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Environmental imagery and strategic actions
.hnrl. J. Mgmr. Vol. 4, No. 112, pp. 5-17, 1988 Printed in Great Britain
ENVIRONMENTAL
0281&7.527/88 $3.O’J+O.OU Pergamon Press plc
IMAGERY AND STRATEGIC
KJELL GRONHAUG
ACTIONS
and WILLY HAUKEDAL
Norwegian School of Economics and Business Administration Abstract - This article explores the question of whether firms belonging to the same industry may differ in their perception of environmental opportunities and threats and if so, how such perceptual divergency may affect strategy choices and outcomes. The results of a case study of two shipping companies, which had worked in very similar environments for over 20 years, demonstrated that the environmental changes were interpreted very differently and that this greatly influenced strategic choices and outcomes in the two companies. Key words: Environmental
cognition,
strategic
choice
INTRODUCTION The purpose of this article is to explore the question of whether firms belonging to the same industry may differ in their perception of environmental opportunities and threats and, if so, how such perceptual divergency may affect strategy choices and outcomes. These questions are of particular importance to firms embedded in rapidly changing environments. Shipping companies are known to have to deal with extremely volatile markets, and thus represent an appropriate context for research on this subject. The shipping industry The demand for transportation services constitutes the ship-owners’ market. A variety of transportation services exist, e.g. tank, line, bulk and offshore services, to some extent requiring different types of vessel. Several of the markets for shipping services are international, as ship-owners of different nationalities compete to serve the same customers. Moreover, some of the markets, such as the international bulk shipping market, are in the economist’s terms truly competitive. The spot markets for shipping services and ships cope with short-term demand and supply, while the existence of a forward market for contracts (time-charter) and for used vessels (second-hand) is what makes the shipping industry unusual. In several of these markets the ship-owners act as prize-takers. No single actor is large enough to influence the market prices for transportation services. Transportation services represent a derived demand which is influenced by a variety of external factors, e.g. changes in oil prices, wars, and the level of economic activity. Over the years the price of shipping services has fluctuated dramatically. In “good” times, i.e. when shipping services are in great demand, freight rates have been four or five times higher than when demand is weak. At any given point in time, the world’s capacity for a specific transportation service is “given”. When total demand approaches this capacity limit, the market prices for transportation services tend to increase dramatically, just as they tend to fall when excess transportation capacity is available.
6
K. GRGNHAUG
and W. HAUKEDAL
Strategic actions To the shipping company, the vessel represents a substantial investment. The true value of this investment depends on the future demand for transportation services and freight rates. The shipping company faces several important decisions, e.g. to contract or not to contract new vessels (approximately 18-24 months delivery time), vessel type (i.e. which type of transportation service to cover) and the size of the vessel(s) to be contracted. Buying second-hand equipment might be an alternative to building a new ship(s). The ship-owner may also face decisions about whether or not to disinvest. When a vessel is contracted, the ship-owner has to decide whether to operate in spot or timecharter markets. * The ship-owner may also face the decision of whether or not to move into other lines of business.
Environmental perceptions The above description shows that shipping companies are embedded in complex and rapidly changing environments. Environments, however, are not given realities, but have to be created through processes of attention and interpretation (cf. Pfeffer and Salancik, 1978, p. 13). The actor must select and make sense of various kinds of information. The selection of information is determined by the cognitive scheme applied by the actor to the particular situation (Synder and Swann, 1978). Schemata make certain pieces of information stand out and catch the actor’s attention (cf. Kiesler and Sproull, 1982). Further, schemata tend to supply expected, but not present, information (Bower et al., 1979), and thus serve as self-fulfilling prophecies. In general schemata are conservative; they support prior meanings and may result in interpretive rigidity (cf. Rumelhart , 1980). Actors create images that guide and direct their decisions (cf. Boulding, 1960). For shipping companies such images may include expectations (beliefs) about the services that will be in demand and about freight rates, and ideas about the possible opportunities and risks associated with the various options evoked. Images about the future involve predictions, which in turn may or may not be fulfilled. Let us take an example. A newspaper article recently reported on a Norwegian shipping company which was founded in 1790 and which had enjoyed success for almost 180 years. Over the last 10 years, however, the company lost almost NOK 1100 mill., and finally had to exit from the market. The author of the article attributes this bankruptcy to a faulty image of an increasing demand for the transportation of crude oil based on a few months of skyrocketing freight rates in 1973. This encouraged big investments in large tankers, with subsequent lay-offs and heavy losses as transportation demand and freight rates declined (VG, 1987, p. 16). Thus an organization’s perception of opportunities and threats is of crucial importance, since these perceptions are projected into images of the future (cf. Lyles and Mitroff, 1985), which in turn will affect organizational action (cf. Dutton and Jackson, 1987). A variety of factors may influence the organization’s perceptions. Pfeffer and Salancik (1978) suggest that factors such as organizational structure and the structure of the information system are important factors in the organizational enactment processes (p. 74) activating schemata possessed by the actors involved (cf. Calder and *Studies have demonstrated that average returns on investments are higher in spot markets than they are in time-charter markets (Normann, 1982). The spot freight markets basic, in that excess supply (demand) is transacted in these markets, which in turn influences the time-charter, second-hand, and new buildings markets.
ENVIRONMENTAL
IMAGERY
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STRATEGIC
ACTIONS
7
Schurr, 1981). The organization’s history (Porter, 1980) and its management and culture (cf. Schein, 1985) are probably also factors that influence its perception of opportunities and threats, and thus its strategic actions. Conceptual framework It follows from the above that organizations belonging to the same industry and embedded in similar environments may not necessarily perceive opportunities and threats in the same way. The future may be envisaged differently because of differences in the schemata applied; the resulting strategies and strategic outcomes will then be different as well. Figure 1 should be read as follows: a variety of organizational factors (1) may influence
I.
r
2.
Organuation - Structure - Inf. system - Management - History - Culture - Actwtles
Information 1
. Interpretation
Enwronment perceptlon
3 -
I
Opportunkles Threats Imqe of future
I
-Strategy
4. -
Investments Dlsinvestments / scrapping Spat / Time charter Other business I
I
I
Fig.
I’ Oblective” enwronment Demand - Clients - Services - Quantity Freight rates SUPPlY - Vessels (type) - Capacity - New bulldIng - ScrappIng Other factors
1. Conceptual
framework.
8
K.
GRiiNHAUG
and W.
HAUKEDAL
the selection of information and interpretation of “objective” environments (2), which may influence organizational perception and images of future developments (3) and its choice of strategy (4). The strategy will be associated with the experienced outcomes (5), which may lead to modifications in the organization’s activities, management and structure (cf. feed-back lines).
