MANAGERIAL INTERPLAY: LINKING INTENT TO REALIZED STRATEGY. J. IGNACIO CANALES University of Saint Andrews, St Andrews, Scotland U.K.

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1 MANAGERIAL INTERPLAY: LINKING INTENT TO REALIZED STRATEGY J. IGNACIO CANALES University of Saint Andrews, St Andrews, Scotland U.K. KY16 9SS BILL WOOLDRIDGE University of Massachusetts In various ways previous theory and research have noted the importance of managerial interactions in the development of organizational strategy (Balogun & Johnson, 2004; Burgelman, 1991; Floyd & Wooldridge, 1997; Labianca, Gray, & Brass, 2000). The purpose of this paper is to develop theory on how vertical and lateral interactions affect strategic outcomes. We fulfill this purpose through a multiple case study, comparing patterns of managerial interactions across six firms to inductively derive theory on how managerial interactions affect the content of realized strategy. Existing theory recognizes vertical interactions between top and mid-level managers (Dutton et al., 2001, Huy, 2002; Ketokivi & Castañer, 2004), and general lateral interactions across the organization (Bartuneck & Moch, 1987; Gioia & Chittipeddi, 1991; Isabella, 1990). To date, however, existing theory has failed to do both, systematically describe vertical and lateral interactions and consider how they combine to influence strategy. Focusing on these combinations, the present study attempts to shed light on processes that influence the formation of strategy by using inductive theory building. The concept of managerial interplay emerged from the case data as an important factor influencing how strategy becomes accepted and realized consistently within organizations. Thus, as used here, managerial interplay is defined as the entire set of social interactions (both vertical and lateral) regarding strategy that generate reciprocal actions and reactions between and across managerial levels. It was through these interactions that the mutual validation and legitimization of strategy, by top and lower level managers occurred. Our intended contribution is to present an inductively derived model that considers content and process elements to explain consistency between intended and realized strategy. Although this model is the outcome of the analysis of the multiple case study, we provide the reader with a summary of the outcome at the outset using a suspense structure (Yin, 1994). This summary is presented in Figure 1. [Insert Figure 1 about here] First, strategic intent is represented as an intended product-market configuration (Miles & Snow, 1978). Second, vertical and lateral interactions (Managerial Interplay) produce legitimacy of strategy, which represents a necessary intermediate condition leading to consistency between intended and realized strategy. As described here, legitimacy of strategy is comprised of two elements or dimensions, cognitive and normative (Scott, 1995). The cognitive basis for legitimacy stems from organizational members buying in to a common conceptualization of strategy, while the normative basis comes through concept development, where organizational members come to understand operational implications of strategy and their specific roles and responsibilities to it. The extent to which these conditions are met determine the degree to which intended strategy is understood and viewed as legitimate. The third element, the consistency between intended and realized strategy, represents the outcome variable that results from the pattern of managerial interactions and the degree of strategic legitimacy achieved. METHODS We examined the strategy process of six Spanish-based organizations, where interactions between managers were an outstanding trait. We chose to use a qualitative method as the best way to

2 develop insight into what determines the realization of strategic intent. The multiple case design used in this research supports a replication logic where a set of cases is treated as experiments, each serving to confirm or disconfirm a set of observations (Yin, 1994). The unit of analysis used is the strategy-making process, in particular, we examined whether, within each strategy-making process type, strategic legitimacy was replicated as a result of managerial interplay. By considering a range of organizations, the design aims at external validity (Yin, 1994). Table 1, describes the basic elements of the six organizations studied. Each is different in its approach to strategy making and in particular, its degree of managerial participation in the strategy process. These differences are reflected in the name given to each organization. Theoretical selection of the cases (Glaser & Strauss, 1967) attempted to include variation in vertical and lateral interactions associated with a range of strategy-making types (Hart, 1992) and data were collected from three main sources, interviews, archival data and a focus group. [Insert Table 1 about here] Data were analyzed via content analysis. Iterating between the data and existing theories, the analysis unfolded transformed data segments into theoretical elaboration (Berg, 2004). Transcriptions of the interviews, the focus group, and the process profiles, along with the archival data were reviewed, making side notes and comments in thematic coding fashion (Glaser & Strauss, 1967). We grouped all emerging categories into the main constructs presented in Figure 1. MANAGERIAL INTERPLAY IN STRATEGY MAKING Legitimacy of Strategy A primary focus among scholars of institutional theory is how institutions at societal, organizational and sub-organizational levels achieve legitimacy. In the present study, legitimacy of strategy refers to the extent to which organizational actors accept, support, and are willing to put forth effort towards an organizational strategy. Institutions are seen as being comprised of regulative, normative, and cognitive elements and each of these provide a basis for legitimacy (Scott, 1995). The early strategy literature, for example, took a regulatory perspective, stressing authority associated with hierarchy and strategic controls in its development of the formulation-implementation dichotomy (Schendel & Hofer, 1979). More recent literature assumes strategy making to be a social learning process where strategies evolve through complex social interactions (Floyd & Wooldridge, 2000; Mintzberg, 1990). Consistent with this latter view, data from the present study suggest that interactions among managers both between and across organizational levels provide cognitive and normative bases for legitimizing organizational strategy. The concept of legitimacy emerged in the present study from the unanimous view, among the cases studied, that consensus was either too costly to achieve or was not achievable at all. Among the study s informants, pursuing consensus or agreement was perceived as the way to never reach a decision. In contrast, the common view among the managers in the study was that achieving buy in coupled with knowledge development more accurately described the mechanism by which strategies were coordinated and executed. While the notion of consensus or agreement was perceived as involving compromise, legitimacy of strategy as derived from the case data can more accurately be described in terms of knowledge transfer and creation where strategy, grounded in a set intent, emerges as an appropriate course of action. In sum, consensus hinges on reaching a common ground to achieve coordination. Conversely, strategic legitimacy centers on shaping a higher order principle to then develop knowledge on how to achieve it. Strategic intention, characterized by the firm s product market configuration, serves as a starting point for managerial interplay. Established by top management, it varies from rather broad, open-ended, guidelines to narrowly bounded, constrained, direction. Broadly articulated, open-ended intentions as in Engcosult provide leeway for and encourage managerial interplay, while more tightly defined direction

