Chapter 07

Key Work feature: Environmental turbulence and the choice of strategy

There is acceptance that many environments are characterised by turbulent markets that exhibit fast moving and unpredictable changes. Much of what has been written about strategic management in the past has implicitly assumed relatively stable markets. Porter’s seminal work on the structural analysis of industry offers an organization an appropriate strategy depending on the industry configuration if faces. However the rapid rate of technological change that has affected industries effectively undermines any barriers to entry an organization might build. Hamel & Prahalad (1989, 1993) argue that the aim of strategy is not to accommodate the existing industry structure but rather to change it. Like Drucker, Hamel and Prahalad state that an organization can displace a dominant competitor within the industry by changing the rules of the game such that a competitor’s theory of business becomes obsolete or less effective. Their much quoted example of the Japanese competitor Canon which supplanted Xerox in the office products industry by leveraging their core competencies to achieve a ‘bigger bang for their buck’ is a case in point. Here we find a competitor, Canon, with fewer resources but big ambitions (strategic intent) to displace its main rival. However in a hypercompetitive environment Canon’s successful innovations would be quickly contested. Unlike Hamel and Prahalad, D’Aveni (1994) argues that an organization should continually change the rules of the game as this is the only way in which it can remain dominant in a hypercompetitive environment.

Chakravarthy (1997) argues that firms that find themselves in a hypercompetitive environment cannot manage turbulence but they can cope with it. To do this Chakravarthy suggest a three point framework. This includes: reconceptualising strategy, sharing the responsibility for strategy more broadly within the firm, and focusing on organizational capabilities as the real source of competitive advantage. Reconceptualising strategy requires an organization to change the rules of the game not once but continuously. The key is to produce chaos in order to cope with chaos by being an innovative leader. It involves a willingness to make your strategy obsolete by the introduction of a new product, service or process before a competitor does this for you. It also involves building a customer network centred on its product or service offering. This must be continually upgraded, as Microsoft does with successive versions of its Windows software, to prevent consumers moving to a rival’s product.

Sharing the responsibility for strategy involves crafting a mission statement that has the effect of coalescing the efforts and energies all employees throughout the organization. This sense of mission is not so robust it locks an organization into markets that it cannot dominate but is sufficiently flexible that it guides organizational efforts in changing times. Focusing on organizational capabilities requires a firm to leverage, strengthen and diversify its competencies. Leveraging is the ability of an organization to use its core competencies across a range of markets. An organization strengthens its competencies by the use of its tacit knowledge and combining multiple competencies into what Chakravarthy calls a metacompetence. Competence diversification involves the acquisition of capabilities from other organizations to build new know how within the firm, while retiring old competencies to make way for the new competencies.

In short, competitive advantage might be achieved in turbulent markets by not focusing on your existing distinctive capabilities but on those that you can develop tomorrow. The organization must be as capable at acquiring core competencies as it is at divesting them. This requires organizations to invest times and resources in building an appropriate organizational architecture.

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Oxford University Press, Online Resource Centre, Chapter 07.

Chapter 07