THE STUDY Design The actual research problem is exploratory. Even when conducting exploratory research, the investigator has prior assumptions and “hunches” about critical factors and relationships. By taking such assumptions and “hunches” into account, the research may benefit from theorizing at the outset of the project as emphasized by Zaltman et al. (1982). The conceptual framework (Fig. 1) shows assumed critical factors and their relationships and serves as a point of departure for gathering, presentation and interpretation of data. In-depth case studies were found adequate for the present research purposes. The following criteria were used in selecting the cases. They should: - belong to the same industry, and be embedded in similar environments, - be of approximately the same size, - at the outset have approximately the same economic resources, - be in an industry where it was possible to identify major environmental change(s), and - should have demonstrated different responses to this (these) environmental change(s). This post hoc research strategy was used to achieve variability in the dimensions to be examined (cf. Campbell, 1975; Glaser and Strauss, 1967). Based on apriori information, two companies in the shipping industry, Alpha and Beta, were selected.* Data Several sources of data were used. Semi-structured interviews were held with managers and other informants inside and outside the company by three experienced interviewers. At least two of the three interviewers participated in all the interviews. Over a week was spent in each shipping company. In Alpha interviews were held with 15 people from the company and three from outside, and in Beta with 15 members of the organization and two from outside. Each interview lasted approximately 3 hr. All interviews were tape-recorded and later transcribed. In addition a variety of secondary sources were examined, including annual reports and company records covering major decisions, company newsletters, and excerpts from newspapers and magazines over a period of more than 20 years from the early 1960s to the mid 1980s. Secondary information was used to reconstruct past environmental changes, subsequent strategic actions and outcomes. As several of the respondents had been with the companies for most of the period covered, the major events and strategic actions were discussed in the personal interviews in order to get a more complete reconstruction of the past. *For a more
detailed
description
of the two cases,
see Haukedal
(1986)
and Tronsmo
er
al. (1986).
ENVIRONMENTAL
IMAGERY
AND STRATEGIC ACTIONS
9
Table 1 shows company characteristics. The arrows in parentheses for the Alpha company indicate recent changes. An inspection of Table 1 shows that Beta emphasizes rationality, planning and professional management more than Alpha. The changes taking place in Alpha started after a period of serious losses, when the firm’s creditors partly took over the firm. Thus changes in management and decision-making style had been “forced” upon the company. The differences in organizational culture should also be noted. Until very recently the Alpha company was dominated by its top manager (owner). One middle manager said, “ . . . our earlier decisions were often based on how we thought he (the ship-owner) wanted it.” Alpha was also a very “isolated” company, “ . . it was almost like a secret that we were in shipping” (middle manager). Moreover, the ship-owner did not believe in economic calculations or economic control. The organizational culture in Beta, on the other hand, emphasized rationality, change, cost control and cooperation. A few quotations from the interviews and the company’s newsletter may highlight some features of the organizational culture: “We always have to look forward. Our efforts to improve must never end. ” “Both parties must be willing to give something away, and both parties should be better off.” “We emphasize planning, and most decisions are based on thorough analyses.”
Table Characteristics 1. Year
1. Company
Alpha
founded
2. Ownership
characteristics Beta
1896
1861
Founder/family
Founder/family
(Limited
Limited
I
company)
company
3. Management
Founder/family 1 (Outside manager)
Founder/family J Professional manager
4. Services/vessels
Line/tank
Line/tank bulk J Offshore J Other business
(0ffsi;ore)
5. Decision-making
Intuition J (Planning) Unclear 4 (Centralized)
6. Culture
7. Perceived
competence
Action oriented Analytical/emphasis on planning Structured Centralized/ decentralized
Patriarchal (professional) Isolation (+open) Passive (+active) Emotions (+rational) Formal (hinformal)
Rational
Operational
Project exploit
Change-oriented Cost control Cooperation development/ opportunities
10
K.
GRONHAUG
and
W.
HAUKEDAL
Environmental changes Major “objective” environmental events agreed upon are listed in Table 2. An examination of this table shows that these events are of importance to shipping companies. Rising demand for tank transportation services (1960-1970) means growing niches and a rapid increase in freight rates (cf. description at the beginning of the article), also implying a high return on investments and relatively low risks in these markets. Relative cost advantages contribute to excess profits. From Table 2 we can also see that markets for line transportation services require new solutions, i.e. a redefinition of the transportation services is needed, indicating that niche forms (and not niche sizes) are changing (cf. Zammuto and Cameron, 1984). Oil drilling on the Norwegian continental shelf (1970) also created a new market, i.e. a demand for crude oil transportation services. The establishment of OPEC (1973) represented an intervention that affected the functioning of the markets for oil as well as the transportation services for this product (Greer, 1984). Greater competition implied lower freight rates, and the need to emphasize cost-effectiveness in order to operate at a profit. Decreasing demand and thus stiffer competition (1982/1983) led to excess transportation capacity, lower freight rates, and thus lower profits and an emphasis on cost-effectiveness in order to be profitable.
ENVIRONMENTAL
PERCEPTIONS
AND STRATEGIC
How the two companies perceived the environmental strategic outcomes are reported below.
events,
ACTIONS their
strategies
and
Perception of environmental events A detailed analysis of secondary sources supplemented by information from the personal interviews reveals the reconstructions of the perception of environmental
Table Time
periods
2. Environmental
events
Events
196&1970
Demand for tank transportation increases Spot markets yield high return/low risk Domestic/world market cost advantages Line transportation requires new solutions
1970
Domestic/world market cost disadvantages Oil drilling at the Norwegian continental
1973
OPEC, increasing oil prices Demand for crude oil transportation Increasing competition/lower margins Line transportation more demanding
1975
Demand
for transportation
1979
Demand upswing
for crude
19820983
Increasing competition shipping transportation
of crude
oil transportation in the market services
shelf
increases
oil decreases shows a brief for most
ENVIRONMENTAL
IMAGERY
AND
STRATEGIC
11
ACTIONS
change shown in Table 3. An inspection of this table reveals some very interesting and surprising observations. At the outset of the period studied, trends and opportunities within the traditional tank market are perceived in the same way by the two companies. The changing shape of niches in the line markets and developments in the oil transportation markets, however, are perceived differently. In addition Beta “sees” new mission opportunities not recognized by Alpha.
