Leading Companies Online Magazine Archives
Fasten Your Seatbelt – Turbulence Ahead!
By Rob Fuller, Beyster Institute Staff
We need only to read the daily headlines to be reminded that the business environment today is all about change. This is not a new thing – the Roman philosopher Heraclitus said in the year 500 BC that “nothing endures but change.” However, the pace and magnitude of change is dramatically greater than ever before. Change is happening faster than it did in 500 BC, for sure. In fact it is happening so fast that in most cases we can’t see the individual changes occurring, only the impact they have after the fact. Technological changes leapfrog one another with technology lifecycles getting shorter. The economic environment is less predictable and is influenced by variables that were insignificant 30 years ago. Competitors arise more quickly, and from unexpected directions, changing entire industries seemingly overnight. The market demands more choice, more quality, and more efficiency. Even the customers themselves are harder to classify and categorize.
The business environment is made up of the relevant physical and social factors outside the company that are taken into consideration during organizational decision making. These may be indirect factors, such as political, economic, and social/demographic conditions, or may be elements that have a direct impact on the competitive situation of individual firms. Those elements are things like technology, competitors, customers, suppliers, and government regulations. Environmental turbulence is defined by rapid changes in key characteristics of the environment, such as consumer preferences, the number of new customers, new products, the number and market position of competitors, overall size of the market, use of technology, and changing regulations.
Today’s reality is that external turbulence in the environment is forcing a fundamental internal transformation of organizations. Environmental turbulence has a definite impact on the entrepreneurial orientation and marketing orientation of entrepreneur-led firms. Managers are faced with shorter decision times, diminishing opportunity streams, changing constituencies, increased resource specialization, lack of predictable resource needs, fragmented markets, greater risk, and a general lack of long-term control.
In this new paradigm, management is looking for the right structure, the right approach to control, the right leadership style, and the right way to reward employees to keep up with the turbulence they are experiencing. Is it any wonder that managers are chasing a myriad of new strategic initiatives like downsizing, unbundling, decentralizing, outsourcing, restructuring, reengineering, and so on?
But what is it entrepreneurial firms are truly seeking in all these theories, concepts, and new approaches? The same thing entrepreneurs are always seeking: sustainable competitive advantage, when the firm sustains profits that exceed the industry average. A competitive advantage allows the firm to create superior value for its customers and superior profits for itself.
Previous research has demonstrated that the greater the level of perceived environmental hostility, the higher the level of strategic experimentation conducted by firms. Environmental turbulence creates threats to the existing fit between the firm and their environment. However, it also provides the possibility of creating a better fit. In either case, an entrepreneurial firm has to rely on its absorptive capacity to discern opportunities from threats and respond accordingly.
An article in the May edition of Leading Companies Online Magazine discussed our recent research showing there is a positive correlation between what is known as a firm’s absorptive capacity and their ability to successfully respond to changes in their business environment. In that article, we defined absorptive capacity as the ability of an organization to learn from external sources, assimilate that knowledge, and then disseminate it throughout the organization to those who might be able to exploit the knowledge for the competitive advantage of the company. The implication is that, in order to stay competitive, entrepreneurial firms (and the entrepreneurs who start and run them) need to be aware of what is going on around them, and make sure others in the company get the word, too.
Results of that research indicate that there is a significant positive interaction effect between environmental turbulence and sharing the new knowledge coming from the environment with others in the company (referred to as internal knowledge dissemination). It suggests that, particularly for growth-oriented firms, the level of impact of internal knowledge dissemination on the company’s ability to successfully respond to the environment is greater in a more turbulent environment than in a less turbulent one. This may be due to the fact that turbulent environments increase both the volume and complexity of information coming into the firm which, in turn, calls for increased information and knowledge-processing capabilities. Strategies that successful growth-oriented firms have used to promote their internal knowledge dissemination include beginning or expanding various knowledge transfer activities in the firm such as departmental and interdepartmental meetings, company reports on customers or competitors, newsletters, and using knowledge-management software. Formal training programs in communication and market orientation for employees across the company have also been used to increase the effectiveness of knowledge transfer.
Effective internal knowledge dissemination requires significant knowledge flows and information sharing to ensure that the knowledge reaches the relevant people in the organization who can use the knowledge to design and implement a viable response. That response may come in the form of alternative, perhaps novel solutions that may not be closely related to the firm’s existing expertise.
The ability of a company to quickly respond to environmental change makes it better able to sustain long term in a rapidly changing world. Environmental turbulence may feel like a bumpy ride on an airplane sometimes. On the airplane, the captain uses the intercom to announce the turbulence and turns on the “Fasten Seatbelt” light to alert passengers to what’s ahead. Your internal knowledge dissemination strategy should serve the same purpose. Innovation may happen when or where you least expect it. Being aware of the firm’s absorptive capacity can help managers recognize and develop those innovative solutions when they arise, and that is a sustainable competitive advantage!
©2008 The Beyster Institute and its authors and their entities. All rights reserved.
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