We're focusing on strategy formulation and implementation.
And at this point, I'm going to state something that seems obvious, and
that is that accomplishing these things requires and involves human beings.
Okay, so that's not really a news flash, and
it might even be the ultimate example of stating the obvious, right?
But it's important for us to think about because we're all familiar with how
sometimes our best laid plans, our strategies, if you will,
can bump up against the realities of human nature.
And oftentimes, things don't work out exactly like we had planned or hoped.
So, this is important because we want to recognize that
this human factor is something we need to carefully consider
when we think about strategy execution, right?
And it's important because some theories don't even explicitly recognize this human
factor.
And so I want to push us to really focus on the influence of human beings and
organizations working together trying to implement, and set, and analyze, and
do all these things that we've been talking about as they pertain to strategy.
So look, a detailed treatment of these ideas lies well beyond
the scope of what we can do right now.
There's no question about that.
But thankfully, there is some good research that gives us some important
basic things that we might want to watch out for and
consider as we think about strategy execution in organizations.
And so, again, my job here is not going to be to summarize
all of that in any sort of comprehensive way, but instead,
I'm simply going to highlight a few particular examples of ideas that
are about this sort of human factor that you might want to think carefully about
as you approach setting and implementing strategy in your organization.
So again, the point here is that as a strategist, as a leader,
you need to think carefully about how human beings can either assist or
impede your ability to effectively set and implement strategy.
So what are a couple of examples here?
I want to just to pull a few examples from several long traditions in
organizational theory.
And these are sort of basic foundational ideas that come out of those bodies of
research.
And let me start first with behavioral theory of organizations or
the behavioral theory of the firm.
So there's a couple of key ideas.
The first one I want to start with is this idea of bounded rationality.
So, what's that all about?
Bounded rationality is simply the recognition that human beings
are not even really capable of making perfectly rational decisions.
That, in fact, our decisions are always bounded by a bunch of other influences,
our past, what we've experienced before,
what our biases are, what we like, and what don't like.
So, all of these things can come into play, and
they might cause us to make decisions that aren't always perfectly rational, right.
So again, I'm not suggesting that's good or bad, there's nothing prescriptive here.
It's merely just sort of the descriptive insight that, in fact,
this is how human beings really are.
We're boundedly rational.
We're not perfectly rational.
So again, it's your job to think about what to do with that particular insight
in your organization as you set and implement strategy.
You need to take into account that the members of your organization, including
yourself, you're not always going to make perfectly rational decisions.
So, another idea that's sort of closely related to that is the idea of
satisficing.
Now that might not be a word you've heard before or maybe you have, but satisficing
is an idea that sort of stands in contrast to the idea of optimizing or maximizing.
So in other words, we might always want to make the best possible decision or
execute on the best possible strategic move.
But for the most part, we tend not to do that as human beings.
We tend to instead of maximize or optimize, we tend to satisfice.
And that basically means we just search for acceptable solutions.
We look to improve our current situation,
and once we've improved that situation, that might be good enough, right?
We oftentimes don't do the hard work, and we aren't even capable because of our
bounded rationality of finding almost the optimal or maximal thing to do.
So, we search for solutions that sort of represent marginal improvements, and
we tend to be as individuals sort of happy with that.
So, again, it's another thing to keep in mind as you approach the setting and
implementing of strategy in your organization.
How can you account for that, right?
There's another idea that rises out of behavioral theory having to do with
performance assessments.
In other words, how do we sort of assess performance feedback?
How do we really decide how well we are doing, for instance, as an organization?
So, we might have this idea.
We might wish that there is some objective standard of performance that that's what
we are shooting for, right?
But in reality, what the research demonstrates is its individuals tend to
sort of benchmark their performance against either their own past performance
or the performance of peers or competitors, right?
So if we're operating in an organization in a particular industry,
what we're really going to be motivated to do is perform better
then we performed last year, for example, and
we're really trying to outperform our competition in that industry.
And there's a lot of research that demonstrates how it's those
particular reference points that drive a lot of strategic behavior in firms.
Again, whether that should be the case or shouldn't be the case,
it's not that it's good or bad, it's merely that,
that's what really kind of happens in organizations, right?
So those are three insights,
just sort of basic foundational ideas that arise out of behavioral theory.
Let me just highlight a couple of ideas that come from some other
theoretical traditions, so what I'll describe as institutional theory.
There's an interesting idea that arises out of that research tradition that I'll
describe as mimetic isomorphism.
Now, that's just a fancy way of saying that individuals and
organizations tend to copy each other.
We tend to mimic each other, right?
So, what you see, for instance, is that in a particular geographic market or in
a particular industry over time, what sort of happens is organizations tend to, sort
of, copy or mimic or try to, sort of, do what's working for another organization.
You might see a competitor that seems successful, and so
what we want to do is try to do the same thing they're doing.
So, this has been demonstrated in a lot of contexts.
This is why, for example, if you drive around the United States, for
instance, and you still listen to the radio,
you might notice that when you get to a particular geographic region,
a lot of the radio stations have a very similar format.
There are people that have done research on that, right?
So, this just means that, that firms, organizations tend to try to benchmark
what other organizations are doing that they can readily observe, and
they tend to sort of try to copy the things that they think are working well in
that organization, and that's why you tend to see the sort of similarity.
Let me highlight one other theoretical tradition, Resource Dependence Theory.
And the idea I'll highlight here is, again, a very fundamental basic one, but
it just has to do with power dynamics.
And the idea in this research tradition has to do how organizational moves,
oftentimes are influenced by the power dynamics that are in that larger
context that the organization operates within.
So, for instance, if there's a stakeholder that we are kind of dependent on
because they have a scarce resource that we need, it turns out they're going
to have a lot of influence over what we tend to do as an organization, right?
And we can see that in our interpersonal lives as well.
Those who have a little more power and authority tend to be able to
call more of the shots and people sort of try to fall into line.
We try to behave well for
our boss because our boss decides whether we're going to get a promotion or a raise.
So, we see that kind of behavior in organizations as well.
The power dynamics can really influence the way strategies are set and
implemented.
So, the point here is that these are just a few examples, and there is a large
emerging literature, and behavioral psychology, and behavioral finance,
and behavior economics, and social psychology that highlights things that we
ought to watch out for as we're trying to operate effectively in organizations.
This research can highlight biases, and decision traps, and quirks of human nature
that can have a big bearing on how we formulate and implement our strategy.
And the list of things we might consider is seemingly endless.
There's research on different types of conflict in organizations, or
decision-making processes, or strategy-making processes.
So, the larger point here is simply this.
The effective leaders, the effective strategists, and I'm hoping that's you,
need to sort of really think carefully about how to navigate the human
dynamics of the organizational setting and account for that human factor.
That's a really important thing to consider as you think about setting your
strategy and implementing that strategy.
Michael LenoxSenior Associate Dean and Chief Strategy Officer
Jared HarrisSamuel L. Slover Research Chair in Business Administration
Scott SnellE. Thayer Bigelow Research Professor in Business Administration
