Strategy and Environment: A Conceptual Integration

Author(s): L. J. Bourgeois, III

Source: The Academy of Management Review, Vol. 5, No. 1 (Jan., 1980), pp. 25-39
Published by: Academy of Management
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 Academy of Management Review 1980, Vol. 5, No. 1, 25-39

Strategy and Environment:

A Conceptual Integration
L. J. BOURGEOIS, III
University of Pittsburgh
An elaboration of the concepts of strategy and environment can be
achieved by categorizing environment into its objective and perceived
states, and by subdividing strategy according to content (outcomes) or
process. The objective environment can be furthercategorized into "task"
and "general." An alternative subdivision of strategy is primary (domain
selection) and secondary (competitive approach). The concepts of strate-
gy and environment are integrated in that primary strategy concerns
opportunities in the general environment and secondary strategy involves
navigating within a task environment.

Strategic decision making is at the heart of the
organization-environment co-alignment process so
heavily emphasized in both the business policy
(BP) and organization theory (OT) literature. This
co-alignment delineates the activities through
which organizational leaders establish the social or
economic mission of the organization, define its
domain(s) of action, and determine how it will navi-
gate or compete within its chosen domain(s). Al-
though BP and OT have both focused on this co-
alignment, each has approached the subject from a
different set of perspectives and a different set of
variables. BP's approach has been to view man-
agement as a proactive or opportunistic agent and
has centered much of its research on the strategy
variable [Hatten, Schendel, & Cooper, 1978; Mintz-
berg, 1972]. OT has taken a more reactive stance
by viewing the environment as a deterministic force
to which organizations respond [Anderson & Paine,
1975; Duncan, 1972b; Lawrence & Lorsch, 1967].
My aim in this paper is to stimulate furtherempiri-
cal and theoretical development by suggesting an
integration of the two approaches through a mar-
riage of the strategy and environment variables as
treated in their separate (BP and OT) disciplines.
The nexus of this marriage is the hierarchical nature
? 1980 by the Academy of Management 0363-7425
25
of the two variables: while the BP literature has
begun to distinguish between "corporate" and
"business" strategies, the OT literature has dis-
criminated between "general" and "task" environ-
ments. I will argue that domain definition (corpor-
ate) strategies are enacted at the general environ-
mental level, and that domain navigation strategies
are carried out in the organization's task environ-
ment(s). Because of their sequential occurrence,
these strategies will be termed, respectively, pri-
mary and secondary. This relationship is depicted
in Figure 1.
A second intent is to argue that research into the
process of secondary strategy making provides
great potential for increasing our knowledge re-
garding strategic management. Also, through a
critique of some of the operational definitions of
environment used by OT researchers, I will argue
that perceived environmental uncertainty is more
relevant, conceptually and perhaps empirically, to
the study of strategy making than to the study of an
organization's external environment.
In the following section I will review some of the
BP literature in terms of its treatment of strategy,
and in the next section I will indicate attempts in BP
to link strategy and environment empirically. Next, I
will review the OT literatureon environment. Finally,
I will offer a conceptual integration of the two.

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 ENVIRONMENT STRATEGY

TypicalBP Terminology

Generala Domain Definition Primary "Corporate Strategy"= selectionof product

marketsor industries,and allocation
of resourcesamongthem.

Taskb Domain Navigation Secondary "BusinessStrategy"= competitiveweapons

used to give organizationits "dis-
tinctivecompetence."Weapons
dependon taskenvironment character-
istics.

aComposed ot multiple task environments. Source of general social, political, economic, demographic, and technological trends.

bComposed of competitors, suppliers, customers, and regulatory bodies with whom the organization interacts and whose actions directly
affect organizationalgoal attainment.

Figure 1
The HierarchicalNatureof Strategy and Environment

Strategy Over the last 10 years, however, much of the

Until recently, the field of business policy has
been characterized by two types of literature. The
normative works of several writers [Ackoff, 1970;
Andrews, 1971; Ansoff, 1965; Cannon, 1968; Katz,
1970; Steiner, 1969; Uyterhoeven, Ackerman, &
Rosenblum, 1973; Vancil & Lorange, 1975] have
typically instructed managers on how to formulate
strategy by scanning the firm'senvironment to seek
opportunities that could be matched with the firm's
capabilities. This instruction was typically followed
by a primer on organization design and on the se-
lection of "competitive weapons" and allocation of
resources. The descriptive literature[Allison, 1971;
Bower, 1970; Chandler, 1962; Cyert & March,
1963] has tended to rely on case analyses to ex-
plain how strategy is "really" formed. Both these
approaches have focused almost exclusively on the
strategy formulation process - that is, how man-
agers engage in the intellectual and political
processes of determining the basic character of a
firm and what business it is in. Occasionally atten-
tion has been given to strategy implementation,
with its focus on such issues as the design of
administrative structures and control systems, and
resource allocations.
26
empirical research in BP has centered on identify-
ing which sets of strategies seem to enable busi-
ness firms to achieve economic success [Boston
Consulting Group, 1968; Buzzell, Gale & Sultan,
1973; Glueck, 1976; Hatten et al., 1978; Hofer,
1973; Jauch, Osborn & Glueck, 1977; Lenz; 1978;
Rumelt, 1974; Schendel & Patton, 1978; Schoef-
fler, Buzzell & Heany, 1974; Scott, 1968; Ward,
1976; Wrigley, 1970]. This trend in research has
been characterized as the "content" approach to
studying strategy, because it focuses on the make-
up of strategies actually implemented (e.g., x dol-
lars were spent on new fixed assets, or y brands are
marketed, or z lines of business have been entered
into), as contrasted with focusing on the decision-
making processes involved in formulating some of
those strategies. Whether research focuses on
content or process usually reflects the disciplinary
orientation of the investigator. An economics orien-
tation is usually concerned with what decisions are
made rather than how they are made. Behavioral
scientists, in contrast, usually focus on the process
of decision making.
In addition to the content/process distinction, re-
search on strategy can be classified hierarchically.

