Strategic flexibility (business)

Strategic flexibility is an organization’s ability to proactively and reactively adapt to internal and environmental changes to remain competitive in its industry. Being flexible allows companies to respond to a mercurial market to survive and promote long-term growth. It may require companies to scan their industries for opportunities for innovation and to foster changes through organizational management. Resources must be dedicated to accommodate shifts in the industrial landscape so that the company can make a successful response, and a swift reaction is required to maintain a competitive position. Flexibility may have to be exercised frequently to meet the pace of industry, and having the capability to be flexible in a transformative market needs to be a priority for business organizations.

Brief History

The term strategic flexibility came into use in the mid-1960s and 1970s when describing the need for organizations to add flexibility to their long-term planning initiatives. This included examining a company’s external barriers and malleability in predicting a response to its changing environment and competition. The practice was to position a business in such a way that it could respond to unforeseen shifts in the industry while remaining profitable and successful. Having different entry points in a sector was also considered practicing flexibility. Similar terms such as strategic maneuverability and organizational flexibility also described this concept.

By the 1980s, strategy was defined by choices created by external factors and the weighted risks that came with them. Organizations would sway according to customers’ movement within a sector, and their capability to adjust to these changes depended on their flexibility. The concept soon spread into the company’s internal needs, calling for the ability to restructure itself to adjust for outside forces and competition. Flexibility called for the need to decrease attachment to existing practices and assets.

In the 1990s, strategic flexibility started being viewed as a capacity and was defined by infrastructure and the environment. It referred to a company’s ability to reallocate its resources to adapt to a changing market. Speed became a factor in flexibility and reaction.

By the twenty-first century, internal and external factors had equal weight in determining strategic flexibility, from identifying changes in the market to implementing decisions within the company.

Overview

Environmental changes are key determinants in configuring how flexible a company wants to be. Changes could be related to industry pace and industry-specific innovations, adopting sustainable practices, market volatility, geopolitical uncertainties, or environmental turbulence. In mature industries such as the oil and energy sectors, transformations have historically been slower and more predictable, although energy transitions and technological shifts in the twenty-first century have increased volatility. These sectors’ supply and demand depend on the season, geography, the flow of consumer incomes, and other factors that often follow a pattern. In addition, mature industries are generally slower to commit radical internal changes in response to sudden external pressures. A survey of an energy company’s strategy, for example, may, in some cases, have to be analyzed less frequently, as barriers seldom change, and this allows for multiyear planning and forecasting.

For fast-evolving technology sectors such as social media and digital platforms, the landscape is more likely to be dynamic and competitive. Products have shorter life spans as consumers’ needs shift at a faster pace. Technologies and demand change at variable times, and innovation is as much of a requirement as it is a goal. Geography is less restrictive as globalization enables firms in these markets to operate across national boundaries. These factors make long-term forecasts less reliable as the environment evolves at an unpredictable rate. Analyzing strategy would be required more frequently to make adjustments in the face of changing external forces.

Before committing to an internal reaction to environmental changes, an organization must determine if or how to stay in its chosen industry. Competitive position may sway if a company wants to continue where it is, and an organization must decide if a transformation would further promote its competitiveness. Changes may entail looking beyond the organization’s core market for innovative ideas, diversifying products on the market, or creating green/alternative energy solutions. Firms may also decide to merge with others in their field or exit the industry altogether.

A characteristic of successful flexibility is to react quickly to external changes to stay competitive. The key to achieving this is for innovation to be at the forefront. That means having operations and management willing to take incremental small risks outside the core market, continually making and testing products at a fast rate and expanding products’ capabilities. Having emerging technologies in place will step up production, increase efficiency, and lower costs. A fast turnaround also allows customer feedback to play a role in the company’s response to the changing market. Feedback and profitability can gauge when a company has found the right combination of innovation and flexibility; it can then abandon previous practices and continue with its new strategy.

Changes in strategic style may have to spread within the organization, as some departments may be less flexible than others are. For instance, the product is a spiral notebook, and according to customers, the design of its cover needs to be changed. The art department will research more suitable designs, but it would not necessarily require the manufacturing department to modify its equipment or workers to accommodate the demand. Management must also foster production, whether it is to protect new product development from the rest of the company or oversee the early stages of development and testing.

Organizations that are successful at strategic flexibility are those that can turn it into a permanent practice. Research has continued to link strategic flexibility with stronger organizational performance through innovation. The ability to adjust practices in the face of a changing environment gives companies longevity, continued competitiveness, and sustained growth. While strategic flexibility can be seen as a reactive move, once it is a common practice, companies will be able to take a proactive approach, allowing them to shape the industry ahead of outside changes. Flexible companies are able to brave an evolving landscape with room for adjustment without having to exit the industry or leave their organization stagnant and lagging behind others in the trade.

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