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Deception as strategy: context and dynamics.

"... All warfare is the way (Tao) of deception. Therefore, when capable, feign incapacity; when active, inactivity. When near, make it appear that you are far away; when far away, that you are near. Offer the enemy a bait to lure him; feign disorder and strike him..." Sun Tzu.

The concept of strategic deception is not new in strategy and can be traced to early writings of Sun Tzu, Machiavelli, and Aristotle, among others. Over time, classic stratagems that had military and political origins have found their way into strategic management concepts. The term strategy is derived from strategos, a Greek term used to describe a military commander during the Hellenistic times that marked the zenith of Greek influence around the Mediterranean region. Bracket (1980) offers meaningful insight into the Greek verb stratego: a plan to destroy one's enemies through effective use of resources. Many terminologies in the corporate environment such as feints and guerilla tactics remind one of the similarities between military strategy and business. This romanticized view of strategy, is evident in the way strategy studies have treated the exploits of Sun Tzu, Hannibal, Machiavelli, and the Normandy invasion, among others. The writings of Sun Tzu are an important reading in many business schools while a whole stream of organizational research is devoted on Machiavelli. Despite the rich anecdotal evidence of strategic deception in business, there are many gaps to be filled by the research. Scholars have hypothesized on different dimensions of strategic deception such as feints, bluffs, gambits, and curveballs (Carr, 1968; McGrath et al., 1998; Hendricks and McAfee, 2006; Stalk, 2006) based on descriptive, game-theoretic or signaling theory.

Tiffs paper identifies gaps in the existing knowledge of strategic deception literature, and suggests promising directions for future research. Areas that have not been addressed in the literature include the integration of existing perspectives on deception, evaluating key variables that affect deception and contexts that lead to deception. A contextual framework for deception has been developed. Deception is framed in a context of uncertainty, while the rationale for deception is described from a transaction cost perspective. The paper also highlights the role of strategic leaders as key players in the decision-making process. Ultimately, deception has wider unintended implications that are discussed.

Strategic deception refers to strategic actions aimed at misleading rivals from the true strategic intent of the firm or the environment. The extent and nature of deception may vary from simple concealment of trivial information to outright lies and disinformation. Consequently, deceptive strategies may range from perfectly legal competitive strategies to illegal practices of lying to gain an advantage. While the interest here is to examine realistic conditions that lead to strategic deception in competitive environments, the concern in this paper is not to delve into the ethics of deception. Senior corporate executives are responsible for strategic decisions within their firms, including strategic deception. From the strategic leadership literature, key firm executives have significant influence over firm strategies and organizations and the strategies they adapt are a reflection of those executives (Hambrick and Mason, 1984; Boal and Hooijberg, 2000; Finkelstein and Hambrick, 1996). It is these senior corporate executives that make deceptive strategic choices. Consequently, the firm's strategic choices can be better understood by evaluating top executives' behavioral orientations, decision-making processes, and organizational context. CEOs are motivated to make strategic choices on the basis of many variables. Evaluating the context and CEO's behavioral orientations helps shed more light on how deceptive strategies emerge in the decision-making process.

The current competitive environment is characterized by uncertainty that has been compounded by the state of the global environment. Due to globalization, various forms of external uncertainty have become a permanent feature of the competitive landscape. Uncertainty impairs the firm's field of vision and ability to make accurate forecasts. There is extensive research on how uncertainty affects organizational outcomes. Uncertainty is bound to increase the level of asymmetric information and the premium placed on private information. On the basis of CEOs' behavioral orientations, uncertainty provides a context of risks and opportunities.

