Institutional Background of Effective Strategies for Business Sustainability

Institutional Background of Effective Strategies for Business Sustainability

Yaroslav Zhalilo (National Academy of Sciences of Ukraine, Ukraine)
DOI: 10.4018/978-1-5225-2716-9.ch002


The chapter grounds theoretical and methodological baselines of effective strategy decision making of economic agents under the modern conditions of institutional turbulence. Strategies' subjectivity importance and institutional determination of its implementation have been proved. Institutional system, establishing the relations of trust, promotes the reduction of transaction costs, in particular – the costs of opportunistic behavior, and creates prerequisites for effective business communications. It has been proved that under the trends of institutional transformation, influenced by economic globalization and network economy spreading, the challenges to strategies' effectiveness can be cured at the basis of economic entities' network self-organization.
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The realization of management strategies is usually influenced by the complex of factors of endogenous origin relatively to strategy subject (its strategic capacity) as well as of exogenous one (strategic environment). Rowe, Mason, and Dickel (1996) have determined strategic management as a process of decisionmaking that integrates internal organizational capacities with threats and opportunities, raised by external landscape.

Marketing theory specifies intentions of economic agents, building their strategies, as the integration of their strategic ambitions and practical capacities (resources). Aimed to reach the sufficient competitiveness, they look for the ways to optimize interrelations with external (market) environment. Competition itself is the most candid external measure of managerial decisions’ efficiency, imposing strict limits on the potential to appease strategic ambitions. If strategic goals are not agreed with the capacity of organization, and do not ensure the latter’s long-term existence subject to the impacts of business environment, this kind of “strategy” seems to be senseless. In particular, marketing classic, Kotler (2013), considered strategic planning as the managerial process, which creates and supports strategic correlation between goals ant potentials.

In other words, effective strategy is based on: what can be done with the object of the strategy, what subjects of the strategy are capable to do, what they wish and will to do and what they have to do under the influence of external factors.

Meanwhile, strategic decisionmaking is a pretty hard job; its complexity is proportional to the uncertainty of expected exogenous and endogenous factors that should influence the realization of this strategy. Effective strategic decisionmaking has been complicated by so called strategic paradox (Thompson & Martin, 2010). Developing the existing approaches, the author can specify the implication of this paradox as follows:

  • The plan of the future has been built on the basis of past experience, thus the influence of extrapolation (rational expectations) can be too powerful, ignoring new emerging factors;

  • Real strategy certainly differs from the planned one, because it flexibly reacts on the changes in the environment of its realization;

  • The organization has to respond simultaneously on the changes inside and outside itself, facing both exogenous and endogenous challenges;

  • Capacity of an organization often does not fit the intentions, aspired by some ambitious, sometimes irrelevant motivations;

  • Economic and non-economic factors tightly interact, while the principles of their influence and evolution are quite different;

  • Purposefulness and certainty of strategic goals have to coincide with flexible and innovative strategic tasks and instruments;

  • Centralized planning has been combined with decentralized execution.

Thus, strategic planning needs specific approaches, different from traditional decisionmaking. Managerial strategies’ effectiveness in reaching business sustainability requires the study of exogenous and endogenous factors’ combination, which usually have significant complementarity. This study is to be provided optimally within the framework of institutional methodology, as institutional system itself structures managerial behavior of a subject and its reaction on managerial influences, shapes the mode of reaction on external challenges and, finally, builds the strategic capacity of the subject.

Thus, in this chapter author intends to reveal the institutional baselines of strategic behavior, find out its evolutions in modern turbulent times, determining how modern sources of uncertainty affect strategies’ instability. Finally, are drawn the ways to overcome this uncertainty based on the strengthening of strategic capacity. This study is quite complementary to the issues of decisionmaking psychology at micro level. However, these issues now are beyond the topic of the chapter.

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