Strategic and Organizational Change

Alistair Mutch

• Publisher: Routledge
• Year: 2006
• ISBN:
  9781134237197
• Edition: 1
• Topic: Commerce
• Subtopic: Gestion industrielle

The brewing industry, through its network of public houses, has a profound impact on the lives of much of the population of United Kingdom. Exploring the shaping of this industry in the years from 1950-1990, this book shows how it has moved from being largely concerned with the technical issues of production to being a key part of the retail industries.

Drawing from theoretical traditions such as critical realism and new institutionalism, Strategic and Organizational Change demonstrates the considerable differences between major companies in the industry and the ways in which they have adopted a retailing approach. At the heart of the book is an exploration of the relationship between managerial choice and the structural constraints and opportunities in which that choice was exercised.

Providing a new model of how history can inform the analysis of organizational strategy, the book draws on extensive archival material and adopts a far more historical approach than previous accounts of the area. Above all, Alistair Mutch presents a fascinating story of change in an industry which is taken for granted, but whose actions affect, for good or ill, the lives of millions.

1 Organization, strategy and institution

The evidence to be presented in the later parts of this book is used to suggest that there was a shift towards a retailing orientation amongst the major companies in the British brewing industry over a period of forty years from 1950, but that this shift took place at different speeds and with different inflections from company to company. In order to frame this shift and to help to interpret it, we need to look at some ideas that might guide us. A key part of this book is the argument that ideas derived from critical realism are helpful in this endeavour, but that the development of these ideas can happen most fruitfully by means of a dialogue with existing perspectives. This chapter, therefore, examines a set of these perspectives, selected because they address some facet of the central issue of how it is that dominant actors in organizations come to conceive of their situation and adopt strategies towards it. There is a particular interest here in the constraints placed upon and the resources enabling such formation by both other agents within the organization and by structures external to the organization. We start with a review of some work that revives an old debate, that of the relationship between strategy and structure. This introduces both a number of themes and a pivotal figure between the disciplines of business history and organization theory, Alfred Chandler. An exploration of his work suggests a need to look at how dominant actors conceive of their situation, which introduces the notion of the ‘dominant logic’. Whilst this notion is suggestive, it lacks an adequate specification of the structures which might form such a logic and this leads us to a consideration of institutionalist perspectives. Here, a number of claimants are reviewed, with a particular focus on the ideas presented by the ‘new institutionalists’. Drawing on both internal and external critiques a number of problems are outlined, problems which it is suggested can be tackled most usefully with ideas drawn from critical realism. We end, therefore, with a balance sheet of both potential ideas for application and some problems which frames the discussion of critical realism in Chapter 2.

In their work on The European Corporation, Richard Whittington and Michael Mayer (2000) use an extensive set of empirical evidence to suggest the success of a particular form of organization, the multi-divisional diversified corporation. Corporations, they argue, have a number of choices in structuring their operations. At the most basic are those companies which are either single product or in which a single product dominates (with domination being defined as between 70 and 90 per cent of turnover). However, many companies are driven to grow either organically or by acquisition and in the course of this growth split into a number of product-focused divisions. This multi-divisional firm can occur either through related diversification or through the acquisition of unrelated businesses, with the latter form often being referred to as a conglomerate. Whittington and Mayer argue that their data indicate that there is a long-run tendency towards the prevalence of the multi-divisional firm across Britain, Germany and France. They argue that ‘The enduring performance advantages of Chandlerian patterns of strategy and structure suggest that it is not international institutional effects but market pressures for efficiency that drive this conformity’ (Whittington and Mayer 2000: 225). This argument is important for our discussion in two ways. In basing their evidence on the top 100 companies by turnover in each country, our companies formed part of the evidence base. This raises some interesting questions about the nature of ‘related diversification’. Second, the work on the European corporation represents an attempt to take seriously the work of a significant figure in both business history and organization theory, Alfred Chandler. However, Chandler’s work is treated very differently in these two domains, a difference of treatment that raises important questions about the relative importance of structures and the interpretation of those structures.