Table Time
3. Perceptions
of environmental
period/events
change Alpha
Beta
Tank transp. perceived as growing
Tank transp. perceived as growing Perceives new line opportunities
1960-1970
Demand for tank transportation increases/spot markets profitable Domestic cost advantages Line transportation more demanding
1970
Domestic cost disadvantage Oil drilling at the Norwegian continental shelf
1973
OPEC/increasing oil prices Increased demand for oil transportation Increasing competition/lower margins Line transportation more demanding
Tank transp. perceived as good
Tank transp. perceived as good Defines new missions
1975
Decreasing
Perceives the crisis as cyclical variations in demand
Perceives threats, and defines new missions
1979
Brief
Tank transp. perceived as recovering markets
Tank transp. perceived as recovering markets
19820983
Increasing
Off-shore relevant
Outside alternatives perceived relevant
demand
upswing
Defines new missions
for crude transportation
for crude
oil transportation
competition/decreasing
markets
perceived
Strategic actions Table 4 shows the major strategic moves of the two companies, and reveals some intriguing similarities and differences, reflecting that variation in the perception of opportunities and threats as reported in Table 3 really does influence strategic behaviour. Environmental perceptions and strategies are very similar in the two companies during the 1960s. Both invest in tank transportation services. The changing shapes of the niches in line transportation, however, are perceived and handled differently. Beta “sees” new opportunities and recognizes what is needed to exploit them, while Alpha perceives the market as declining and starts disinvesting. The establishment of OPEC in 1973 and the increased demand for oil transportation, followed by stiffer competition, are perceived and handled differently by the two companies. Alpha contracts two supertankers. This strategy contributes to the increase in the total tank capacity in the market and to the drop in freight rates (cf. introductory
12
K. GRONHAUG and W. HAUKEDAL Table
Time
4. Strategic
period/events
choices Alpha
196@1970
Increased demand for tank transportation/spot markets advantageous Domestic cost advantages Line transportation more demanding
1970
Domestic cost disadvantage Oil drilling on the Norwegian shelf
Growth in tank and line transportation services Reduces line transportation services
Growth in tank and line transportation services Invest in line transportation services
Contracts two super tankers Spot market contracts
Disinvestment in tank Time-charter Investments in off-shore activities Investments in line transportation
Tank transp. investments Spot/time-charter
Investments in line transportations Investments in offshore Time-charter
continental
1973
OPEC/increasing oil prices Increased demand for oil transportation Increasing competition/lower margins Line transportation more demanding
1975
Decreasing
1979
Short improvement in the crude transportation markets
oil
Keep
198211983
Increasing
markets
Disinvestments/ reduces tank transp. Offshore contract
demand
for oil transportation
competition/decreasing
Beta
the tankers Outside investments
discussion). Alpha also continues to operate in the spot market. Beta on the other hand makes disinvestments in tank transportation, and moves into time-charter markets. In addition, Beta continues to make investments to exploit and adapt to opportunities in the changing niches on the line market. Beta also invests in offshore activities, in particular supply vessels, and in drilling platforms. After 1982 this company started moving into lines of business outside the sea transportation services. Alpha continues investing in tank transportation and to some extent also moves into the time-charter markets (1975), while Beta continues to invest in line and offshore transportation services and to operate in the time-charter markets. Later (1982/1983) Beta starts moving into outside activities/missions, while Alpha reduces its fleet and its workforce. Some additional facts can demonstrate the greater divergency in the strategies realized by the two companies. During the period 19661981, the number of vessels in Alpha fell from 24 to 10; vessels for line transportation services fell from 14 to five, and tank vessels from eight to three. (The company’s total and its tank tonnage, however, were increasing throughout this period.)
ENVIRONMENTAL
IMAGERY
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AND STRATEGIC ACTIONS
In Beta the number of ships increased from 60 in 1976 to 104 in 1983. During this period traditional line vessels were reduced from 27 to one, while the number of container and RO/RO vessels rose from four to 14. Other types of vessel increased from 14 to 68. This shows that disinvestment as well as investment is used more frequently and more dramatically by Beta than by Alpha in exploiting and adapting to the market opportunities. In fact, the emphasis on operations in Alpha (cf. Table 1) has apparently been associated with the notion that “vessels should be retained”. As one of the key informants put it: “ . . . this attitude was really deep-rooted, it was almost impossible to disinvest, to sell a ship”, which resulted in a fleet including old and less cost-effective ships than new ones. Strategy outcomes Several indicators can help us to evaluate the extent to which the two companies have succeeded. Table 5 shows that Beta has performed well. An inspection of indicators such as number of employees, gross revenue, equity funds and profits demonstrates that the company has enjoyed growth and success. Alpha’s performance has been poor. Staff cuts, losses, loss of equity and lay-offs are all indicators of failing organizational effectiveness. After the restructuring of the company, however, a turn-around appears to be under way. In 1984, for the first time in 10 years, Alpha made a profit.
DISCUSSION The findings reported above their environments differently; and the strategies pursued also of problems, opportunities and activities.
show that the two companies, Alpha and Beta, perceive their flexibility in changing their interpretive schemata differs. The findings indicate further that the perception threats also affects behaviour, i.e. the choice of strategic
Some explanatory factors Returning to Table 3, we find that the two companies had the same idea of their environments at the outset of the period studies. The two companies had “learned” that Table
5. Strategy
performance
Indicators
Alpha
No. of employees
Reduced by 30% years 1966-1982
Profit
Negative. Losses in each of the consecutive years 1975-1983
Positive. Gross revenue increased by 600% during the period 1976-1984
Equity/funds
Negative*
Positive. Tripled 1979-1984
Vessels
Lay-up
Active
Beta during
the
Increased by 13% during 19761983
*Alpha went bankrupt in 1982, but was saved and refinanced new owners and new management.
in value
by its creditors,
resulting
in
14
K. GRONHAUG
and W. HAUKEDAL
the “tank market was growing and that investing in this market was worthwhile”. However, an examination of Tables 3 and 4 reveals that Alpha did not perceive the changes, i.e. the opportunities and threats in the same way as Beta, with the result that the strategic behaviours of the two companies differ from one another. Several factors may help to explain the differences observed in perceptions and actions. In Alpha there was almost no explicit planning, and less attention was paid to environmental scanning. The managers in this company acted mainly on intuition. As one middle manager said: “ . . . contract decisions were based on the number of bubbles in the ship-owner’s long drink.” They (the managers) also operated in isolation. In fact, several lower level employees repeatedly emphasized the need for changes in the company’s line transportation services as they pointed to emerging off-shore opportunities, but in vain. The schemata held by Alpha were seemingly rigid, difficult to alter (cf. Starbuk, 1983), which may be explained by unwillingness to test them against real life experience (cf. Ramaprasad and Mitroff, 1984). In the Beta company, the situation was very different. The need for change was emphasized in the company, as expressed in an internal document: . . we always have to look for new markets. In order to feel safe, we always have to search for new opportunities, we have to be everchanging. Thus, variations in commitment to operate in changing environments may be an important factor in explaining differences in environmental perceptions and strategic actions in the two companies. This is in accordance with the following research-based statement: “. . . only if managers are committed to operating within a rapidly changing social environment will they mentally incorporate information about extreme environmental events” (Kiesler and Sproull, 1982, p. 559, prop. 9). In terms of interpretative schemas, this may account for the needed motivation to test them against empirical data. The respondents agreed that the most important opportunities sensed were results of individual initiative, a finding confirming prior research on weak strategic stimuli (cf. Mintzberg et al., 1976). Moreover, the respondents were all managers committed to their initiatives. Adequate resources were available, allowing them (the managers) to pursue and test their ideas in real life. Lyles and Mitroff (1980) have previously found such conditions to have a major effect on strategy change. Moreover, important organizational differences were also present. Beta employed substantial resources on travelling and other activities important to environmental scanning. Highly educated people were hired for various managerial positions, while Alpha recruited its managers internally. In Beta top-management appeared to operate as an organic “think-tank”, allowing for the free flow of information that is necessary to creativity and innovation (cf. Stinchcombe, 1974), which in turn favours the sort of complexity in cognitive schemata that is of crucial importance in comprehending environmental change (Weick, 1979; Bartunek et al., 1983). There was less interaction among the managers in Alpha, and a certain “distance” was kept between the top executive and the recruited managers. Thus, differences in the resources devoted to environmental scanning, the attention paid to environmental change, the way information is interpreted, and decision-making style - all these are factors contributing to a divergence in the perception and representation of environments and thus in strategic actions.
