Strategy deployment in business units

Chapter 2
Review of the Literature on Strategy Cascading,
Context, and Leadership
Abstract This chapter explores the literature on realizing improvement activities
via different approaches of strategy making and cascading. The review proceeds
in five sections that describe, in turn, the topics that are relevant to this research
project. Section 2.1 summarizes the literature streams that describe the basics of
operations strategy, and Sect. 2.2 focuses on the company context. Section 2.3
addresses strategy cascading quality, and Sect. 2.4 discusses research findings in the
area of improvement performance. Finally, Sect. 2.5 concentrates on the literature
that deals with leadership style. Each section progresses from the most theoretical
approaches to those that are most likely to be of practical relevance.
2.1 Operations Strategy
The aim of this section is to describe the research on the foundations of operations
strategy. The first part provides details about the content and process of operations
strategy; the second part covers the resource-based view, including the notion of
dynamic capabilities.
2.1.1 Strategy Content and Strategy Process
Skinner (1969, p. 139) defines strategy as follows: “Strategy is a set of plans and
policies by which a company aims to gain advantages over its competitors.” Other
authors describe strategy more pragmatically in terms of answering the questions
“where to go” and “how to get there” (Eisenhardt 1999). Schneider and De Meyer
(1991, p. 308) define strategic as “environmental events that may have an important
impact on organizational performance.”
The topic of operations strategy is typically viewed as involving two main
aspects: the content of strategy (Porter 1979, 1985, 1998) and the process of
M. Schlickel, Strategy Deployment in Business Units, Contributions to Management
Science, DOI 10.1007/978-3-642-33621-8 2, © Springer-Verlag Berlin Heidelberg 2013
7

8 2 Review of the Literature on Strategy Cascading, Context, and Leadership
strategy (Mintzberg 1978, 1993, 1994; Mintzberg et al. 1998). The content literature
stream is mostly concerned with the so-called nucleus of strategy (Porter 1996)—
“operational effectiveness is not strategy”—or, in other words, the intention of
a firm’s strategic direction (Hamel and Prahalad 1989). Much of this research
has concentrated on the development of typologies and taxonomies of operations
strategies; see, for example, Mart´ın-Peña and Diaz-Garrido (2008). In short, this
work has identified three generic operations strategies: those that concentrate on
cost savings, those geared to creating high-quality products, and those that seek to
implement the latest technologies and processes. The literature describes strategy
as the “pattern of matching the different elements—some within the organizational
boundaries (competences and resources) and others dealing with the environment
(opportunities and threats)” (Venkatraman and Camillus 1984, p. 513). Strategy
has also been defined as “a pattern in a stream of decisions” (Mintzberg 1978).
In an empirical study, Swamidass et al. (2001, p. 1289) present “alternative forms
of manufacturing strategy processes” that demonstrate new approaches (e.g., core
manufacturing competences) as distinguished from the conventional top-down plan-
ning approach. Although there appears to be a link between a firm’s manufacturing
strategy and its strategic priorities, Mintzberg (1978, p. 945) acknowledges that “a
company’s strategy may not be always completely planned but may consist of [both]
planned and emergent components.”
In their review of the literature on operations strategy, Anderson et al. (1989,
p. 133) address four issues: (1) a strategic versus a tactical view of operations;
(2) the synergies between integrating business and operations strategic issues;
(3) how operations decisions demonstrate strategic opportunities; and (4) how
conceptual structures define operations strategy. The authors agree to a large extent
with Skinner (1969) that operations strategy should be an integrated and vital part
of business strategy yet often is “the missing link”. It is worth mentioning that
Anderson et al. do not find a widely accepted definition of operations strategy,
although most definitions agree that operations strategy is part of a firm’s overall
strategy and should involve both planning and organizing operations. These authors
find little research on the process of operations strategy, which they argue is in need
of further empirical exploration. According to Venkatraman and Camillus (1984,
p. 513), strategy research must consider the “concept of fit”—that is, aligning
organizational resources with external opportunities in order to implement the
chosen organizational strategy effectively.
Gavetti and Levinthal (2004, p. 1312) analyze the past 50 years of strategy
research published in Management Science while developing their “strategy map”.
Their study concludes that the organizational aspects of strategy making are not
well developed. Burgelman (1983a) is an example of seminal work in this field.
The research reviewed by Gavetti reveals that strategy often emerges ex post from
behavioral patterns within the researched units of analysis. The topic of alignment
is a central issue in the research of Schroeder et al. (1986), who report—after
surveying 39 manufacturing companies—that only a third of these firms have
an explicit manufacturing strategy. Those that do have sought to align it with
their business strategy, from which the operations strategy is typically derived.

2.1 Operations Strategy 9
These authors describe operations strategy as consisting of four principal elements:
“mission, objectives, policies, and distinctive competence” (p. 409). They find
that, for most firms, business strategies are “growth oriented, market directed,
and emphasize quality and service” (p. 408). With respect to business strategies,
Schroeder et al. offer their own perspective on Porter’s (1998) “generic” strategies
(i.e., focus, low cost, and segmentation) but argue that this trio is not jointly exhaus-
tive. Similarly, Schroeder et al. expand the generally accepted list of manufacturing
objectives (cost, quality, delivery, and flexibility). Another finding of their research
is that the term “manufacturing strategy” does not seem to be well understood.
Surveyed managers often mention manufacturing conditions when responding to
questions about manufacturing strategy. This result is in line with the findings of
Hayes and Pisano (1994), who address basic questions about operations strategy—
for example, how they are defined in practice and how business strategy differs from
operations strategy.
In their literature review of operations strategy research, Boyer et al. (2005,
p. 442) show that “this body of work is dominated by papers that draw upon
theoretical perspectives enabling a more holistic scope of inquiry.” Hence the
research that they review focuses on both the content and process of operations
strategy. This paper thereby reveals the need for more empirical case study research
that specifically addresses operations strategy. One example of strategy process
research is the study of Bates et al. (1995), who posit a link between organizational
culture and operations strategy. They describe organizational culture in terms of
two constructs—“hierarchically-oriented cultures depending primarily on authority
relationships for control of behavior and clan-oriented cultures relying mainly on
shared values and beliefs” (p. 1568)—that are based on Hofstede (2002). As a
result of their survey on operations strategy process, Bates et al. postulate that a
well-defined operations strategy leads to a “group-oriented organizational culture
with coordinated decision making, decentralized authority, and loyal work force”
(p. 1565). Following Hayes and Wheelwright (1984), Bates et al. stress the firm’s
need to align its operations and business strategies, pointing out that an operations
strategy consists of criteria (e.g., formal strategic planning, communication, a long-
term orientation) that are linked to business strategy.
Another example of strategy process implementation is described by Sterman
et al. (1997). They present the case of Analog Devices, Inc., a company that
successfully implemented a “total quality management” program (Deming 2000)
that yielded outstanding achievements in quality and productivity. At the same
time, however, the company’s financial performance declined; it underperformed
the market and was forced to lay off personnel. The authors use case evidence to
devise a system dynamics model that might explain this seeming paradox. They find
that one cause was the unbalanced impact of the improvementinitiatives on different
parts of the organization: it was not enough to make operational improvements on
simple product lines alone. In particular, improvements that address indirect costs
(e.g., for product development) must receive the same attention as does process
improvement. The reason is that different types of improvement processes—for
example, product development and scrap reduction—are characterized by different

rates of improvement. Therefore, improvement must reflect an approach that is
attuned to the different individual processes. Sterman et al. (1997, p. 518) conclude
that “the more successfully an organization improves its manufacturing operations,
the more intense the trade-off [with business strategy] will be.”
Wheelwright and Hayes (1985) elaborate a framework in which the contributions
of manufacturing are matched to a firm’s overall goals. This framework for aligning
operations and business strategies incorporates a specific four-stage process. The
first, “internally neutral” stage involves elimination of internal weaknesses, and
the second, “externally neutral” stage is devoted to catching up with external
competitors. The third, “internally supportive” stage is characterized by operations
contributing significantly to the firm’s business strategy. Finally, in the fourth stage,
the firm’s operations are “externally supportive” in the sense of positioning in
its sector and setting standards for the industry; companies at this stage typically
have a main focus on manufacturing alone or on all business functions, including
operations. The authors claim that transitioning to stage four is the most difficult
step. Top management needs to be involved at each stage because the transitions
require not only a new set of instructions but also a changed mind-set. Senior
managers play an important role in the transition to stage four, but Wheelright and
Hayes find that they avoid involvement with operations in the preceding stages—
during which top management may fail to realize that operations are an integral part
of business strategy. The authors consider the company to be the unit of analysis for
operations strategy. Thus, operations strategy is determined by operations; backup
from headquarters is helpful but should not be viewed as a prerequisite.
Skinner pioneered the research field of manufacturing strategy, beginning with
the “advanced production problems” program (later to become the “manufacturing
policy” program) at Harvard Business School. In one of his early papers, Skinner
(1969) describes the tensions between manufacturing strategy and organizational
strategy. Manufacturing objectives should consist of more than low costs and/or
high efficiency; a viable manufacturing strategy also involves trade-offs (cf. Porter
1996), a fact that is underappreciated. The relevant trade-offs involve such generic
capabilities as cost, quality, dependability, and flexibility. For example, it is difficult
(if not impossible) for a company to compete in terms of cost, quality, and delivery.
Top executives are often not involved in production—either because they delegate
extensively or do not feel comfortable handling such matters. The result can be
trouble for their companies. Hence Skinner’s framework is a top-down approach to
derive a manufacturing strategy from the corporate strategy.
In a later paper, Skinner (1974) finds that experienced production executives had
begun to apply their wisdom along with the conventional premises of manufacturing
strategy, but still this did not amount to a true organizational strategy. All-purpose
plants could no longer succeed, so it became necessary to design plants for a single
purpose. It is the task of senior management to see that manufacturing decisions
reflect appropriate trade-offs and be properly aligned with organizational decisions.
Skinner (2007, p. 332) defines the essence of good strategy as follows: “a manufac-
turing strategy is a set of manufacturing policies designed to maximize performance
among trade-offs among success criteria to meet the manufacturing task determined

by a corporate strategy. Top management’s job is to ensure that there is a coherent
manufacturing strategy in which all manufacturing policies are designed as a whole
to support or lead the corporate strategy.” Skinner postulated that only focused
factories can be consistently successful. Such manufacturing processes are rare,
however, because firms usually have too much complexity in their product portfolio
or too many immature process technologies. It is therefore difficult for them to
compete solely in terms of cost, so trade-offs are inevitable. Skinner (1974, p. 119)
states: “One way to compete is to focus the entire manufacturing system on a limited
task precisely defined by the company’s competitive strategy and the realities of its
technology and economics.” Toward this end, he supplied a four-step procedure by
which a firm’s manufacturing and corporate strategies can be aligned.
The research of Ferdows and Meyer (1990) explores whether such trade-offs
can be avoided. These authors view manufacturing capabilities as being cumulative
rather than circumscribing, and they elaborate (but do not prove the validity of)
a potentially useful model based on survey data. Ferdows and Meyer argue that
successful companies seem to follow a sequence of improvement programs whereby
new capabilities are built upon previous ones. This sequence (described by their
“sand cone” model) is: quality, dependability,speed, and cost efficiency. The authors
argue that trade-offs are not entirely irrelevant but that the theory of trade-offs is not
valid under all circumstances. They also propose that “slack” may be an option for
companies that seek simultaneous improvements in more than one capability.
2.1.2 Resource-Based Approaches
The extant literature suggests that the resource-based view is a practical one for
managers and scholars to adopt (Lado et al. 2006). According to this approach,
the firm’s goal should be to find an asset or capability that is valuable, rare,
inimitable, and organizationally appropriate (VRIO; Barney 1997) or valuable,
rare, inimitable, and nonsubstitutable (VRIN; Eisenhardt and Martin 2000). By
leveraging those characteristics, an organization can generate long-term competitive
advantage (Arend and Lévesque 2010). In other words: resources are turned into
capabilities, which in turn lead to competitive advantage. An early presentation of
this resource-based view of the firm is that of Wernerfelt (1984), who analyzes firms
from the resource side instead of from the product side; in this work he introduces
the resource position barrier and the resource–product matrix. Teece et al. (1997)
describe the resource-based approach as a strategy model that emphasizes efficiency.
As Schroeder et al. (2002, p. 106) summarizes: “The resource-based view of the firm
[...] argues that organizations incorporate privately held knowledge, which can be
employed to create idiosyncratic modes of technology at any point in time [...]. The
[resource-based view] distinguishes between resources that can be acquired in factor
markets and those developed inside the firm.” Often those resources are difficult to
imitate, and they are tacit as a result of causal ambiguity.