Whittington and Mayer are concerned ‘to test the Harvard programme’s predictions on Harvard’s own terms’ (Whittington and Mayer 2000: 16). This means that the definition of the related company is one where no single product accounts for more than 70 per cent of turnover, but there are market or technological relationships between the activities of the firm. Of course, we are then immediately faced with the question of how such relatedness is to be determined. Is this the decision of the dominant actors in the firm – that is if they consider the activities to be related then they are, regardless of any more ‘objective’ test? Or is this an analytical construct? For Whittington and Mayer it would appear to be the latter, but it is important here to distinguish between levels of analysis. Whittington and Mayer are concerned with aggregated shifts at the levels of national economies. Further, as they explain, for their level of analysis ‘Diversification concerns corporate strategy, not business strategy. It is at the level of business units that firms actually produce and sell. . . . The corporate level has a different role to the business unit, but it is certainly important’ (Whittington and Mayer 2000: 16–17).

At their level of analysis, definitions of relatedness which include all our British brewing companies as ‘related diversifiers’ (with the limited exception of Scottish & Newcastle as ‘dominant product’ in the early years) can be justified but a closer examination suggests considerable differences. By the end of our period, for example, Whitbread had restructured into separate divisions for retail activities, managed houses and brewing, whilst Scottish & Newcastle was firmly wedded to a traditional model of vertical integration. From the level of a national economy they might both appear as being in the same business, with related activities, but at the level of the sector their activities seemed to have a very different flavour. In both cases, and in the cases of our other companies, therefore, the perceptions of what constituted relatedness in the minds of dominant actors differed.

An important conclusion of the Whittington and Mayer survey was that ‘In post-war Europe, it has been the forces of competition that have gradually dominated’ (Whittington and Mayer 2000: 18). They suggest that whilst institutional arrangements in the different countries are important, the existence of similar trends across national boundaries indicates that patterns of organizing are driven by market forces, forces that outweigh attachment to different national traditions of organizing. Of course, there is a counter to this in pointing out that there has also been during the period the growth of cross-national means of knowledge diffusion, notably management consultancies, which create accepted patterns of organizing. However, what is important about their argument is the desire to take seriously the ideas of Alfred Chandler, an agenda followed in particular by Whittington, who is anxious to rescue Chandler’s work from those who have pursued his work in a particular direction. He observes that ‘It is true that much of what followed in the Chandlerian tradition was highly attenuated, but Chandler’s (1962) own original definition of structure did allow for a richer conceptualization that is still useful today’ (Whittington 2002: 117). This is a very different conclusion from the dominant conception of Chandler as one of the founders of the ‘rational planning’ school of strategic thinking. The focus of much recent work on organizational strategy has been to emphasize a ‘processual’ approach, in which the operative words are ‘strategizing’ and ‘organizing’ rather than ‘strategy’ and ‘organization’. This thinking puts particular emphasis on the way in which strategy emerges from a pattern of decisions, rather than being the result of what is seen as a ‘rationalistic’ process of analysis of environmental factors and planning to meet them. In this rejection of the rationalistic perspective (as not corresponding to what organizations do, and as not being realistic given a variety of constraints, notably on the ability of people to comprehend and handle the full range of complexity that strategy entails) Chandler’s work, in so far as it is considered at all, is placed firmly in the ‘planning’ camp. Pettigrew et al. (2002), for example, cite Chandler with Ansoff and Andrews as founders of the field of strategic management. In the same collection, Tsoukas and Knudsen (2002) argue for the structural functionalist roots of Chandler’s thought. Chandler is clearly a figure of importance in this discussion, although Whittington (2002) argues that he is used more as a proxy for broader debates – he cites those over rationality, over internal politics, over institutional pressures and over universals in organizational analysis – than for the content of his arguments. One interesting example of this is the use of Chandler by Johnson (1987) in his account of strategic change in a UK menswear retailer. Chandler is cited as support for the contention that existing strategic positions generate a momentum which is hard to shake. However, there are direct discussions in the book of changes in structure as a consequence of strategic decisions, but Chandler is not explored here. Chandler, then, is seen as a somewhat oldfashioned figure whose contentions have been overtaken by developments in theory. As we have seen, Whittington’s work is a valuable corrective to this, but it would be fair to argue that Chandler does not figure as a central figure for much thinking about contemporary business strategy.

