paris for a business trip, and three bottles of ordinary mineral water almost cost my one day’s wage, so it’s fair to say that in the streets of Paris, I was absolutely a poor person. But at present, many Chinese consumers can earn more salary income, so their consumption habit are proceeding from being barely fed and clad to a more comfortable life.

During the development of an economy, the environment in which various industries are located is also changing. In the process, some enterprises expand while some disappear. The development of an industry is closely related to the trend of economic development and government policies in the region, therefore a company can only survive when its strategy matches the external environment. Then questions can be raised:

• When the economy is developing rapidly, what principles of strategic decision-making should company with different characteristics adhere to (or insist on) to explore and seize the opportunity of developing with the economy?

• When the economy is sluggish or even downward, what principles of strategic decision-making should company of different characteristics adhere to (or insist on) to avoid risks?

• Can we summarize or deeply understand the regularity of the principles of strategic decision-making that various companies adhere to in the process of economic development? Or is there any regularity of business strategy similar to the “Art of War”?

What is the practical significance of studying the questions above? Assuming that in a fast-growing economy, there is a medium-sized company of low-profitability producing low-end products. If the company would like to develop in a sustainable way, are there any theories that can tell the company what basic principles its development strategy should adopt in order to achieve the long term development goals? Or can research results (theories) provide a pattern for the company’s strategic decision-making?

It can be seen that if the regularity of the principles that various companies adhere to when making strategic decisions in different stages can be concluded, not only would the strategic disciplines be developed, but the practice of enterprises would also be guided.

• (2) The factors of corporate resources and capabilities

It has been introduced before that an important principle of strategic decision-making is that the strategy must match not only the external environment, but also the company’s internal resources and capabilities. Under this basic and general principle, is there “specific” (or sub-) principles in terms of companies’ resources and capabilities? What does this question mean? For example, compared to small- and medium-sized ones which are generally weaker, do large companies with good profit adhere to different principles while making the strategy? Are the principles of the problem-solving overall guiding ideology different when the two kinds of companies encounter the same or similar major development issue? Are there corresponding principles of strategic decision-making for large and strong companies to refer to? Similarly, are there basic principles of strategic decision-making to provide theoretical guidance for smaller and weaker companies?

Or we can study the following questions:

• What overall ideology or principles would companies of different sizes and profitability choose to overcome the key development problems? Is there any regularity in the principles embodied? If any, what is the regularity?

• Would small businesses generally choose schemes or plans that require smaller amount of investment (for instance, if the company is lack of core technologies, would it choose to develop by itself or work with others)?

• Would large and competent companies with good profit normally choose schemes or plans that require larger amount of investment (for instance, if the company is lack of core technologies, would it choose to acquire another company that has such technologies)?

• Why would “a snake tries to swallow an elephant” (small businesses acquiring large ones)? How should we interpret the phenomenon? What logic (or principle) does the decision-maker follow?

When viewed from the perspective of logic, acquisition of snake swallowing an elephant is against the basic principles of strategic decision-making (that the strategy should match the company’s resources and capabilities). But this phenomenon does exist with successful cases. There were many overseas acquisitions in Japanese companies during the 1980s when its economy was in a boom. Nowadays, China’s economy is progressing while the western economy is sluggish. Many Chinese businesses, including some small- and medium-sized private companies, have started to acquire and merge with overseas enterprises. In 2015, Changjiang Elec. Tech. (stock number is 600,584) announced its plan of making a tender offer to STATS ChipPAC Ltd which ranks the fourth in the world and is twice its own size.⁴ Jschina.com.cn reported on November 3, 2016 that Jiangsu Cubespace Furniture Co., Ltd., a growing private enterprise, invested USD 78 million to acquire Friant Associates, an American company leading the industry of office furniture.⁵ We can probe into the questions that under what conditions (or in line with what principles) would such M&As have a better chance to succeed? Without the conditions (or principles), would such M&As less likely to succeed? Studying those questions will give us a better understanding of such acquisition strategy, while at the same time the summarized theory can also provide guidance for the practice of companies.

10.7 The Risks Brought by the Element of Overall Strategy

What brings the victory in a war, fighting or compromising? If the answer is the former, then what should be the guideline? Fighting strategies born out of different guidelines directly influence the military powers put into the war, and bring about different potential risks.

• (1) How to ponder over the risks of different guidelines

The strategic decision-making of a company concerns the scale of the investment. One factor that affects the investment is the “guideline or overall ideology” element at the lower right of the strategic triangle. For example, when a company wants to improve its technological capabilities, it can cooperate with others in the market (domestic and international companies), or acquire another enterprise. Through acquisition, companies can directly get technologies and brands but the investment needed is large. So the risks involved in the two different strategies are different. Strategic decision-making, in many cases, is to choose different scenarios, and to assess the expected returns and risks. Then we would ask:

• When a company faces a major issue in development, how does it weigh the risks brought by different problem-solving overall ideologies?

• (2) Thinking over the risks brought by the element of guideline

It is evident that Geely’s acquisition of Volvo is a success, but BenQ’s acquisition of Siemens is not. Every strategic decision (especially the decision of the overall ideology element) is made with a corresponding basic investment plan. The failure of a strategy indicates the failure of an investment.

When an ideology of a strategy decision making is selected, this indicates that the senior management of the company has made the strategic decision. If we take strategic decision as investment decision, can the risks of strategic decision be assessed or studied as a whole?

Or:

• With what characteristics is the overall guiding ideology having a low risk or high risk?

• How do decision-makers identify the risks? What are the roles of the future trend of the industry, the economic environment, as well as the companies’ financial resources and management capability and other factors in the identification?

• Would different companies in size, ownership structure, and profitability put forward different overall ideologies, and would the potential risks be different?

• Do decision makers’ habits of risk aversion or their attitude towards risk significantly affect the risks in the decision of overall ideology? Or what characteristics make the decision-makers prefer the high-risk in the decision? What characteristics make the decision-makers prefer low-risk in the decision?

Studying these questions can allow us have some insights into the risks of various strategies and their patterns, which would help us take precautions against possible risks.

10.8 Future Outlook

This book alludes that the study of the competitive strategy is relatively mature from an academic point of view. Each competitive strategy, there is corresponding element of overall ideology reflecting brilliant thinking on how to compete. However, with regard to the corporate strategy, there are still many challenges to be investigated and explored.

After studying the relevant theories of strategy, Boyd et al. (2005) concludes that strategy as a discipline is still in its infancy. Today, our understanding of the strategic laws or the art of business strategy still cannot yet meet the requirements of companies’ practice, so the scholars are still bearing particular responsibilities. The good news is that we are already at a start-up stage. In the future, more regularities of strategic decision will be revealed and more theories will appear, so as to better guide the strategic practice of enterprises. I believe that the discipline of strategic management will see a better development in the future.