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Vancil and Lorange [1975] were the first to intro-
duce the corporate/business strategy hierarchy in a
normative context and to define the portfolio selec-
tion and business competition orientations; Hofer
[1975] was the first to suggest that the corporate/
business distinction has both practical and theoreti-
cal significance.
After suggesting a definition of strategy that fol-
lows Hofer's hierarchical orientation, I will review
the BP research according to the content/process
distinction.
Strategy Defined
The strategy concept has its main value, for both
profit-seeking and nonprofit organizations, in de-
termining how an organization defines its relation-
ship to its environment in the pursuit of its objec-
tives. Although this view would probably receive
little dispute in the field, it is only implicit in most of
the definitions found in the literature. However, uni-
form treatment of the concept is not evident in these
definitions, and this lack of uniformityhas led writers
such as Hatten and Schendel [1975-76] to point out
that it is still not clear "what strategy is," or, more
recently, for Anderson and Paine [1978] to decry
the field's difficulty in defining what is meant by the
term. Even though this difficulty has hindered
theoretical and empirical development of the con-
cept, one can find among the many definitions that
strategy has the two primary purposes of defining
the segment of the environment in which the orga-
nization will operate and providing guidance for
subsequent goal-directed activity within that niche
(see Hofer and Schendel [1978] for an exhaustive
treatment of all the commonalities and differences
in definitions of strategy). These two purposes form
the basis for specifying the following hierarchical
definition of strategy:
Domain definitionstrategy refers to the organiza-
tion's choice of domain or change of domainthat
occurs when, for example, a firmdiversifiesintoor
exits fromparticularproductsormarkets.Milesand
Snow's "entrepreneurial problem"[1978] is of this
type, as are Chandler's"strategicdecisions"[1962,
p. 11].
Ansoff's [1965] entire focus was limitedto this level;
several other writers [Hofer, 1975; Hofer & Schen-
del, 1978; Lenz, 1978; Vancil 1976; Vancil & Lor-
ange, 1975] have referred to this level of strategy as
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"corporate" or "portfolio" strategy in contrast to
"business" strategy, which is related to the follow-
ing level.
Domain navigationstrategy refers to competitive
decisions made withina particularproduct-market
(e.g., industry),or task environment.Thus, once a
domainor competitivearena has been determined
by primarystrategy, the organizationis subjectto
the environmentalconstraintsto whichthe contin-
gency theorists attributeprimacy.This level, then,
includes Churchman's"missions"[1968, p. 40],
Ansoff's "administrativedecisions" [1965, p. 6],
Chandler's "entrepreneurialdecisions" [1962, p.
11], Uyterhoeven's"competitiveweapons" [1973,
p. 16], and Hofer's "distinctivecompetences"
[1973, p. 48].
In one of the few normative works in which any
distinction between these two decision types and
their hierarchical order is made, Gilmore advises
smaller companies to ask, first, if there is need for a
"change in economic mission" (domain definition).
If the answer is positive, then a new mission is
formulated, after which a "competitive approach"
(domain navigation) is defined; if the answer is ne-
gative, then one addresses the question of whether
a change in competitive approach is needed within
the present mission [1971, p. 75].
Since domain selection and navigation occur
more or less sequentially, as Gilmore suggests, for
pedagogical convenience I will refer to them as
primary and secondary strategies. For example, it
might be stated that a university makes a primary
strategic decision to offer an MBA degree and cre-
ates a business school. The kind of faculty it hires
and students it tries to attract, and the makeup of its
curriculum would constitute the secondary strate-
gies employed in distinguishing this business
school from the 400 or so others in this country.
By making explicit which level of strategy content
or strategy-making process is being investigated,
researchers in BP can focus their work in a way that
will allow subsequent investigators to build on pre-
ceding work in a more systematic fashion. For ex-
ample, investigators studying entrepreneurship or
government-agency creation would be researching
a subset of domain definition strategy that might be
termed "genetic strategy," the organization's origi-
nal choice of domain.
The point is, specifying the level at which the
study is taking place would impose more concep-
tual rigor on the investigation. A significant theoreti-
cal advance might be made, for instance, by
focusing on whether secondary decisions can have
a cumulative effect, through which the weight of
several incremental decisions a threshold is
crossed and a primarystrategy has become clearly
identifiable. This would be the case when a firm
acquiring updated manufacturing technology pur-
chases equipment with capacity in excess of its
internal needs, so it exports capacity to the envi-
ronment and enters a new domain. This is, of
course, the basis of Scott's [1968] description of the
"stages model" of corporate development, in which
a firm progresses from single mission to multimis-
sion, and from functional to divisional in organiza-
tion.
Note that the taxonomy refers strictlyto the con-
tent of an organization's behavior - that is, the
identification of a firm's product-market and the
strategies used to compete withinthat domain (e.g.,
by a particular allocation of resources). Strategy at
either level, however, is the product of a strategy-
making process. Whereas the content/process di-
chotomy is a disciplinary and methodological arti-
fact, as noted above, the hierarchical distinction is a
theoretical one and has been articulated by relative-
ly few empirical researchers [Bourgeois, 1978;
Lenz, 1978]. As a result, the ensuing review follows
the former segregation, although all the works are
classified by hierarchy as well and listed in Table 1.
Research on Strategy Content
Within the past seven years, BP researchers
have become disenchanted with the data-free na-
ture of the normative literature and the failure of
descriptive works to guide management action
toward any degree of performance with any certain-
ty. That is, although it has served its role in concept
development well, the descriptive work lacks pre-
dictive power. This lack has caused a shift in inter-
est away from the process of strategy formulation
as a topic of inquiryand toward implemented strat-
egy rather than strategy implementation. So the
interest of current researchers has been captured
by Hofer's [1973, 1975] call to the investigation of
the content of business strategies.
The result of this shift has been the impressive
quantitative modeling exhibited by Rumelt [1974] in
his extension of the strategy-structure work by Scott