ENVIRONMENTAL
IMAGERY
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15
ACTIONS
Strategies and driving forces Rigidity in the perception and interpretation of environments is in no way unique to Alpha. Starbuck and Hedberg (1977) have reported on the way in which the Swedish Facit Company, once known for its advanced strategic planning, “refused” to see environmental changes and almost forced the company out of the market. Levitt (1960), have in his seminal article “Marketing Myopia”, has described how several industries declined and/or disappeared because they failed to recognize the changes taking place and lacked imaginative visions of the future. In our opinion, the quest for “proactive” behaviour, as emphasized in the strategic management literature (cf. Ansoff, 1984), is in contrast to the often demonstrated “reactive” behaviour showing inability to capture and imagine environmental changes and opportunities. Figure 2 compares the strategies of Alpha and Beta. The majority of Alpha’s activities to the changing niche are related to its present missions (1) without adapting requirements (niche forms). By contrast Beta adapted very actively to the changing niche forms (cf. Zammuto and Cameron, 1985) (c). The company also moved into new transportation missions (b), as well as adapting to new transportation missions with new requirements (d). In addition, Beta moved into other business outside the markets for shipping transportation services (which is very uncommon). A recent study of 14 large Norwegian bulk shipping companies showed that none of the companies was considering investment outside the industry (Hope and Bee, 1982). Figure 2 reflects the greater flexibility of Beta compared to Alpha in changing its schemata and its activities as discussed above. It also shows that Alpha is not using and/ or has not discovered the opportunity which the second-hand market offers (cf. introductory description). In fact, Alpha has created imaginary barriers to preclude flexible options. A closer inspection of Fig. 2 also reveals differences in the two companies’ perceived competence and in their interpretation of “driving forces”, i.e. “ . . . the primary determiner of the scope of future products and markets” (cf. Tregoe and Zimmerman, 1980, p. 40). Shipping technology apparently defines the opportunities that are perceived by Alpha, while perceived marketing opportunities seem to be Beta’s driving force, which influences its perceived need for competence. These fundamentally different perceptions of the “driving forces” can be depicted as follows: Alpha: Shipping transportation C-N technology/competence
Opportunities
Beta: Market zz;;;;;ti;tsa*
-*
changes
Implications for management The reported findings have important
Competence technology needs
implications
for management.
The importance
16
K. GRGNHAUG
and W. HAUKEDAL
Alpha Niche requrement Exlstlng New
Existing
a)
1
Transportotlon rmssfons :
I
Beta Niche requrement Exlstlna New
4r-:-:‘-
a)
b)
New
Other mwons
d)
e)
I
Fig. 2. Strategies
in Alpha
and
of perceiving environmental change and the ability to create images about future opportunites can hardly be overstated. Environmental scanning should be encouraged, which means allotting sufficient resources in terms of the time and money to these activities. The reported findings also have a bearing on the recruitment of managers. Skilled personnel of varying educational background should be hired, to expose the company to a broader spectrum of environmental information and to make it more “complex” and innovative (cf. Zaltman et al., 1973). Complexity is also required at the level of the individual manager, as complex realities call for complex non-routinized thinking. In this context Weick recommends “complicating yourself” (Weick, 1979, p. 261). This, in turn, has implications for job design, which should allow for speculation, interactions and information access. The findings also suggest that the setting up of management teams representing a variety of skills and structured in such a way as to allow for flexibility and opportunities for pursuing ideas in a “think tank” fashion, may help to improve the identification and formulation of strategic problems (cf. Lyles and Mitroff, 1985). The findings also have implications for strategy educators. Dillon (1982) has noted that “ _ . . education at all levels ignores problem finding to concentrate on the solving of presented problems” (p. 108). The perception of environmental changes, opportunities and threats, and the ability to create future images constitute key factors in strategic success. Thus strategy education should emphasize the discovery and interpretation of opportunities and threats, and enhance managerial imagination (cf. Levitt, 1985). Acknowledgement - The authors Sten Jiinsson and an anonymous
acknowledge reviewer.
the very detailed
and helpful
comments
of Joseph
F. Porac,
REFERENCES Ansoff, H. I., Implanting Rartunek, strators, Boulding, (1960),
Strategic Management (New Jersey: Prentice-HalYEnglewood cliffs, 1984). J. M., Gordon, J. R. and Weathersby, R. P., Developing complicated understanding of adminiAcademy of Management Review (1983), pp. 273-284. K. E., The economics of knowledge and the knowledge of economics, American Economic Review pp. 1-13.
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Bower. G. H.. Black. H. I. and Turner. T.. Scrims in text comorehension and memory, Cognitive PsYchologY (1979), pp. 117-220. Calder, B: J. and Schurr, P. H., Attitudinal processes in organizations. In: B. Staw (Ed.), Research in Organizational Behuviour (Greenwich, CT: JAI Press, Inc., 1981), Vol. 3, pp. 283-306. Campbell, D. T., “Degrees of freedom” and the case study, Comparative PoliticulStudies (1975). pp. 178193. Dillon, J. T., Problem finding and problem solving, Journal of Creative Behuviour (1982), pp. 97-l 11. Dutton, J. E. and Jackson, S. B., Categorizing strategic issues: links to organizational action, Academy of Management Review (1987), pp. 7690. Glaser, B. G. and Strauss, A. L., The Discovery of Grounded Theory (Chicago: Aldine Publishing Co, 1967). Greer, D. F., Zndustriul Organization and Public Policy (New York: Macmillan Publishing, 1984) 2nd edn. Haukedal, W., Foretaksstrategi som problemlosning, unpublished M.S. dissertation, Bergen, Norwegian School of Economics and Business Administration, 1986. Hope, E. and Bee O., Investment behavior in Norwegian bulk shipping. In: E. Hope (Ed.), Studies in Shipping Economics, Center for Applied Research, Bergen, Norwegian School of Economics and Business Administration 1982, pp. 4%54. Kiesler, S. and Sproull, L., Managerial response to changing environments: perspectives on problem sensing from social cognition, Administrative Science Quarterly (1982), pp. 548.570. Levitt, T., Marketing myopia, Hurvurd Business Review (1960) (July-August), pp. 27-47. Levitt, T., The Marketing Imagination (New York: The Free Press, 1985), Chapter 6, pp. 126140. Lyles, M. A. and Mitroff, I. I., Organizational problem formulation: an empirical study, Administrative Science Quarterly (1980), pp. 102-119. Lyles, M. A. and Mitroff, I. I., The impact of sociopolitical influences on strategic problem formulation. In: R. Lamb and P. Shrivastava (Eds), Advances in Strategic Management (New York: JAI Press, 1985), pp. 69-81. Mintzberg, H., Raisinghani, D. and Theoret, A. C., The structure of the “unstructured” decision processes, Administrative Science Quarterly (1976) (June), pp. 246271. Normann, V. D., Market strategies in bulk shipping. In E. Hope (Ed.), Studies in Shipping Economics, Center for Applied Research, Bergen, Norwegian School of Economics and Business Administration (1982), pp. 13-29. Pfeffer, J. and Salancik, G. R., The External Control of Organizations (New York: Harper and Row, 1978). Porter, M. E., Competitive Strutegy (New York: The Free Press, 1980). Ramaprasad, A. and Mitroff, I. I., On formulation of strategic problems, Academy of Management Review (1984) pp. 597-605. Rumelhart, D. E., Schemata: the building blocks of cognition. In: R. Spiro, B. Bruce and W. Braver (Eds.), Theoreticul Zssues in Rending Comprehension (New Jersey: Erlbaum, 