Karin Tremp Strategic Decision-Making

About this book

Why do companies — especially the most established ones — consistently struggle to meet changing market and technical conditions? Organizational researchers and particularly those focusing on strategic management have long been interested in identifying factors that lead companies to success or failure.

Outside observers are continuously surprised when well-established companies suddenly falter or collapse (take for example market leaders such as Kodak or Nokia). In retrospect, observers often conclude that these failures were due to the combination of management shortcomings and substantial changes in the respective firms’ environments, often boiling down to a lack of foresight, bad strategic decision-making, or simply strategic inertia.

The pull of the past — i.e. the institutionalized thinking on how to do business — can threaten managers’ efforts to comprehend the full array of challenges in their firms’ environments. Such cognitive simplifications of executives are described as the dominant (general management) logic (Prahalad & Bettis, 1986).

Through her research, the author explains that such a behavioral strategy perspective has substantial implications for strategic management. The concept of dominant logic may offer an explanation as to why some firms suddenly lose their long-held market leadership or strategic agility (e.g., IBM or Ericsson), why some mergers fail despite the selection of logical strategic partners (e.g., AOL and Time-Warner or Daimler-Benz and Chrysler), or why new thinking — the precursor of strategic adaptation and innovation — is so difficult (e.g., the fall of Polaroid). In this respect, the research may help organizational and strategy researchers and practitioners improve their understanding of firms’ behaviors and outcomes.

This thesis aims to revive the discussion of dominant logic. By reviewing the scientific literature, the evolution of the construct’s scientific understanding over the last 30 years is retraced. Since the concept has proven to be theoretically appealing, but has rarely been empirically explored, measurement guidance is provided by presenting a validated operationalization. In addition, dominant logic’s indirect and direct performance implications are empirically examined based on European, cross-industry data.