Williamson's behavioral assumptions for transaction costs provide an ideal context for examining behavioral orientations that may lead to strategic deception (Williamson, 1985). Opportunism and bounded rationality provide a rationale for CEO behavior. Opportunism facilitates a competitive environment that accounts for aggressive pursuit of profits among firms but also creates an incentive for deception. Bounded rationality is the second significant behavioral characteristic of the firms' top executives. Due to bounded rationality, ensuing cognitive limitations may lead to incompetence. Such conditions create opportunities for target firms to be subjected to deception. Information impactedness compounds the problem of bounded rationality. Information impactedness occurs when one firm has more knowledge of an exchange than the rest (Williamson, 1975). Such a firm may opt to exploit the opportunity and make arbitrage profits. Even under the best of intentions, it may be costly to disseminate this information to the rest of the actors effectively because such executives may be cognitively limited to fully comprehend the context of the information. Conditions of uncertainty, bounded rationality, asymmetric information, and information impactedness provide an ideal framework for strategic deception. Another key variable is the ethical orientation of the firm. Ethics and values of the organization moderate the effects of opportunism by acting as a filter of possible strategic options. Corporate executives with high moral values will filter strategic alternatives from an ethical perspective. More ethical firms are likely to have policies in place that prohibit certain opportunistic practices or act with restraint where there are ethical dilemmas.

RELEVANT LITERATURE

Some studies have framed the concept of strategic deception as a game, just like poker, where the main objective is to win. Carr (1968) observes that strategic deception is an integral part of business practice wherein subtle deceptions of the half-truth or misleading omission are often enacted in successful businesses. Consequently, those executives who fail to master deceptive techniques are most likely to fail. This implies that strategic deception is a valid and legitimate tool in implementing firm strategy and there needs to be a veil of ignorance between the executive's personal ethics and conduct as a corporate executive.

The exploitation of private information is prevalent in many strategic concepts. McGrath et al. (1998) suggest the means by which a firm may use asymmetric information for competitive advantage. A firm's resource allocation logic is driven by specific actions of competitors, and strategists can use the signaling effect of resource allocation to influence how rivals allocate their resources. Using a variety of strategies such as thrusts, feints, and gambits, the firm will divert competitors' resources from where they can be used most effectively, consequently enhancing competitiveness in such areas. A second order benefit from this strategy is the avoidance of direct rivalry that is costly on both competitors and fraught with unintended consequences. Stalk (2006) identifies four strategic acts of deception that are likely to fool the competition. The first curveball strategy involves luring competitors away from crown jewels to marginal customers. The second strategy is the use of unfamiliar strategies that may include mimicking unfamiliar strategies from other industries. The third and fourth strategies involve exploiting asymmetric information by disguising success and leading competitors to misinterpret one's business model.

Scholars have shown interest in game theoretic implications of strategic deception. Using game theory in a condition of bounded rationality, Crawford (2003) finds that in some cases of misrepresenting intentions to competitors, rational players exploit boundedly rational players but are not themselves fooled. In other cases, rational players' strategies offset each others' gains, thereby protecting all players from being exploited. Other scholars have examined strategic deception using signaling theory. Hendricks and McAfee (2006) find that firms often use feints to disguise their true intent while introducing new products or entering new markets. A feint will work if there is potential payoff from tooling the competition. The competitor is more likely to respond in a less noisy world because information in this context is meaningful. However, in such environments, the attacker always invests more resources in attacks than feints.

Using a variety of arguments, business ethicists have argued on the ethical implications of strategic deception. On one end of the divide, some researchers perceive strategic deception as a legitimate means of competition such as playing poker (Carr, 1968) or as role-differentiated positions (Allhoff, 2003). Others have proposed that bluffing does not constitute lying because businessmen do not always guarantee that what they say is true (Carson, 1993). On the other side of the argument, some studies have formulated deception in the same context as other forms of unethical practice such as misrepresentation, lying, and dishonesty (Crawford, 2003). In an empirical analysis of bluffing during competitive rivalry, Guidice et al. (2009) find that corporate executives have two different perceptions on misleading competitors as opposed to other stakeholders. Less unethical executives are more likely to bluff while bluffing has negative consequences on performance in repeated transactions. Bluffing as strategy, is effective in the short-term but causes potential rivals to be more vigilant in the long-term. Tenbrunsel and Smith-Crowe (2008) have offered a comprehensive summary of the state of the research in this area. Table 1 summarizes relevant research on strategic deception.

