Abstract

Literature on strategic management has largely concentrated on strategy formulation, or, the analysis of strategic content, whereas limited attention has been given to the implementation of strategy, or the analysis of the strategic process. This study represents process research and approaches strategy as practice.

The aim of this study is to increase both empirical and theoretical understanding of the nature of the processes or generative mechanisms through which the strategies are formed in small software companies — i.e., to open up the ‘black box’ of strategy formation.

The field of strategic management studies is mapped with the help of reviews and meta-theoretical analyses conducted by other researchers, shedding light on the content aspect of strategy. To understand the process and context of strategy, the network perspective and the research of change are reviewed. Based on the literature review and data analysis, an a priori model is developed.

The empirical research is based on the analysis of the development process of three entrepreneur-led software companies located in Kajaani, Finland, and the research is conducted as a process research using the method of a multiple case study.

Based on the data analysis and the a priori model, the generative mechanisms inside the process of strategy formation in the case companies are identified: situational and transformational mechanisms, formed by the interplay of Network Visioning and Organising, and action-formation mechanism, formed by the interplay of Strategising and Organising.

By opening up the ‘black box’ of strategy formation, this study increases the understanding of the reality of small software companies and the effect of the context of software business on the development of the companies. Recognising the different elements affecting strategy formation may help the companies to be aware of the mechanism affecting their development and to guide the development in the direction deemed appropriate.