3 as in Prosteel constrains and discourages broad-based discussion of strategy. In between, however managerial interplay is allowed to happen albeit controlled, as it happened in the rest of the cases. Managerial Interplay By encompassing both types of interaction, managerial interplay characterizes the extent to which these interactions are linked together. Vertical interactions appeared balanced with lateral interactions in the case of Inssubanc and Mobility. For the rest of the cases one type of interaction predominates. In all cases however, both types of interactions are linked in such a way that managerial roles match. While this is largely the result of case selection, it seems reasonable to speculate that decoupled vertical and lateral interactions would hinder the legitimating process. Vertical Interactions (and knowledge transfer): Overall, the data suggest that vertical interactions facilitate knowledge transfer between managerial levels. From the top down, vertical interactions communicate intentions to middle managers and operational levels. From the bottom up, vertical interactions channel information about project proposals from operational and middle levels to top management. Vertical interactions tend to be formal and episodic, characterized by presentations, specific retreats and workshops. The key outcome of vertical interactions is a multi-level understanding and acceptance of strategy, i.e. a cognitive basis of legitimacy. Lateral Interactions (and knowledge creation): Lateral interactions often generate new strategic knowledge by developing and evaluating concepts that can be translated into strategic initiatives. In so doing, lateral interactions establish links and coordination amongst different units within an organization. Although they tend to be continuous and informal, lateral interactions are importantly influenced by formal administrative systems, e.g. planning departments and reward systems. In all cases, however, the outcome of lateral interactions was to some degree the development of a feasible strategy and recognition of the roles and responsibilities of various parts of the organization to its execution, i.e. a normative basis of legitimacy. Consistency between Intended and Realized Strategy Mintzberg and Waters (1985), suggest two basic reasons for why realized strategies may differ from intentions. First, internal factors, including existing capabilities, commitments, etc., can result in unrealized intentions. Second, unanticipated challenges and opportunities presented by the external environment can cause strategy to emerge differently than planned. To the extent possible, in this study we attempted to control for major unanticipated environmental contingencies. This provided an increased focus on the model s core constructs, specifically connections between managerial interplay and strategic legitimacy. As shown in Table 2, realized strategy, as judged by archival and public sources, was highly consistent with stated intentions in three of the six cases. For these firms, the data suggest that no major environmental change occurred during the period studied. In a fourth case (Engconsult), although no unanticipated environmental changes were evident, results were not as intended in two geographical areas. In a fifth case (Refoil), a sudden and unexpected rise in oil prices resulted in incremental strategic adjustments. In the sixth case (Prosteel), although no external change was apparent, top management began to embark on an acquisition strategy without any internal deliberations. As a result the company struggled with internal challenges that resulted in a set of unrealized intentions. [Insert Table 2 about here] Table 2 reveals apparent relationships between strategic legitimacy and consistency between realized and intended strategy. As observed in these cases, the presence of both a normative and cognitive basis for strategic legitimacy is associated with a high level of consistency. The only exception to this pattern is the case of Refoil where unexpected environmental change necessitated a shift in strategy. In each of the other cases where both a cognitive and normative basis for legitimacy existed there was a high degree of consistency between strategic intentions and realized strategy. In addition, the cases of Engconsult and Prosteel suggest that when either basis of strategic legitimacy is

