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Is shock treatment good for you?

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Are shocks and crises good for strategic innovation, and what is the role of complexity of strategy, competitive intensity, and crisis details to strategic resilience and innovation? A paper …

Are shocks and crises good for strategic innovation, and what is the role of complexity of strategy, competitive intensity, and crisis details to strategic resilience and innovation? A paper presentation in DRUID 2012 conference in Copenhagen, June 2012.

Published in: Business, Technology

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    • 1. janne.m.korhonen@aalto.fi jmkorhonen.netIs shock treatment goodfor you?Complexity of strategy, competitive intensity and crisislength as factors in strategic resilience and innovationRECORDING AND REDISTRIBUTING PERMITTED, EVEN ENCOURAGED!
    • 2. “...only a crisis - actual or perceived - produces real change.” (Friedman 1962:xi) J. M. Korhonen 2012
    • 3. ? J. M. Korhonen 2012
    • 4. “a low-probability, high-Crisis: impact event that threatensthe viability of the organization and ischaracterized by ambiguity of cause,effect, and means of resolution, as well asa belief that decisions must be madeswiftly.”(Pearson and Clair 1998:60) J. M. Korhonen 2012
    • 5. Crises: good or bad?• Good: Sudden discontinuities have been found to facilitate strategic innovation at least in some cases (e.g. Gibbert and Scranton 2009, Popp et al. 2011)• Bad: Clearly, many organizations would like to have fewer crises• Does research suffer from selection and survivorship biases? J. M. Korhonen 2012
    • 6. Complexity: good or bad?• Good: Complex strategies are believed to confer some immunity against imitation (Rivkin 2000, Weick 1976)• Bad: Interdependent, tightly coupled strategies are usually seen as vulnerable (D’Aveni and MacMillan 1990, Levinthal 1997)• Has prior research really considered confounding variables? J. M. Korhonen 2012
    • 7. The research gap:The interplay and effects of four causal factors:1. Complexity of an organization/its strategy2. Competitive intensity within the industry3. Length of the crisis4. Depth of the crisis J. M. Korhonen 2012
    • 8. Methodology• Simulated using a modified NK model• Organizations search for new strategies offering improved performance (fitness)• Strategies codified as 16 binary decisions• Crises introduced a constraint to decisions• Complexity of the environment (K), competitive intensity, crisis length and crisis depth were varied (with robustness checks) J. M. Korhonen 2012
    • 9. Results: ∆Performance AFT-BEF J. M. Korhonen 2012
    • 10. Results: ∆Performance AFT-BEF TEMPOR ARY DISR UPTION On average, no change High CI = poor adaptability J. M. Korhonen 2012
    • 11. Results: ∆Performance MANE PER AFT-BEF CONST NT RAINT Complex strategies perform better! ...except if CI is high J. M. Korhonen 2012
    • 12. Results: share of old strategies J. M. Korhonen 2012
    • 13. Results: share of old strategies TEMPOR ARY DISR UPTION Most strategies had already been in use! Little strategic innovation! J. M. Korhonen 2012
    • 14. Results: share of old PERMANE strategies CONST NT RAINT As can be expected, there is more strategic innovation... But surprisingly little nevertheless! J. M. Korhonen 2012
    • 15. Key variable: competition• Competitive intensity (CI): how much of the competitive performance is determined by the performance of strategy• Strategies whose performance is less than CI x (average performance of all strategies) are replaced with a better one (or random new)• CI ranges from 0 to 1 • E.g. CI 0.95 = strategies whose performance is less than 95% of average are replaced J. M. Korhonen 2012
    • 16. Conclusions (1)• Length and depth of the crisis have surprisingly little effect • Only permanent constraints change the outcome• On average, crises are neutral for strategic innovation• They do, however, drive the spread of good strategies (i.e. market share) J. M. Korhonen 2012
    • 17. Conclusions (2)• In contrast to previous research, complex strategies tend to fare about as well as simpler ones when 1. competitive intensity is low, or 2. constraints remain permanent• Researchers might want to pay more attention to complexity of strategy and competitive intensity! J. M. Korhonen 2012