Adaptation Issues

The concept of opportunism is related to strategic deception and has been extensively analyzed (Williamson, 1985; Nooteboom et al., 1997; Ghoshal and Moran, 1996; Das and Teng, 1998). Williamson describes opportunism as self-interest seeking with guile (Williamson, 1975: 26); both active and passive forms (of deceit) and both ex ante and ex post types are included (Williamson, 1985: 47). This study adapts Williamson's description of opportunism; deliberate or calculated use of information with an intention to mislead, confuse or distort for personal gain. Most firms, through their executives, are unlikely to be opportunistic all the time. However, it is equally not feasible to determine which individuals are likely to be opportunistic in future transactions, or to guarantee and enforce credible commitments all the time. Even among those individuals that are less opportunistic, most have their price (Williamson, 1979: 234), leading to a potentially significant threat. A mutually assured threat of opportunism within the competitive environment provides firms with the incentive to pursue their objectives aggressively while laying out explicit contractual arrangements on how they interact with each other. Credible threats, when mutually considered, provide a realistic framework for competition that involves protecting oneself while actively pursuing profits. When there are strong market and industrial institutions, such interactions can also be enforced through various forms of institutional isomorphism. Other scholars have described CEOs' strategic opportunism as the ability to remain focused on long-term objectives while remaining flexible enough to solve day-to-day problems and recognizing new opportunities (Isenberg, 1996). This description suggests that one dimension of opportunism involves adaptation to new conditions.

Assuming that most human actors have the best intentions, those who are more opportunistic will be able to exploit egregiously those who are more principled (Williamson, 1985: 64). The condition of opportunism is essential because it explains the need for self-protection against potential harm and aggressive pursuit of profits. Aggressive competition on its own may or may not constitute opportunism. Conditions of uncertainty and bounded rationality are likely to increase the likelihood of opportunism. Similarly, there is less likelihood of opportunism in static environments with near-perfect information.

Proposition 1: Bounded rationality will increase the likelihood of opportunism.

The Specific Case of Environmental Uncertainty

In order for strategic deception to be effective, certain specific conditions must be in place. One such condition is asymmetric information between the competitor and rival. Both competing firms may compete in the same environmental space. However, bounded rationality may lead one firm to exploit superior knowledge of the environment or asymmetric information through deception. There is ample literature on bounded rationality (Williamson, 1985; Simon, 1982; Cyert and Marcia, 1963). That human beings are purposively rational, but only limitedly so (Simon, 1982), can be reflected in the type and amount of information that executives discern from the environment and how they make interpretation of such information. Eckhardt and Shane (2003) argue that markets do not offer information about new technologies, geographical markets, or products that may emerge or change. Based on this model, imperfect knowledge and information about the environment is a condition that firms have to overcome in their- decision-making processes.

Uncertainty is caused, in part, by the inability to predict future events and ambiguous firm objectives. Early organizational scholars laid a terra firma in concepttualizing uncertainty (Cyert and March, 1963; March and Simon, 1958; Lawrence and Lorsch, 1967; Raiffa, 1968). Uncertainty is the degree to which an absence of a pattern, unpredictability, and unexpected change characterizes a firm's competitive context (Cannella et al., 2008; Dess and Beard, 1984; Keats and Hitt, 1988). External forces have positive or negative effects on the firm's competitiveness and viability. Consequently, effective strategic choice will strive to align the firm's strategic logic with its environment. However, cognitive limits account for inability by rivals to understand underlying strategic logic (Hambrick and Mason, 1984). Such lack of cognitive competence may arise out of impaired focus, inaccurate perceptions, and interpretation of facts. Even when rivals are focused on actions within the strategic theatres such as centers of competitive activity including product offerings, pricing, and promotion activities, as they should, those activities may be decoys used to conceal the real strategic actions.

The chosen strategy will be partly determined by the level and type of external environmental uncertainty (Desarbo et al., 2005; Lawrence and Lorsch, 1967; Hambrick, 1983). Turbulence often leads firms to adapt short-term strategies, while a stable environment is conducive to longer-term strategies. From a transaction cost perspective, uncertainty presents a governance problem due to potential opportunism and inability to sustain credible commitments (Williamson, 1985; Carson el al., 2006).

