The Effects of Rapid Environmental Change on Competitive Strategies: An Organizational Learning Perspective

ABSTRACT This model presents the both direct and indirect effects of incremental and major environmental change on competitive strategies employed by organizational participants in rapidly changing environments; specifically, environmental change is viewed as having both incremental and major components. The model developed in this paper predicts that organizations that are accustomed to rapid environmental change will gain competence at learning under incremental environmental change. However, accurate learning for firms under conditions of major environmental change will continue to be problematic. INTRODUCTION This paper develops a predictive model of the impact of environmental change on the relationship between past performance and strategic change for rapidly changing environments. This model aims to enhance our understanding of how firms learn to navigate in rapidly changing environments and set an agenda for empirical research on the impact of environmental granularity on strategic change. Using an organizational learning perspective, this paper describes the forces that drive volatility in this competitive environment. The extreme volatility and ambiguity of this environment may make it difficult for organizations to interpret changes in their performance. Organizational interpretation of performance feedback leads to firms' strategic action or inaction. An example of this type of environment is the microcomputer hardware industry has been described as the quintessential turbulent or high velocity industry (Eisenhardt & Bourgeois, 1990). BACKGROUND The ideas contained in this research are based on the underlying assumption that organizations respond to their experience, including their prior performance and their perceived environment, as adaptive learning systems (Cyert & March, 1992; March & Simon 1993; March & Olsen, 1976). It is proposed that an organizational learning perspective can explain the strategic adaptations of organizations in rapidly changing environmental, such as microcomputer makers. Some authors suggest that superstitious learning occurs when spurious correlations are drawn from learning based on erroneous perceptions and interpretations of environmental signals or performance feedback in ambiguous environments (March & Olsen, 1976; Levin thai & March, 1981). However, others suggest that organizations can learn to cope with rapid environmental change as a baseline condition (Milliken & Lant, 1991; Levitt & March, 1988). The strategic responses of organizations to an ambiguous, turbulent environment and to their own performance are investigated over time. This paper develops theoretical mechanisms for including both the direct and indirect effects of environmental change in an organizational learning framework and dividing environmental change into incremental and major components. This conceptualization may explain why some prior research has indicated that accurate learning is problematic under conditions of rapid environmental change while others have suggested that firms can gain competence at learning in rapidly changing environments. The model developed in this study predicts that organizations that are accustomed to environmental change will gain competence at learning under conditions of incremental environmental change. However, accurate learning for these firms under conditions of major environmental change will continue to be problematic. ADAPTIVE ORGANIZATIONAL LEARNING The model of learning used in this study is consistent with an adaptive organizational learning perspective that models organizations as goal-oriented systems that respond to experience (Cyert & March, 1992; Glynn, Lant, and Milliken, 1994; March & Simon 1993; March & Olsen, 1976; Milliken & Lant, 1991; Levinthal & March, 1981; Levitt & March, 1988; Lant & Mezias, 1990, 1992). Organizations continue or repeat actions that have been successful and search for alternatives in light of negative feedback. …