A variation of the resource-based view incorporates dynamic capabilities, which
are defined by Teece et al. (1997, p. 516) as “the firm’s ability to integrate, build, and
reconfigure internal and external competences to address rapidly changing environ-
ments.” O’Reilly and Tushman (2008, p. 185) similarly define dynamic capabilities
as “the ability of a firm to reconfigure assets and existing capabilities” with the
goal of achieving a “long-term competitive advantage.” In this view, a firm’s core
competences should be used to develop competitive positions capable of evolving
into one or more competitive advantages in the long run. Dynamic capabilities are a
source of such advantages (Teece et al. 1997) because they must be developed and
cannot simply be bought. According to Makadok (2001, p. 388), two fundamental
elements distinguish dynamic capabilities from other types of resources. First, they
are firm-specific capabilities because they are embedded in the organization; hence,
they cannot be easily transferred to or acquired by other organizations. Second,
dynamic capabilities drive and enhance the productivity of other resources owned
by the organization—what Makadok calls “intermediate goods” (p. 389).
In their literature review, Oliver and Holzinger (2008) analyze the effectiveness
of political strategies, which they argue is a function of the firm’s dynamic political
capabilities. The authors describe the relevance of dynamic capabilities in this way:
“dynamic capabilities focus on the variation in firms’ abilities to adapt quickly to
rapidly changing environments”; moreover, they “affect profitability by enhancing
the productivity of the other resources that the firm possesses” (p. 497). These
statements indicate that dynamic capabilities are important for a firm’s effectiveness,
especially in rapidly changing environments; in that case, one naturally concludes
that firms not only will gain a competitive advantage but also will earn superior
returns if they can establish VRIN (or VRIO) capabilities. According to Oliver
and Holzinger (2008), such dynamic capabilities are exhibited by a firm that can
develop, recombine, and deploy competences that enable it to remain aligned with
changing requirements. For instance, the firm’s internal assets may be aligned with
environmental influences so that the latter match up well with the firm’s particular
strengths. Finally, the authors argue that “firm-specific dynamic capabilities—
specifically, capabilities in structural and process reconfiguration, scanning and
anticipatory knowledge acquisition, social capital deployment, and institutional
influence processes—are likely to serve as the key drivers of effective political
management” (p. 514).
Eisenhardt and Martin (2000) conduct an extensive review of the literature
dynamic capabilities, which they define as a set of processes such as product
development (the authors give Toyota’s process as an example) or strategic decision
making. Dynamic capabilities of this sort are often referred to as “best practices”.
The authors also remark that dynamic capabilities resemble the concept of routines
in moderately dynamic markets (“routines to learn routines”, or knowledge creation
routines), where dynamic capabilities are often of a relatively complex nature. In
contrast, dynamic capabilities in high-velocity markets are typically not complex.
That being said, dynamic capabilities are widely viewed as a necessary but not
sufficient condition for gaining competitive advantage. Eisenhardt and Martin

(2000, p. 1108) report that dynamic capabilities are the subject of extensive
empirical research.
Along these lines, Anand et al. (2009) use a number of exploratory case
studies to show that continuous improvement can serve as a dynamic capability.
They argue that organizations compete in terms of the ability to improve their
processes continually, but providing an appropriate infrastructure is crucial for
such improvements; otherwise, continuous improvement initiatives (e.g., “lean
production”) may well prove ineffective, at least in the long term. Anand et al.
describe dynamic capabilities as “a learned and stable pattern of collective activity
through which the organization systematically generates and modifies its operating
routines in pursuit of improved effectiveness” (p. 445). The authors list two basic
requirements for sustainable continuous improvement: coordination and execution.
A continuous improvement initiative that lacks these features is likely to founder
after the initial improvements. Thus infrastructure serves as the coordinating “glue”,
and in recognition of this the authors employ the so-called purpose–process–people
framework (Bartlett and Ghoshal 1994, 1995; Ghoshal and Bartlett 1995). Anand
et al. (2009) emphasize two points in particular. First, continuous improvement
cannot be achieved simply by training staff in new methods; that is, there must also
be mechanisms for managing and maintaining improvements. Second, a holistic
infrastructure is needed if continuous is to be managed properly. The authors
analyze the practical impact (i.e., the actual usefulness of a resource-based view)
via simulation modeling, and they find support for a watered-down version of that
perspective—specifically, in cases “where a resource with relatively low levels of
critical characteristics provides a firm with statistically significant sustained superior
performance” (p. 914). Yet because it may be hard to identify relevant factors, the
manager’s tasks are to detect a critical resource that requires more investment and
to recognize noncritical resources from which any further investment should be
withheld.
Lavie (2006) extends the resource-based view to examine networks of inter-
connected firms and concludes that “the nature of relationships may matter more
than the nature of resources in networked environments” (p. 638). In this review of
the literature, Lavie finds that resources can best serve interconnected firms when
those resources are not the exclusive property of a single organization. He posits
that the nature of the partnership between firms is more important than the nature
of the actual resources. However, Schroeder et al. (2002) argue that proprietary
processes, internal learning (i.e., intrafirm or privately held knowledge), and external
(interfirm) learning are resources and capabilities leading to competitive advantages
that cannot be readily duplicated by others and hence make a company both
unique and competitive. In other words, no competitive advantage accrues to a
company whose only skills are freely available. The survey used by Schroeder et al.
measures performance as an index of several manufacturing indicators (e.g., on-time
deliveries and quality control).
Paiva et al. (2008) research the related area of formulating a manufacturing
strategy from the resource-based perspective. In this paper, the “know-what” and
the “know-how” are key elements of organizational learning. These elements refer

to knowledge about where information can be gathered and how it can be applied in
order to yield smooth-running operations. The accumulation of knowledge leads
to competitive advantage, which in turn helps the firm formulate its operations
strategy—described as “a process comprising both structured and unstructured strat-
egy formulation” (p. 119). Their empirically tested model is based on the foundation
of Schroeder et al.’s (2002) concepts of external and internal learning. As that earlier
paper argues, “[t]he manufacturing strategy formulation process is therefore a result
of resources alignment, including information, knowledge and [the] company’s
functions” (p. 117). Paiva et al. conclude that manufacturing knowledge should be
viewed as a necessary component of strategic decisions. That connection can be
enhanced by strengthening cross-functionality (i.e., coordination).
In his own review of the literature, Pitelis (2007) compares two economic-based
theories that have gained prominent in recent decades: the behavioral theory of the
firm and the theory of the growth of the firm (it was on these theories that the
resource-based view was founded). According to the author, elements shared by
those two theories include excess resources and organizational slack, which together
can foster “problemistic search” and thus innovation. In contrast to research that
focuses on the paradoxes of a resource-based view, Lado et al. (2006) address the
question of whether the resource-based view can help to understand and advance
strategic management (as in Priem and Butler 2001) and considers the biophysical
impact of a resource-based view (as in Hart 1995). Argote and Greve (2007) review
literature on the behavioral theory of the firm and distill its findings into four
research “commitments” as follows: “focus on a small number of key economic
decisions made by the firm”, “develop process oriented models of the firm”, “link
models of the firm as closely as possible to empirical observations”, and “develop a
theory with generality beyond the specific firms studied” (p. 338). In this treatment,
the key concepts and mechanisms include bounded rationality, problemistic search,
and slack search.
According to Pitelis (2007, p. 479), bounded rationality “refers to limitations of
information and calculation” and “implies the need to set targets and try to satisfy
these, as opposed to optimizing the best imaginable solution.” Argote and Greve
(2007, p. 343) have this to say about problemistic search: “Once organizational
performance falls below the aspiration level, search for solutions will occur and
organizational changes become more likely. Because problemistic search is myopic,
the changes will likely occur near the apparent problem or in areas that the
organization has recently changed.” They also remark that “[t]he theory of slack
search and innovation is an account of why organizations sometimes develop
new products, technologies, or practices even when they are not solving specific
problems, which complements the theory of problemistic search” (p. 339).
In the behavioral of the firm, routines are a crucial factor in organizational
learning and adaption (Argote and Greve 2007, p. 342). In Ketchen et al. (2007) the
authors point out that, despite its simplistic terminology, the resource-based view
is not a merely tautological perspective. They also argue that market orientation
and customer orientation are not mutually exclusive but are instead “part of a two-
by-two matrix created by two dimensions: the propensity to satisfy current customer

2.2 Company Context 15
needs and the propensity to develop products and services for potential future needs”
(p. 961). Ketchen et al. thus believe that the resource-based view is a contingency-
driven theory that offers considerable potential for further research.
Finally, the literature review of Gagnon (1999) analyzes studies of operations
management that address the resource-based view. He identifies three fundamental
issues for research based on this perspective: the active role of manufacturing, the
necessity of trade-offs, and the implementation of best practices. With regard to
manufacturing’s active role, Gagnon states: “Consequently, the process of opera-
tions strategy may become much more emergent, where the continuous ‘crafting’
of innovative strategies would make the firm both strategically and operationally
stronger in the face of uncertainty [...]. The strength of this emergent process should
[be reflected in a] strong managerial commitment to operating priorities” (p. 128).
As for trade-offs, “[o]perations managers become the guardians, ensuring that key
sources of competitive advantage (e.g., new product development processes) are
continuously upgraded so that competitors are unable to copy them. Operations
strategy could then focus on making trade-offs in ‘resource’ (or advantage, or asset)
management, determining the sustainability of the firm’s competitive strengths”
(p. 130). Finally, Gagnon argues that “the implementation of best practices would
help build up ‘strategic options’ on a continuous basis” (p. 133).
Of course, the field of operations strategy involves much more than content,
process, and the resource-based view. Yet all three topics are relevant and, indeed,
vital if one seeks to understand operations strategy in general or to devise a particular
strategy. It is therefore reasonable to conclude that trade-offs among different
resources are an important factor in nurturing the long-term capabilities needed to
craft an operations strategy that aligns with the firm’s overall business strategy. As
long as trade-offs are required and resources are scarce, there are countless ways to
deploy such strategies. Hence there remains considerable room for new empirical
research that analyzes the strategy cascading process.
2.2 Company Context
This section addresses the backgrounds of company contexts, which are assumed
to explain firm behavior in the sense that they lead the firm to specific actions that
might not have been taken under other circumstances. These contexts may have
originated internally—for example, from the firm’s self-perceived role or strategic
priorities. They may also arise from external circumstances, as when the complexity
of a firm’s products entails the involvement of outside parties and thereby leads to
restrictions over which it does not have complete control. The discussion is therefore
divided into two parts; the first focuses on strategic priorities and the second on
complexity theory.

