Torben Juul Andersen and Richard A. Bettis
Summary:
Companies in turbulent dynamic markets experience volatility in their performance. The turbulence described here is not only a case of going back and forth, or cyclical changes, but a case of structural changes. Companies need to undergo learning about the new changes, devise new strategies to adapt to the changed market and implement those strategies. This is called strategic responsiveness.
The paper creates a simulation model to determine the risk and return effects of being strategically responsive.
Organisations learn in at least three ways. One, they gain new knowledge (perhaps a better mental model) and notice that current peformance can be improved.
First order learning involves improving current processes. Second order learning creates new knowledge which changes practices. Continuous improvement may lead to very efficient processes that are no longer required.
Competitive advantage arises from knowledge creation which increases range of strategy options. Market learning which is about acquiring insights about market conditions prepares the way to taking steps to capitalise on the market condition.
The simulation model finds that strategic responsiveness does play a part in improving performance in a dynamic environment. It does not require perfect learning since perfect learning costs more and the extra cost offsets the improvement in cashflow. Strategic responsiveness is a way to achieve higher performance at lower risk.
