Business Horizons (2005) 48, 371 377

www.elsevier.com/locate/bushor

EXECUTIVE DIGEST

Spotlight on strategic management

Michael A. Hitt
Mays Business School, Texas A & M University, MS 4221, College Station, TX 77843-4221, USA

1. Deep roots: A history of strategic management

As this is the first bspotlight on strategic managementQ feature to appear in Business Horizons, it seems important to begin with a brief history of how the field developed before progressing on to an examination of current foci and future issues of potential importance. The field of strategic management has advanced substantially in both the theoretical domain and empirical research over the last 25 years. While the roots of the field can perhaps be traced back as early as 320 BC to the work of Sun Tsu, the evolution of the field in the last few decades has been dramatic (Hitt, Boyd, & Li, 2004). Recent work traced the intellectual structure of the field over the period 19802000 (RamosRodriguez & Ruiz-Navarro, 2004). Some of the most cited works represent particular perspectives such as industrial organization economics (Porter, 1980, 1985), corporate strategy-product diversification (Chandler, 1962; Rumelt, 1974), transaction cost economics (Williamson, 1975), evolutionary economics (Nelson & Winter, 1982), resource dependence (Pfeffer & Salancik, 1978), and the behavioral theory of the firm (Cyert & March, 1963). While agency theory and transaction cost economics have played prominent roles in building our understanding of executive and firm behavior,
E-mail address: mahitt@tamu.edu.

industrial organization economics and the resource-based view of the firm (RBV) have dominated much of the research and thinking in the field over the past 25 years (Ramos-Rodriguez & RuizNavarro, 2004; Wright, Filatotchev, Hoskisson, & Teng, 2005). Much of the work in the decade of the 1980s used the structure-conduct-performance approach ushered in by Porter (1980, 1985) or the strategy-structure-performance focus explained in a review article by Hoskisson and Hitt (1990). Research in the 1990s and 2000s, however, has been dominated by the RBV (Barney, 1991, 2001). During the 1990s and since, rich streams of research emerged in such areas as competitive strategy (DAveni, 1994; Gimeno, 2004), corporate governance (Daily, Dalton, & Rajagopalan, 2003; Hoskisson, Hitt, Johnson, & Grossman, 2002), international strategy (Lu & Beamish, 2004; Penner-Hahn & Shaver, 2005; Tallman, 2001), strategic leadership (Finkelstein & Hambrick, 1996; Hambrick & Cannella, 2004), and dynamic capabilities (Helfat & Peteraf, 2003; Teece, Pisano, & Shuen, 1997; Winter, 2003). Emerging areas of strategic management research include strategic entrepreneurship (Amit & Zott, 2001; Hitt, Ireland, Camp, & Sexton, 2001; Hitt, Ireland, Camp, & Sexton, 2002), strategy process (Chakravarthy, Mueller-Stewens, Lorange, & Lechner, 2003; Floyd, Roos, Jacobs, & Kellermanns, 2004), and network strategies (Dyer & Singh, 1998; Gulati & Singh, 1998; Ireland, Hitt, & Vaidyanth, 2002). The resource-based view of the firm, or RBV theory, is evident in much of this

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372 research, and other theoretical domains such as organizational learning have been incorporated into areas of research such as international strategy (Hitt, Hoskisson, & Kim, 1997), strategic alliances (Kogut & Zander, 1992), and mergers and acquisitions (Barkema & Vermeulen, 1998; Vermuelen & Barkema, 2001). The field has been transformed from one based largely on normative case-based research into one emphasizing theory and empirical research using valuable data and rigorous analytical tools. Yet, the field still has some limitations in the general research methodologies employed (Boyd, Gove, & Hitt, 2005) and must take important steps to improve research practices in line with many of the other disciplines in business. Although strategic management began as a largely practice-oriented field, it is important to recognize that the emphasis on scholarship has created a gap between the research perceived as quality by academicians and the relevance of that research as perceived by practitioners. Baldridge, Floyd, and Markoczy (2004) found there was a statistically significant positive relationship between academic quality and global relevance of strategic management research, but the amount of overlap in the two evaluations was small. This might have implications for future development of the field.