1980). Schein, E. H., Organization Culture and Leadership (San Francisco: Jossey-Bass Publishers, 1985). Snyder, M. and Swann, W. B., Hypothesis - testing processes in social interaction: from social perception to social reality, Journal of Personality and Social Psychology (1978), pp. 1202-1212. Starbuck, W. H., Organizations as action generators, American Sociological Review (1984) (February), pp. 91-102. Starbuck, W. H. and Hedberg, B. L. T., Saving an organization from a stagnating environment. In: H. B. Thorelli (Ed.), Strategy + Structure = Performance (Bloomington, IN: University Press, 1977), pp. 249-258. Stinchcombe, A. L., Creating Efficient Industrial Admintstrution (New York: Academic Press, 1974). Tregoe, B. B. and Zimmerman, J. W., Top Management Strategy (New York: Simon and Schuster, 1980). Tronsmo, P., Bang, H., Haukedal, W. and Reve, T., Omstilling og organisasions-kultur i norske rederier, report Bergen, Center for Applied Research (1986). VG, Tapte 1073 mill pa ti Qr, VG (19 March 1987), p. 16. Weick, K. E., Cognitive processes in organizations. In B. Staw (Ed.), Research in Organizational Behavior (Greenwich, CT: JAI Press, Inc., 1979), Vol. I, pp. 41-74. Zaltman, G., Duncan, R. and Holbek, J., Innovations and Organizations (New York: John Wiley and Sons, 1973). Zaltman, G., Lemasters, K. and Heffring, M., Theory Construction in Marketing (New York: John Wiley and Sons, 1982). Zammuto, R. F. and Cameron, K. S., Environmental decline and organizational response. In: L. Cummings and B. Staw (Eds.), Research in Organizational Behavior (Greenwich, CT: JAI Press, 1985), Vol. 7, pp. 223-262.
ENVIRONMENTAL
0281&7.527/88 $3.O’J+O.OU Pergamon Press plc
IMAGERY AND STRATEGIC
KJELL GRONHAUG
ACTIONS
and WILLY HAUKEDAL
Norwegian School of Economics and Business Administration Abstract - This article explores the question of whether firms belonging to the same industry may differ in their perception of environmental opportunities and threats and if so, how such perceptual divergency may affect strategy choices and outcomes. The results of a case study of two shipping companies, which had worked in very similar environments for over 20 years, demonstrated that the environmental changes were interpreted very differently and that this greatly influenced strategic choices and outcomes in the two companies. Key words: Environmental
cognition,
strategic
choice
INTRODUCTION The purpose of this article is to explore the question of whether firms belonging to the same industry may differ in their perception of environmental opportunities and threats and, if so, how such perceptual divergency may affect strategy choices and outcomes. These questions are of particular importance to firms embedded in rapidly changing environments. Shipping companies are known to have to deal with extremely volatile markets, and thus represent an appropriate context for research on this subject. The shipping industry The demand for transportation services constitutes the ship-owners’ market. A variety of transportation services exist, e.g. tank, line, bulk and offshore services, to some extent requiring different types of vessel. Several of the markets for shipping services are international, as ship-owners of different nationalities compete to serve the same customers. Moreover, some of the markets, such as the international bulk shipping market, are in the economist’s terms truly competitive. The spot markets for shipping services and ships cope with short-term demand and supply, while the existence of a forward market for contracts (time-charter) and for used vessels (second-hand) is what makes the shipping industry unusual. In several of these markets the ship-owners act as prize-takers. No single actor is large enough to influence the market prices for transportation services. Transportation services represent a derived demand which is influenced by a variety of external factors, e.g. changes in oil prices, wars, and the level of economic activity. Over the years the price of shipping services has fluctuated dramatically. In “good” times, i.e. when shipping services are in great demand, freight rates have been four or five times higher than when demand is weak. At any given point in time, the world’s capacity for a specific transportation service is “given”. When total demand approaches this capacity limit, the market prices for transportation services tend to increase dramatically, just as they tend to fall when excess transportation capacity is available.
6
K. GRGNHAUG
and W. HAUKEDAL
Strategic actions To the shipping company, the vessel represents a substantial investment. The true value of this investment depends on the future demand for transportation services and freight rates. The shipping company faces several important decisions, e.g. to contract or not to contract new vessels (approximately 18-24 months delivery time), vessel type (i.e. which type of transportation service to cover) and the size of the vessel(s) to be contracted. Buying second-hand equipment might be an alternative to building a new ship(s). The ship-owner may also face decisions about whether or not to disinvest. When a vessel is contracted, the ship-owner has to decide whether to operate in spot or timecharter markets. * The ship-owner may also face the decision of whether or not to move into other lines of business.
Environmental perceptions The above description shows that shipping companies are embedded in complex and rapidly changing environments. Environments, however, are not given realities, but have to be created through processes of attention and interpretation (cf. Pfeffer and Salancik, 1978, p. 13). The actor must select and make sense of various kinds of information. The selection of information is determined by the cognitive scheme applied by the actor to the particular situation (Synder and Swann, 1978). Schemata make certain pieces of information stand out and catch the actor’s attention (cf. Kiesler and Sproull, 1982). Further, schemata tend to supply expected, but not present, information (Bower et al., 1979), and thus serve as self-fulfilling prophecies. In general schemata are conservative; they support prior meanings and may result in interpretive rigidity (cf. Rumelhart , 1980). Actors create images that guide and direct their decisions (cf. Boulding, 1960). For shipping companies such images may include expectations (beliefs) about the services that will be in demand and about freight rates, and ideas about the possible opportunities and risks associated with the various options evoked. Images about the future involve predictions, which in turn may or may not be fulfilled. Let us take an example. A newspaper article recently reported on a Norwegian shipping company which was founded in 1790 and which had enjoyed success for almost 180 years. Over the last 10 years, however, the company lost almost NOK 1100 mill., and finally had to exit from the market. The author of the article attributes this bankruptcy to a faulty image of an increasing demand for the transportation of crude oil based on a few months of skyrocketing freight rates in 1973. This encouraged big investments in large tankers, with subsequent lay-offs and heavy losses as transportation demand and freight rates declined (VG, 1987, p. 16). Thus an organization’s perception of opportunities and threats is of crucial importance, since these perceptions are projected into images of the future (cf. Lyles and Mitroff, 1985), which in turn will affect organizational action (cf. Dutton and Jackson, 1987). A variety of factors may influence the organization’s perceptions. Pfeffer and Salancik (1978) suggest that factors such as organizational structure and the structure of the information system are important factors in the organizational enactment processes (p. 74) activating schemata possessed by the actors involved (cf. Calder and *Studies have demonstrated that average returns on investments are higher in spot markets than they are in time-charter markets (Normann, 1982). The spot freight markets basic, in that excess supply (demand) is transacted in these markets, which in turn influences the time-charter, second-hand, and new buildings markets.
