An Attention-Based Theory of Strategy Formulation: Linking Micro- and Macroperspectives in Strategy Processes

Macro- and microorganizational perspectives on strategy processes are typically treated as distinct lines of inquiry. This paper proposes an attention-based theory (March & Olsen, 1976; Ocasio, 1997) of strategy formulation processes to bridge both perspectives. In particular, it links evolutionary perspectives on strategy (Burgelman, 1991, 2002) and strategic choice (Child, 1972) perspectives on organizational and strategic decision making (Bower, 1970; Carter, 1971; Cyert & March, 1963; Frederickson, 1986). Our treatment of the strategy process extends theory by viewing strategy processes as assemblages of tightly and loosely coupled networks of operational and governance channels (Allison & Zelikow, 1999; Ocasio, 1997), strategy formulation as a fluid and distributed process, and environmental, organizational level and individual level forces as consequential. Like Lovas and Ghoshal (2000), we view strategy formulation as a process of guided evolution. Unlike Lovas and Ghoshal who view strategic intent as the objective function that guides evolution, we view strategy formulation processes as more fragmented and contested, with multiple foci of attention, rather than an explicit objective function, and both top-down and bottoms-up processes capable of generating changes in the strategic direction of the firm. Top-down perspectives on strategy formulation from Andrews (1971), Prahalad and Bettis (1986), Hamel and Prahalad (1989), and Lovas and Ghoshal (2000) focus on how strategy formulation is guided by policies and plans, dominant logic, or strategic intent of the top management of the firm. While attention is not an explicit focus of any of these perspectives, each can be interpreted as showing how the top management of the firm shapes the organization's agenda and focus, identifying issues and goals that guide organizational attention. In their retrospective account on dominant logics, Bettis and Prahalad (1995) make the connection with attention more explicit, positing that dominant logics provide a perceptual filter that channels managerial attention and choice-making behavior. In this paper, we will make the connection between organizational attention and the managed evolution of strategy more explicit. But rather than positing an exclusive role for top management in shaping organizational attention, we argue that attention is guided by distributed processes and the channels of decision making through which information flows and by which people engage in dialog. It is through these channels that the organizational managers communicate and make critical and discrete decisions that involve organizational resources. Channels allow actors to conjecture the future state of the environment, guide operations, establish rewards, and utilize feedback on key initiatives given a particular set of organizational and individual capabilities and priorities. Given the significance of these mechanisms, it is appropriate that the processes and their conduits become central to our investigation. It is, therefore, the form and characteristics of the firm's operational and governance channels - the vehicles for corporate decision-making processes - that are our focus. We propose that strategy formulation emerges from the pattern of organizational attention embedded in the interacting network of concrete operational and governance channels at both the corporate and business unit level. These operational and governance channels include formal decision-making channels, such as board of directors meetings, board committee meetings, Executive Committee meetings, operating committee meetings, capital and operating budgeting requests, financial performance reviews, strategic planning reviews, and employee evaluations. They also include ad-hoc channels for mergers and acquisitions, changes in organizational structure, joint venture activity, and informal interactions, not a regular part of formal processes. The objective of this paper is to explain the dynamics of corporate strategy formulation through the lens of an attention-based view and through a focus on channels. The paper explains how the firm's two types of channels - operational and governance channels - and its economic and social structures regulate the attention of its decision makers and thus impact the micro processes of strategy formulation. It further links decision making in channels to the macro processes of strategy evolution. We posit that strategy formulation is ultimately about the selective retention of strategic initiatives made in corporate decision-making channels in which actors are embedded, and that through this network, retained initiatives become enduring activities of the firm and strategy finds practical expression. We extend existing theory by exploring how decision-making channels may be tightly or loosely coupled from each other and how that results in an overall pattern of corporate strategy.