The word ‘dynamics’ appears frequently in discussions and writing about strategy, and is used in two distinct, though equally important senses.
It recognizes that strategic planning is dynamic, that is, strategy-making involves a complex pattern of actions and reactions.
The static assessment of strategy and performance, and its tools and frameworks dominate research, textbooks and practice in the field.
The increasing interest in how some businesses in an industry perform better than others led to the emergence of the ‘resource based view’ (RBV) of strategy (Wernerfelt, 1984; Barney, 1991; Grant, 1991), which seeks to discover the firm-specific sources of superior performance – an interest that has increasingly come to dominate research.
Richard Rumelt (2007) has again raised the importance of making progress with the issue of strategy dynamics, describing it as still ‘the next frontier … underresearched, underwritten about, and underunderstood’.
A further practical problem is that many of the static frameworks do not provide sufficiently fine-grained guidance on strategy to help raise performance.
To develop a dynamic model of strategy and performance requires components that explain how factors change over time.
Since a company’s sales clearly change over time, there must be something further back up the causal chain that makes this happen.
Dierickx and Cool (1989) point out that this causes serious problems for explaining performance over time: The consequences of these features is that relationships in a business system are highly non-linear.
Statistical analysis will not, then, be able meaningfully to confirm any causal explanation for the number of customers at any moment in time.
If that is true then statistical analysis also cannot say anything useful about any performance that depends on customers or on other accumulating asset-stocks – which is always the case.
Fortunately, a method known as system dynamics captures both the math of asset-stock accumulation (i.e. resource- and capability-building), and the interdependence between these components (Forrester, 1961; Sterman, 2000).
RBV asserts that any resource which is clearly identifiable, and can easily be acquired or built, cannot be a source of competitive advantage, so only resources or capabilities that are valuable, rare, hard to imitate or buy, and embedded in the organization [the ‘VRIO’ criteria] can be relevant to explaining performance, for example reputation or product development capability.
Warren (2002, 2007) brought together the specification of resources [tangible and intangible] and capabilities with the math of system dynamics to assemble a framework for strategy dynamics and performance with the following elements: This set of relationships gives rise to an ‘architecture’ that depicts, both graphically and mathematically, the core of how a business or other organization develops and performs over time.
Charles Lindblom (1959) claimed that strategy is a fragmented process of serial and incremental decisions.
He claimed that strategic management involves guiding actions and events towards a conscious strategy in a step-by-step process.
He claims that emergent strategies tend to exhibit a type of convergence in which ideas and actions from multiple sources integrate into a pattern.
Constantinos Markides (1999) describes strategy formation and implementation as an ongoing, never-ending, integrated process requiring continuous reassessment and reformation.