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[1968] and Wrigley [1970] at the primary strategy
level, and by the PIMS and Purdue studies at the
secondary level [Buzzell et al., 1973; Hatten et al.,
1978; Schendel & Patton, 1978; Schoeffler et al.,
1974; see also Ward, 1976]. While these studies
have followed the industrial organization (econ-
omics) tradition, a more case-oriented approach to
the study of content has been introduced by Hofer
[1973], Glueck [1976], and others [Jauch et al.,
1977]. Although the level of strategy being scruti-
nized by the latter group was not distinguished, the
studies demonstrated the efficacy of using excep-
tionally large numbers of cases (up to 358 in
Glueck's study) derived from publicly available
sources (i.e., Fortune articles). All of these studies
developed "categories" of strategies to facilitate
data collection and manipulation; but whereas Hat-
ten et al. used beer industry case histories from
which they induced the strategic variables, Hofer
[1973] developed his categories a priori.
One problem inherent in this approach is that
strategy content per se not only is highly multivar-
iate in nature (as is process), but also usually repre-
sents the outcome of decisions whose circum-
stances (environmental and economic conditions,
resource availability, managerial inclination) are
nonreplicable. Both Newman's "propitious niche"
[1971-72, p. 61] and Selznick's "distinctive compe-
tence" [1957, p. 42] capture the crucial element of
strategy content - i.e., every organization's strate-
gy is necessarily unique. Because of this, strategy
content is nonreplicable in the traditional experi-
mental-science sense. As Bower and Doz put it, in
studying strategic content, "ourfocus is on the non-
routine - the only accidentally replicable" [1977, p.
10].
Indeed, not only do conceptual attempts such as
Hofer's [1975] reduce to purely situational theories
of strategy (Hofer's article suggested an attempt to
inventory the appropriate sets of strategies for any
of from 64 to 67,000,000 contingencies, depending
on which state of the product life cycle a firm hap-
pens to be in), but the empirical work out of Purdue
points in the same direction. As anticipated in the
Purdue group's modeling of strategy in the beer
industry, it was found that strategies were not
homogeneous, but tended to occur in clusters or
"strategic groups" of companies. However, from
the original sample of 13 firms emerged 6 groups:
with an average of little more than 2 firms per
"group" the attempt virtually resulted in a case-by-
case description[Hattenet al., 1978].
The problem is simply one of empiricismrun
rampant.The solution is for the researcherto ab-
stract a smaller number of more encompassing
conceptual categories witha broaderrange of gen-
eralizability.Jausch et al. [1977] did this, in fact,
when they extended Hofer's[1973] Fortunestudy
by collapsing his 33 strategies into 8 categories.
Based on the same data, Glueck [1976] used 4
generic strategycategories- retrenchment,stabil-
ity, growth, and combinationstrategies. In a sepa-
rate study, Cook [1975] characterizedstrategies as
intensive, reactive,proactive,or mediating.Similar-
ly, Rumelt [1974] was able to pool data from 249
firms representing a large cross-section of indus-
tries by delineating9 generic strategies represent-
ing differenttypes of diversificationoutcomes.
The main appeal of lookingexclusively at strat-
egy content is that no attentionneed be given to
management's goals, or "intended"strategies, nor
to the politicalactivityinherentin arrivingat strate-
gies, and the academic researchercan rely almost
exclusively on secondary data sources. This ap-
proach has led to majorcontributionsinthe descrip-
tion of strategicoutcomes and theirabilityto explain
variance in economic performance,but it has ig-
nored the processes used to influence and select
these outcomes in the firstplace, and we stillhave
littleempiricalevidence of how its variousaspects
affect performance.
Strategy-Making Process
Although a specific strategy content may be
unique, there is an aspect of strategy that does
reiterate:strategy making is a recurringorganiza-
tional phenomenon and as such lends itself to a
scientific method of inquirywhere repeated mea-
sures can be taken of the same constructand var-
iance can be analyzed. The argumentis that we
should no longer restrictourattentionto the content
of actually implementedstrategies, and we should
therefore investigate the outcomes of perceptual
and politicalactivitiesinherentin boththe intention
and manifestationof strategy. Inotherwords,while
strategy content is certainlycrucialto organization-
al performance, knowledge about the processes
throughwhich managements determinestrategies
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in the first place should be considered equally
pressing. This claim echoes Simon's [1978] recent
exhortation,urgingeconomists to examine the pro-
cedural as well as the substantive aspects of firm
behavior.Similarly,Hattenand Schendel arguethat
"the process of strategic management has been
neglected by empirical researchers for too long"
[1975-76, p. 200].
Research on Strategy Formulation
For a period there was some fleeting interest in
studyingstrategyformulationor certainaspects of it
in other than a case study manner. For example,
some researchers found significant performance
differences between firmsthat engaged in formal
strategic planning and those that didn't [Herold,
1972; Rue & Fulmer,1973; Thune&House, 1970].
Inone of the few experimentalstudies conductedin
this area, Wheelwright[1973] foundthat MBAstu-
dents who used the "incremental" mode of strategy
formulationproduced"better"strategies (as judged
by doctoralstudents) than those using the "synop-
tic" or comprehensive mode. Wheelwright'sstudy
reflects one of the difficultiesof studyingstrategyin
the laboratorybecause the criteriaforperformance
can only be "expert"judgmentof what is probably
the more effective strategy.
Anotherexperimentalstudy of this type achieved
greater external validityby using practicingadmin-
istrators in the design of an urban primaryhealth
care facility [Nutt, 1977]. Validitywas furtheren-
hanced by havingactualclients, experts, and prac-
titioners evaluate the qualityand implementability
of plans emanating from three planningmethods
derived from the "systems" approach, the beha-
vioral or "OD"approach,and disjointedincremen-
talism. But here, also, performancewas judged by
experts' evaluations of probableoutcomes rather
than by actual organizationalbehaviorand perfor-
mance.
Most of the empiricalwork on the process of
strategy makinghas been conductedat the primary
level, and has generally come underthe rubricof
"strategicplanning,""diversification decisions," or
"internationalexpansion."Thus, the worksof Berg
[1965] and Chandler[1962] looked primarilyat de-
cision processes fordiversifiedfirms;Carter[1971]
was concerned withacquisitiondecisions;and Aha-
roni [1967], Fouraker and Stopford [1968], and
 Table 1
BP Research Classified by Level and Focusa

