Four Schools of Strategy

This perspective assumes that ‘rational economic man’ is in charge, seeking to maximise profits through rationally planned activity with perfect knowledge and freedom to act. Theoretically, all firms in an industry should be doing the same thing as there can be only one right ‘rational’ answer in a given set of circumstances. The only way to explain differences between firms from this perspective would be to argue that there are conditions in the environment which prevent firms from following the optimum rational path. E.g. some may be more vulnerable to the effects of a badly run banking sector which does not administer loans rationally and therefore hampers their performance. This is an example of ‘the economist’s view’ of inter-firm variability – seeing it as caused by external factors.

According to this view, the market selects the winners – just as in the natural world natural selection ensures the survival of the fittest. This process requires there to be a variety of species (or firms) from which to select. So the differences between firms in an industry come about not from imperfections in the system (as suggested by the Classical view) but from the natural emergence of variety from which the market will select. By doing something different from the rest, firms in a particular industry are betting on the likelihood that an unpredictable future environment will select them from the variety available.

This perspective takes a different view of human nature than the Classical perspective. Rejecting ‘rational economic man’, it sees people having limited ability to obtain and use information they need to make a decision. Unlike the Evolutionary perspective, it does not expect the market to select the best from what is available, pointing out that some firms (often because they are first into a market and thus have a stranglehold on distribution) can win out over competitors whose products are actually better. According to the Processual perspective, firms differ simply because of largely unpredictable events resulting from compromises, experiments and learning which characterise corporate life.

Systemic theory emphasises the systems (cultural, political, social, etc.) in which decision makers are embedded. This is in contrast with the Classical perspective, which imagines managers as perfectly rational and floating free of the situations about which they need to make decisions. The Systemic perspective sees the differences between firms as the result of the different social and economic systems in which they are embedded.

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