ENVIRONMENTAL
IMAGERY
AND
STRATEGIC
ACTIONS
7
Schurr, 1981). The organization’s history (Porter, 1980) and its management and culture (cf. Schein, 1985) are probably also factors that influence its perception of opportunities and threats, and thus its strategic actions. Conceptual framework It follows from the above that organizations belonging to the same industry and embedded in similar environments may not necessarily perceive opportunities and threats in the same way. The future may be envisaged differently because of differences in the schemata applied; the resulting strategies and strategic outcomes will then be different as well. Figure 1 should be read as follows: a variety of organizational factors (1) may influence
I.
r
2.
Organuation - Structure - Inf. system - Management - History - Culture - Actwtles
Information 1
. Interpretation
Enwronment perceptlon
3 -
I
Opportunkles Threats Imqe of future
I
-Strategy
4. -
Investments Dlsinvestments / scrapping Spat / Time charter Other business I
I
I
Fig.
I’ Oblective” enwronment Demand - Clients - Services - Quantity Freight rates SUPPlY - Vessels (type) - Capacity - New bulldIng - ScrappIng Other factors
1. Conceptual
framework.
8
K.
GRiiNHAUG
and W.
HAUKEDAL
the selection of information and interpretation of “objective” environments (2), which may influence organizational perception and images of future developments (3) and its choice of strategy (4). The strategy will be associated with the experienced outcomes (5), which may lead to modifications in the organization’s activities, management and structure (cf. feed-back lines).
THE STUDY Design The actual research problem is exploratory. Even when conducting exploratory research, the investigator has prior assumptions and “hunches” about critical factors and relationships. By taking such assumptions and “hunches” into account, the research may benefit from theorizing at the outset of the project as emphasized by Zaltman et al. (1982). The conceptual framework (Fig. 1) shows assumed critical factors and their relationships and serves as a point of departure for gathering, presentation and interpretation of data. In-depth case studies were found adequate for the present research purposes. The following criteria were used in selecting the cases. They should: - belong to the same industry, and be embedded in similar environments, - be of approximately the same size, - at the outset have approximately the same economic resources, - be in an industry where it was possible to identify major environmental change(s), and - should have demonstrated different responses to this (these) environmental change(s). This post hoc research strategy was used to achieve variability in the dimensions to be examined (cf. Campbell, 1975; Glaser and Strauss, 1967). Based on apriori information, two companies in the shipping industry, Alpha and Beta, were selected.* Data Several sources of data were used. Semi-structured interviews were held with managers and other informants inside and outside the company by three experienced interviewers. At least two of the three interviewers participated in all the interviews. Over a week was spent in each shipping company. In Alpha interviews were held with 15 people from the company and three from outside, and in Beta with 15 members of the organization and two from outside. Each interview lasted approximately 3 hr. All interviews were tape-recorded and later transcribed. In addition a variety of secondary sources were examined, including annual reports and company records covering major decisions, company newsletters, and excerpts from newspapers and magazines over a period of more than 20 years from the early 1960s to the mid 1980s. Secondary information was used to reconstruct past environmental changes, subsequent strategic actions and outcomes. As several of the respondents had been with the companies for most of the period covered, the major events and strategic actions were discussed in the personal interviews in order to get a more complete reconstruction of the past. *For a more
detailed
description
of the two cases,
see Haukedal
(1986)
and Tronsmo
er
al. (1986).
ENVIRONMENTAL
IMAGERY
AND STRATEGIC ACTIONS
9
Table 1 shows company characteristics. The arrows in parentheses for the Alpha company indicate recent changes. An inspection of Table 1 shows that Beta emphasizes rationality, planning and professional management more than Alpha. The changes taking place in Alpha started after a period of serious losses, when the firm’s creditors partly took over the firm. Thus changes in management and decision-making style had been “forced” upon the company. The differences in organizational culture should also be noted. Until very recently the Alpha company was dominated by its top manager (owner). One middle manager said, “ . . . our earlier decisions were often based on how we thought he (the ship-owner) wanted it.” Alpha was also a very “isolated” company, “ . . it was almost like a secret that we were in shipping” (middle manager). Moreover, the ship-owner did not believe in economic calculations or economic control. The organizational culture in Beta, on the other hand, emphasized rationality, change, cost control and cooperation. A few quotations from the interviews and the company’s newsletter may highlight some features of the organizational culture: “We always have to look forward. Our efforts to improve must never end. ” “Both parties must be willing to give something away, and both parties should be better off.” “We emphasize planning, and most decisions are based on thorough analyses.”
Table Characteristics 1. Year
1. Company
Alpha
founded
2. Ownership
characteristics Beta
1896
1861
Founder/family
Founder/family
(Limited
Limited
I
company)
company
3. Management
Founder/family 1 (Outside manager)
Founder/family J Professional manager
4. Services/vessels
Line/tank
Line/tank bulk J Offshore J Other business
(0ffsi;ore)
5. Decision-making
Intuition J (Planning) Unclear 4 (Centralized)
6. Culture
7. Perceived
competence
Action oriented Analytical/emphasis on planning Structured Centralized/ decentralized
Patriarchal (professional) Isolation (+open) Passive (+active) Emotions (+rational) Formal (hinformal)
Rational
Operational
Project exploit
Change-oriented Cost control Cooperation development/ opportunities
10
K.
GRONHAUG
and
W.
HAUKEDAL
Environmental changes Major “objective” environmental events agreed upon are listed in Table 2. An examination of this table shows that these events are of importance to shipping companies. Rising demand for tank transportation services (1960-1970) means growing niches and a rapid increase in freight rates (cf. description at the beginning of the article), also implying a high return on investments and relatively low risks in these markets. Relative cost advantages contribute to excess profits. From Table 2 we can also see that markets for line transportation services require new solutions, i.e. a redefinition of the transportation services is needed, indicating that niche forms (and not niche sizes) are changing (cf. Zammuto and Cameron, 1984). Oil drilling on the Norwegian continental shelf (1970) also created a new market, i.e. a demand for crude oil transportation services. The establishment of OPEC (1973) represented an intervention that affected the functioning of the markets for oil as well as the transportation services for this product (Greer, 1984). Greater competition implied lower freight rates, and the need to emphasize cost-effectiveness in order to operate at a profit. Decreasing demand and thus stiffer competition (1982/1983) led to excess transportation capacity, lower freight rates, and thus lower profits and an emphasis on cost-effectiveness in order to be profitable.