4 not present the consistency between intentions and realized strategy is diminished. In the case of Engconsult, for example, a lack of vertical interactions limited development of a common validation of strategy, i.e. a cognitive basis. As a result, realized strategy resulted from the emergence of multiple disconnected strategic initiatives. At Prosteel, the opposite seemed to occur. Communication of closedended intentions through vertical interactions drove out lateral interactions, initiative development, and a normative basis for legitimizing strategy. DISCUSSION Our purpose in this paper has been to build theory to explain the effect of management interactions on the realization of strategy. In doing so, the paper moves beyond issues of implementation described in the existing literature (Hickson, Miller, & Wilson, 2003; Nutt, 1999). Our emphasis on managerial interplay is consistent with previously described managerial roles (Floyd & Wooldridge, 1992; Floyd & Wooldridge, 1997) but provides an alternative focal point for strategic process research. Patterns among the two dimensions of managerial interplay have the potential to reveal issues of alignment among higher and lower managerial levels (Hart, 1992), and the mechanisms by which lower and mid level managers influence strategy (Dutton et al., 2001). In this regard, the notion of managerial interplay relates closely to the work of Labianca et al. (2000). These authors argue that negotiation of a shared organizational schema produces its replacement. Consistent with this thinking, managerial interplay adds the notion of strategic legitimacy as a resolution mechanism for these negotiations and offers an original approach that unlocks theorizing on consensus or agreement (Dess & Priem, 1995; Wooldridge & Floyd, 1989). Past research suggests the process of achieving consensus can overrule its benefits (Bourgeois, 1985), cause group homogeneity (Hambrick, 1998) and drive out healthy skepticism about strategy (Wooldridge & Floyd, 1990). As described here, strategic legitimacy unfolds from interactive discussions of strategy that allow for revision, concept development and organizational learning. The emphasis is less on achieving a shared understanding (Kellermanns et al., 2005) and more with developing organizational knowledge necessary to the realization of strategic intent. Thus, whereas the process of strategic legitimacy offers the opportunity for discussion and involvement, which are the benefits of consensus building, it neither obstructs decision-making nor causes blind agreement. It does this because strategic legitimacy is based on developing higher order principles followed by developing a logic of appropriateness for what managers should do. Conclusion The main contribution of this paper is to explain how vertical and lateral interactions taken together account for the realization of the strategic intent. All in all, this paper has shown one possible way to produce strategy through managerial interplay. In doing so, we have inductively derived a construct with the potential to overcome the difficulties associated with previous concepts such as consensus or agreement. Proposing the process of strategic legitimacy we present a feasible tool for managers and a robust concept for future research. The concept of strategic legitimacy complements existing theory and research that has looked into what makes strategy take root in middle and lower managerial levels. REFERENCES AVAILABLE FROM THE AUTHORS

5 TABLES AND FIGURES FIGURE 1. Consistency between intended and realized strategies Intended Product Market Configuration (open-endedness) Managerial Interplay Vertical Lateral Legitimacy of Strategy Cognitive Normative Consistency between Intended and Realized Strategy TABLE 1 Description of the Six Organizations Studied Strategy Synthetic name for Self reported measure of their Strategy process Participants (% total Organization Main Industry performance in 2003 Process managers) 16% profit increase over MEETING Inssubanc Insurance last decade POINT 50 (86, 0%) Engconsult Consulting and engineering Sustained growth for last five years SPREAD OUT 80 (87.5%) Techno Technology IT (subsidiary) Growth over the last three years CASCADE 80 (60.0%) Prosteel Steel manufacturing Stable and sustained growth SIMON SAYS 120 (50.0%) Oil Refinery Refoil (subsidiary) Stable and sustained growth NESTED 30 (66.7%) Mobility Mobility related services 25% turnover increase for the last 5 years CLOSE KNITTED 100 (80.0%)

6 TABLE 2 Strategic Legitimacy determines Consistency between Intended and Realized Strategy St. legitimacy Consist. Examples Examples Cog. Norm. Int. vs. Strategic legitimacy Consistency Case Basis Basis Realized (Source of data) (Source of data) Inssubanc Present Present High Engconsult Limited Present Techno Present Present High Prosteel Present Not present Refoil Present Present Low Intermediate Intermediate Mobility Present Present High The basis of the process is that middle managers are responsible of their unit s objectives (Profile p2) I ask the newcomers to read and then read again the documents in the Welcome Manual. There you will find answers (Arch data Annual report 2003) When there are too many discrepancies someone must assume the responsibility and say this is the way we go forward. (ID Group 36) We are severely dependent on top management, maybe if opinions were heard more this would help (ID group p 15) The main benefit of our process is that department goals are brought together and the scope is broadened to look for the general interest. (Int. 2 p2) While preparing to make a decision there is participation and creation of ideas, when it comes to the decision itself it is not democracy (ID group p6) We have consistently achieved what we were created for, ten years ago. (Int. 1 p1) What happens is that we work by projects. Independently of the structure each project has one person who is responsible for it. (ID Group p30) The main thing we do well is to integrate higher order objectives into lower order and then into actions in the marketplace, which is simpler said than done (Int. 2 p1) We need guidelines, pushed from above, but building it into systems, we lack coordination. (Int. 1 p2) We have a ten-year long term plan, that most probably is too ambitious and does not pass a reality check, but it serves as a guideline for decision in the shorter term (ID group p39) we bounced ideas back and forth, then I spent a weekend writing a proposal I passed on to my peers, who made comments, then we got together to discuss it. Then the final document was what we presented to top management (Int. 2 p15)