Focus Content Process

Level

Aguilar [1967]
Aharoni [1967]c
Chandler [1962] Berg [1965]b
Pitts [1976]b Carter [1971]c
Primary Rumelt[1974]b Collings [1968]
Scott [1968]b Fouraker and Stopford [1968]b
Wrigley [1970]b Keegan [1974]
Nutt [1977]b
Sloan [1963]c

BCG [1968]c
Cook [1975]
Hatten et al. [1978] Bourgeois [1978]
Lenz [1978] Bower [1970]b
Secondary
PIMS [Buzzell et al., 1973; Cyert and March [1963]
Schoeffler et al., 1974]c Khandwalla [1976]
Schendel and Patton [1978]
Ward [1976]c

Ackerman [1970]b
Herold [1972]b
Miles and Snow [1978]
Millerand Friesen [1977]

Mixed Glueck [1976] Mintzberg et al. [1976]b

or Hofer [1973] Paine and Anderson [1977]
Unspecified Jauch et al. [1977] Quinn [1977]b
Rue and Fulmer [1973]b
Thune and House [1970]b
Wheelwright [1973]b
Wrapp [1967]b

aStudies not footnoted incorporated the "environment"explicitly.

bNo recognition or attention was given to "environment"as a construct in these studies.
CThe "environment" was either only implicitor weakly specified.