The picture is very different in business history. Here Chandler’s ideas continue to shape the key debates. For example, in his text British Business History 1720–1994, John Wilson (1995: 219) comments that ‘British businessmen clearly lacked the expertise to employ the highly sophisticated control and planning procedures required in an M-form organization’. We can see from this comment the way in which concerns drawn from Chandler’s work shape much work done on British business history. In this case, the concern of Chandler to show the progressive development of divisional structures with their associated planning techniques sets the problematic for British business history. We might, in the light of the scathing comments about the failure of elaborate planning techniques emanating from the work of Henry Mintzberg (1994), suggest that the adoption of this agenda is mistaken. However, that the agenda of much British business history has been profoundly influenced by ideas drawn from Chandler is a contention supported by recent commentaries from historians with otherwise very different perspectives. Rowlinson and Proctor (1999) take issue with the dominance of Chandlerian ideas and argue for a very different approach in which the need is to take account of the centrality of culture and, in particular, the discursive shaping of reality. They conclude with the need to deconstruct the messages emanating from company histories, a call which would be sharply rejected by Jeremy (2002). His survey of the field, however, would indicate both the continuing centrality of Chandler’s ideas and the limited progress that has been made towards different perspectives. This is not to argue that such perspectives do not exist (see, e.g. Church 1999; Jones 2000) but rather that ideas about the firm emanating from economics continue to exercise a strong hold. However, Jeremy points out that within economics the contemporary importance of issues of knowledge is forcing a reassessment of the notion of firms as passive respondents to the stimulus of economic forces. The work of economists like Casson (1997) suggests that the way in which companies interpret their environments can be central to their responses to it. Within business history, therefore, there are limited shifts towards recognizing the importance of interpretation; within the study of business strategy it might be argued that this has become a key focus to the relative neglect of topics like organizational structure. In seeking to reconcile these two positions, it might be useful to start by looking at the work of Chandler in a little more detail.

Chandler’s founding argument, first elaborated in Strategy and Structure in 1962 (1990a) and pursued and elaborated in a series of detailed works in the following years (1977, 1990b), was that organizational structure followed from the strategies that organizations chose to follow. However, the starting point might usefully not be with the definitions of strategy and structure, but with the language of ‘administration’ that begins and ends the book. ‘Business administration’, writes Chandler (1990a) on page 1, ‘has a particular relevance for today’s businessmen and scholars’. His conclusion links this administrative effort directly to planning:

In all industrial, urban and technologically advanced societies where the large enterprise, either private or public, has acquired an essential role in planning, coordinating and appraising economic activities, a lack of systematic structure within these organizations can lead to a wasteful and inefficient use of resources. Further studies of the way in which the great enterprise has grown and become administered have, then, more than mere scholarly value.