2.2.1 Strategic Priorities
As mentioned previously, Porter (1996) emphasizes that “operational effectiveness
is not strategy”. In other words, it is necessary for organizations to have strate-
gic priorities. One approach to realize strategic priorities are core competences.
Prahalad and Hamel (1990) illustrate the notion of core competences by describing
the cases of NEC and GTE, where it was the development of such competences that
enabled the former to excel over the latter. These authors define core competences
as “the collective learning in the organization, especially how to coordinate diverse
productions skills and integrate multiple streams of technologies” (p. 82). Continued
application leads core competences to increase over time, yet the business organi-
zation of some firms is still in need of radical change. In the words of Prahalad
and Hamel: “The critical task for management is to create an organization capable
of infusing products with irresistible functionality” (p. 80). The authors elaborate
three requirements for nurturing core competences: provide potential access to a
variety of markets, make a contribution that benefits the customer, and make it
difficult for competitors to imitate. Top management must also establish a business
architecture that enables the firm to build such competences, a task that is commonly
facilitated either by learning from alliances or focusing on internal development.
Often the necessary investment and continuous improvement actions to build core
competences require a decade (or longer) to take effect. Once developed, core
competences are “physically embodied” by core products.
Prahalad and Hamel (1990, p. 80) also explain that core competences are
difficult to cultivate within an architecture of strategic business units, “which by
nature underinvest in core competences, imprison resources, and bind innovation.”
The typical outcomes of such units are not aligned with the concepts of core
competences. Such misalignment was evident in an earlier study (Hamel and
Prahalad 1989), where the authors argued that strategy should involve more than
catching up to the cost and quality advantages of global competitors. As explained in
that paper, “the application of concepts such as ‘strategic fit’ (between resources and
opportunities), ‘generic strategies’ (low cost versus differentiation versus focus),
and the ‘strategy hierarchy’ (goals, strategies, and tactics) have often abetted the
process of competitive decline” (Hamel and Prahalad 1989, p. 63). The authors
describe strategic intent as the capacity to envision a desired leadership position,
a dedication to winning on all levels, and the willingness to sustain that dedication
over decades in the quest for global leadership. Thus, world-class competitors make
strategy in a different way: on the basis of strategic intent. They begin with a goal
that exceeds the company’s present grasp and existing resources. Such intentions
involve focusing, motivating, sustaining, providing degrees of freedom, and guiding
the use of resources. Toward these ends, three criteria are distinguished: strategic
intent “captures the essence of winning”, “is stable over time”, and “sets a target
that deserves personal effort and commitment” (p. 64). That is, strategic intent
consists of more than simply “better” strategic planning. Generating a competitive
advantage requires several steps: (1) create a sense of urgency; (2) develop a
competitor focus; (3) provide workers the skills they need to achieve desired

goals; and (4) give the organization time to digest one challenge before launching
another. It is also necessary to establish clear milestones and review mechanisms.
The result is a global leadership position and an approach that avoids playing by the
market leader’s rules.
Research has shown that the alignment of strategic priorities between managerial
domains (e.g., general management and manufacturing management) enhances
performance. Joshi et al. (2003, p. 353) summarize these findings as follows:
“Alignment of [strategic] priorities is presumed to contribute to enhanced organi-
zational performance, just as misalignment is expected to undermine performance.”
In short, their study demonstrates that firms must identify strategic priorities. Along
the same lines, Hayes and Pisano (1994) find that such initiatives as total quality
management, just-in-time supply chains, and business process reengineering yield
no competitive advantage; their effects are limited to improving the manufacturing
process. These authors argue that “superior organizational capabilities provide a
competitive advantage” (p. 78) and posit that, in turbulent environments, the best
competitive advantage is strategic flexibility. That viewpoint would seem to confirm
the claim of Ferdows and Meyer (1990) that companies can excel in more than
one dimension even without making trade-offs. These authors consider competitive
advantage to be the ability to outperform the competition in certain areas, an
ability that is required of a market leader. In contrast, Boyer and Lewis (2002)
analyze the extent to which manufacturing plants see competitive priorities as trade-
offs (cf. Skinner 1969). Their findings suggest that trade-offs remain, although
perceived differences in competitive priorities are subtle and may vary across levels
of the plant hierarchy. Moreover, strategy is perceived differently by manufacturing
managers and operators, which underscores the necessity of a well-defined strategy
that is clearly communicated to all plant employees. Even though it is difficult to
transform “competitive priorities into operational capabilities” (Boyer and Lewis
2002, p. 18), that transformation is critical. So once a company’s goals are defined,
management must craft their decisions so as to nurture operational capabilities.
However, strategic priority involves more than the proper alignment of manu-
facturing operations within the firm. It also involves (and can be nurtured by) the
company’s role in a network—that is, the firm’s behavior within a “web” of firms.
In this regard, De Meyer and Vereecke (2009) analyze how to optimize knowledge
exchange in the network of independent companies in a multisite firm. These
authors base their study on a framework (developed previously in Vereecke et al.
2006) that defines four types of networking companies: receiving, isolated, hosting
network, and active network. De Meyer and Vereecke find that “factories whose
main advantages were market proximity and the availability of skills and know-
how have survived at a higher rate than factories whose main advantage was labor
costs” (p. 5). Furthermore, “it is clear that skills, know-how, and market proximity
are relatively stable location advantages. Low labor costs is a less stable one, and of
course the absence of any major advantage is a source of instability” (p. 6). Vereecke
et al. (2006, p. 1746) characterize the four network types as follows. Receiving firms
are “relatively young, market focused, have little inflow and outflow of components
and semi-finished goods, have a relatively low level of strategic autonomy in plant

design, and have relatively high level of managerial investment.” Isolated firms are
“relatively young, have little outflow of components and semi-finished goods, have
a relatively low level of managerial investment, and show a relatively low level of
capabilities.” The hosting network firms “are relatively old, have a broad market,
have a high inflow of components and semi-finished goods, and have a relatively
low level of managerial investment.” Finally, active network firms have “high inflow
and outflow of components and semi-finished goods, have a relatively high level
of strategic autonomy in plant design, and have a relatively high level of process
investment.” The results of this study indicate that “flows of knowledge between
plants seem to be reciprocal, and [...] there is a clear correlation between tangible
and intangible flows in the network” (p. 1748). The authors emphasize, however,
that building networks takes time.
Devaraj et al. (2001) discuss typologies based on plant configurations: the
product–process matrix and the generic manufacturing strategies model. They
find that “the generic manufacturing strategies model is a useful augmentation
to the product–process matrix” (p. 427). In a later work, Devaraj et al. (2004,
p. 313) examine “the effects of the fit between generic manufacturing strategies
and manufacturing objectives upon strategically relevant plant level performance
outcomes (e.g. cost-efficiency, quality, delivery, flexibility, and innovation).” Their
main finding is that better manufacturing performance is strongly related to the fit
between manufacturing objectives and manufacturing design choices.
In this line of research, it is worth mentioning the study of Verbeeten and
Boons (2009). They investigate the question of whether an organization’s strategic
priorities are associated with the use and effectiveness of dedicated key performance
indicators and find that “aligning the performance measurement system to the strate-
gic goals of the firm does not necessarily increase performance. [...] [M]anagers
have to strike a delicate balance in the selection and use of performance measures”
(p. 114). Although the authors are unable to verify all their tested hypotheses,
they do conclude that tracking both financial and nonfinancial key performance
indicators yields a useful indicator of a company’s (improvement) performance
status.
Frazier and Spriggs (1996) argue that the concepts and techniques of “group
technology” can be a source of competitive advantage by helping to improve
product quality, profitability, and/or customer service levels. They define group
technology as “grouping parts and products with similar characteristics into families
and forming production cells with a group of dissimilar machines and processes”
(p. 83). Lavie (2006, p. 643) defines a firm’s competitive advantage as “a function
of the combined value and rarity of all firm resources and resource interactions.”
2.2.2 Complexity Theory
The literature has documented that complexity theory is closely linked to search
theory. Authors in both areas often adopt NK models, which were introduced by

Kauffman and Weinberger (1989), in order to address their research questions.
Search and complexity influence each other in the sense that search is easy in
a simple environment; that is, the optimal solution is easy to find. Search theory
becomes more interesting in complex settings, where the task is more demanding
and the results are usually piecewise unpredictable. In discussing complexity, Rivkin
(2000, p. 825) adopts the definition of Simon (1962): “the sheer complexity of a
strategy can raise a barrier to imitation. [...] [T]wo factors make a strategy complex:
the number of decisions that [constitute] the strategy and the degree of interaction
among those decisions.” Rivkin develops an NK model that addresses these two
aspects. Within NK models, complexity is determined by the parameters N and K:
the N parameter corresponds to the number of decisions to be made, while the K
parameter captures “the marginal benefit or cost associated with another decision”
(Rivkin 2000, p. 827). Such NK models are the preferred method for addressing
(and calculating the level of) complexity. The basic takeaway from Rivkin’s work is
that successfully dealing with complexity requires firms to move beyond heuristics
and learning: “firms that follow simple hill-climbing heuristics are quickly snared
on low local peaks, and firms that try to learn and mimic a high performer’s entire
strategy suffer large penalties from small errors” (p. 824). Complexity thus makes
it less likely that competitors can succeed by mere imitation, but the focal firm
must still be able to cope with that complexity in some fashion. In particular, it
must establish search mechanisms that do not become prematurely locked in to
suboptimal solutions.
According to Sorenson et al. (2006, p. 998), “complexity refers to the degree
to which the components in a recipe interact sensitively in producing the desired
outcome.” One component of complex designs and architectures is modular-
ity, whereby a system may be decomposed into loosely coupled subsystems
(MacCormack et al. 2010). On the one hand, decomposition can lead to higher
complexity owing to the increased number of participating subsystems; on the other
hand, decomposition can make the overall system more manageable if each subunit
makes its own decisions. But then firms face the problem of aligning the decisions,
whose diversity must be considered from the organization’s overall perspective.
A widely held tenet of complexity theory is that increased system size is linked to
deteriorating performancewithin “rugged landscapes” (Mihm et al. 2003). Levinthal
(1997) uses an NK model to simulate an organization’s adaptability to landscapes
that are rugged; such adaptation is affected by changing environments and the
interaction of participants. Levinthal finds that “[t]ightly coupled organizations are
subject to high rates of failure in changing environments” (p. 934). Although such
organizations are more likely to survive in the face of “reorientations”, a loosely
coupled organization performs better in terms of local adaptation.
In their agent-based simulation model, Gavetti et al. (2005) postulate that the
approaches characterized by rational deduction or local search do not work well
in novel and complex settings. The authors claim that, in contrast, “analogical
reasoning is especially powerful when managers pay attention to characteristics that
truly distinguish similar industries from different ones. A well-informed analogy is
particularly powerful when interactions among decisions cross policy boundaries

so that the underlying decision problem is not easily decomposed” (p. 691). They
find that a “wide” range of experience is more useful for strategy making than is a
“deep” experience in a single (or limited number of) field(s). The implication is that
abstracting and transferring experience is a major component of the strategy-making
process. Rivkin and Siggelkow (2007) employ NK modeling to research patterned
interactions in complex systems. Much of the related literature concerns establishing
how much exploration is needed to assure that decisions are informed by sufficient
knowledge. It is commonly believed that, “as interactions across decisions intensify
and local optima proliferate, broader exploration is required” (p. 1068). Empirical
research has demonstrated that interactions occur in patterns, and this applies
to “centralization, small-world connections, power-law distributions, hierarchy,
and preferential [relations]” (p. 1068). Rivkin and Siggelkow’s conclusions are
summarized as follows: “Holding fixed the total number of interactions among
decisions, a shift in the pattern of interaction can alter the number of local optima by
more than an order of magnitude” (p. 1068). Hence broader exploration is successful
for only a limited number of interaction patterns, and these must first be identified.
Of course, research on complexity is not limited to theoretical NK modeling
(Anderson 1999). Complexity is evident throughout all stages of operations: man-
ufacturing, supply chains, products, and communication involving organizational
members. In their multinational empirical study, Bozarth et al. (2009) study the
impact of supply chain complexity on plant performance. They define supply
chain complexity as “the level of detail complexity and dynamic complexity
exhibited by the products, processes and relationships that make up a supply chain”
(p. 80) and find that “[u]pstream complexity, internal manufacturing complexity,
and downstream complexity all have a negative impact on manufacturing plant
performance” (p. 78). The reason is that “long supplier lead times, instability in the
master production schedule, and variability in demand” reduce plant performance
(p. 89). The authors conclude that “supply chain characteristics that drive dynamic
complexity are shown to have a greater impact on performance than those that drive
only detail complexity” (p. 78). One component of supply chain complexity is inter-
nal manufacturing complexity, which Bozarth et al. define as “the level of detail and
dynamic complexity found within the manufacturing facility’s products, processes,
and planning and control systems” (p. 80). In this view, internal manufacturing
complexity is a function of “the number of supported parts and products, the types
of manufacturing processes, and the stability of manufacturing schedules from one
period to the next” (p. 80).
In an earlier empirical paper, Flynn and Flynn (1999) examine the effects
of manufacturing environment complexity on manufacturing performance and
report that “[e]nvironmental complexity was found to be related to manufacturing
performance for each of the five dependent variables”—namely, inventory turnover,
lead time, cycle time, on-time delivery, and customer service (p. 1021). The authors
allude to the benefits of informational processing abilities as follows:

