Each construct in the model can affect each of the others in space and time, both directly and indirectly, through or jointly with other constructs, and can serve as a starting point for causal sequences. Constructs are not required to evolve at the same rate, and their reciprocal relationships do not imply equal magnitude or simultaneity of influence. This quality enables the understanding of parts of the model without necessarily studying all constructs at the same time. Particularly, the model can be used to examine specific dyadic relationships as well as more complex causal relationships such as positive and negative feedback loops (Arthur, 1995).
To simplify, Figure 1 describes the model as fully endogenous. Although the model is internally determined, history and environment can be defined in such a way as to make parts of them exogenous. Moreover, some interactions are assumed to be the result of random processes and chance events. Furthermore, the strength of the relationships between constructs, such as the relative influence of environment on performance, may vary in different settings.
The model assigns particular importance to history in the way it defines constructs and relationships. History influences—but does not determine—current and future states of each of the variables. Systems are distinguished not only from events outside them but also from events occurring prior to them and subsequent to them (Fuller, 1982). Therefore, context is defined both in space and in time. The model also assumes that agents intend to choose and act rationally and that their actions are for the most part prospective and purposive. Yet it recognizes deviations from rational behavior such as those stemming from agents’ cognitive limits, the means–ends uncertainty in the information environment (March and Simon, 1958), and other constraints on efficient adjustment (e.g., inertia). More generally the model extends the idea of rational planned action by opening the ‘black box’ to admit other cognitive, affective, social, and political influences.[11]
In the OESP model the interaction between the constructs can be designed, evolving, or random, but it is best captured by the notion of continuous co-alignment. As suggested by the definition of strategy as adaptive coordination, two facets of this process are particularly important. In its external interactions the firm, guided by its strategy, both responds to and shapes the state and path of its environment. Internal interactions arise as strategy is derived and enabled by organizational elements and in turn shapes their composition and development. Both external and internal interactions affect the firm’s performance and in turn are influenced by it. Firm strategy both mediates between internal and external forces and in itself serves as a force that influences these other forces. It responds to changes and creates changes.
This co-alignment process can also be appreciated from the viewpoint of other actors. The firm co-aligns itself with the ecology of other co-adapting individuals and organizations (March, 1994). Other actors exchange resources with the focal firm, and interact with its strategy, organization, and performance. Because the focal firm places constraints upon other actors, they too may respond to and influence these constraints. Actual firm performance is thus influenced by the quality of other actors’ co-alignment efforts.
The lower part of Figure 1 summarizes the key contributions of the mechanistic and organic models on which the model is built and which it extends. At its most rudimentary level the OESP model includes and unifies the main constructs, relationships, and models of the mechanistic perspective. It still maintains some of the main mechanistic ideas that are central to traditional thinking in strategy, such as notions of steady states and strategy positions. For example, even if one rejects equilibrium as an empirical phenomenon these notions remain useful for theoretical and empirical research, and for simplified planning and communication (Ghemawat, 1991; Porter, 1991). The figure particularly shows the mechanistic perspective’s broad agreement on key constructs, highlights its predominantly linear flow (from organization and environment to strategy and performance), the centrality of the strategy–performance link (appearing in all main mechanistic models), and the fragmented nature of its main models.
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