Strategic flexibility refers to the company’s ability to adapt to the business environment. When the business environment changes, it raises uncertainties and risks. Hence, flexible companies seek to overcome those by adapting their strategy. The goal is to make their strategic competitiveness relevant and to sustain a competitive advantage.
The ability to adapt to changing business environments is not easy. Stiffness often occurs because companies only focus on past success. They still maintain the old strategy, regardless of whether it is still relevant to current conditions or not. As a result, companies are slow to change and inflexible.
Why is strategic flexibility necessary?
Strategic flexibility can be a source of competitive advantage for companies. That allows competitors not to go beyond the company when the environment changes. That way, the company will remain competitive.
The external environment is beyond the control of the company. Thus, companies cannot change it and direct changes as they wish. They can only adapt.
Say, in the past, differentiation became a source of company competitive advantage. They offer a unique value proposition, for example, through branding and excellent customer services.
But, when tastes and preferences change, the strategy may no longer be relevant now. Say, consumers are more aware of the price, and not too differentiating brands. So, if a company imposes a differentiation strategy, it might not please the needs of consumers. Likewise, with a cost leadership strategy, it does not create value when consumers want unique products.
Changes in tastes and preferences are one aspect of change in the business environment. And in general, business environment factors consist of:
- Politics such as changes in policy direction, political unrest, and coups.
- Economics such as economic growth, interest rates, inflation, and exchange rate.
- Social demographics, for example, population growth, age distribution, and health awareness
- Technology, for instance, the internet
- Environmental, for example, natural disasters and climate change.
- Legal changes such as tax regulations, trade restrictions and capital controls.
- Competitive environment such as rivalry between existing companies and the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and the risk of substitution)
Changes to those factors can have an impact on the company’s strategic competitiveness. Thus, companies need to make flexibility as part of the company’s competitive strategy.
How can the company be flexible?
To be flexible, companies must develop learning capacities. Why learning?
Learning gives companies new and most current set of skills. It allows them to adapt to changing business environments.
Organizational learning capacity depends on the company’s human resources. Having a competent and enthusiastic management team is necessary. That makes it possible to identify changes and assign appropriate resources to handle them.
Also, companies need to map the magnitude of the impact of changes in the company. Which area is affected? How significant is the effect on the company? That way, the company does not respond to excessively and consumes resources only for minor problems.
So, the key to successful strategic flexibility depends on the company’s ability to:
- Scan the environment and identify changes in the external environment. They may be opportunities or threats
- Determine the magnitude of the effect of these changes on the company
- Rank the resources needed to adapt
- Make significant strategic changes. To do this, it requires strong leadership and operational flexibility.