Stopford and Wells [1972] studied the foreign in- But as indicated in the classifications presented
vestment and expansion process. in Table 1, work on the process of secondary strat-
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egy making is lacking, perhaps because the prob-
lem set has never been explicitly defined in this
manner. So, although Wrapp [1967], Ackerman
[1970], Mintzberg, Raisinghani, and Theoret
[1976], Bower and Doz [1977], Miller and Friesen
[1977], and Quinn [1977] examined the social and
political process of strategy making, their work
tended to mix primary and secondary decision
making.
My interest here is in strategy making at the sec-
ondary level, because the study of strategy making
at this level will provide building blocks for a general
understanding of strategy. This claim agrees with
Hofer's assessment that over the long run success
is not attainable at the corporate level unless a firm
knows how to succeed at the business level [1975,
p. 786].
Elements of Secondary Strategy Making
Strategy making is defined to include the
processes of both formulation and implementation
- the subject of most of the BP normative literature.
The two are not separated in this paper because of
their interdependence [Bower & Doz, 1977]. So
strategy making at the secondary level is seen to
include:
1. Environmentalscanning, which can be done
with varying degrees of formality[Aguilar,1967]
and which results in some assessment of riskand
perceptionof uncertainty.
2. Objectivesetting, or the formationof goals and
targets to be achieved in the task environment.
3. Distinctivecompetence selection, or the choice
of tools and competitiveweapons with which to
negotiate withthe environment;when implemented
these forma partof secondarystrategy.
4. Power distribution,or the determinationof
authorityand influencerelationshipsamong orga-
nizationalsubunits.
5. Resource allocation, or the deploymentof fi-
nancialand physicalresources to carryout a strat-
egy.
6. Monitoringand control of outcomes, or the
comparison of intended and manifested strategy
contents.
The composition of these elements is consistent
with both the normative and empirical literature.
The BP literature frequently mentions environmen-
tal scanning [Ackoff, 1970; Aguilar, 1967; Andrews,
1971; Hofer & Schendel, 1978], objective setting
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[Cohen & Cyert, 1973; Hofer & Schendel, 1978;
Lorange, 1975; Steiner, 1969], distinctive compe-
tence selection [Hofer, 1973; Uyterhoeven et al.,
1973], resource allocation [Anshen & Guth, 1973;
Bower, 1970], and control [Cohen & Cyert, 1973;
Newman, 1975]. In addition, this set of elements
includes environmental uncertainty perception and
power distribution as part of strategy making, for
which there is also supportive literature. Hatten and
Schendel point out that "in formulating strategy,
management must cope with uncertainty and must
rely on the accuracy of its perceptions" [1975-76, p.
195]. And, consistent with the distinction of primary
and secondary strategies dealing with the general
and task environment, respectively, Downey and
Slocum suggest that the "perception of uncertainty
is relevant only after a domain decision has been
made. This domain decision has now resulted in a
task environment" [1975, p. 569, emphasis added],
where, it is argued, secondary strategy making
takes place.
Also, the notion of power distribution has its par-
allel at the primary level in the design of organiza-
tion structure, where the macro form or configura-
tion of an organization is set up (e.g., functional,
divisional, or matrix form). At the secondary level,
this configuration is taken as a given and the dis-
tribution of power is a product of either conscious
task and authority delegation, political maneuver-
ing, or both. Just as secondary strategies can ac-
cumulate beyond a threshold level to form a primary
strategy, secondary power distribution changes
can evolve into fundamental reorganizations - the
basic premise underlying Scott's [1968] model and
demonstrated empirically by Chandler [1962],
Sloan [1963], and Stopford and Wells [1972]. The
support for considering power distribution as an
element of strategy can be found in Cyert and
March [1963]; the notion is expanded on by Thomp-
son [1967], and made explicit by Child [1972] and
Bower and Doz [1977] in their discussions of em-
ploying the concept of the dominant coalition in
strategy formation as an alternative to the mon-
archic entrepreneur or single rational actor posited
by classical microeconomics. In this context, stra-
tegic decision-making power is "distributed"among
a group of key influentials designated variously as
the "dominant coalition" or "top management
team."
 Environmentin Business Policy
The normative literature in policy has long
stressed the need to scan and assess the environ-
ment for subsequent matching of opportunities with
organizational capabilities and managerial desires.
However, as indicated by Anderson and Paine, BP
"has not substantially utilized or extended the sys-
tematic research dealing with environmental char-
acteristics and their effects, whether behavioral or
physical" [1975, p. 811 ]. Strategy content and envi-
ronment have been joined empirically (see below),
but there has not been much work that joins the
strategy formulation process and environment. One
of the few examples of work that does so was a
recent study by Khandwalla [1976], who found that
when managers perceive the environments of their
firms as "rich in contingencies," as when they are
dynamic and uncertain, their strategies are likely to
be more comprehensive or multifaceted. These
results agree with those of Miles and Snow [1978]
and Paine and Anderson [1977], which indicate that
strategic managers in more uncertain environ-
ments tend to be moreproactiveand innovativeand
they tend to assume a higher degree of risk.
The relative paucity of published research joining
strategy formulation and environment was noted by
Alfred Chandler when he suggested that the di-
vorcement of environmental issues from adminis-
trative analysis was due, in part, to the fact that
these tend to be dealt with separately by market
economists and administrativetheorists, respec-
tively [1962, p. 396]. Recent attemptsat redressing
this omission are representedby two streamsof BP
research that Lenz [1978] has characterizedas the
"marketstructure"and "responsefield"paradigms.
These correspond, respectively,with content and
process approaches to strategyresearch.
The marketstructuremodel relates the objective
structuralcharacteristicsof an industryto the con-
duct and performanceof bothfirmsand theirindus-
