In this study, we use a multi-method approach to examine the following questions: when faced with explicit profit gaps, does a firm's strategic orientation influence manager perceptions regarding the ability of various tactical options to resolve the gap, do managers feel pressure to pursue certain tactical options over others, and what implications do tactical mismatches with strategy have for long-term gap resolution? As part of the research process, we build a grounded systems model (using grounded theory and Systems Dynamics techniques) which attempts to capture how tactical changes, in combination with the firm's competitive strategy, can ostensibly impact a firm's profit gap over time. Surveys are then used to evaluate the model, including simulations which evaluate the efficacy of manager's preferred tactics to resolve the profit gap in the short and long-term. Results show that while managers feel competing pressure to resolve a profit gap using both tactics aligned with their strategy and tactics designed to cut costs, they are biased toward short-term cost cutting tactics in such situations – often resulting in misalignment with the firm's focal strategy. Should such misalignment occur, while short-term gaps may be resolved, long-term gaps remain unresolved or may even expand, i.e., things get “better before worse”. This research contributes to understanding how managerial tendencies and tactical adjustments contribute to or detracts from a firm's ability to realize their intended strategy. Although research has investigated the content of strategy, research has not fully investigated the dynamics through which tactical shifts may impact strategic outcomes.
- System dynamics