Strategy is daily fare

Key insights

  • The strategic choices that managers and entrepreneurs have to make are not only determined by ratio and cost-benefit analyses. This PhD research investigates how thoughts and (subjective) interpretations impact business strategy decisions.
  • A first case study of a Belgian entrepreneur with a portfolio of companies in the digital sector, shows that there are 3 processes of making decisions with regard to business models, competencies and resources: share, transform or harmonise.
  • A second case study of two established Belgian media companies shows that framing determines the way in which they respond to digital disruption. There are 3 categories of framing: interpreting (threat or opportunity), adapting (with existing skills or new skills) and integrating (new products and services alongside existing ones or blended into existing ones).

“Change or die” is an often-heard battle cry in this age of digitisation and disruption. Ever more digital technologies are being developed and put onto the market. What strategy will you follow? Which business model will you adopt? How entrepreneurs and managers interpret this constantly changing digital environment determines their strategic choices. Caroline Baert’s doctoral thesis fills an important gap in strategic management research.

Language as a mirror of the soul

The manager, as a rational decision-maker who makes choices and takes decisions based on cost-benefit analyses, has already been extensively researched. Far less is known about the role of cognition, thinking and interpretation, especially subjective interpretation. Thoughts and interpretations have an impact on decisions and thus, ultimately, on business strategy.

But how do you research what someone is thinking? “You can do it by analysing their language”, Caroline replies. “Language makes thoughts and interpretations tangible. When online news first appeared, you had CEOs of large media companies swearing resolutely never to go online. Five years later, the same CEOs were telling their shareholders in their annual letter that they would look into it. Clearly they had come into contact with information that changed their interpretation of the situation. For my research, I analysed the language that entrepreneurs and managers use in personal interviews and written texts such as blogs, presentations, annual reports etc.”

Start-ups versus established companies

Caroline used case studies to investigate two different contexts, specifically (1) new businesses starting up in the digital sector and (2) how established companies adapt to increasing digitisation. The intention was to identify general patterns based on concrete situations and develop theoretical models and frameworks.

Skills and resources. How do you use them?

The first case study looks at a Belgian entrepreneur who is building up a portfolio of companies over a seven-year period. “So he has to determine each time which business model is most suitable to respond to the changes in the digital market. I mapped out how he does this by making subjective interpretations of the skills and resources required - human and financial resources - how he deals with those skills and resources, and how that evolves.”

This led her to a theoretical model with three main processes describing how you can deal with skills and resources in a portfolio of various companies or business units:

  • Share
    There are various ways of sharing. Some resources and skills, such as HR processes, can be copied perfectly well; others cannot. A talented innovation manager, for example, will need to be seconded. Setting up a knowledge management system is another way of sharing skills and resources.
  • Transform
    Bringing together resources and skills from different business units to let them grow into independent businesses more autonomously is a form of transformation.
  • Harmonise
    Depending on needs, you can allow business units to coexist alongside each other or temporarily bring them together. Sometimes it is more useful to have several smaller business units that can profile themselves differently. Joining forces can be useful to bring in bigger projects.

The framing determines the result

The second case study analyses two established Belgian media companies during the period from 2000 to 2015. “I used that case study to investigate what framing processes companies like these use to tackle the disruption caused by the emergence of online news media and how that framing has evolved over time. Framing is a way of using language with the goal of giving meaning to something, interpreting something. So it is not without practical implications.”

These framing processes can be divided into three categories in chronological succession:

  • Interpretative framing processes - opportunity versus threat framing
    When new digital news media pop up, it is a question of how you interpret that new technology and its impact. One company describes it as an opportunity (opportunity framing), and the other as a threat (threat framing).
  • Adaptive framing processes  - fit versus search framing
    In a subsequent phase, it is a question of adapting as a business. Then the time has come to think about skills. You can try to respond to the challenges of the new technology with existing skills (fit framing) or go in search of new skills (search framing).
  • Integrative framing processes - stack versus blend framing
    Besides thinking about skills, an organisation needs to consider which new products and services it is going to develop and put onto the market. You can put new products and services alongside the existing ones (stack framing) or you can try to genuinely integrate the new technology (blend framing).

The analysis clearly shows that framing determines the way in which an organisation responds to digital disruption and the course of action it takes. “The theoretical model that I have derived from this case study shows that framing is an evolutionary process. How you frame something in a given phase has an impact on your perception and on the framing – and any reframing – in the following phase. And all that determines the ultimate outcome. These processes and how they were connected chronologically had not been researched before.”

Thinking differently

“To understand how managers and entrepreneurs think about business models and strategy, you have to listen to what they are saying and analyse their language”, Caroline says. “If my research makes anything clear, it is that strategy is not developed at annual meetings. It grows organically. Strategy is daily practice, and language offers insight into how that practice arises.”

Can organisations put the results to practical use? “Absolutely”, she affirms. “You can use the frameworks and processes I have defined as a mental or physical checklist to find out which aspects apply to your situation – to direct your thoughts.” Incidentally, Caroline’s framework is not limited to digital disruption. “You can apply it to any situation where there is new technology or new regulations, for example. The checklist stimulates you to think in different ways.”

To be continued

Skills, resources, fluctuations in the markets and competition etc.: as a manager and entrepreneur, there are many things to interpret. And all these interpretations have an impact on your strategy. Caroline has described how that interpretation changes and evolves in two contexts, but she believes there is still plenty of space for further research in other contexts and sectors.

She concludes: “For a long time, academia was mainly interested in the rational, objective analyses of managers and entrepreneurs, but they are only part of the solution for creating a strong organisation. Gradually people are starting to take the subjective interpretations seriously as well.”

Source: ‘The impact of cognition on strategic outcomes’ by Caroline Baert. Doctorate in Applied Economic Sciences, Ghent University, 2017. Promoter: Professor Marion Debruyne (Ghent University and Vlerick Business School).

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