Decision weaving: Forming novel, complex strategy in entrepreneurial settings

• Date: 01 December 2020
• Author: Kathleen M. Eisenhardt,Timothy E. Ott
• DOI: http://doi.org/10.1002/smj.3189
• Published date: 01 December 2020

RESEARCH ARTICLE

Decision weaving: Forming novel, complex

strategy in entrepreneurial settings

Timothy E. Ott

1

| Kathleen M. Eisenhardt

2

1

Kenan-Flagler Business School,

University of North Carolina at Chapel

Hill, Chapel Hill, North Carolina

2

Department of Management Science and

Engineering, Stanford University, Huang

Engineering Center, Stanford, California

Correspondence

Timothy E. Ott, Kenan-Flagler Business

School, University of North Carolina at

Chapel Hill, 300 Kenan Center Drive,

Chapel Hill, NC 27599.

Email: timothy_ott@kenan-flagler.

unc.edu

Abstract

Research Summary: Strategy formation is central to

why some firms seize novel opportunities while others

fail. We explore a core dilemma of strategy formation

in entrepreneurial settings—whether to learn a novel

strategy one domain at a time (modular) versus assem-

ble a complex strategy of coherent activities across all

domains at once (integrative). By studying six ventures,

we develop a theoretical framework for how entrepre-

neurs effectively form novel, complex strategy: Decision

weaving. They (a) employ sequential focus (not paral-

lel), (b) pause at plateaus (not optima), and (c) deploy

stepping stones (not leaps) in background domains.

These behaviors enable both fast, effective learning and

evolving yet holistic understanding of an emerging

strategy. Overall, we contribute to the micro-

foundations of strategy by proposing a cognitively

sophisticated, yet realistic strategist.

Managerial Summary: Strategy formation is central

to why firms seize novel opportunities while others fail.

By comparing three venture-pairs, we develop a fresh

framework for strategy formation in nascent markets

where strategy is both novel and complex: Decision

weaving. Effective strategists: (a) use sequential focus

(not parallel) to learn about successive focal strategic

domains, (b) pause at learning plateaus to consolidate

that knowledge about a focal domain, and (c) use

stepping stones to make progress in background

domains without losing focus. These behaviors enable

both fast, effective learning, and evolving yet holistic

Received: 8 October 2018 Revised: 10 April 2020 Accepted: 14 April 2020 Published on: 20 July 2020

DOI: 10.1002/smj.3189

Strat Mgmt J. 2020;41:2275–2314. wileyonlinelibrary.com/journal/smj © 2020 John Wiley & Sons, Ltd. 2275

understanding of an emerging strategy. More impor-

tantly, these behaviors set the stage for rapid and prof-

itable scaling (i.e., growth).

KEYWORDS

entrepreneurship, managerial cognition, microfoundations,

strategic decision making, strategy formation

1|INTRODUCTION

In 2002, Reid Hoffman and Konstantin Guericke spotted an opportunity to connect business

professionals. At the time, LinkedIn was just one of several ventures like Ryze and ZeroDegrees

with entrepreneurs who saw an opportunity in the nascent professional networking market

(Piskorski, 2007). Yet spotting the opportunity was a long way from forming a successful strat-

egy to seize it. LinkedIn became a global star, but its founders first had to learn about strategic

domains (e.g., product design, network, marketing, and sales) and create activities within those

domains. It took about 3 years before they formed the winning strategy that seized the opportu-

nity, and paved the way for LinkedIn's stellar success (Piskorski, 2007). Meanwhile, its peers

ineffectively formed strategies and faded.

As the LinkedIn vignette suggests, strategy formation is central to why some firms succeed

in seizing promising opportunities in entrepreneurial settings while others do not. Consistent

with prior work (Eisenhardt & Bingham, 2017; Porter, 1996; Rivkin, 2000), we define strategy

as the set of interdependent activities by which a firm attempts to create advantage and succeed.

Strategy formation is then the process by which executives build this set of activities. Consistent

with Porter and Siggelkow (2008), we define activities as discrete organizational processes

within a firm that can be deployed in multiple ways. As markets become more uncertain, these

activities shift from elaborate routines emphasizing efficiency to a few simple rules highlighting

flexibility (Davis, Eisenhardt, & Bingham, 2009; Van den Steen, 2017). Often these processes

cluster into strategic domains—a construct that inductively emerged from our data and which

our informants implicitly defined as subsets of significant activities more related to each other

than to other activities in the firm.

1

By entrepreneurial settings, we mean the context of new firms competing in nascent markets.