tries. Except for the Purduestudies [Hattenet al.,
1978; Schendel & Patton, 1978], in whichstrategy
and environment are defined, respectively, as
manageriallycontrolledvariables and noncontroll-
able variables, the term "environment"is seldom
used. With the possible exception of the earlier
BCG [Boston ConsultingGroup, 1968] and PIMS
[Buzzellet al., 1973; Schoeffleret al., 1974]studies,
these Purduestudies are the firstto have respond-
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ed to Chandler'scall to combine "market"factors
and "administration."
The response-field model views organizational
environmentsas "sources of events and changing
trends which create opportunitiesand threats for
individualfirms"[Lenz, 1978, p. 17]. This model is
characterized by the research of Aguilar[1967],
Keegan [1974], and Collings [1968], which tends to
deal not with the environment per se but with how
top management gathers and processes informa-
tion about conditions external to the organization.
Because it assumes a practicalorientationand is
not concerned with conceptual developments
aimed at model building and empirical applications,
this paradigm does not specify the content of the
environment. Rather, the environment is "simply
considered as source of opportunity and threat
which [is] evaluated in terms of gross movements or
trends (e.g., economic, social, political...)" [Lenz,
1978, p. 30].
Only a few of the recent studies have incorpor-
ated some of the content items (e.g., customers,
suppliers) of the environment as defined in the OT
literature (see next section) [Bourgeois, 1978;
Glueck, 1976; Hofer, 1973; Jauch et al., 1977; Ut-
terback, 1977], and, of these, only Jauch et al.,
Utterback, and Bourgeois have made specific refer-
ence to the organization's "task environment" or
the literature defining it, and related it to strategy
making(see notes to Table 1).
In sum, most of the BP literaturedealing with the
environment concept has focused on trends,
forces, ratios, or other aggregations. The contribu-
tion to be made from the OT literatureis in identify-
ing the sources of these gross movements.
Environment in Organization Theory
Ever since system concepts gained paradigmatic
centrality in OT, organizations have been concep-
tualized and researched as open systems engaging
in transactions with their environments. Although
Chester Barnard [1938] was among the first to
recognize the system properties of organizations, it
was Dill's [1958] pioneering study that both defined
the components of top management's task environ-
ment and suggested a causal relationship in which
this task environment affected managerial autono-
my. Since his investigation of two firms, subsequent
researchers have sought to increase the sample
sizes in their investigations,expand on the causal
relationshipof environmenton organizationproper-
ties, or enrich the definitionsof environmentand
organization structure.Muchof the literaturefrom
the post-human-relationsera concentratedon de-
fining which organizational structures, manage-
ment styles, and the like are most appropriate(ef-
fective) for differentenvironmentalor technological
contingencies. The empirical studies [Burns &
Stalker, 1961; Duncan, 1972a, 1972b; Lawrence&
Lorsch, 1967; Neghandi& Reimann,1973] yielded
imperatives for organizationaladministrationand
structure, given certain environmentalconditions.
In addition, the conceptual works [Emery& Trist,
1965; Terreberry,1968; Thompson, 1967] empha-
sized that organizations must adapt to external
forces in orderto maintainviability.The technology-
based works of Woodward [1965] and Perrow
[1967] extended the contingency idea to include a
technological determinism, and Galbraith [1973]
bridged environment and technology by focusing
on the environmental information-processing
needs of the organization.
Most of these works relied on field studies and
correlational techniques to impute a causal link
from environment to structure, but some experi-
mental settings have been employed to suggest
that internal organization states themselves influ-
ence perceptions of environmental uncertainty
[Huber, O'Connell, & Cummings, 1975]. And results
of a recent field study by Osborn and Hunt [1976]
found that the interactions of external and internal
variables were better predictors of performance
than either acting alone, although Jauch et al.
[1977] were unable to replicate these results.
Objective versus Perceived Environment
Part of the contradiction in the empirical results
rests on an unresolved issue in the environment
literature - that of objective versus perceived envi-
ronment. This issue centers on two questions, one
philosophical and the other methodological. The
philosophical question (which will be treated below)
is, basically: Which perspective of the construct of
"environment" is most relevant to an organization's
behavior - its managers' perceptions of environ-
mental states, or some objective characteristics of
its environment? Note that most of the literaturejust
cited does not distinguish between the environment
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as an objective set of components or state of affairs
"outside" the organization and the environment as
perceived by organizational actors. This merely re-
flects the failure of the researchers cited to make
the distinction explicit in their operational defini-
tions. What emerges is a methodological issue that
is critical if one wishes a uniform treatment of the
environment construct, as one can find several pu-
tative measures of an organization's "environment"
that are in fact measures of individuals' perceptual
characteristics.
Three Perspectives of Environmental Research
In general, the treatment of environment can be
classified into three categories. Specifically, orga-
nizational environments have been defined as (1)
objects, (2) attributes, or (3) perceptions. Inthe first
category, Dill [1958] made the distinction between
general and task environments, the latter being
composed of customers (distributors and users),
suppliers (of material, labor, equipment, capital,
and workspace), competitors (for both markets and
resources), and regulatory groups (government
agencies, unions, and interfirmassociations). Note
that each of these categories is identifiable as either
entities or objects external to the firm. Thompson
distinguished between the task environment, as
defined by Dill, and an additional "residual" envi-
ronment composed of potential task environment
members [1967, p. 88]. Similarly, Emery and Trist
[1965] and Terreberry [1968] distinguish between
input/output transactions that occur between the