ENVIRONMENTAL
PERCEPTIONS
AND STRATEGIC
How the two companies perceived the environmental strategic outcomes are reported below.
events,
ACTIONS their
strategies
and
Perception of environmental events A detailed analysis of secondary sources supplemented by information from the personal interviews reveals the reconstructions of the perception of environmental
Table Time
periods
2. Environmental
events
Events
196&1970
Demand for tank transportation increases Spot markets yield high return/low risk Domestic/world market cost advantages Line transportation requires new solutions
1970
Domestic/world market cost disadvantages Oil drilling at the Norwegian continental
1973
OPEC, increasing oil prices Demand for crude oil transportation Increasing competition/lower margins Line transportation more demanding
1975
Demand
for transportation
1979
Demand upswing
for crude
19820983
Increasing competition shipping transportation
of crude
oil transportation in the market services
shelf
increases
oil decreases shows a brief for most
ENVIRONMENTAL
IMAGERY
AND
STRATEGIC
11
ACTIONS
change shown in Table 3. An inspection of this table reveals some very interesting and surprising observations. At the outset of the period studied, trends and opportunities within the traditional tank market are perceived in the same way by the two companies. The changing shape of niches in the line markets and developments in the oil transportation markets, however, are perceived differently. In addition Beta “sees” new mission opportunities not recognized by Alpha.
Table Time
3. Perceptions
of environmental
period/events
change Alpha
Beta
Tank transp. perceived as growing
Tank transp. perceived as growing Perceives new line opportunities
1960-1970
Demand for tank transportation increases/spot markets profitable Domestic cost advantages Line transportation more demanding
1970
Domestic cost disadvantage Oil drilling at the Norwegian continental shelf
1973
OPEC/increasing oil prices Increased demand for oil transportation Increasing competition/lower margins Line transportation more demanding
Tank transp. perceived as good
Tank transp. perceived as good Defines new missions
1975
Decreasing
Perceives the crisis as cyclical variations in demand
Perceives threats, and defines new missions
1979
Brief
Tank transp. perceived as recovering markets
Tank transp. perceived as recovering markets
19820983
Increasing
Off-shore relevant
Outside alternatives perceived relevant
demand
upswing
Defines new missions
for crude transportation
for crude
oil transportation
competition/decreasing
markets
perceived
Strategic actions Table 4 shows the major strategic moves of the two companies, and reveals some intriguing similarities and differences, reflecting that variation in the perception of opportunities and threats as reported in Table 3 really does influence strategic behaviour. Environmental perceptions and strategies are very similar in the two companies during the 1960s. Both invest in tank transportation services. The changing shapes of the niches in line transportation, however, are perceived and handled differently. Beta “sees” new opportunities and recognizes what is needed to exploit them, while Alpha perceives the market as declining and starts disinvesting. The establishment of OPEC in 1973 and the increased demand for oil transportation, followed by stiffer competition, are perceived and handled differently by the two companies. Alpha contracts two supertankers. This strategy contributes to the increase in the total tank capacity in the market and to the drop in freight rates (cf. introductory
12
K. GRONHAUG and W. HAUKEDAL Table
Time
4. Strategic
period/events
choices Alpha
196@1970
Increased demand for tank transportation/spot markets advantageous Domestic cost advantages Line transportation more demanding
1970
Domestic cost disadvantage Oil drilling on the Norwegian shelf
Growth in tank and line transportation services Reduces line transportation services
Growth in tank and line transportation services Invest in line transportation services
Contracts two super tankers Spot market contracts
Disinvestment in tank Time-charter Investments in off-shore activities Investments in line transportation
Tank transp. investments Spot/time-charter
Investments in line transportations Investments in offshore Time-charter
continental
1973
OPEC/increasing oil prices Increased demand for oil transportation Increasing competition/lower margins Line transportation more demanding
1975
Decreasing
1979
Short improvement in the crude transportation markets
oil
Keep
198211983
Increasing
markets
Disinvestments/ reduces tank transp. Offshore contract
demand
for oil transportation
competition/decreasing
Beta
the tankers Outside investments
discussion). Alpha also continues to operate in the spot market. Beta on the other hand makes disinvestments in tank transportation, and moves into time-charter markets. In addition, Beta continues to make investments to exploit and adapt to opportunities in the changing niches on the line market. Beta also invests in offshore activities, in particular supply vessels, and in drilling platforms. After 1982 this company started moving into lines of business outside the sea transportation services. Alpha continues investing in tank transportation and to some extent also moves into the time-charter markets (1975), while Beta continues to invest in line and offshore transportation services and to operate in the time-charter markets. Later (1982/1983) Beta starts moving into outside activities/missions, while Alpha reduces its fleet and its workforce. Some additional facts can demonstrate the greater divergency in the strategies realized by the two companies. During the period 19661981, the number of vessels in Alpha fell from 24 to 10; vessels for line transportation services fell from 14 to five, and tank vessels from eight to three. (The company’s total and its tank tonnage, however, were increasing throughout this period.)
ENVIRONMENTAL
IMAGERY
13
AND STRATEGIC ACTIONS
In Beta the number of ships increased from 60 in 1976 to 104 in 1983. During this period traditional line vessels were reduced from 27 to one, while the number of container and RO/RO vessels rose from four to 14. Other types of vessel increased from 14 to 68. This shows that disinvestment as well as investment is used more frequently and more dramatically by Beta than by Alpha in exploiting and adapting to the market opportunities. In fact, the emphasis on operations in Alpha (cf. Table 1) has apparently been associated with the notion that “vessels should be retained”. As one of the key informants put it: “ . . . this attitude was really deep-rooted, it was almost impossible to disinvest, to sell a ship”, which resulted in a fleet including old and less cost-effective ships than new ones. Strategy outcomes Several indicators can help us to evaluate the extent to which the two companies have succeeded. Table 5 shows that Beta has performed well. An inspection of indicators such as number of employees, gross revenue, equity funds and profits demonstrates that the company has enjoyed growth and success. Alpha’s performance has been poor. Staff cuts, losses, loss of equity and lay-offs are all indicators of failing organizational effectiveness. After the restructuring of the company, however, a turn-around appears to be under way. In 1984, for the first time in 10 years, Alpha made a profit.