EXECUTIVE DIGEST Peteraf (2003) and Winter (2003). While this work has been helpful, much RBV research leaves the bblack boxQ unopened. We need to better understand how managers and firms use valuable resources to create a competitive advantage. As such, a potentially fruitful avenue for future work might focus on how resources can be best managed to create a competitive advantage. Recent theoretical work by Sirmon, Hitt, and Ireland (in press) addresses this issue. The authors suggest there are three primary processes in the effective management of resources in the organization. The first process is structuring the resource portfolio, which requires that firms engage in the acquisition and development of resources and, when necessary, delete less valuable resources, as well. The second process entails bundling resources to build unique and valuable capabilities. To create capabilities, managers can engage one or more processes, such as stabilizing, enriching, and pioneering. If firms have a competitive advantage and operate in a stable environment, they may engage in a stabilizing process whereby existing capabilities are incrementally improved. Enrichment, on the other hand, adds substantial value to existing capabilities, often by bundling new resources with existing ones. Pioneering involves the creation of new capabilities by recombining existing resources or using substantial amounts of resources added to the portfolio. In dynamic environments, enriching and pioneering bundling processes are increasingly necessary. The final primary process in the effective management of resources in the organization involves leveraging those capabilities to create a competitive advantage. Sirmon et al. argue that leveraging involves mobilizing the capabilities, coordinating them to create configurations, and then deploying them to exploit opportunities; that is, strategies are designed and executed to exploit market opportunities. I anticipate a considerable amount of research on the management of resources to exploit market opportunities will be conducted in the next few years.

2. Important topics in strategic management

Much research in the strategic management field has focused on why some firms outperform others. One explanation is that market imperfections allow this; thus, prior research has focused on the source of these imperfections and how firms take advantage of them. The RBV has been used to help explain why some firms outperform others.

2.1. Resources and resource management

Resource heterogeneity, a critical assumption of the RBV, is of importance. While both research on and usage of a resource-based theoretical perspective have become dominant in the field, there has been a significant amount of recent research focused on the importance of resources to firm outcomes. Such work is evidenced in Hoopes, Madsen, and Walker (2003), Makadok (2003), and Mishina, Pollock, and Porac (2004). Additionally, a spate of research has focused on the concept of dynamic capabilities, first voiced by Teece et al. (1997) and evidenced in recent works by Helfat and

2.2. International strategy

Another important area of research in strategic management focuses on what is required for success in international markets. Almost all large established US firms operate in international markets. Data suggest that approximately 50% of US SMEs also have sales outside the domestic market. Along with the increasing number of multinational enterprises, the interconnectedness of cross-border, regional, and even global markets places