organization and objective units immediately sur-
rounding it, and the extra-organizational interac-
tions occurring among organizations outside of the
focal organization's "organization-set."
In the second category, writers usually focus on
two attributes of an organization's task environ-
ment: (1) its complexity or heterogeneity, referring
to the number and diversity of external factors fac-
ing the organization, and (2) its turbulence, vola-
tility, or dynamism, or the degree of change
exhibited in those factors [Dill, 1958; Duncan,
1972a; Thompson, 1967]. This latter attribute most
closely approximates the treatment of environment
given in the BP literature.
The third category consists of definitions that
treat environment in terms of managerial percep-
tions of environmental uncertainty. There is nothing
wrong with this as long as there is an explicit distinc-
tion between characteristics of the environment
itself and the perception of that environment by
human agents. However, some studies [Duncan,
1972a; Lawrence & Lorsch, 1967], in trying to
measure organizations' environmental uncertainty,
depended entirely on subjective data from mana-
gers, but treated the data as if they were character-
istics of some objectively real environment. Such
practices raise grave problems of construct validity.
I agree with Starbuck's comment that it "would help
if concept formulatorsadheredto the principlethat
measures based solely on subjective data provide
information about the subject, not about his envi-
ronment" [1976, p. 1087].
Objective Environment
The distinction between perceived and objective
environmentis centralto this discussion and I will
returnto it presently. But first,some observations
regarding the concepts of general and task environ-
ments and their attributes of complexity and dyna-
mism are in order. In particular,the following points
are relevant to my synthesis of environment and
strategy:
First, the distinction between general and task
environment is relevant to primary and secondary
strategy, because it is positedthatthe generalenvi-
ronment is not "enacted" [Weick, 1969] by a strate-
gist until domain modification decisions (resulting in
primary strategy) are being considered. Thompson
supports this view by stating that although the task
environment may have the most direct short-term
impact on the organization, "the environment be-
yond the task environment (the general environ-
ment) may constitute a field into which an organiza-
tion may enter at some point in the future"[1967, p.
28]. Thus, Dill's task environment, consisting as it
does of customers, suppliers, competitors, and
regulatory groups, approximates the economist's
notion of "industry" and represents the aspect of
the environment being enacted during the goal
attainment activities that have been conceptualized
here as secondary strategy.
The second point to be made is that the same
distinction between general and task environment
may help explain why empirical research has found
that environmental dynamism tends to account for
more variance in the dependent variable (usually
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uncertainty) than does environmental complexity
[Duncan, 1972a]. One might speculate that at the
task environmental level, complexity tends to re-
main a relatively constant factor and as such is not
as much a source of managerial uncertainty per-
ceptions as degree of change or dynamism is.
Thus, Duncan's results, derived from a sample of
non-strategic-level decision makers, were not repli-
cated in Downey, Hellriegel, and Slocum's [1975]
study of (autonomous, policy-level) division man-
agers. In fact, the evidence seems to suggest that
complexity becomes salient as an organization di-
versifies - that is, as it enters a varietyof task
environments. This would lead to the inference that
perhaps both dynamism and complexity should be
considered when studying primary strategy,
whereas dynamism alone is more critical at the
secondary level.
Perceived Environment
Finally, Dill's distinction is again useful when con-
sidering the current debate revolving around the
relative importance of objective versus perceived
environments when studying organizations. By
focusing on the four environmental components
outlined by Dill (customer, supplier, competitor,
regulator) and added to by Duncan (technology)
one can remain "outside" the organization and use
objective indicators of the environment, and still be
able to consider management's perceptions of
these components. However, James Thompson's
overwhelming influence in promulgating "coping
with uncertainty" as the "essence of the administra-
tive process" [1967, p. 159] has unfortunately led
some researchers to rely exclusivelyon perceived
environment because, as Weick argues, it is only
through managerial perceptions that the environ-
ment becomes "known"to the organization[Ander-
son &Paine, 1975; Downeyet al., 1975; Downey&
Slocum, 1975; Miles et al., 1974; Starbuck,1976;
Tosi, Aldag,&Storey, 1973].Thisview has deterior-
ated into the argument, such as that made by
Hambrickand Snow [1977, p. 110], thatthe objec-
tive reality of physical environmentalattributesis
consequently "less important"in determiningor in-
fluencing organizationalaction - an inaccuracy
that ignores the knowledge available from both
industryeconomics and marketingtheory.Whatis
more important,an exclusive relianceon perceived
environment relegates the researcher to the study
of the psychological state of uncertainty per se
rather than extra-organizational phenomena, and
thereby negates the very concept of external envi-
ronment. Every firm has an objective environment
that places constraints on the way it operates -
e.g., an industry group has certain technical charac-
teristics that must be attended to. At issue is
whether a manager's perceptions of volatility or
variability induce uncertainty and whether these
subjective impressions override the objective situa-
tion when critical decisions are made. My position is
that the objective task environment is "real,"
measurable, and external to the organization, and
that perceptions of the environment are also real
events taking place within the organization. Addi-
tionally, and of central importance, when held by the
dominant coalition or top management team, these
perceptions are considered to be crucial inputs to
the strategy-making process.
Environmental Variables: A Recap
Table 2 summarizes the discussion of the envi-
ronment as treated in the OT literature, both in
terms of the main ways of conceptualizing the envi-
ronment and some of the applications of each of
these ways in empirical research.