DISCUSSION The findings reported above their environments differently; and the strategies pursued also of problems, opportunities and activities.
show that the two companies, Alpha and Beta, perceive their flexibility in changing their interpretive schemata differs. The findings indicate further that the perception threats also affects behaviour, i.e. the choice of strategic
Some explanatory factors Returning to Table 3, we find that the two companies had the same idea of their environments at the outset of the period studies. The two companies had “learned” that Table
5. Strategy
performance
Indicators
Alpha
No. of employees
Reduced by 30% years 1966-1982
Profit
Negative. Losses in each of the consecutive years 1975-1983
Positive. Gross revenue increased by 600% during the period 1976-1984
Equity/funds
Negative*
Positive. Tripled 1979-1984
Vessels
Lay-up
Active
Beta during
the
Increased by 13% during 19761983
*Alpha went bankrupt in 1982, but was saved and refinanced new owners and new management.
in value
by its creditors,
resulting
in
14
K. GRONHAUG
and W. HAUKEDAL
the “tank market was growing and that investing in this market was worthwhile”. However, an examination of Tables 3 and 4 reveals that Alpha did not perceive the changes, i.e. the opportunities and threats in the same way as Beta, with the result that the strategic behaviours of the two companies differ from one another. Several factors may help to explain the differences observed in perceptions and actions. In Alpha there was almost no explicit planning, and less attention was paid to environmental scanning. The managers in this company acted mainly on intuition. As one middle manager said: “ . . . contract decisions were based on the number of bubbles in the ship-owner’s long drink.” They (the managers) also operated in isolation. In fact, several lower level employees repeatedly emphasized the need for changes in the company’s line transportation services as they pointed to emerging off-shore opportunities, but in vain. The schemata held by Alpha were seemingly rigid, difficult to alter (cf. Starbuk, 1983), which may be explained by unwillingness to test them against real life experience (cf. Ramaprasad and Mitroff, 1984). In the Beta company, the situation was very different. The need for change was emphasized in the company, as expressed in an internal document: . . we always have to look for new markets. In order to feel safe, we always have to search for new opportunities, we have to be everchanging. Thus, variations in commitment to operate in changing environments may be an important factor in explaining differences in environmental perceptions and strategic actions in the two companies. This is in accordance with the following research-based statement: “. . . only if managers are committed to operating within a rapidly changing social environment will they mentally incorporate information about extreme environmental events” (Kiesler and Sproull, 1982, p. 559, prop. 9). In terms of interpretative schemas, this may account for the needed motivation to test them against empirical data. The respondents agreed that the most important opportunities sensed were results of individual initiative, a finding confirming prior research on weak strategic stimuli (cf. Mintzberg et al., 1976). Moreover, the respondents were all managers committed to their initiatives. Adequate resources were available, allowing them (the managers) to pursue and test their ideas in real life. Lyles and Mitroff (1980) have previously found such conditions to have a major effect on strategy change. Moreover, important organizational differences were also present. Beta employed substantial resources on travelling and other activities important to environmental scanning. Highly educated people were hired for various managerial positions, while Alpha recruited its managers internally. In Beta top-management appeared to operate as an organic “think-tank”, allowing for the free flow of information that is necessary to creativity and innovation (cf. Stinchcombe, 1974), which in turn favours the sort of complexity in cognitive schemata that is of crucial importance in comprehending environmental change (Weick, 1979; Bartunek et al., 1983). There was less interaction among the managers in Alpha, and a certain “distance” was kept between the top executive and the recruited managers. Thus, differences in the resources devoted to environmental scanning, the attention paid to environmental change, the way information is interpreted, and decision-making style - all these are factors contributing to a divergence in the perception and representation of environments and thus in strategic actions.
ENVIRONMENTAL
IMAGERY
AND
STRATEGIC
15
ACTIONS
Strategies and driving forces Rigidity in the perception and interpretation of environments is in no way unique to Alpha. Starbuck and Hedberg (1977) have reported on the way in which the Swedish Facit Company, once known for its advanced strategic planning, “refused” to see environmental changes and almost forced the company out of the market. Levitt (1960), have in his seminal article “Marketing Myopia”, has described how several industries declined and/or disappeared because they failed to recognize the changes taking place and lacked imaginative visions of the future. In our opinion, the quest for “proactive” behaviour, as emphasized in the strategic management literature (cf. Ansoff, 1984), is in contrast to the often demonstrated “reactive” behaviour showing inability to capture and imagine environmental changes and opportunities. Figure 2 compares the strategies of Alpha and Beta. The majority of Alpha’s activities to the changing niche are related to its present missions (1) without adapting requirements (niche forms). By contrast Beta adapted very actively to the changing niche forms (cf. Zammuto and Cameron, 1985) (c). The company also moved into new transportation missions (b), as well as adapting to new transportation missions with new requirements (d). In addition, Beta moved into other business outside the markets for shipping transportation services (which is very uncommon). A recent study of 14 large Norwegian bulk shipping companies showed that none of the companies was considering investment outside the industry (Hope and Bee, 1982). Figure 2 reflects the greater flexibility of Beta compared to Alpha in changing its schemata and its activities as discussed above. It also shows that Alpha is not using and/ or has not discovered the opportunity which the second-hand market offers (cf. introductory description). In fact, Alpha has created imaginary barriers to preclude flexible options. A closer inspection of Fig. 2 also reveals differences in the two companies’ perceived competence and in their interpretation of “driving forces”, i.e. “ . . . the primary determiner of the scope of future products and markets” (cf. Tregoe and Zimmerman, 1980, p. 40). Shipping technology apparently defines the opportunities that are perceived by Alpha, while perceived marketing opportunities seem to be Beta’s driving force, which influences its perceived need for competence. These fundamentally different perceptions of the “driving forces” can be depicted as follows: Alpha: Shipping transportation C-N technology/competence
Opportunities
Beta: Market zz;;;;;ti;tsa*
-*
changes
Implications for management The reported findings have important
Competence technology needs
implications
for management.
The importance
16
K. GRGNHAUG
and W. HAUKEDAL
Alpha Niche requrement Exlstlng New
Existing
a)
1
Transportotlon rmssfons :
I
Beta Niche requrement Exlstlna New
4r-:-:‘-
a)
b)
New
Other mwons
d)
e)
I
Fig. 2. Strategies
in Alpha
and
of perceiving environmental change and the ability to create images about future opportunites can hardly be overstated. Environmental scanning should be encouraged, which means allotting sufficient resources in terms of the time and money to these activities. The reported findings also have a bearing on the recruitment of managers. Skilled personnel of varying educational background should be hired, to expose the company to a broader spectrum of environmental information and to make it more “complex” and innovative (cf. Zaltman et al., 1973). Complexity is also required at the level of the individual manager, as complex realities call for complex non-routinized thinking. In this context Weick recommends “complicating yourself” (Weick, 1979, p. 261). This, in turn, has implications for job design, which should allow for speculation, interactions and information access. The findings also suggest that the setting up of management teams representing a variety of skills and structured in such a way as to allow for flexibility and opportunities for pursuing ideas in a “think tank” fashion, may help to improve the identification and formulation of strategic problems (cf. Lyles and Mitroff, 1985). The findings also have implications for strategy educators. Dillon (1982) has noted that “ _ . . education at all levels ignores problem finding to concentrate on the solving of presented problems” (p. 108). The perception of environmental changes, opportunities and threats, and the ability to create future images constitute key factors in strategic success. Thus strategy education should emphasize the discovery and interpretation of opportunities and threats, and enhance managerial imagination (cf. Levitt, 1985). Acknowledgement - The authors Sten Jiinsson and an anonymous
acknowledge reviewer.
the very detailed
and helpful
comments
of Joseph
F. Porac,
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