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  • August 2017
  • Article
  • Management Science

A Formal Theory of Strategy

By: Eric J. Van den Steen
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Abstract

What makes a decision strategic? When is strategy most important? This paper formally studies these questions, starting from a (functional) definition of strategy as “the smallest set of choices to optimally guide (or force) other choices.” The paper shows that this definition coincides with the equilibrium outcome of a “strategy formulation game,” in which such strategy endogenously creates a hierarchy among decisions. With respect to what makes a decision strategic and what makes strategy valuable, the paper considers the effect of commitment, reliability, and irreversibility of a decision; the presence of uncertainty (and the type of uncertainty); the number and strength of its interactions and the centrality of a decision; its level and importance; the development of capabilities; and competition.

Keywords

Strategy Development; Strategy; Decisions

Citation

Van den Steen, Eric J. "A Formal Theory of Strategy." Management Science 63, no. 8 (August 2017): 2616–2636.
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About The Author

Eric J. Van den Steen

Strategy
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