Van Gelderen et al. (2000) propose three types of environmental uncertainty for start-up businesses. It is suggested here that these three types of environmental uncertainty are typical for most businesses. These three types of uncertainty are exacerbated by asymmetric information and increase the probability that competitive firm opportunism will ultimately occur:

* Environmental changes - Changes can occur as the result of new technological developments, consumer preferences, the emergence of new markets, or new products offered within the industry. Firms can be deceived as to the extent, timing, and capabilities of these changes.

* Environmental complexity - The diversity of environmental elements that firms must analyze and appropriately respond to depends on the sophistication of knowledge and information necessary to act. Environmental elements like government regulation, economic factors, and vendor/supplier relationships taken as a set could be manipulated by other firms through their own social networks.

* Limited resources in the environment - The unavailability of resources in the industry in relation to the number of competitors limits firm flexibility and decision-making alternatives. Firms could be steered to decisions based on the perceived lack of information about resources available.

In addition, during periods of environmental uncertainty, there are less cost savings from governance structures that lean towards vertical integration (Afuah, 2001; Harrigan, 1985; Balakrishnan and Wernerfelt, 1986). More environmental uncertainty is more likely to muddy the competitive waters, reduce the clarity and accuracy of interpretation of the environment, and offer opportunities for harm. Environmental uncertainty also creates ideal conditions for stealth operations within the competitive environment making the likelihood of competitor opportunism more prominent.

Proposition 2: Environmental change will lead to more competitor opportunism.

Proposition 3: Environmental complexity will lead to more competitor opportunism.

Proposition 4: Limited environmental resources will lead to more competitor opportunism.

Bounded Rationality and Opportunism

Further relationships between opportunism and bounded rationality can be hypothesized. Bounded rationality causes inability to make sense of complex phenomenon, especially in uncertain environments. Different states of rationality and opportunism will lead to unique opportunities for strategic deception along the same continuum. The confluence of uncertainty and bounded rationality creates competitive holes which can be exploited by the more competent firms with private knowledge of market conditions. In Table 2, four possible strategies of the competition given rationality and opportunism are proposed. These strategies are mutual forbearance, mutual cooperation, direct competition, and both direct competition and deception.

The first strategy has unbounded rationality and minimal opportunism. In this strategy, there is little possibility of payoffs from deception since information is freely available while competitors do not have sufficient incentive to be opportunistic. Acts of deception might even lead to unnecessary costs and reputational damage. The most viable state is mutual forbearance. Such strategies are largely hypothetical in competitive environments but are likely to obtain where actors are pursuing motives other than profits. In reality, there are information-seeking costs related to unbounded rationality. Rather than seek perfect information, most firms will prefer to use satisficing information and cognitive competence. For proprietary reasons and the tacit nature of organizational processes and procedures, it is not always possible to unbundle impacted information. In situations with bounded rationality but lack of opportunism, competitive rivals are likely to leverage their relative strengths through limited mutual cooperation. Opportunism-independent situations are more likely to obtain in situations with limited incentives for profit-maximization. Unbounded rationality and opportunism imply that competitive information is abundant, but each rival is in pursuit of individual self-interest of profit-maximization. Such strategies are possible in mature markets with near-perfect knowledge of market strategies but competitive rivals have to constantly defend existing market share. Deception is futile and the most viable option is to pursue direct competition aggressively.