EXECUTIVE DIGEST significant importance on the topic of international strategy. There are many areas of ongoing research under the umbrella of international strategy. Much work continues on international strategic alliances, as evidenced by the large number of papers at recent academic conferences held by the Academy of Management, Strategic Management Society, and Academy of International Business. A review of this research by Ireland et al. (2002) highlights the importance of strategic alliance activity and the current emphasis on learning how to manage the multiple alliances in which many firms engage. Of growing importance in recent years is the strategic action of cross-border mergers and acquisitions (M and As). The importance of cross-border M and As is emphasized by the recent acquisition of IBMs personal computer business by the Chinese firm, Lenovo. While much less research has been conducted on cross-border M and As than international strategic alliances, a recent review suggested that M and As are used to gain access to important international markets, to obtain new knowledge and develop new capabilities, and as a separate strategy designed to create value for the firms shareholders (Shimizu, Hitt, Vaidyanath, & Pisano, 2004). However, similar to the research on domestic acquisitions, there is much more we need to learn about international M and As, as they present greater challenges to achieving success than most other strategies. We know that many M and As are not successful (Hitt, Harrison, & Ireland, 2001; King, Dalton, Daily, & Covin, 2004). Recent research explains how firms can complete acquisitions that are valuable and difficult to imitate, thereby contributing to a competitive advantage (Morrow, Sirmon, Hitt, & Holcomb, 2005). Morrow et al. (2005) suggest when firms complete acquisitions that allow them to control new resources and combine these with existing resources to develop new capabilities, their performance is likely to improve. Another topic of increasing importance is firms strategies in emerging markets, why and how foreign firms enter them, and how local firms react (Wright et al., 2005). The strategies of emerging market firms have become increasingly important for several reasons. First, the accumulated value of foreign direct investment by these firms over time is now greater than $800 billion (UNCTAD, 2004). Additionally, it has been predicted that a few emerging market countries are likely to have a significant effect on the world economy over the next 2040 years. These countries include Brazil, Russia, India, and China, referred to as BRICs (Hitt, Li, & Worthington, in press).

373 A recent major focus of international strategy research has been the institutional environments of different countries. While much of what we have learned about institutions has been in the context of domestic environments (e.g., North, 1990; Scott, in press), we have begun to realize the importance of different institutional environments across countries (e.g., Henisz & Delios, 2002; Kostova, 1999). We have learned about the potentially significant effects of different institutional environments on firm strategies; put another way, firms may employ different strategies in different institutional environments (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004; Hitt et al., in press). Thus, the norms, values and rules of economic exchange affect the strategic behavior of firms. The institutional environment affects their competitive behavior, and also the means of learning the knowledge that firms need in order to be competitive. Additionally, firms are concerned about the resources they must have to be successful in different international markets and different institutional environments.

2.3. Innovation
Sponsored by the US Council on competitiveness, the National Innovation Initiatives final report, entitled bInnovate AmericaQ (2004), concluded that innovation was the single most important factor that will affect the success of US firms in the 21st century. While considerable research on innovation has been conducted over the past decade, more is needed. According to the Innovation Index created by Michael Porter, the US slipped in ranking from 1st in 2002 to 3rd in 2004. Furthermore, Richard Florida ranks the US 11th on his global creative-class index (the proportion of high-value-creative jobs in the economy) (Pfeffer, 2005). As the trend is not positive, US firms may desire to know why. Prior research has had several different foci, including the use of cross-functional teams to produce innovation (e.g., Maccoby, 1999), creating disruptive or breakthrough innovations (e.g., Christensen & Raynor, 2003), the outcomes of technology strategies (e.g., McEvily, Eisenhardt, & Prescott, 2004; Zahra, Ireland, & Hitt, 2000), and the determinants of new product development and success (e.g., Penner-Hahn & Shaver, 2005; Rothaermel, Hitt, & Jobe, 2004). Research has been conducted on how corporate and business-level strategies affect innovation (e.g., Afuah, 2001; Hoskisson & Hitt, 1988). While differences of opinion exist, we have learned that M and As can lead to reduced innovation output

374 (Hitt, Hoskisson, Johnson, & Moesel, 1996) and that acquisitions can even be used as a substitute for innovation, as exemplified in the pharmaceutical industry over the last decade (Hitt, Hoskisson, & Ireland, 1990). Yet, firms clearly can implement processes that enhance their innovation (Ahuja & Katila, 2004; Ahuja & Lampert, 2001). Research shows that much technology development creates capabilities in an evolutionary fashion; that is, the development is largely path dependent. Radically new technologies are created in idiosyncratic conditions that btrigger unique innovation search pathsQ (Ahuja & Katila, 2004, p. 887). These conclusions are consonant with Clayton Christensens work. However, recent research also suggests that firms try to buffer their own unique and valuable technological knowledge while simultaneously trying to stay attuned to new externally created technological knowledge. The firms that are best able to do both tend to enjoy the most success when their innovative new products are introduced to the market (Rothaermel et al., 2004). Two recent phenomena of potential importance are the increased number of international R & D alliances formed (Oxley & Sampson, 2004) and efforts to establish R & D centers in foreign countries (Li & Holmes, 2005). The R & D alliances are designed to use different but complementary knowledge stocks to create uniquely new innovations. Alternatively, foreign research centers usually have two purposes. First, they are intended to build on knowledge unique to the host country that allows the firm to develop products that will be successful in that countrys domestic markets. This is especially important where the markets are large (e.g., China). The second purpose of foreign research centers is to obtain new knowledge that can be diffused throughout the organization to create innovative products that are competitive in global markets.