They simplify the manufacturing environment in three ways. First, the use of
multi-functional employees and cellular layout (self-contained tasks) reduces information-
processing needs by focusing the efforts of each work group on a limited set of goals. [. . . ]
Second, manufacturing information processing complexity can be reduced through the use
of environmental management strategies that directly attack the sources of complexity.
[. . . ] Third, coordinating decision making and communicating manufacturing strategy
throughout all levels and functions of an organization (lateral relations) increases the
information-processing capacity of the organization. (p. 1043)
These remarks are related to this thesis in the sense that coordination is instrumental
to the increased information processing required in order to cope with manufactur-
ing environmental complexity. Coordination will therefore play a significant role in
this research project.
Novak and Eppinger (2001) offer an empirical analysis of the connection
between product complexity and vertical integration. According to these authors,
product complexity is a function of three factors: (1) the number of product
components that must to specified and produced, (2) the extent of interactions
between components (parts coupling) that must be managed, and (3) the degree of
product novelty. Thus a product’s complexity depends not only on the complexity
of its individual components but also on how those components are interrelated
within the system. Novak and Eppinger establish the following relationship between
product complexity and vertical integration. “[C]omplexity in product design and
vertical integration of production are complements: [...] in-house production is
more attractive when product complexity is high, as firms seek to capture the
benefits of their investment in the skills needed to coordinate development of
complex designs” (p. 189). In terms of the research project described in this thesis, a
firm may be willing to accept the disadvantages of manufacturing complex products
if only to reduce the likelihood of imitation by competitors. Thus, complex products
prevent knowledge drain but increase internal manufacturing complexity. Along
similar lines, Ethiraj et al. (2008) analyze the effect of modularity on imitation.
They analyze the trade-off between “innovation benefits and imitation deterrence”
and find that “modularization enables performance gains through innovation but,
at the same time, sets the stage for those gains to be eroded through imitation.
In contrast, performance differences between the leaders and imitators persist in
the nearly modular and the non-modular structures. Overall, we find that design
complexity poses a significant trade-off between innovation benefits (i.e., generating
superior strategies that create performance differences) and imitation deterrence
(i.e., preserving the performance differences)” (p. 939).
In their study of communication within complex systems, Gokpinar et al. (2010,
p. 468) carry out a network analysis and show that communication helps firms to
cope with such complex environments as new product development. They report
that “centrality in a product architecture network is related to quality according to
an inverted-U relationship, which suggests that vehicle subsystems of intermediate
complexity exhibit abnormally high levels of quality problems” (p. 468). From this
it follows that centralization is associated with an increase in complexity.

Overall, then, the company context is determined by many different factors. Yet
within this multitude, two factors seem to be of particular relevance for the present
research project: complexity and strategic priorities. These factors have the most
influence on an organization’s decision of “where to go”, and they are relevant
both internally and externally. Strategic priorities are needed to establish the niche
wherein a company is best positioned, and complexity determines the firm’s ability
to address the internally and externally generated problems that must be solved in
order to exploit the opportunities that arise.
2.3 Quality of Strategy Cascading
This segment of the literature review offers a brief summary of the literature
that concentrates on strategy cascading. The field is a relatively broad one, so
the presentation is divided into three parts: strategic decision making, strategy
cascading, and coordination. This section is integral to the research project, a
primary goal of which is to enable a clear understanding of strategy cascading
fundamentals.
2.3.1 Strategic Decision Making
Boyer and McDermott (1999) document that the strategy-making processes of
companies are often highly detailed, poorly communicated, and inflexible in the face
of environmental changes; by contrast, a clearly defined and understood strategy
gives the firm “flexibility to adapt to changes in the environment” (p. 289). In other
words, a strategy must be well fitted to the competitive environment and must also
be communicated and widely understood throughout the organization. Their study
exposes inconsistencies between operators and managers with respect to manufac-
turing priorities, a phenomenon described as a lack of “strategic consensus”.
According to Eisenhardt (1999), companies in rapidly evolving markets must be
able to change direction if they are to generate competitive advantages; this capacity
is referred to as a dynamic capability. Eisenhardt postulates that effective strategic
decision makers are able to rapidly generate high-quality and well-supported
choices via four main techniques. First, they create collective intuition by sharing
real-time information throughout the management team in “must attend” meetings.
Second, they accelerate conflicts because conflicts stimulate innovativeness, create
a better understanding of the options, and can improve decision effectiveness.
Conflicts can be “steered” by setting up diverse management teams and generating
multiple alternatives. Third, effective decision makers maintain a disciplined pace
but do not push the decision speed; this means that they launch decisions promptly,
maintain positive energy during the process, and cut off debates at appropriate
times. Finally, they defuse political behavior because politicking is viewed as a
waste of valuable time. Politicking can be avoided by creating common goals and

2.3 Quality of Strategy Cascading 23
shared visions, by using humor, and/or by establishing clear areas of responsibility.
In earlier work, Eisenhardt and Bourgeois (1988) find that the centralization of
power leads to politics—that is, to “the observable, but often covert, actions by
which executives enhance their power to influence decisions” (p. 737). When the
CEO, who serves as a role model, engages in politicking, then it is only natural
for subordinates to imitate that behavior. These authors document that politicking
is associated with poor firm performance, especially when top management is
involved.
Bourgeois and Eisenhardt (1988) examine strategic decision making in high-
velocity environments and find “an imperative to make major decisions carefully,
but to decide quickly” (p. 816). That study also finds that the companies most
successful in high-velocity environments are those with both a powerful CEO and
a strong top management team. Such companies are seldom risk averse and are
typically innovative, but at the same time they also continue to make incremental
and “safe” changes. In the same research field, Eisenhardt (1989b, p. 543) finds that
“[f]ast decision makers use more information and [develop] more alternatives than
do slow decision makers”; in short, “fast decisions based on this pattern of behaviors
lead to superior performance” (p. 543). Thus it is fair to say that a demanding, high-
velocity environment may contribute to performance improvements.
Yet communicating a strategy need not entail a successful implementation. Beer
and Eisenstat (2000) identify six factors that work against a viable implementation:
“a top-down or laissez-faire senior management style, an unclear strategy and
conflicting priorities, an ineffective senior management team, poor vertical commu-
nication, poor coordination across functions, businesses or borders, or an inadequate
down-the-line leadership skills and development” (p. 31). The authors explain how
these traps can be avoided by emphasizing teamwork, especially throughout the
management team. If all strategic decisions are made at the top, then not enough
team members may be aware of what is going on.
Mosakowski (1997, p. 414) finds that the process of strategy making itself
shifts over time. If a decision maker cannot determine which decision will lead the
company to success (or to trouble)—a situation that the author refers to as “causal
ambiguity”—then the actors involved will tend to concentrate on the process of
strategy making. Over time, their knowledge and experience increases and thus so
does decision makers’ ability to discern causalities. One implication of this dynamic
is that, in immature environments, management of the strategy-making process
itself is critical in yielding appropriate decisions. In the same line of research,
Ketokivi and Castaner (2004) seek to establish how the personal involvement of
organizational participants affects the decision-making process. These authors find
that, as soon as organizational members must make decisions, they revert to local
rather than global optimization; this effect is termed “position bias” (p. 337).
Ketokivi and Castaner investigate whether strategic planning can reduce this bias,
which they argue occurs automatically (i.e., on a subconscious level). Note that
position bias is evident among workers and management both. Given that planning
and budgeting processes identify priorities and allocate resources, it falls on strategic
planning to manage the resulting vertical and horizontal interdependences. As an

integrative mechanism, then, strategic planning creates goal convergence; active
employee participation and clear communication of goals can reduce position bias
(Ketokivi and Castaner 2004, p. 337).
Other aspects of strategic decision making include exit (Burgelman 1996) and
the introduction of multiple products (Brown and Eisenhardt 1997). Exit is a critical
but underresearched component of strategy. With respect to his own process model
of strategic business exit, Burgelman (1996, p. 193) nonetheless concludes that
it “contributes to the development of an evolutionary process theory of strategy
making by conceptualizing the pattern of managerial activities through which
resources and corporate competencies are internally redirected toward more viable
business opportunities, and the strategic context of a core business dissolves.” This
study finds that such activities as shifting inputs and technical decoupling can add
value by releasing scarce resources to more productive uses, and replacing old and
unprofitable business components helps prolong a firm’s existence. However, Hart
(1992, p. 327) argues that existing typologies of strategy making have “tended
to be incomplete or overlapping. None has captured the full range of content
associated with the phenomenon.” In his review of the literature on the strategy-
making process, Hart describes “an integrative framework consisting of five modes:
command, symbolic, rational, transactive, and generative” (p. 327). The author
views organization members as playing different roles in the process, so strategy-
making becomes an organization-wide phenomenon. The author expands on this
research to find, in Hart and Banbury (1994), empirical evidence that firms have
different capacities to devise strategy and that “firms with high process capability—
the simultaneous use of multiple strategy-making process modes—outperform
single-mode or less process-capable organizations” (p. 251).
2.3.2 Strategy Cascading
In this thesis, strategy cascading is defined as the process of vertical and horizontal
deployment and alignment of an organizational strategy; it also incorporates the
process of “bringing the strategy to life”. In this regard, strategy cascading is
not a solely R&D task (Loch 2008) and is not limited to operations; it is a
holistic issue. In their empirical research, Sting and Loch (2011) describe how
“vertical delegation interacts with horizontal coordination in operations strategy
implementation.” They observe that the balance between top-down and bottom-up
problem solving varies within a given organization in accordance with the area
being addressed. Although the final decision on important strategic initiatives is one
made by top management, strategic initiatives are distributed across many actors
and may originate at various hierarchical levels as a function of where expertise is
concentrated. These authors emphasize the importance of interactions between the
vertical and horizontal dimension of strategy implementation (i.e., coordination)
and of consistency in implementation. They also point out that the field of strategy
implementation has been little researched. Similar findings are presented by Slack
et al. (2010), who detail four perspectives on operations strategy. Two of these

perspectives focus on the interplay within a firm between top-down and bottom-up
approaches. Two complementary perspectives evaluate the horizontal aspects of
strategy—namely, operations resources and market requirements. The dynamics of
these four perspectives constitute a generic description of operations strategy.
In their empirical case studies, Wooldridge and Floyd (1990) analyze the
influence of middle manager involvement in the strategy process and its effect
on the organization’s performance. These authors find that such involvement “is
associated with improved organizational performance. Consensus among middle-
level managers, defined as strategic understanding and commitment, is related to
involvement in the strategic process but not to organizational performance” (p. 231).
Yet middle manager involvement is not a given. In order to realize its benefits,
top management must define and clearly communicate the strategic context; only
then can middle managers become involved and thereby generate benefits for
the firm. Shaw and Edwards (2006) study the management of a manufacturing
knowledge strategy, a task that should not be limited to a single domain. One of
their key findings is that involvement across all hierarchies is crucial for successful
knowledge management. Implementing such a strategy requires both top-down and
bottom-up action and communication, even as the information exchange process
is itself relatively informal. For a company that seeks to become a knowledge-led
enterprise, it is vital that “all categories of knowledge are managed: within, across,
and between functions” (p. 1924). Therefore, relevant training is needed to achieve
the goals of sharing and retaining knowledge.
One practical approach to strategy cascading is known as hoshin kanri (policy
deployment), which was first applied at Toyota (GOAL/QPC Research Committee
1989; Akao 2004). The basic principle underlying hoshin kanri is the “catchball”
process (Witcher and Butterworth 1999; Tennant and Roberts 2001b), a combined
bottom-up/top-down planning style featuring decision loops that iterate until all
participants buy in to the formulated goals and implementation schemes (Tennant
and Roberts 2001a; Witcher and Butterworth 2001). This approach relies heavily
on the sharing of information and knowledge. Lapré and Van Wassenhove (2001,
2002) report empirical research on the effects of knowledge generation and transfer
in the context of an already established production line; this work analyzes the
differences between “formal learning” and “learning by doing”. The authors find
that, on an established production line, formal learning significantly outperforms
learning by doing; however, they could not replicate this comparative result on new
production lines. Lapré and Van Wassenhove (2001, p. 1311) remark that manage-
ment buy-in and knowledge diversity—that is, breadth of knowledge and experience
(Gavetti et al. 2005)—are instrumental to achieving knowledge transfer. In addition,
Lapré and Van Wassenhove (2002) posit that meaningful front-line involvement
and improvements require both conceptual and operational learning. Conceptual
learning leads to “know-why” (an understanding of cause-and-effect relationships
derived from statistics and other scientific methods), whereas operational learning
leads to “know-how” (as when implementing a theory and observing results). If both
learning approaches are applied, then the global improvement rate will probably
increase.