Nascent markets are characterized by incomplete or fleeting market structures (Eisenhardt,

1989b; Fombrun & Rindova, 2001), unclear or contested product definitions (Hargadon &

Douglas, 2001), ambiguous demand (Hiatt & Carlos, 2019; Ozcan & Eisenhardt, 2009), and lack

of a dominant logic or legitimated category (Navis & Glynn, 2010). As recent illustrations like

air taxis (Zuzul & Tripsas, 2020), personal genomics (McDonald & Gao, 2019), and fintech

(McDonald & Eisenhardt, 2020) reveal, nascent markets are typically business environments in

1

Although inductively derived, this definition is consistent with groupings or clusters of interrelated strategic activities

identified in prior strategy research (Gavetti, Levinthal, & Rivkin, 2005; Hannah & Eisenhardt, 2018; Siggelkow, 2002).

These domains vary across firms. For example, “big box”retailers like BestBuy have logistics, purchasing, advertising,

and store operations among their strategic domains. Pharmaceutical firms like Merck have R&D, clinical trials,

marketing and sales among their strategic domains.

2276 OTT AND EISENHARDT

which a few firms try to successfully navigate a “high velocity”(i.e., uncertain, ambiguous, and

fast-paced) landscape.

The importance of strategy formation has led to interest in strategy's microfoundations—i.e.,

How do individual executives and teams influence the formation of firm-level strategy (Helfat

& Peteraf, 2015; Laamanen & Wallin, 2009). Important lines of work explore precursors to strat-

egy like founder experience (Benner & Tripsas, 2012) and values (Rindova & Martins, 2017),

and pivotal early choices among discrete “forks in the road”like different business models

(McDonald & Eisenhardt, 2020) and acquisition versus commercialization (Gans, Stern, & Wu,

2019). Yet this work leaves open the process of strategy formation. For example, Gans et al.

(2019) describe Walt Disney's pivotal decision to start a venture versus be acquired, but leave

unexplored how Disney then went from a promising commercial opportunity to forming the

strategy of his eponymous venture to seize it.

Two perspectives closely inform the strategy formation process in entrepreneurial settings.

One line of inquiry examines organizational processes that promote learning and flexibility.

Processes such as trial and error (Rindova & Kotha, 2001), experimentation (Murray & Tripsas,

2004), and bricolage (Baker & Nelson, 2005) enable strategists to learn about nascent markets

and adjust their actions. While thinking occurs, this literature emphasizes “strategizing by

doing”—i.e., flexibly taking actions and learning (Ott, Eisenhardt, & Bingham, 2017). Here

strategy formation focuses on seizing opportunities that are different from the past, and centers

on forming a novel strategy.

A second line of inquiry is the managerial cognition literature. While this literature includes

cognitive processes, others (Helfat & Peteraf, 2015) have noted that this research emphasizes

cognitive structures that provide integrative representations (see Eggers & Kaplan, 2009 as an

exception). While action matters, this literature emphasizes “strategizing by thinking”—i.e.,

using cognitive structures to guide formation of a complex strategy (Ott et al., 2017; Raffaelli,

Glynn, & Tushman, 2019). Here strategy formation focuses on combining activities—relating to

customers, suppliers, logistics and so forth—into a complex strategy (i.e., multiple distinct yet

connected elements) of activities (Porter, 1996; Siggelkow, 2002). Fit among activities helps to

make a strategy effective and inimitable (Rivkin, 2000).

Together, these perspectives attest to the benefits of learning to form a novel strategy

and cognitive structure to provide a blueprint for forming a complex one. Yet while the

learning literature is helpful, it is not clear how to organize learning across strategic

domains and over time to gain beneficial experiences. While the managerial cognition liter-

ature is useful, it is unclear how to update cognitive structures as markets evolve and learn-

ing occurs. More broadly, these perspectives reveal a tension between novelty and

complexity that underlies strategy formation in nascent markets. Since it is difficult to learn

when too many activities are changing at once,learninganovelstrategyinanascentmar-

ket suggests a modular approach (i.e., one domain at a time). In contrast, ensuring fit

among activities across domains for a complex strategy suggests an integrative approach

(i.e., all domains at once).

Overall, the tension between novelty and complexity creates a core dilemma: form strategy

one domain at a time (modular) versus all domains at once (integrative). The high-level advice

might be to focus on one domain while not losing sight of the whole. Yet while this may seem

like common sense, how do entrepreneurs actually achieve this balance? Should they oscillate

among domains, attack some, or something else? Thus, we address a core dilemma at the heart

of strategy formation in entrepreneurial settings by asking: How do entrepreneurs form novel yet

complex strategy in nascent markets?

OTT AND EISENHARDT 2277