Table 2
Three Views of the Environment

Perspectives Dimensions Definitions

Operational
xvtornal- General Environment Not operationalized (for OT
IObjects research)
Objects
and
Task Environment Customers,competitors,
suppliers,and regulatory
agencies [Dill,1958; Duncan,
1972a]

External: Complexity,Heterogeneity Numberof task environment

Attributes components

and and

Dynamic-Shifting Rate of change [Thompson,1967]

or or

Volatility Technologicaland market

volatility[Burns&Stalker,1961]

Internal: Perceived Environ- Lackof information;knowledge

Perceptions mentalUncertainty about decision outcomes;ability
to estimate environment'seffect
on firm'sperformance,[Duncan,
1972a; Lawrence&Lorsch,1967]a
aThese are Duncan'soperationalizations. The firsttwo itemsare similarto those of Lawrenceand Lorsch,butin place of Duncan's"abilityto
they used "timespan of feedback"which,itcouldbe argued,is moreof an environmental
assign probabilities" attributethana perceptualone
[see Starbuck,1976, p. 1087]. Thus, Lawrenceand Lorschmay have mixedenvironmentaland perceptualattributestogetherin defining
theirconstruct.

35

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 Strategyand Environment:
A Synthesis
In the preceding sections, I have described how
strategy has been operationalized adequately for
quantitative analysis in terms of content or results.
Further worthwhile inquiry will come primarily
through a study of the processes of strategy
making. Second, I have outlined how the treatment
of environment has often indiscriminately mixed
objective and perceived attributes, and have point-
ed out that the objective external environment and
its variability are the source of the firm's opportuni-
ties and risks and as such must be accounted for
when strategies are made and executed, whereas
managers' perceptions of the environment are part
of the strategy-making process. This section con-
cludes the synthesis of the two concepts, strategy
and environment, by relating them at their hier-
archical levels. This integrationis presented in
Figure2.
Thus, while domain selection (primary)strategy
involves a scanning of the general environmentfor
both (1) broad trends (economic, demographic,
sociocultural,etc.) thataffectthe organizationmore
or less indirectly[Hofer& Schendel, 1978, p. 90],
and (2) for suitable new task (e.g., product-market)
environment entries, domain navigation (secon-
dary) strategy deals directlywith the elements of
task environmentand the changes or discontinui-
ties that they effect.
A set of research questions suggests itselffrom
the foregoing. For example, is perceived environ-
mental uncertainty(PEU) relevantto domainnavi-
gation decisions made by strategy makers? How
about to the domain choice itself:does PEU con-
cerning a particulartask environmentaffect top
management's decision to enter or withdraw?In

Primary Primary Primary

Strategy1 Strategy2 Strategyn

Domain
, I ^
Definition can1^ I
scan 1 / scan2 !Ae I
sscann
/

GENERALENVIRONMENT

TASK Y
T TE2 TE3 TEn
ENVIRONMENT1
Domain
Navigation Customer Customer Customer
Competitor _.(SSupplier) Regulator
(Supplier} Competitor PSuppier) , Potential
Regulator Technology Technology Synergies
Technology Regulator Competitor
4

Secondary Secondary Secondary

Strategy1 Strategy2 Strategy3

Figure 2
Strategy and Environment
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terms of primarystrategies, can Ansoff's concept of
"synergy" be linked empirically to a commonality of
task environment components (e.g., suppliers or
distributors) among divisions (or colleges, or
wards)? Also, what parallels might exist between
levels of strategy? For example, does organization
design at the primary level affect power distribution
at the secondary level, or vice versa? Finally,do
incrementaldecisions taken at the secondary level,
as Quinn [1977] suggests, accumulate to the point
where a viable primarystrategy emerges?
The development of strategies to guide organiza-
tional activities is a key managerial function, and
that guidance is accomplished through the effective
co-alignment of organizational resources with envi-
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Received 7/5/78