From the beginning of his research career, Burgelman has examined the effects
of induced and autonomous strategies. In an early process study, Burgelman (1983a)
finds that both strategy types require not only order but also diversity to keep the firm
viable. Middle managers play a critical role in managing diversity, which leads the
author to suggest the “experimentation and selection” approach (p. 1349). He also
indicates that strategy content is produced by middle management; this view implies
that top management must recognize and guide the resulting “entrepreneurial”
activities rather than planning or micromanaging the strategy. Burgelman thus
concludes that the strategic management activities of top management should be
limited to maintaining a balance, over time, between diversity and order while
facilitating an environment conducive to collaboration and entrepreneurial activities
among organizational participants. In the spirit of that earlier work, Burgelman
(1991, p. 240) examines induced versus autonomous processes of strategy making
by answering the research question: “[W]hich sorts of strategy-making processes
lead to major strategic change that is survival-enhancing?” For this, the author
uses the variation–selection–retention framework, and his findings are threefold.
First, top managers of “consistently successful organizations” concern themselves
with the content of strategy and employ both induced and autonomous strategic
processes. Second, such organizations carry out those processes simultaneously.
Third, any successful restructuring of an organization is likely a result of internal
experimentation and selection (i.e., autonomous) processes. In a subsequent paper,
Burgelman (2002) describes the case of Intel, investigating the “coevolutionary
lock-in” of decisions made by the firm’s CEO. Burgelman finds that ensuring the
simultaneity of induced (variation-reducing) and autonomous (variation-increasing)
strategy processes involves difficulties similar to maintaining a balance between
exploitation and exploration processes in organizational learning. In each case the
processes are competing for limited resources, so company leaders are forced to
make trade-offs between them.
In his early work on internal corporate venturing, Burgelman (1983b, p. 223)
establishes that successful efforts “depend on the availability of autonomous
entrepreneurial activity on the part of operational level participants, on the ability of
middle-level managers to conceptualize the strategic implications of these initiatives
in more general system terms, and on the capacity of top management to allow
viable entrepreneurial initiatives to change the corporate strategy.” In their own
research on strategy, Neilson et al. (2008, p. 62) state that “execution is the result
of thousands of decisions made every day by employees acting according to the
information they have and their own self-interest.” Managers often contemplate
restructuring when their company fails to execute its strategy, but restructuring alone
is seldom sufficient to turn the tide. Far more effective would be initiatives to clarify
decision rights and improve the flow of information both up the chain of command
and across the organization. Executives should incorporate all four of the building
blocks essential to effective strategy execution: clarifying decision rights, designing
information flows, aligning motivators, and making changes to structure (Neilson
et al. 2008).

2.3.3 Coordination Theory
In their literature review, Okhuysen and Bechky (2009) define coordination as
“the process of interaction that integrates a collective set of interdependent tasks,
[which] is a central purpose of organizations.” In essence, these authors identify
coordination mechanisms that are in line with those proposed in previous studies
(e.g., routines, meetings, plans, schedules). They also identify three integrating
conditions—accountability, predictability, and common understanding—that are
needed for coordination and that constitute “the means by which people collectively
accomplish their interdependent tasks in the workplace” (p. 483). In an earlier paper,
Malone (1987) analyzes information processing across different sets of coordination
structures: product hierarchies, functional hierarchies, centralized markets, and
decentralized markets. He then defines coordination as “as a pattern of decision-
making and communication among a set of actors who perform tasks in order
to achieve goals” (p. 1319). There are many and varied approaches to achieving
coordination among participants. According to Mihm et al. (2010, p. 833), vertical
hierarchies are one of the “most common ways of coordinating specialized groups
and their separate decisions.” These authors note that, despite the wide variety of
other available coordination mechanisms (e.g., liaisons, cross-unit groups, informal
networks), the vertical hierarchies that exist in almost every organization are
typically employed for this purpose.
In her empirical research on coordination mechanisms in care provider groups,
Gittell (2002, p. 1408) defines coordination as “the management of interdependen-
cies among tasks.” She analyzes three forms of coordination practices—namely,
routines, boundary spanners (cross-functional liaisons), and team meetings—and
finds that relational coordination (“a communication and relation intensive form
of coordination”) mediates the effect of coordination mechanisms on performance.
The author also finds that well-coordinated work processes yield higher-quality
outcomes and tend to do so more efficiently. In a subsequent case study, Gittell
et al. (2010) analyze the influence of high-performance work systems on company
outcomes. This research confirms that such systems “can improve organizational
performance by strengthening relationships among employees who perform distinct
functions, a pathway that is expected to be particularly important in settings
characterized by highly interdependentwork. [...] Relational coordination mediates
the association between these high-performance work practices and outcomes,
suggesting a relational pathway through which high-performance work systems
work” (p. 490). These authors also find that enabling of workers has a positive effect
on the firm’s performance. Their results indicate that coordination and enabling are
two fruitful approaches to improving performance.
Faraj and Xiao (2006, p. 1157) analyze coordination in a fast-response environ-
ment (a medical trauma center) and define coordination as a “temporally unfolding
and contextualized process of input regulation and interaction articulation to realize
a collective performance.” This research leads them to develop two coordination
practices: expertise coordination (protocols, structuring, plug-and-play teaming,

knowledge sharing) and dialogic coordination (epistemic contestation, joint sense
making, cross-boundary intervention, protocol breaking). Faraj and Xiao find that
“[e]xpertise coordination practices are needed to manage evolving skill and knowl-
edge interdependencies during treatment of a single patient and between treatment
of different patients. Dialogic coordination practices are necessary, because much
of the coordination occurs at the boundary of epistemological communities and
involves cross-boundary interventions, leading to contention and contestation”
(p. 1168). Summarized, coordination practices are difficult to prespecify in high-
velocity environments and are therefore characterized as “emergent”.
Terwiesch et al. (2002) study alternative coordination mechanisms in concurrent
engineering processes and report that “[p]revious studies have either described
coordination as a complex social process, or have focused on the frequency, but
not the content, of information exchanges” (p. 409). These authors develop two
alternatives to managing interdependent tasks. The first, iterative coordination,
“should be emphasized if the downstream task faces ambiguity, or if starvation
costs are high and iteration (rework) costs are low” (p. 409). The second, set-
based coordination, “requires an absence of ambiguity, and should be emphasized
if either starvation costs or the cost of pursuing multiple design alternatives in
parallel are low” (p. 409). Combining the two coordination types enables Terwiesch
et al. to align the accuracy of exchanged information with the probability that this
information does not change in later development phases. Hence this approach is
likely to be viable in other uncertain and high-velocity environments as well.
In their empirical research on manager ambidexterity, Mom et al. (2009, p. 812)
establish that, “[r]egarding the personal coordination mechanisms, findings indicate
that both the participation of a manager in cross-functional interfaces and the
connectedness of a manager to other organization members positively relate to
this manager’s ambidexterity. [...] Furthermore, results show positive interaction
effects between the formal structural and personal coordination mechanisms on
managers’ ambidexterity.” Mom et al. also find that coordination can benefit
from mixing formal and personal structures to support manager ambidexterity.
The authors conclude that appropriate coordination strengthens ambidexterity and
thereby improves performance.
The qualitative case study of Adler (1995) examines, in the setting of new prod-
uct development, mechanisms that foster interdepartmental coordination between
design and manufacturing; it focuses in particular on the integration of computer-
aided design (CAD) and manufacturing (CAM). The author presents 12 coordina-
tion mechanisms—that is, four modes of interdepartmental coordination (standards,
schedules and plans, mutual adjustments, teams) and, within each mode, three
temporal phases (preproject, product and process design, and manufacturing). Adler
concludes that “the most efficient interdepartmental coordination mechanism is that
which is able to deal with the uncertainty of this product/process fit at least cost
to the organization” (p. 147). He conceptualizes the product–process fit along two
dimensions, fit of novelty and fit of analyzability. This research establishes that
increasing novelty requires more use of interactive coordination mechanisms and
that decreasing analyzability requires more coordination in a project’s later phases.

2.4 Improvement Performance 29
Coordination in complex environments is often simulated via NK models.
Levinthal and Warglien (1999, p. 342) employ an NK model to explore “how
alternative organizational designs influence actors’ fitness landscapes and, in turn,
the behavior that these alternative designs engender” and they report two principal
findings. First, design robustness can be increased by reducing interdependences,
and robust designs are more stable and predictable. Second, if a design has many
interdependences—as may occur, for instance, in the case of cross-functional
teams—then the resulting “rugged landscape” renders coordination more difficult.
One advantage in this case, however, is that the firm is forced to explore (and choose
among) the possible “core” configurations.
The research discussed in this section can be summarized by saying that the
quality of a strategic cascading process is determined by several factors—most
predominantly, coordination and whether the firm deploys its strategies in a top-
down or a bottom-up manner. Strategy cascading is seldom addressed in any of the
literature streams, and much remains to be discovered about its interaction with such
factors as coordination, enabling, and management consistency. The topic may seem
trivial, but practitioners need to know more about how management style affects
strategy cascading and vice versa. In this thesis it is assumed that management style
does indeed have a significant effect on the quality of the firm’s strategy cascading
process.
2.4 Improvement Performance
The measurement of performance has been a focus of production and operations
management from the very beginning of these disciplines. Performance has been
linked to areas as diverse as politics (Eisenhardt and Bourgeois 1988), national
culture (Naor et al. 2010), the involvement of manufacturing executives (Papke-
Shields and Malhotra 2001), and leadership style (Ogbonna and Harris 2000). These
citations are a good indication of just how wide the field of performance measure-
ment (and its applications) is. In most cases, “performance” is reduced to economic
metrics—for example, sales, market share, cash flow, and growth (Hendricks and
Singhal 1997; Ittner and Larcker 1997; Anderson 1999; Kotha and Swamidass 2000;
Hendricks and Singhal 2008; Fugate et al. 2009). However, a number of studies
address performance from the perspective of such operational metrics as warranty
costs, productivity, and the cost of quality (Samson and Terziovski 1999; Terziovski
and Samson 1999). There are even studies that consider performance strictly in
terms of manufacturing criteria: lead time, cycle time, and the firm’s inventory
turnover ratio (Sakakibara et al. 1997). This thesis adopts an approach of evaluating
performance as a manufacturing metric: measuring performance as a function of
the firm’s ability to generate process improvements. Hence this section reviews
improvement performance from two different perspectives: as an application of
exploration and exploitation and as an application of search.