In the fourth strategy, there is bounded rationality and opportunism. This is the most ideal environment for deception since information is limited and self-interest seeking is maximized. Deception in this strategy can be "perverse" since the effects on a victim firm might be catastrophic with possible termination of the firm. Consider a firm losing valuable resources, opportunities, or reputation due to a competitor firm's self-interest seeking with guile and what this might do to their long-term health or survivability. While firms are less likely to report such behavior due to legal and reputational reasons, firms still plot on how best to undercut their competition to the point of certain bankruptcy. In industries with lower relative profit margins, firms do not have a lot of slack resources, or leeway, to withstand such competitor opportunism. Williamson (1985) calls this a second-order gain (or loss) representing waste created by a firm in another firm. Indirect rivalry would cause follower firms to fall for deceptive behaviors, possibly not even realizing that their competitor firms are trying to do something they would not normally do. The concept of strategic deception has its roots in the military model in luring the enemy out into the open with feints, confusion and bogus information. Four additional propositions can be generated from these four strategies:

Proposition 5: Competitive strategies with bounded rationality and minimal opportunism will lead to mutual cooperation as a preferred strategy.

Proposition 6: Competitive strategies with unbounded rationality and minimal opportunism will attract mutual forbearance as the preferred strategy.

Proposition 7: Competitive strategies with unbounded rationality and opportunism will lead to direct competition as the preferred strategy.

Proposition 8: Competitive strategies with bounded rationality and opportunism will lead to both direct competition and strategic deception.

Ethical Orientation

Scholars have distinguished different forms of strategic deception on the basis of whether they are ethical, unethical, outright illegal or value-neutral. Extensive work has been done in this area but with little agreement (Allhoff, 2003; Carr, 1968; Carson, 1993; Koehn, 1997; Radoilska, 2007). In practice, most deceptive strategies are more complex and fall in grey areas that are yet to be settled in ethics theory and legal jurisprudence. For simplicity, the concept of ethical orientation is conceptualized as a behavioral inclination to guide the firm's decision-process on ethical issues. Faced with an ethical dilemma, a more ethical CEO is likely to act with restraint where deceptive acts are unethical while a value-neutral CEO will have no qualms going after the expected payoff. The main assumption in this proposition is that managerial executives prefer to be ethical rather than unethical but are guided by their ethical orientation.

Proposition 9: Ethical orientation will moderate the relationship between opportunism and perverse deception.

Relative Stakes

Strategic deception often leads to unintended consequences. Due to the emergence nature of uncertainty and bounded rationality, competitive rivals are constantly refining their strategies and repositioning themselves as new information unfolds. Expected payoffs from deception are determined ex ante. It should be expected that where there are high expected payoffs, decision-making executives within the firm will be tempted to bend their ethical orientation in order to justify their actions. This perspective is consistent with prospect theory (Kahneman and Tversky, 1979). When expected payoffs are high enough, firms will rationalize their ethical orientation (Lewicki, 1983; Nooteboom, 1998; Schweitzer et al., 2004) or opt for outright unethical decisions. Ethical orientation is not necessarily on a continuum as is reflected in Figure 1. A more likely scenario is one with an inflection point where the risk that ethics will be compromised increases exponentially if the expected payoff is high enough.

Proposition 10: High relative stakes will weaken the firm's ethical orientation.

The strategic deception framework (see Figure 1) illustrates the formal relationship between the six variables. Bounded rationality among the firm's decisionmaking executives coupled by conditions of uncertainty in the external environment will create competitive holes such as uncontested market segments, new cheaper sources of inputs, and innovations. The more opportunistic firms will move with haste and consider possibilities of exploiting this asymmetric information in order to make arbitrage profits. The decision to actually opt for strategic deception will be based in part by the ethical orientation of strategic decision-makers, having weighed the costs and benefits. Ethical orientation mediates the relationship between opportunism and strategic deception. Those corporate firms with explicit ethical norms and values are likely to act with restraint, or by virtue of their orientation, may not perceive deception as a viable opportunity. The value of stakes involved also comes into play. High relative stakes will lead to an ethical dilemma and weaken or even neutralize the values and principles of decision-making executives.

[FIGURE 1 OMITTED]

DISCUSSION

This paper has evaluated several key variables and developed a decision process that leads to strategic deception. Many previous studies in strategy have contextualized deception as a value-neutral strategy. By contextualizing strategic deception as a value-neutral choice, the implicit conclusion is that strategic deception merits consideration alongside other mainstream business strategies and that individual values of strategic decision-makers are insulated from such decisions. This is a false dichotomy. In reality, firms and individuals in executive positions have to dean with situations of conflicting personal and corporate values and grey ethical space.

