A New Strategy Framework for Coping with Turbulence
In the past, strategy researchers have not focused on turbulent environments. Most of the extant frameworks in strategic management implicitly assume a benign environment that is simple and not very dynamic. Yet, recent advances in technology, coupled with a global political climate that is favorable to free markets, have made parts of many industries such as financial services, health care, and transportation more turbulent. In industries related to information and communication (what I call “Infocom”) traditional industry boundaries have disappeared. For firms competing in these industries, the organizational set, or the number of competitive forces that a firm faces, has expanded, and technological innovations have accelerated the rate of change. Coping with the resulting turbulence calls for a new approach to competitive strategy.
In their seminal paper on the causal texture of organizational environments, Emery and Trist classified a firm’s environment in terms of its complexity and dynamic.1 The larger the firm’s organizational set, the greater the complexity that it faces.2 Complexity is a measure of the number of competitive configurations that a firm must ideally consider in shaping its own strategy.
The dynamic of the environment, i.e., the rate at which these configurations change over time, is the other key determinant of turbulence. When a business environment is highly complex and changing rapidly, the resulting turbulence in a firm’s environment makes orderly conduct among its competitors more difficult.3
Here I focus on the turbulent environment of the newly emerging mega-industry, Infocom. I present a framework for conceptualizing the merging of its constituent industries and for coping with the resulting turbulence. The existing models of competitive strategy do not help firms seeking to compete in such environments. I offer an alternate framework that conceives of competitive strategy as flexible commitments — a paradoxical blend of early commitments (so vital for competitive success) and timely exits (crucial for managing risks).
I must note at the outset that not all Infocom firms experience turbulence; some are in simple, less dynamic niches. However, firms aspiring to be Infocom leaders are unlikely to operate in these niches. Market leaders must face and cope with turbulence by reconceptualizing strategy, sharing the responsibility for strategy more broadly within the firm, and focusing on organizational capabilities as the real source of competitive advantage.
References
1. F. Emery and E. Trist, “The Causal Texture of Organizational Environments,” Human Relations, volume 18, February 1965, pp. 21–32.
2. W. Evan, “The Organizational Set: Toward a Theory of Interorganizational Relations,” in J. Thompson, ed., Approaches to Organizational Design (Pittsburgh: University of Pittsburgh Press, 1966).
3. R.H. Miles, Macro-Organizational Behavior (Santa Monica, California: Goodyear Publishing, 1980).
4. G. Gilder, “Into the Telecosm,” Harvard Business Review, volume 69, March–April 1991, p. 155.
5. W.B. Arthur, “Increasing Returns and the New World of Business,” Harvard Business Review, volume 74, July–August 1996, pp. 100–111.
6. B. Schendler, “A Conversation with the Lords of Wintel,” Fortune, 8 July 1986, p. 46.
7. R.A. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering (New York: Free Press, 1994).
8. Ibid., p. 29.
9. M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980); and
M.E. Porter, Competitive Advantage (New York: Free Press, 1985).
10. Porter (1980).
11. G. Hamel and C.K. Prahalad, “Strategic Intent,” Harvard Business Review, volume 67, May–June 1989, pp. 63–76;
G. Hamel and C.K. Prahalad, “Strategy as Stretch and Leverage,” Harvard Business Review, volume 71, March–April 1993, pp. 75–84; and
C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, volume 68, May–June 1990, pp. 79–91.
12. D’Aveni (1994).
13. Ibid., p. 2.
14. W.B. Arthur, “Positive Feedbacks in the Economy,” McKinsey Quarterly, number 1, 1994, p. 81–95.
15. D’Aveni (1994), p. 15.
16. Arthur (1994), p. 90.
17. S.E. Prokesch, “Mastering Chaos at the High-Tech Frontier: An Interview with Silicon Graphic’s Ed McCracken,” Harvard Business Review, volume 71, November–December 1993, p. 136.
18. M.B. Lieberman and D.B. Montgomery, “First-Mover Advantages,” Strategic Management Journal, volume 9, 1988, pp. 47–58.
19. I. Dierickx and K. Cool, “Asset Stock Accumulation and Sustainability of Competitive Advantage,” Management Science, volume 35, December 1989, pp. 1504–1511.
20. See, for example:
Arthur (1996).
21. S. Liebowitz and S. Margolis, “Don’t Handcuff Technology,” Upside, September 1995.
22. Arthur (1996).
23. A.K. Dixit and R.S. Pindyck, “The Options Approach to Capital Investment,” Harvard Business Review, volume 73, May–June 1995, pp. 105–118.
24. P. Ghemawat, Commitment: The Dynamics of Strategy (New York: Free Press, 1991).
25. Hamel and Prahalad (1993).
26. J.C. Collins and J.I. Porras, “Organizational Vision and Visionary Organization,” California Management Review, volume 34, Fall 1991, pp. 30–52.
27. M.B. McCaskey, The Executive Challenge: Managing Change and Ambiguity (Boston: Pitman, 1982).
28. R.A. Burgelman, “Strategy Making on a Social Learning Process: The Case of Internal Corporate Venturing,” Interfaces, volume 18, May–June 1988, pp. 74–85.
29. Prahalad and Hamel (1990).
30. Y. Doz and B.S. Chakravarthy, “Managing Competence Dynamics” (Mexico City: Strategic Management Society Conference, paper, 1995).
31. Hamel and Prahalad (1993).