Strategic Organizational Responses to Environmental Chaos

The study of strategic change is increasingly important in today's dynamic business environment. Rapid technological change, easier entry by foreign competitors, and the accelerating breakdown of traditional industry boundaries subject firms to new, unpredictable competitive forces. Contemporary firms, operating in dynamic market contexts, often deal with these contingencies by implementing strategies that permit quick reconfiguration and redeployment of assets to deal with environmental change. This type of strategic behavior is at odds with the dominant assumptions and focus of much of traditional strategic management research. Considerable prior research, particularly from the "content" school, is undergirded by the assumption that strategic change is a relatively static process in which the firm seeks to create a fit with its environment (Rajagopalan and Spreitzer, 1996). This perspective has resulted in two key themes in strategic change research. First, studies tend to examine strategic change by measuring differences in firm strategy at two points in time. Second, much research has focused either on proving the equal effectiveness of generic strategies across a range of environments or comparing the effectiveness of different generic strategies in different environmental contexts. We argue that understanding competition in today's global, dynamic environment can be advanced by studying strategic change in dynamic contexts such as an industry's post-deregulation environment. Toward this end, we extend studies by Smith and Grimm (1987) and Zajac and Shortell (1989) of firm behavior in newly deregulated industries. Conducted in the railroad and health care industries, respectively, these studies addressed the key questions: 1) Are strategic changes made randomly or in a particular fashion? and 2) Are there different levels of performance associated with different types of strategic change behavior? Although some findings conflict, they generally agree on the following. First, not all firms respond to a clear and imminent environmental change by altering their strategy. Second, the direction of strategic change is not random; future strategy can be predicted from the strategy employed prior to an environmental shift. Third, some generic strategies appear to be more profitable than others. Although the preceding studies partially contributed to understanding strategic change under industry deregulation, they did not adequately resolve the key question: What is the impact of strategic change on firm performance? We believe several limitations in their research, addressed by this study, are responsible for this. First, Zajac and Shortell (1989) used Miles and Snow's (1978) generic strategy typology to assess the viability of various generic strategies after industry deregulation. While they uncovered performance differences across some generic strategies, they did not discover differences between firms that changed strategy and those that did not. We believe that this is due to the use of a generic strategy typology which forced the data into strategic categories that were not adequately representative of the range of competitive dimensions important in that industry. We compensate for this weakness by employing the focused/unfocused strategy typology advocated by Corsi and Grimm (1989), Corsi et al. (1990), and Smith et al. (1991). We define focused strategies as those which emphasize and systematically follow either one or a very small number of competitive dimensions. Unfocused strategies, on the other hand, are those which emphasize no particular competitive dimension. The focused/unfocused typology offers the advantage of developing industry-specific generic strategies by creating a link between distinct competitive dimensions germane to an industry and the firm's strategic intent. Second, the short time frame used by both studies may have muddied their results. Strategic change was measured at two points in time with just a short interval before and after deregulation. …