The type and expected outcomes of strategic deception depend on the competitive rivals involved and types of deceptive strategic options that have been selected. Strategic deception is primarily aimed at achieving competitive advantage. Such advantage can he achieved through increasing rivals' cost functions, tying up competitor resources in less productive areas, wearing down competitors by launching multiple feints before executing the actual strategy, exploiting asymmetric information to make early market or product entry or simply muddying the competitive environment to increase the level of noise (e.g., useless information and subsequent uncertainty). These strategies lead to increased waste for a firm, thereby, weakening their competitive position.

Strategic deception may also result in unintended consequences for competitive rivals, customers, suppliers, and other stakeholders. Such consequences include mutual distrust and escalated competitive rivalry. Extreme acts of strategic deception raise fundamental ethical concerns that are often ignored in the practice and given marginal attention by scholars of strategy. Beyond the grey area, deceptive strategies may turn out to be illegal. Whether strategic deception results in sustainable competitiveness, or otherwise, is examined from a transaction cost approach. While transaction cost analysis provides a unique long-term strategic view of the firm, the model here provides a comprehensive theoretical framework that describes key variables and conditions that lead to strategic deception.

In the theoretical framework, differential bounded rationality under a context of uncertainty creates an environment with varying assumptions about the environmental variables among rivals. A motivation to exploit this opportunity will lead some corporate executives to explore possibilities of implementing deceptive strategies. Arguments have been made against opportunism (Ghoshal and Moran, 1996). Ghoshal and Moran (1996) have argued for the good intentions of human actors and the pursuit of more noble goals beyond profits. While recognizing the good intentions of a majority of human actors, opportunism exists as a market reality. It is opportunistic behavior that motivates firms to be competitive and aggressive in their pursuit for survival and superior performance in the market place. Cases of opportunism have been observed even in strategic alliances where there are mutual benefits involved. In strategic alliances, potential partners may exploit their partners or the situation by withheld information, evasion, refusal to adapt, and forced renegotiation (Das, 2006), as well as by dishonesty and shirking (Griesinger, 1990; Wathne and Heide, 2000). Clearly, there is more incentive to act opportunistically in non-binding competitive contexts.

IMPLICATIONS FOR RESEARCH AND PRACTICE

The selected literature suggests that despite the interest in strategic deception, there has not been much effort to evaluate the interrelationships between the main variables and empirically test them. A number of questions remain unanswered. What causes firm executives to opt for strategic deception? Any number of justifications including pressure to meet short-term targets, value-neutral corporate environment, or hubris could lead to deceptive choices. Under what conditions does strategic deception happen?

Deception has many consequences, both calculated and unintended. For many firms, the main purpose is to achieve competitive advantage. A major unintended consequence of deception is the effect on resource allocation. When resources are diverted to nonproductive activities, the deceptive firm may gain arbitrage in the short-term. However, there will be overall misallocation that may lead to waste and higher prices of goods for some consumers. In reality, mainstream strategies such as product promotions through advertising have similar deleterious effects on resource use. Miles (1993) argues that the resource-based view, by focusing on internal strengths to offer a unique product to the market, is the only strategic theory that is beneficial to both the firm and society. The flow of resources from society to the firm through competitive activity and whether this may amount to deception is a philosophical argument that calls for- more complex analysis of all variables. Misleading rivals to focus on less profitable products or margins is also likely to change the production functions of the firms in that strategic group or industry. It is unlikely that deceptive practices can be sustained over time. Once the clever ploys have been unearthed, victims of deception will be more alert and might implement additional safeguards such as business intelligence-gathering mechanisms or demand additional safeguards from exchange partners. The increased transaction cost due to escalated levels of mutual distrust is detrimental to overall institutional efficiency within the specific industry.