EXECUTIVE DIGEST In past years, much of the strategic leadership research focused primarily on the demographic characteristics of top executives and top management teams. Recent research, however, represents a perceptible change. For example, the work of Cannella and Shen (2001) examines executive succession. Cannellas earlier work suggested the need for a focus on processes (e.g., Cannella & Lubatkin, 1993). His most recent work with Don Hambrick examines the predictors of when CEOs have COOs. While the authors are unable to articulate when COOs are beneficial, they found that firms with both CEOs and COOs have lower performance than those with CEOs only (Hambrick & Cannella, 2004). Certainly, this finding poses several questions for future research. The work by Shen and Cannella suggests different processes are used in executive succession decisions. More research is still needed on the process of making and implementing strategic decisions. Recent work has focused on strategy making processes. A book edited by Chakravarthy et al. (2003) examined the dynamics of strategy content over time, the effect of strategy process dimensions on firm performance, the interrelationship between firm context and strategy process, and the linkage among context, process, and outcomes. The editors emphasize how firms develop strategies that create and sustain competitive advantages. Another book edited by Floyd et al. (2004) explains the genesis of innovative strategy making, contexts for innovation, and models of strategic renewal. While the book examines processes, it also focuses on innovation, integrating two important topics discussed herein. Although these edited books provide a beginning foundation, we clearly need more research on strategy making and strategy implementation processes. Hopefully, these books will serve as a catalyst for future theoretical and empirical research.

2.4. Strategic leadership and processes

Although much of the research of the last 25 years has focused on the content of strategies, we know little about the processes used to make strategy and policy. In fact, we have used highly coarsegrained proxies for processes such as the degree of heterogeneity of TMTs. There is a definite need to better understand the processes used to develop and implement effective strategies. This concern extends to governance, especially the board of directors. What are the processes used by the board of directors to evaluate and approve (or not) major strategic decisions (e.g., acquisitions)? How does a board remove and replace a CEO?

2.5. Corporate governance and strategic entrepreneurship

Another important topic in both practice and the academic literature on strategic management is corporate governance. Corporate governance is actually important in both the fields of finance and strategic management. Because of its practical and scholarly importance, it is receiving its own focus in this journal. This being the case, I will not address the topic in this piece, but encourage readers to refer to the bspotlight on corporate governanceQ that appears in each MarchApril issue of Business Horizons. Another topic of growing importance in strategic management is

EXECUTIVE DIGEST strategic entrepreneurship. Entrepreneurship is also receiving its own spotlight in this journal, appearing each JulyAugust; hence, I will not cover the topic in depth. Nonetheless, strategic entrepreneurship deserves a few points of emphasis for this review. Recent research has suggested that in order to enjoy success over time, new venture firms (as well as older and more established firms) must be both strategic and entrepreneurial. New venture firms are generally more entrepreneurial, but often do not succeed because they do not take strategic actions that allow them to establish and maintain a competitive advantage. Alternatively, while established firms may enjoy a competitive advantage, they are likely to lose it over time if they are not entrepreneurial. Additionally, established firms sometimes find it difficult to be entrepreneurial (Hitt, Harrison et al., 2001, Hitt, Ireland et al., 2001; Hitt et al., 2002; Ireland, Hitt, & Sirmon, 2003). Because of its topical importance, the Strategic Management Society is in the process of developing a new journal, entitled Strategic Entrepreneurship Journal (SEJ). While there are many other topics on which research is conducted in strategic management, I have tried to emphasize some of the most important to the field and to top executives. I hope this short essay provides a measure of excitement and useful information that promotes further research. Moreover, I hope it entices insightful managers and executives to examine this research in more depth as a means of guidance for making strategic decisions in their organizations.