(Chandler 1990a: 396)

This focus on planning reflects the fascination with planning that Harris (1983) points to as a feature of both sides of the Cold War divide. For the executives in large American corporations the functions are that they ‘coordinate, appraise and plan’ (Chandler 1990a: 8). Following this, strategy is defined as the ‘determination of the basic long-term goals and objectives of an enterprise’ (Chandler 1990a: 13). Quite clearly, this must involve some consideration of the direction in which the business is heading, but this is subordinated in terms of both language and content to the functions of coordination and planning. We have already seen that this means that where Chandler’s work is recognized in the organizational literature, it is as an exemplar of the planning school of strategy. Of course, this is not to argue that planning is not important, nor that issues of structure are not important, but that we also need to attend to the question of how strategies are formed. What is significant in his approach, above the linking of structure and strategy, over the privileging of strategy and administration, is the placing of these in the context of the market overall. He is firm that ‘The market, the nature of their resources, and their entrepreneurial talents’ were the significant forces for American corporations (although he allows a place for the state in shaping specific markets) (Chandler 1990a: 384). He further argues that ‘The changing American market shaped initial strategic growth, integration and diversification’ (Chandler 1990a: 382). What is underplayed in this approach is the way that such large organizations, in various ways, intruded into those markets and in part formed them (Roy 1997). However, his work reminds us that the market has real impacts, if only in placing constraints on the actions managers can take. It is this argument that Whittington and Mayer have returned to. However, in doing so we have noted that the question of how actors conceive of related diversification is underplayed. For their testing of the Chandlerian model this is valid, but in our consideration of the different meanings of retailing, the way in which dominant actors deployed what we might call for now ‘interpretive schemes’ is of some importance.

This can be seen within one company in Johnson’s (1987) study of the British mass men’s clothes retailer Foster Brothers. In this study he indicates that retailing could itself be perceived of in a number of ways. It could be seen as expertise in property buying, in which the advantage comes from the ability to secure favourable locations. The nature of the merchandise, how it is displayed and the reactions of customers take a poor second place here to the perception that if the product is available in the right places then success will follow. This view is clearly predicated on a low degree of customer choice – or of a perceived lack of interest in such choice. A contending image of retailing, and one which became prevalent in the company, was that success in retailing centred on the success of the buying function. In this scenario, the challenge became the sourcing of merchandising at such a price that the company retained a competitive edge. In such a perspective, issues such as design and image played a lesser role, with again assumptions about the nature of the customer being made that focussed on ‘value for money’. A further perspective would be one that centred on the importance of ascertaining the views of those customers, but this was a perspective that was strongly resisted within the company, a resistance that led to the eventual demise of the company. The strength of commitment to the previous notions suggests both the range of strategic choice open to dominant actors even given the market constraints that Whittington and Mayer point to, and the importance of conceptions of how the world is viewed. Johnson uses the term ‘organizational paradigm’ to describe such world views, a term which was added to the growing number of such terms, as we will see. However, there is an unresolved tension in Johnson’s work. Much of the literature on the interaction of organizations with their environments suggests that organizations can enact their environments rather than just being passive recipients moulded by them (e.g. Daft and Weick 1984). However, in much of the emphasis on process in organizational theorizing the market becomes at best a shadowy presence, at worst a simple discursive construction. Knights and Murray (1994: 187), for example, argue that ‘Although at first glance it appears that decisions are flowing from “market requirements” which are assumed to derive from the external environment, it is clear that particular distinctive views of the market are mobilized by different managers.’ From this observation about how markets are known it is but a short step for some to argue that markets are nothing but these distinctive views. So at one point Johnson argues that ‘environments are, for Weick, enactments by managers of the world in which they live’; however, some 150 pages later he suggests that

it is more realistic to see environmental forces as both constraining and enabling the formulation of strategies by managers; they provide managers with the strategic arena that they must understand, that they seek to transform and in which they act.

( Johnson 1987: 41, 201)

He mentions, almost as an aside, the work of Roy Bhaskar as a support for the latter contention, but this is not followed up in any detail. A much more committed use of Bhaskar’s critical realism was to follow two years later with the appearance of Whittington’s (1989) examination of the strategic response to recession in the domestic appliance and office furniture industries. That this was an initiative that appeared to run into sand is a point that we will return to later, but Whittington also places considerable stress on the importance of what he terms ‘local ideologies’ in the formation of company strategy. ‘These “local” ideologies’, he argues, ‘. . . are beliefs concerning the organization and its relation to its environment that both embody the objectives held by dominant actors and serve to secure the compliance of other actors important to achieve them’ (Whittington 1989: 105). What is important in the perspective is that it sees the construction of these ‘local ideologies’ as drawing upon resources available to actors from the structures of society in which their firms are embedded, but in a way which places the strongest emphasis on the strategic choice that this makes available to actors.

