Building Organizational Capabilities for Managing Economic Crisis: The Role of Market Orientation and Strategic Flexibility

Abstract

Firms around the world often must manage and survive economic crises. Recent cases in Asia, Eastern Europe, and South America bear testimony to this point. As economic weak spots are integrated into the global economy, it is timely to develop an understanding of organizational capabilities that can help firms manage their way through such crises. The authors investigate the role of market orientation and strategic flexibility in helping Thai firms manage the recent Asian crisis. The results demonstrate the contingent nature of the influence of market orientation and strategic flexibility on firm performance after a crisis has occurred. As hypothesized, market orientation has an adverse effect on firm performance after a crisis. This effect is moderated by demand and technological uncertainty and is enhanced by competitive intensity. In contrast, strategic flexibility has a positive influence on firm performance after a crisis, which is enhanced by competitive intensity and moderated by demand and technological uncertainty. It seems that market orientation and strategic flexibility complement each other in their efficacy to help firms manage varying environmental conditions.

Strategies for Superior Performance in Recessions: Pro or Counter-Cyclical?

“…Second, recessions change the market competitive intensity -the degree of competition a firm faces (Grewal & Tansuhaj, 2001). Demand contraction creates pressure for firms to cut prices in order to keep sales level (Kaytaz & Gul, 2014;Kamakura & Du, 2012), which tends to increase rivalry among industry players (Porter, 1979).…”

“…We believe in a strong fit between flexibility and recessionary environments, as recessions bring changes, uncertainty, and instability (Grewal & Tansuhaj, 2001;Ma et al, 2014), a context that demands flexibility.…”

“…Recessions create a scenario of decreased demand, intensified competition, and high uncertainty (Grewal & Tansuhaj, 2001) that leads most firms to reduce their operations in a pro-cyclical strategy of cutting costs and investments in various functional areas such as production, marketing, and research and development (Tellis & Tellis, 2009). Nevertheless, several scholars contend that firms can take advantage of lower prices to counter-cyclically invest during recessions (Navarro, Bromiley, & Sottile, 2010).…”

Strategic Flexibility of Enterprises

“…This correlation is especially important for companies operating on highly competitive markets, as opposed to markets characterized by high uncertainty of demand or technological progress, where strong market orientation at the cost of flexibility is the preferred approach. [21] The paradox of strategic flexibility lies in the fact that strategy formulation requires careful analyses, and these are not possible, since forecasts of market development and environmental changes are burdened with high-level uncertainty. Moreover, it is almost impossible for a large company to retain its agility and responsiveness to dynamic changes in conditions of market competition.…”

Defining the Entrepreneurial Capital Construct

“…Since the aggressive firm does not sit still and constantly implements incremental and adaptive change to undermine competitors, it is DEFINING THE ENTREPRENEURIAL CAPITAL CONSTRUCT 675 hypothesized that autonomy conveys the freedom to employees to encourage them to be self-directed, to exercise creativity, pursue opportunities, and champion new ideas which are essential for effective entrepreneurial activity to occur (Lumpkin & Dess, 1996). Autonomy is, therefore, an important driver of flexibility, which is an essential attribute, if a firm is to be able to respond promptly to environmental change and market signals by quickly reconfiguring its actions and activities (Grewal & Tansuhaj, 2001). Flexibility is created, when people within the firm are given freedom to apply their human capital in ways that help the firm change adaptively and be responsive to the needs of its markets and actions of its rivals.…”