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Strategic Flexibility

The idea of strategic flexibility has been discussed in various areas, including, economics, strategic management, organization theory, decision analysis, and information technology. Strategic flexibility can be defined as an organization’s capability to identify major changes in the external environment (e.g., introduction of disruptive technologies), to quickly commit resources to new courses of action in response to the change, and to recognize and act promptly when it is time to halt or reverse such resource commitments. Here, strategic flexibility is discussed in relation to a fundamental dilemma managers are faced with: commitment versus change. Understanding the dilemma and how to deal with it and maintain strategic flexibility is critical for managers.

Fundamentals

Key Ideas of Strategic Flexibility

Strategic flexibility is composed of three key components: attention, assessment, and action. To the extent that an organization and its top managers are (1) paying attention to information that indicates change of the external environment, (2) objectively assessing the implication of the information, and (3) timely initiating an action corresponding to the assessment of the information, an organization is likely to avoid making too slow or too hasty decisions.

Under a rapidly changing and globalizing environment, it is increasingly important for an organization to change its strategy and adapt to new environments quickly. However, organizations, particularly those that have experienced success, are often slow to respond to change because of organizational inertia. In this sense, strategic flexibility is frequently associated with ideas such as agility, quickness, and responsiveness.

However, quickness per se will not provide an organization a competitive advantage. New initiatives encounter various types of problems and challenges in their implementation that must be overcome for success to be achieved. Only with strong commitment and patience can an organization enjoy the fruits of its success. Thus, strategic flexibility should not simply be equated with rapid change. Instead, strategic flexibility is an organization’s capability to deal with the dilemma of commitment versus change. Correctly balancing commitment and timely change should contribute to sustainable positive performance. At the same time, achieving the correct balance is undoubtedly challenging. Abandonment of an initiative too quickly because of initial problems may result in the loss of future potential benefits, while overly strong commitment to a money-losing project will only exacerbate problems. Even if a strategy is successful at one point in time, current success does not guarantee the long-term success of an organization. This is partly due to organizational inertia, which we discuss below.

Commitment and Organizational Inertia

Once a particular strategy becomes successful, an organization can develop consistent structures and systems to further enhance the implementation of the successful strategy. By accumulating knowledge (or know-how) from experiential learning, an organization is able to implement the strategy more effectively and efficiently. The organization, its outputs (i.e., services and products), and financial performance will become more reliable and predictable. This organizational self-enhancing tendency to further commit to a current strategy and a current way of doing things is often referred to as organizational inertia.

Although organizational inertia has positive effects on performance when the environment is stable and the strategy is successful, organizational inertia also becomes a barrier to change. Two major factors cause an organization’s resistance to change: psychological commitment and institutionalized structures and systems. The former, which is often called cognitive inertia, is a mental schema or perspective that managers develop through their experiences. The perspective is self-reinforcing such that successful experience leads to an understanding of information consistent with the developed perspective and compels managers to ignore new but potentially important information. In many cases, the perspective of top management is shared and taken for granted within the organization.

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