2.4.1 Exploration and Exploitation
In the Academy of Management Journal’s special issue on exploration and exploita-
tion, Gupta et al. (2006) address several questions about the nature of these
approaches (e.g., are they mutually exclusive?), about the need to balance them, and
how best to maintain that balance (ambidexterity versus punctuated equilibrium).
The authors define exploitation as the “refinement and extension of existing
competencies, technologies, and paradigms” and define exploration as “experi-
mentation with new alternatives” (p. 693). The difference between ambidexterity
and punctuated equilibrium is explained as follows: “Ambidexterity refers to the
synchronous pursuit of both exploration and exploitation via loosely coupled
and differentiated subunits or individuals, each of which specializes in either
exploration or exploitation. In contrast, punctuated equilibrium refers to temporal
rather than organizational differentiation and suggests that cycling through periods
of exploration and exploitation is a more viable approach than a simultaneous
pursuit of the two” (p. 693). Gupta et al. report four major findings. First, exploration
and exploitation both compete for the same resources, and if resources become
scarce then exploration and exploitation are likely to become mutually exclusive.
Second, within a given domain, exploration and exploitation are the extreme ends of
the same continuum; hence, in the case of a single domain, punctuated equilibrium
is the most effective way to balance them. Third, exploration and exploitation
“are conceptualized as orthogonal” in the case of multiple domains; in that case,
a balance is best achieved via ambidexterity. Fourth, the organization’s top-level
management should be responsible for balancing exploration and exploitation;
the actual pursuit of these modes is the task of lower levels, which can apply
both methods under ambidexterity or punctuated equilibrium as a function of the
individual context.
Benner and Tushman (2003) analyze the effect of process management activ-
ities (e.g., total quality management) on the firm’s exploration and exploitation
activities. These authors argue that “process management activities are beneficial
for organizations in stable contexts, [and] they are fundamentally inconsistent
with all but incremental innovation and change” (p. 238). They also find that
“process management activities must be buffered from exploratory activities and
that ambidextrous organizational forms provide the complex contexts for these
inconsistent activities to coexist” (p. 238). Benner and Tushman do insist that
exploitative and exploratory activities are both mandatory for dynamic capabil-
ities. March (1991) argues that there is a general trade-off between exploration
and exploitation. His research models two scenarios involving the organization’s
development and use of knowledge. The first scenario involves mutual learning
between organization members; the second, learning and competitive advantage
in competition for market primacy. March finds that “[a]daptive processes, by
refining exploitation more rapidly than exploration, are likely to become effective
in the short run but self-destructive in the long run” (p. 71). The essence of
exploitation is the refinement and extension of existing competences, technologies,

and paradigms, whereas the essence of exploration is experimentation with new
alternatives. Therefore—and because both exploitation and exploration compete for
scarce resources—maintaining an appropriate balance between them is a primary
factor in system survival and prosperity.
In their literature overview of organizational ambidexterity, Raisch et al. (2009)
emphasize its importance for long-term firm performance. These authors describe
four fundamental tensions related to organizational ambidexterity: differentiation
versus integration, individual versus organizational, static versus dynamic, and
internal versus external. In a later, longitudinal study, Raisch and Tushman (2011)
analyze new business initiatives and find that “firms engage in a dynamic process
of managing contradictory boundary activities. Boundaries between differentiated
units are reinforced to enable exploitation and exploration, while corporate bound-
ary spanners integrate these processes. The locus of integration shifts from the
corporate team to lower organizational levels when the new business initiative
reaches economic and cognitive legitimacy” (p. 1). The authors develop a new
process model in which boundary spanning and structural differentiation improve
the firm’s use of exploration and exploitation.
In their empirical research on manager ambidexterity, Mom et al. (2009, p. 812)
define it as “a manager’s behavioral orientation toward combining exploration
and exploitation related activities within a certain period of time.” This definition
echoes that of O’Reilly and Tushman (2008, p. 185), who view ambidexterity as
“the ability of a firm to simultaneously explore and exploit, [which] enables a
firm to adapt over time.” Mom et al. observe that ambidextrous managers “host
contradictions”, multi-task, and renew their knowledge regularly; they find that “[a]
manager’s decision-making authority positively relates to this manager’s ambidex-
terity, whereas formalization of a manager’s tasks has no significant relationship
with this manager’s ambidexterity” (p. 812). The authors emphasize that this effect
is stronger for operation-level than for business-level managers. In their study
of the relationship between dynamic capabilities and ambidexterity, O’Reilly and
Tushman identify a set of options that mark ambidexterity as a dynamic capability.
These authors claim that there need not be a trade-off between exploration and
exploitation, but avoiding one depends on the ability of senior leadership teams
that implement both.
Exploration is often associated with the implementation of new ideas. A variant
of exploration is “absorptive capacity”, which was introduced by Jansen et al.
(2005a); their empirical research sheds light on the effects of organizational
antecedents on potential and realized capacities of this type. Their results indi-
cate that “organizational mechanisms associated with coordination capabilities
(cross-functional interfaces, participation in decision making, and job rotation)
primarily enhance a unit’s potential absorptive capacity. Organizational mechanisms
associated with socialization capabilities (connectedness and socialization tactics)
primarily increase a unit’s realized absorptive capacity” (p. 999). According to these
authors, high absorptive capacity leads to superior organizational performance. In
a related study, Jansen et al. (2005b) analyze how firms develop organizational
units that are ambidextrous—that is, able to pursue exploratory and exploitative

innovation simultaneously—in order to compete in dynamically competitive and
high-velocity environments. Such ambidexterity is more likely to be evidenced by
organizational units that feature decentralized and densely connected social rela-
tions. In their later empirical work, Jansen et al. (2006) research the effects of formal
(“centralization and formalization”) and informal (“connectedness”) coordination
mechanisms and explain how they are moderated by environmental effects. The
authors define exploratory innovation as “radical innovations” adopted to “pursue
new knowledge and develop new products and services for emerging customers or
markets” and define exploitative innovation as “incremental innovations” intended
to “build on existing knowledge and extend existing products and services for
existing customers” (p. 1661). This research also demonstrates that “centralization
negatively affects exploratory innovation, whereas formalization positively influ-
ences exploitative innovation” and that “connectedness within units appears to be
an important antecedent of both exploratory and exploitative innovation” (p. 1661).
Jansen et al. (2006) conclude that “pursuing exploratory innovation is more
effective in dynamic environments, whereas pursuing exploitative innovation is
more beneficial to a unit’s financial performance in more competitive environments”
(p. 1661). These findings are relevant for the research project described in this thesis
because they yield information on the levers of exploration and exploitation.
Brown and Eisenhardt (1997) study the elements of continuous change by
linking complexity theory with the notion of punctuated equilibrium”. They analyze
multiple-product innovation in six different firms. These authors find that, first,
“successful multiple-product innovation blends limited structure around responsi-
bilities and priorities with extensive communication and design freedom to create
improvisation within current projects. This combination is neither so structured that
change cannot occur nor so unstructured that chaos ensues. Second, successful firms
rely on a wide variety of low-cost probes into the future, including experimental
products, futurists, and strategic alliances. Neither planning nor reacting is as
effective. Third, successful firms link the present and future together through
rhythmic, time-paced transition processes” (p. 1). Finally, Brown and Eisenhardt
argue that, by adopting these practices, companies can develop the core capability
of making frequent changes in turbulent environments.
2.4.2 Search Theory
What is the best way to search for new ideas? This question has often been
addressed by researchers, but there is no universally accepted answer. Siggelkow
and Rivkin (2005, p. 104) mention that the goal of organizational search is “to find
and occupy a high spot on this landscape, i.e., to select a combination of choices
that, together, are highly successful. Interactions among decisions [...] cause the
landscape to become rugged and multi-peaked, making the search for a high
peak profoundly more difficult.” Sting and Loch (2011) remark that search theory
posits coordination as an important part of strategy making because coordination

ensures consistency among multiple parallel initiatives. They also report evidence
of simultaneous top-down and bottom-up search patterns. In their overview, Adler
et al. (2009) review the consolidated findings on productivity and the so-called
productivity dilemma, explaining that mature processes provide few opportunities
to learn because they unfold “according to plan”. One approach to overcoming that
limitation is deliberate perturbation, whereby a mature process is altered in order
to encourage more innovation. Another approach involves meta-routines (routines
for changing routines), which are proposed as a way to avoid the exploitation
trap. These variations of the continuous improvement process allow firms to bridge
the gap between short-term efficiency and long-term adaptability. In this context,
“routine” is defined by Gavetti and Levinthal (2004, p. 1313) as a “bundle of
coordinated activities that evolves slowly through local learning and typically
involves substantial elements of tacit knowledge and context dependence.”
In the organizational context, the aim of search is to generate new ideas. Girotra
et al. (2010) use a laboratory experiment to test their theory of idea generation by
examining two different approaches. The first is a team structure approach in which
the entire process of idea generation (e.g., brainstorming) and evaluation transpires
as a team process; the team works together at the same time and place. In the second,
hybrid structure approach, team members first work individually on generating
ideas and later meet to exchange information and results. The authors conclude
that “groups organized in the hybrid structure are able to generate more ideas, to
generate better ideas, and to better discern the quality of the ideas they generate.
Moreover, we find that the frequently recommended brainstorming technique of
building on others’ ideas is counterproductive;teams exhibiting such buildup neither
create more ideas, nor are the ideas that build on previous ideas better” (p. 591).
So the downside of generating ideas entirely within teams is that the ideas will
tend toward self-similarity and cause pressure to conform; if group consensus is
the goal, then the resulting ideas are seldom new ones. The advantage of a hybrid
structure therefore stems from its individualistic component. Because the individual
team members generate ideas on their own before presenting them to the team,
there is more variance and diversity in those ideas. Girotra et al. establish that the
brainstorming conducted by teams does not yield the superior ideas that firms seek.
Van den Ende and Deichmann (2010) investigate the experience of idea genera-
tion by analyzing continuous improvement activities throughout a company. Using
a database of 1,792 “radical ideas”, these authors analyze “how success and failure
experiences of people who take initiative [affect] (a) the inclination to take new
personal initiatives, and (b) the performance of those initiatives” (p. 1). They find
that “failure rather than an initiator’s success experience stimulates future initiation
of ideas. While failure in initiating an idea stimulates people to take the initiative
again, prior success in initiating an idea is related to better performance of a
subsequent idea” (p. 25). Thus, both failure and success at generating ideas can
lead to future success in continuous improvement activities.
Gavetti and Rivkin’s (2007) case study of Lycos shows that a firm’s capacity
for action and cognition changes over time. Gavetti and Rivkin (2007) find that,
“[o]ver time, the cognitive and physical elements that make up a strategy become

less plastic, while mechanisms to search rationally for a strategy become more
available” (p. 420)—a result that is in line with previous findings (Gavetti 2005).
Gavetti and Rivkin find that one problem faced by managers in a novel domain is
that they do not understand the environmentwell enough to engage in rational search
for a strategy. As firms lose their plasticity, they become less able to exploit their
know-how in new settings. These authors define plasticity as the ability “to change
elements of their strategies, but only within limits” (p. 421) and find evidence of
“plasticity depending largely on the age of the firm and rationality depending largely
on the maturity of its industry. [...] By the time a firm can shift to more-rational,
less-experiential search mechanisms, it may lack the plasticity necessary to harvest
the fruits of its rationality” (p. 435). Young companies tend to have more plasticity
and so find local search to be more fruitful; as a company becomes more mature
(and less plastic), rational search is preferred.
In the literature on search theory, the dominant approach is computerized NK
modeling. After theoretical models are elaborated and tested by computerized
applications, hypotheses are generated from the evaluated findings. For instance,
Rivkin and Siggelkow (2003) use an agent-based simulation model to explore
the balance between search and stability in the context of organizational design.
This research yields three principal findings. First, certain sets of design elements
encourage firms to search and evaluate a broad array of options, whereas others
lead firms to stabilize and cease their search. Second, firms that perform well
usually exhibit a balance of search and stability. Third, an organizational design
that promotes search is especially effective when the decisions involved are
characterized by many interactions. In a later study (Siggelkow and Rivkin 2005),
these same authors research the effects of turbulence and complexity on the formal
design of organizations. They define an environment as turbulent if “the mapping
from firm actions to performance outcomes changes frequently, profoundly, and
in ways that are difficult to predict” (p. 103); with respect to environmental
complexity, they make the following distinction: “A firm making decisions whose
performance effects are independent from each other is said to operate in a simple
environment, while a firm whose decisions are highly interdependent is said to
operate in a complex environment” (p. 103). Siggelkow and Rivkin generate a 2 2
contingency table for comparing complex and noncomplex as well as turbulent
and nonturbulent environments, postulating that the main goal in turbulent (resp.,
complex) environments is rapid improvement (resp., diverse search). In settings
that are both turbulent and complex, organizations must balance speed and search;
success in that endeavor is likely to depend on the thoroughness of—and latitude
granted to—middle managers. The authors conclude that “[a]mple processing power
at the bottom of a firm, for instance, can slow down the improvement and narrow the
search of the firm as a whole” (p. 101). Finally, an NK simulation model is used also
by Levinthal and Posen (2007), who analyze the effectiveness of selection processes.
These authors find that “[s]election may be systematically prone to errors and that
these selection errors are endogenous to, and differ markedly across, firms’ search
strategies. Search strategies that generate systematically different performance
trajectories, even if they share a common long-run outcome, will generate differing