In adding the terms ‘organizational paradigm’ and ‘local ideology’ to the melting pot, Johnson and Whittington were adding to the proliferation of terms that were used to describe what we have so far termed ‘interpretive schemes’. Hodgkinson and Sparrow (2002) supply a useful overview of these terms, which include in their number the term ‘dominant logic’, and it is this term which I wish to explore in a little more detail. It appeals because of the two components of the term. The use of the word ‘dominant’ mirrors the way in which the logic for an organization is often powerfully shaped by the dominant group of actors. ‘Dominant’ here implies that this group is not the only one, and that their ideas may be held in place by their command of the authoritative resources of the organization. This seems much more helpful than notions like ‘shared’ or ‘common’ meanings; there is no need for a ‘dominant’ logic to be agreed to by all parties for it to be employed nevertheless. Unlike some conceptions which tend to view the organization as having unitary status, such as Daft and Weick’s (1984) conception of the organization as an ‘interpretive system’, the notion of a dominant logic echoes the work of those who have found multiple contending logics at different parts of organizations (Sackmann 1991). ‘Logic’ is also helpful in stressing a set of rules that constitute an approach to varying content, and, as we will see, is useful when we look in more detail at ideas drawn from critical realism. Sets of ideas presented as a body of logic imply that there are logical relationships between concepts. This might mean that adoption of one idea, such as regarding the public house as a retail rather than a distribution outlet, might bring with it a related set of ideas such as the importance of direct management, which might not have been desired or which might clash with existing interests, either of the dominant actors or of others. The notion of institutional logics supplying a set of resources which both constrain and enable organizational action is also a feature of new institutionalist thought to which we will return (W. R. Scott 2001; Seo and Creed 2002). For a number of reasons, therefore, the idea of a ‘dominant logic’ is worth further pursuit.

Prahalad and Bettis first presented their notion of dominant logic in 1986. For them it ‘is a mind set or world view or conceptualisation of the business’ (1986: 491). It is formed over time through the activities of the senior decision makers of the organization. Whilst it can be a source of advantage, it can also be used inappropriately when, for example, the firm diversifies into unrelated areas. Prahalad and Bettis suggest that historical exploration of the development of such a logic is one important analytical approach (1986: 499). Clearly, this is the approach that is tackled in this book, but it is one which seems to have been little followed. For despite their returning to the notion of the dominant logic in 1995 it is a conception which seems to have been little developed (Bettis and Prahalad 1995). In their return to the idea the authors are more concerned with speculation about the relevance of chaos or complexity theory than in developing the notion. In particular, it suffers from the excessively internal focus that writing on organizational strategy often has, in which the world outside the organization is conceptualized as the ‘environment’ to which the organization reacts, rather than as a set of structures in which the organization is inextricably embedded. One consequence is that dominant logics are seen almost entirely as a product of those within the organization itself, rather than being in dynamic relationship with ideas produced within the particular domain within which the organization operates. In examining industries as diverse as foundries, dairying and forklift rentals, J.-C. Spender (1989) suggests the notion of ‘industry recipes’. He argues that managers in these industries exhibited a ‘pattern of judgements’, ‘a way of looking at their situations that is widely shared within their industry’ (Spender 1989: 188). This pattern of judgements tended to be at senior levels, which suggests that it was based on shared experience. For Spender, ‘such beliefs may work in the same way that myths do for all of human society, to address the uncertainty of life, death, the hereafter and those other awesome concomitants of being alive and conscious’ (Spender 1989: 215). We do not need to go so far as to ...