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Barney, J. B. (1991). The firm resources and sustained competitive advantage. Journal of Management, 17, 99 129. Barney, J. B. (2001). Resource-based theories of competitive advantage: A 10-year retrospective on the resource-based view. Journal of Management, 27, 643 650. Boyd, B. K., Gove, S., & Hitt, M. A. (2005). Construct measurement in strategic management research: Illusion or reality? Strategic Management Journal, 26(3), 239 257. Cannella Jr., A. A., & Lubatkin, M. (1993). Succession as a sociopolitical process: Internal impediments to outsider selection. Academy of Management Journal, 36(4), 763 793. Cannella Jr., A. A., & Shen, W. (2001). So close and yet so far: Promotion versus exit for CEO heirs apparent. Academy of Management Journal, 44(2), 252 270. Chakravarthy, B., Mueller-Stewens, G., Lorange, P., & Lechner, C. (Eds.) (2003). Strategy process: Shaping the contours of the field. Oxford, UK7 Blackwell Publishers. Chandler, A. D. (1962). Strategy and structure. Cambridge, MA7 MIT Press. Christensen, C. M., & Raynor, M. E. (2003). The innovators solution: Creating and sustaining successful growth. Boston7 Harvard Business School Press. Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. Englewood Cliffs, NJ7 Prentice-Hall. Daily, C. M., Dalton, D. R., & Rajagopalan, N. (2003). Governance through ownership: Centuries of practice, decades of research. Academy of Management Journal, 46(2), 151 158. DAveni, R. (1994). Hypercompetition: Managing the dynamics of strategic maneuvering. New York7 The Free Press. Dyer, J. H., & Singh, H. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4), 660 679. Finkelstein, S., & Hambrick, D. (1996). Strategic leadership. St. Paul, MN7 West Educational Publishing Company. Floyd, S. W., Roos, J., Jacobs, C. D. & Kellermanns, F. W. (Eds.) (2004). Innovating strategy process. Oxford, UK7 Blackwell Publishers. Gimeno, J. (2004). Competition within and between networks: The contingent effect of competitive embeddedness on alliance formation. Academy of Management Journal, 47(6), 820 842. Gulati, R., & Singh, H. (1998). The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative Science Quarterly, 43(4), 781 814. Hambrick, D. C., & Cannella Jr., A. A. (2004). CEOs who have COOs: Contingency analysis of an explored structural form. Strategic Management Journal, 25(10), 959 979. Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resourcebased view: Capability lifecycles. Strategic Management Journal, 24(10), 997 1010. Henisz, W. J., & Delios, A. (2002). Learning about the institutional environment. In P. Ingram, & B. Silverman (Eds.), The new institutionalism in strategic management. Advances in strategic management, vol. 19 (pp. 339 372). New York7 JAI Press. Hitt, M. A., Ahlstrom, D., Dacin, M. T., Levitas, E., & Svobodina, L. (2004). The institutional effects on strategic alliance partner selection in transition economies: China vs. Russia. Organization Science, 15(2), 173 185. Hitt, M. A., Boyd, B. K., & Li, D. (2004). The state of strategic management research and a vision for the future. In D. Ketchen, & D. Bergh (Eds.), Research methodology in strategic management (pp. 1 31). Amsterdam7 Elsevier Publishing. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). Mergers and acquisitions: A guide to creating value for stakeholders. New York7 Oxford University Press.

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