There are critical areas of strategic deception that are worth exploring. Few studies have analyzed the actual relationship between strategic deception and firm performance. The long-term effectiveness of strategic deception can be understood most effectively if organizational outcomes are included in the analysis. Other types of deception may be intended for motives other than profitability. Firms are assumed to pursue profit-maximization as a primary motive. Assuming, arguendo, profit-maximization is not the primary motive, opportunism and high stakes would be greatly minimized. However, opportunism of a different nature and other stakes that are not profit-related may cause such firms to pursue other forms of deception. This area of research is worth exploring.

For practitioners with an incentive to be deceptive, there are potential costs and benefits. Once a deceptive strategy has been used, its utility expires. This undermines the long-term effectiveness of deception to the extent that it may result in negative returns if the firm has intentions of nurturing sustainable competitiveness. On the other hand, it may be the last option for a firm on a death spiral. Practitioners understand that strategic deception is a market reality. Increased levels of globalization have resulted in significant asymmetric information among competitors. Different markets are inextricably intertwined, leading to constant market uncertainty. The situation is aggravated by differences in legal frameworks, contract enforcement capabilities, and ethical norms.

In a global environment with multiple communication channels, technologies, cultural and language barriers, and uneven regulatory landscapes, there are infinite opportunities for strategic deception. However, other important factors that may inhibit deceptive strategies are also in play. Some types of deception are industry-dependent. There is a likelihood of more deception in industries that are characterized by numerous rivals and intense rivalry as opposed to small numbers and less intense rivalry. Few competitive rivals may conclude that there is nothing to be gained by deception in the long-run due to reputational damage and other costs of setting up credible commitments. Firms in survival mode may undervalue potential impact of reputational effects and may even rationalize that there is nothing to lose by being deceptive.

CONCLUSION

Despite the widespread practice of strategic deception, there has been disproportionate interest among strategy scholars in examining the area. Deception varies from simple concealment of trivial information to outright lies and disinformation. This paper has provided a rationale and context for strategic deception from a transaction cost perspective. Various forms of uncertainty provide the context for deception. Uncertainty impairs the firm's field of vision and ability to make accurate forecasts. Bounded rationality and opportunism are key behavioral orientations of corporate executives that facilitate such deception. Cognitive limits facilitate competitive holes that can be exploited by the more opportunistic firms. Enactment of opportunism is moderated by ethical orientation of the respective firm. A firm that is grounded on strong ethical principles is more likely to act with forbearance and forego possibilities of making arbitrage profits from opportunism. Relative stakes may create ethical dilemmas and weaken the effectiveness of ethical orientation. It is not clear whether strategic deception leads to sustained competitive advantage. Early findings suggest that while deception may lead to short-term strategic advantage, there are deleterious unintended consequences in the long-term.

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Isaac Wanasika

Assistant Professor

University of Northern Colorado

Terry Adler

Associate Professor

New Mexico State University
Table 1
Perspectives on Strategic Deception

Author(s)         Year   Theory/perspective   Concept

Akerlof, G.       1970                        Lemons, Asymmetric
                                              information

Blodgett, T.      1968                        Bluffing

Carr, A.          1968                        Bluffing

Crawford, V.      2003   Game theory          Asymmetric information,
                                              bounded rationality

Graebner, M.      2009   Interfirm trust      Deception, asymmetric
                                              information

Hausken, K.       2008   Game theory

Hendricks, K.     2006   Signaling theory     Feints, asymmetric
and R McAfee                                  information

Hespanha et al.   2000   Signaling theory     Asymmetric information

McGrath et al.    1998                        Bounded rationality,
                                              asymmetric information

Stalk, G.         2006                        Curveballs, bounded
                                              rationality, asymmetric
                                              information

Zhuang et al.     2010   Game theory
                         Dynamic
                         programming

Table 2
Conditions under Opportunism and Bounded Rationality

              Opportunism                No Opportunism

Bounded       Mixed strategy (direct     Mutual
Rationality   competition and perverse   cooperation
              deception)

Unbounded     Direct                     Mutual
Rationality   competition                forbearance
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Author:Wanasika, Isaac; Adler, Terry
Publication:Journal of Managerial Issues
Geographic Code:1USA
Date:Sep 22, 2011
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