survival rates” (p. 586). This result indicates that stable organizational traits are no
guarantee of long-term organizational search success.
Another take on search in organizations is offered by Winter et al. (2007), whose
propositions are also based on a simulation model. However, instead of the widely
used NK modeling approach, these authors employ fractal geometry to search within
a rugged landscape. Winter et al. use their model to analyze the “interplay of
local payoff and cognitive considerations (preferred direction) in search” (p. 403)
and conclude that “[a]n intermediate search strategy, combining the guidance of
local search with a moderate level of nonlocal obsession, is distinctly advantageous
in searching a rugged landscape” (p. 403). Their findings demonstrate that pure
search approaches, which represent “polar extremes”, are not likely to result in
extraordinary success; rather, they are helpful in only a limited number of settings.
In most cases, then, organizations are better served by using a mixed approach—
in other words, one that incorporates aspects of both local payoff and nonlocal
“obsession”.
Sting et al. (2011) rely on NK modeling in their study of how collaboration
supports search. According to these authors, “[s]earch theory describes how organi-
zations address problems that are too complex to be solved through optimization”,
and collaboration can be described as “several actors combining their problem
solving activities to develop a solution for a common problem” (p. 1). They
find that collaboration does improve the quality of solutions in many settings,
although it often entails a trade-off between solution quality and search time:
collaboration depends on information exchange between the participants, and the
resulting “back and forth” loops increase quality at the expense of more time.
Sting et al. also observe that the shared and combined knowledge characteristic
of collaboration accounts for the increased quality of solutions devised by teams—
even when the knowledge of individual team members is limited. They conclude
that “collaboration and knowledge matter for search performance and exhibit subtle
interactions with each other and with organizational design” (p. 26). In sum:
collaboration may well improve solution quality, but the associated information
exchanges take time (and can sometimes be exhausting).
Mihm et al. (2010) use a formal model and simulations in order to ana-
lyze hierarchical structure and search in complex organizations. They postulate
that “[o]rganizations engage in search whenever they perform non-routine tasks”
(p. 831). Therefore, especially in large organizations, tasks must be divided into
manageable portions. No individual senior manager or front-line employee is
capable of comprehending the “big picture” and finding all needed solutions. Mihm
et al. present three results on how hierarchy can improve search. First, a “lead
function” should set up a sequential decision-making process, which is typically
faster than a parallel approach. Second, local decision making should be delegated to
the front-line level, where the solutions are more stable and are found more quickly.
Third, search is most effective when the front-line groups are relatively small (in
contrast, structure has little effect at the middle management level).
Along similar lines, Rivkin and Siggelkow (2006) use an agent-based simulation
to research the effects of interactions on preventing premature lock-in: “Unnecessary

overlap, the reigning-in of managers, [and] the period of decentralization all can be
seen as organizational mechanisms that help ensure the broad, early search that a
firm needs when interactions among strategic decisions raise the danger of locking-
in on a strategy prematurely” (p. 591). These authors argue that it is vital for
a company to achieve a balance between search and stability. On the one hand,
companies must search broadly to prevent premature lock-in; on the other hand,
a company must lock in a good result once it is found. According to Rivkin and
Siggelkow, the requisite balance can be achieved by an appropriate organizational
structure.
Economic research relies on performance as a primary indicator of success, and
performance is often the dependent variable in such cause-and-effect modeling as
regression analysis. In much of the literature, performance is viewed in strictly
econometric terms—for example, in terms of sales revenue, cash flow, or market
share. However, such a perspective captures only part of a company’s performance.
Especially when the focus is strategy cascading, the many factors that influence
these standard metrics may render them unsuitable to function as dependent
variables. In particular, the research on exploration and exploitation and on search
theory clearly shows that other indicators (e.g., improvement performance) are
no less important. Thus, the accuracy of measuring the effectiveness of a firm’s
strategy deployment and strategy cascading can be enhanced by also assessing
its improvement performance, which indicates (among other things) how well a
company can preserve and expand on its ability to engage in exploration and rational
search.
2.5 Leadership Style
The last section of this literature review covers the research field of leadership style.
In the interest of a facilitating a comprehensive grasp of that field, the section is split
into two parts: “Leadership Traits” and “National Culture”. This division reflects the
assumption that both aspects affect the leadership style of a company’s management.
2.5.1 Leadership Traits
There is no question that the leadership traits of a company’s top management team
have an effect on strategy cascading, a fact that explains the research attention
paid to this topic. The literature review authored by Yukl (1989) describes the
importance of leadership in terms of influencing task objectives and strategies, influ-
encing commitment and compliance in task behavior to achieve these objectives,
influencing group maintenance and identification, and influencing the culture of an
organization. Denison et al. (1995, p. 526) define effective leadership as “the ability
to perform the multiple roles and behaviors that circumscribe the requisite variety
implied by an organizational or environmental context”; they define eight leadership

2.5 Leadership Style 37
roles in particular (cf. Kets De Vries et al. 2010). Denison et al. find that “effective
leaders demonstrate more complex, contradictory, and paradoxical behaviors than
ineffective leaders” (p. 535) and that effective leaders exhibit more awareness of
the eight leadership roles than do ineffective leaders. Yukl (1989, 2006) argue that
technical, conceptual, and interpersonal skills are necessary for most leadership
roles. Yet even for a given type of organization,the optimal pattern of traits and skills
may vary depending upon the firm’s prevailing business strategy. Nonetheless, Yukl
(1989, p. 261) acknowledges that “some specific skills such as analytical ability,
persuasiveness, speaking ability, memory for details, empathy, tact, and charm are
probably useful in all leadership positions.”
Bass et al. (1987) (see also Bass 1990) introduce the transactional and transfor-
mational leadership styles. Bass (1990) defines transactional leadership as follows:
Two factors that characterize modern leadership were found in many of these behaviors.
One factor—initiating and organizing work—concentrates on accomplishing the tasks at
hand. The second factor—showing consideration for employees—focuses on satisfying
the self-interest of those who do good work. The leader gets things done by making,
and fulfilling, promises of recognition, pay increases, and advancement for employees
who perform well. By contrast, employees who do not do good work are penalized. This
transaction or exchange—this promise and reward for good performance, or threat and
discipline for poor performance—characterizes effective leadership. (p. 20)
Transformational leadership is then defined in this way:
Superior leadership performance—transformational leadership—occurs when leaders
broaden and elevate the interests of their employees, when they generate awareness and
acceptance of the purposes and mission of the group, and when they stir their employees
to look beyond their own self-interest for the good of the group. Transformational leaders
achieve these results in one or more ways: They may be charismatic to their followers and
thus inspire them; they may meet the emotional needs of each employee; and/or they may
intellectually stimulate employees. [. . . ] Further, transformational leaders are individually
considerate, that is, they pay close attention to differences among their employees; they
act as mentors to those who need help to grow and develop. Intellectual stimulation of
employees is a third factor in transformational leadership. Intellectually stimulating leaders
are willing and able to show their employees new ways of looking at old problems, to teach
them to see difficulties as problems to be solved, and to emphasize rational solutions. (p. 21)
Influential fieldwork on leadership style is reported in the GLOBE study of
House et al. (2005), who define leadership as “the ability of an individual to
influence, motivate, and enable others to contribute toward the effectiveness and
success of the organizations of which they are members” (p. 15). One outcome of
that research project is the identification of six widely accepted conceptions of lead-
ership: the global leadership dimensions (charismatic/value-based, team oriented,
self-protective, participative, human oriented, autonomous). The GLOBE project
reveals that national culture (see also Sect. 2.5.2) has an effect on organizational
culture, since leaders tend to hire people who are similar to themselves. In this line
of research, Ogbonna and Harris (2000) explore the interrelations among leadership,
culture, and performance and find that “leadership style is not directly linked
to performance, but is merely indirectly associated. In contrast, competitive and
innovative cultural traits are directly linked with performance (as predicted) while,

contrary to expectations, community and bureaucratic cultural traits are not directly
related” (p. 781). After analyzing different organizational cultures and different
leadership styles, these authors posit that organizational culture mediates the effect
of leadership style on performance.
Considerable research effort has addressed the question of what management
style is most likely to yield a suitable business strategy (see, e.g., Gupta 1984; Smet
et al. 2012). Anderson et al. (2010, p. 90) shows that, when managers are involved
in a participative goal-setting process, the result is lower but more accurate (i.e.,
more realistically achievable) goals. To analyze these effects, the authors conduct
empirical research that focuses on a particular US retail firm and find that “managers
with a longer career horizon and whose households depend more on their income
will have stronger incentives to engage in slack building” (p. 91)—that is “ ‘excess’
bonus payments that offset performance effects” (p. 90). Hence optimal outcomes
will not be achieved via top-down management alone. Identifying appropriate
leadership styles is certainly important but represents just one side of the coin; such
knowledge is useful only when combined with awareness of individual leadership
style. Toward this end, Kets De Vries et al. (2010) have developed the Leadership
Assessment Questionnaire (LAQ), “an instrument designed to help organizational
leaders identify their own style of leadership and formulate appropriate development
objectives” (p. 2848). The LAQ, which evaluates leadership both as self-perceived
and as reported by other parties, is based on eight leadership archetypes: strategist,
change catalyst, transactor, builder, innovator, processor, coach, and communicator.
Each archetype is described in great detail, so that those who are assessed receive
enough feedback about their own leadership style (and that of others) to interact
effectively.
In their qualitative case study on high-reputation plant managers, Smith et al.
(2009) examine the effect of plant managers’ political skills on organizational
outcomes. The authors define political skill as “the ability to effectively understand
others at work, and to use such knowledge to influence others to act in ways that
enhance one’s personal and/or organizational objectives” (p. 430). Smith et al.
find that plant managers with high reputation use political skills to influence their
subordinates in a way that advances organizational goals, and they establish that
“effective plant managers possessed a configuration of dispositional traits (self-
motivation, sense of humility, and affability), systematically employed interpersonal
behaviors (creating accountability, leading by example, and developing trust), and
focused on managerial processes (stretch goals, influencing and learning from
below, and empowering direct reports)” (p. 428). The authors conclude that the
best results are achieved when plant managers wield a combination of unobtrusive
systemic power and political skill.
Along these lines, the empirical research of Papke-Shields and Malhotra (2001)
employs the concept of strategic alignment to assess the impact of the manufacturing
executive’s role on firm performance. Their findings indicate that “involvement and
influence are indeed two different, but highly related, aspects of the manufacturing
executive’s role” (p. 5). Although both factors are relevant for strategy alignment, it
seems that the role of influence is a bit more substantive. In any case, the alignment

of organizational and manufacturing strategies has a significant strong effect on
a firm’s performance improvement, and the manager’s task of establishing both
involvement and influence in this context involves subtleties that often are not fully
appreciated. In her empirical study of self-managing teams, Wageman (2001) shows
that coaching is an important factor to make teams more effective. Wageman defines
a self-managing team as one with authority and accountability for “executing and
managing the work—but within a structure and toward purposes set by others”
(p. 559). The team’s design and coaching are both the responsibility of higher
management. When both factors are optimized, the effect on team performance is
substantial.
Bartlett and Ghoshal (1994) argue that the traditional strategy–structure–systems
model is no longer sufficient and hence the role of top management must change.
Indeed, the managers of successful companies have come to recognize these chang-
ing priorities and have developed a mind-set geared toward specific institutional
purposes and goals. According to these authors, “[t]raining is key to transforming
workers into professionals” (p. 87). They also explain how the managers of success-
ful companies achieve these goals: “First, they [managers] place less emphasis on
following a clear strategic plan than on building a rich, engaging corporate purpose.
Next, they focus less on formal structural design and more on effective management
processes. Finally, they are less concerned with controlling employees behavior than
with developing their capabilities and broadening their perspective” (p. 80). In short,
managers must develop their personnel. In related research, Bartlett and Ghoshal
(1995) explain why the strategy–structure–systemsdoctrine should be supplanted by
the purpose–process–people approach: “Top managers can reduce [...] reliance on
strategic-planning systems by influencing the organization’s direction through the
development and deployment of key people; lighten the burden of control systems
by developing personal values and interpersonal relationships that encourage self-
monitoring; and replace [...] dependence on information systems by developing
personal communications with those who have access to vital intelligence and
expertise” (p. 135). The firm’s first priority should therefore be to develop its
workforce and management team, a task to which at least half of each managers’
time should be dedicated. The authors refer to this process as “human engineering”
(p. 136). A corollary of this principle is that, since no leader can fully grasp
all the issues relevant to an organization, creating transparency—preferably via
personal communication—is critical. Thus, Ghoshal and Bartlett (1995) predict a
managerial revolution that will focus on horizontal processes rather than vertical
structures. Future management must enable three processes in particular: “front-line
entrepreneurship, competence building, or renewal” (p. 88). Doing so will require a
mind-set that is more inclined to accept and encourage bottom-up processes, even
at the expense of top-down ones. Yet because “structure is only one instrument
of organizational change” (p. 87), managers may need to guide developments
by proving themselves willing to disturb the firm’s equilibrium. In other words,
management must create an environment for employees that establishes internal
discipline while challenging them to question conventional wisdom.

