An Epistemology of Strategy Formation in Contemporary Organizations

Strategy is the foundation on which economic activity takes place. However, strategy theory is characterised by fragmentation and theoretical pluralism that leads to sub-optimal decisions and ineffective and inefficient outcomes. This is the result of 3 shortcomings in the process of strategy formation: there is no common understanding of what constitutes strategy and how strategy forms, the business environment is complex and always evolving, and there is no theory or framework that describes, explains and predicts the behaviour of firms and markets. There are 2 main streams of theory: prescriptive environmentally focused theories, effective in stable operating contexts, and descriptive firm-based theories that are effective in complex operating contexts. Models of the 2 theories were built and elements common to both theories and models were extracted. An integrating model of strategy emerged premised on systems and complexity theory with the cognitive process, including learning and knowledge codification, as the core process of strategy formation. Scenario thinking and development was identified as one of the most important methods that can be applied in strategy formation.