2.5.2 National and Organizational Culture
The research field of national culture is too large to be comprehensively surveyed
within the space limitations of a thesis. Hence this section offers only a brief
overview of the main findings in the cultural studies literature from the last two
decades. Culture affects thinking and acting, as proved in a wide variety of longi-
tudinal and large-scale research (Hofstede 2002; House et al. 2005; Trompenaars
and Hampden-Turner 2008). Most researchers agree that national and organiza-
tional cultures are related. In general, culture is “holistic, historically determined,
related to anthropological concepts, socially constructed, soft, and difficult to
change” (Hofstede et al. 1990, p. 286). This definition is expanded by House et al.
(2005), who add the components “[s]hared motives, values, beliefs, identities,
and interpretations or significant events that result from common experiences of
members of collectives that are transmitted across generations” (p. 286). These
authors are led to identify nine dimensions of culture: uncertainty avoidance, power
distance, collectivism I, collectivism II, gender egalitarianism, assertiveness, future
orientation, performance orientation, and human orientation.
One of the first researchers to analyze the relation between national cultural
and leadership style was Hofstede, who was a mentor of Trompenaars. Much of
the research on cultural dimensions is based on Hofstede’s work. In his landmark
study, Hofstede (2002, p. 9) states: “Culture consists in pattern ways of thinking,
feeling and reacting, acquired and transmitted mainly by symbols, constituting
the distinctive achievements of human groups, including their embodiments in
artifacts; the essential core of culture consists of traditional (i.e. historically derived
and selected) ideas and especially their attached values.” This large-scale research
project addresses the cultural dimensions of leadership styles and distinguishes five
dimensions of national culture: power distance, individualism versus collectivism,
masculinity versus femininity, uncertainty avoidance, and short-term versus long-
term orientation. These dimensions are derived from decades of research conducted
by this author. An earlier milestone is his longitudinal research on organizational
culture (Hofstede et al. 1990), a mixed qualitative and quantitative study of 12
cases. A key finding of that work is that “shared perceptions of daily practices”
are the nucleus of an organization’s culture (p. 311). This study elaborates a model
with six dimensions: process- versus result-oriented, employee- versus job-oriented,
parochial versus professional, open versus closed system, loose versus tight control,
and normative versus pragmatic. Hofstede reports that the “organizational culture
differences found resided mainly at the level of practices as perceived by members”
(p. 286). Organizational and national culture are thus interlinked, but the foundation
of organizational culture is nurtured on the firm’s front line.
Trompenaars and Hampden-Turner (2008) discusses seven hypothesized dimen-
sions of cultural valuing that include five dimensions of interpersonal behavior:
neutral versus emotional, universalism versus particularism, individualism versus
communitarianism, specific versus diffuse, and achievement versus ascription. The
authors add a cultural dimension related to time (sequential versus parallel) and

one related to the environment (internal versus external control). Trompenaars and
Hampden-Turner define culture as the accumulation of traditions that a group of
people employs to solve problems and reconcile dilemmas. Culture is viewed as
consisting of onionlike layers that progress from the most obvious to the deeply
seated. Previously solved problems disappear from consciousness and become, like
breathing, automatic. Individuals who participate in their parent culture can never
completely understand other cultures, which means that there cannot be a universal
“best way” to manage a business. Every culture experiences the concepts of
authority, bureaucracy, creativity, good fellowship, verification, and accountability
in (sometimes radically) different ways; different products carry different meanings
to people in different cultures; and a given business organization is likely to be
perceived differently by individuals from different cultures. However, by striving
to understand and appreciate the cultures (including business cultures) of others,
people can become “transcultural”.
An early work in the field of culture is that of Hall and Hall (1992), who
describe the cultural differences between American, French, and German execu-
tives. They posit that the underlying concepts of culture are time (polychronic versus
monochronic cultures), high and low context (the “right” amount of information),
space (proxemics, or personal territory), and the appropriate speed of information
exchange. A similar but smaller-scale research project is the one conducted by
Schneider and De Meyer (1991), who examine the influence of national culture on
strategic issues. These authors focus mainly on the differences between northern
and southern European managers and find that “different cultures are likely to
interpret and respond to the same strategic issue in different ways” (p. 307):
southern European managers see “threads” where northern European managers see
“strategic issues”. According to this study, national culture has a strong influence on
organizational culture. Following in the same line of research, Reber et al. (2004)
use the Vroom–Yetton model in their empirical study of the influence on national
culture on leadership decisions. Their work is limited to comparing the leadership
behavior of Austrian and Czech managers, but the authors find that “[n]ational
culture is a dominating factor for the conception and execution of leadership styles”
(Reber et al. 2004, p. 424). One may conclude that national culture shapes leadership
style, but this research does not determine whether national culture also shapes
organizational culture.
In an exploratory case study, Yauch and Steudel (2002) examine two cases of
cellular manufacturing. This research includes analysis of the underlying effects of
cultural aspects on manufacturing with reference to the previous research of Schein
(1992). In a subsequent paper, Yauch and Steudel (2003) argue that the combined
use of qualitative and quantitative methods leads to a greater understanding of
“cultural artifacts and behavior” and of the cultural values that underlie them. In
later empirical research, Naor et al. (2010) explore the effects of organizational and
national culture on manufacturing performance and find that “organizational culture
has more of an effect on manufacturing performance than [does] national culture”
(p. 194). These authors anchor their research in the framework of the GLOBE
study (House et al. 2005) and find that “organizational culture inside plants differ in

three dimensions (power distance, future orientation, and performance orientation)”
(Naor et al. 2010, p. 194). The authors summarize their study by concluding
that “[a]n organization culture characterized by low power distance and assertive-
ness and high institutional collectivism, in-group collectivism, future orientation,
performance orientation, uncertainty avoidance, and human orientation leads to
enhanced manufacturing performance” (p. 202). Hence their research demonstrates
that organizational culture dominates national culture. That is why the aspect of
national culture receives short shrift in this thesis—in other words, focusing on
organizational style should yield a deeper understanding of leadership style.
That style is affected by individual leadership traits and to a lesser extent by
the national culture in which the manager is embedded. This thesis assumes that
the leadership traits of top managers serve as a role model for the entire staff,
given the importance of those traits for a firm’s improvement performance. To
the extent that national culture shapes personal values, leadership style will be
affected. Although the recent literature suggests that organizational culture is of
greater consequence than national culture, the latter may have indirect effects on
improvement performance that remain to be discovered.
2.6 Summary
Current research distinguishes between the content and the process of operations
strategy. Some authors believe that the differences between those two approaches
are diminishing, whereas others continue to emphasize the special characteristics of
each. The content researchers are concerned with generating and nurturing strategic
content; the process researchers are concerned with the best way to implement
a chosen strategy. The focus of this research project is on strategy deployment,
which explains its theoretical emphasis on the process of strategy. Recent literature
addresses the perceived need for trade-offs in the process of operations strategy
as well as the importance of balance and alignment between manufacturing and
business strategies.
The essence of the resource-based view is that companies have bundles of
resources that are valuable, rare, inimitable, and nonsubstitutable. The task of firms
is to transform these bundles into sustainable and long-term competitive advantages.
Trade-offs also figure prominently in the resource-based approach, especially in
rapidly changing environments.
It takes time to build core competences and position strategic priorities, a process
that is strongly influenced by organizational boundaries. Core competences are
necessary but not sufficient for establishing viable strategic priorities. Whether such
priorities are relegated to the product level or the plant level, building them takes
time; however, core competences also increase over time. A company is more likely
to thrive when top management drives strategic intent.
Complexity can easily destroy value within organizational contexts. It should
therefore be the goal of every organization to decrease complexity whenever

2.6 Summary 43
possible. Complexity is defined by the number of elements in a system and by the
number of types of their interactions. According to search theory, complexity can
be reduced by search mechanisms that prevent premature lock-in and expand upon
simple hill-climbing heuristics. Search theory in the context of manufacturing and
related areas is greatly facilitated by (but not limited to) NK modeling.
With respect to strategic decision making, competitiveness can be achieved only
when a strategy is well fitted to the organization that adopts it. The top management
teams of successful organizations exhibit specific and clearly identifiable patterns of
strategic decision making. Such managers use more information and communicate
information across all hierarchies. Yet communication alone is not enough; the
personal involvement of each organizational member is also required. Strategic
decisions must be widely understood, but they are not necessarily stable over time.
As regards strategy cascading, it is unreasonable to suppose that either top-
down or bottom-up implementations are always preferable. Since the best approach
depends largely on specific organizational contexts, it follows that the strategy
cascading process can and should vary from firm to firm. Indeed, it is clear that often
much improvement potential will be lost if a company ignores ideas originating at
the front line and relies exclusively on the initiatives of top management.
Coordination theory can be summarized as communication between independent
actors who interact while performing tasks in order to achieve goals. The numerous
studies already conducted in this area have revealed that coordination is important
in many facets of organizations in general and of manufacturing in particular. There
has been extensive research—much of it focusing on complexity—that involves
simulating coordination via NK models.
The fundamentals of exploration and exploitation can be summarized in two
phrases: “incremental improvements” versus “the long jump”. The research in this
field addresses the question of how best to manage the processes of continually
introducing new improvements and profitably exploiting existing opportunities.
Whether by “punctuated equilibrium” or “ambidexterity”, these processes target
the same goal—namely, to balance both aspects. The firm should not concentrate
entirely on exploitation, since exploration (e.g., the introduction of radical new
ideas) requires considerable effort.
Search theory is often associated with NK modeling. Although this is a frequently
applied research approach, it is hardly the only one. In this context, search involves
finding the best ideas in an unknown territory—what some authors refer to as rugged
landscapes. In general the aim of research in this field is to describe the optimal
balance between search effort and premature lock-in.
Leadership amounts to influencing others to fulfill tasks so that goals can be
readily achieved. Certain individual characteristics, or leadership traits, have been
shown to facilitate this process. Not all such traits are equally effective across
different organizational and national contexts. For instance, a strictly top-down
orientation may be effective in the short term but is generally perceived to be
inadequate and unsustainable in the long term.
Leadership behavior is affected to some extent by national culture but more
so by organizational culture. Research indicates that national culture has a greater

Leadership
Style
Improvement
Performance
Strategy Cascading
Quality
Organizational
Context
Fig. 2.1 Guiding framework
influence on the personal values and behaviors of each leader but that organizational
culture has a greater impact on the leadership style of a firm’s top management team.
In the end, that style is the most important driver of successful strategy cascading
and hence of the company’s achieving its goals.
The guiding framework introduced in Sect. 1.2 is illustrated in the diagram
reproduced here as Fig. 2.1. The literature discussed in this chapter makes it clear
that the topic of this thesis is relevant and that its guiding framework is both valid
and worthy of examination. In short, the aim of this research project is to discover
how improvement performance varies across locations depending on the quality
of a firm’s strategy cascading processes and on company contexts and leadership
style. Strategy cascading quality is clearly related to improvement performance, but
what roles are played by company context and leadership style? These issues are
addressed in the following chapters.

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