Academic journal article Management International Review

Deviation from Fit: An Advantage When Environments Change

Academic journal article Management International Review

Deviation from Fit: An Advantage When Environments Change

Article excerpt

The literature on strategy-environment fit has shown that strategies' effectiveness depends on environmental conditions (Pennings 1987, Prescott 1986, Venkatraman/Prescott 1990). This literature shows that deviating from strategies that fit an environment harms performances. Yet discovering that a particular strategy fits a given environment best, does not imply that all firms can or will converge on that strategy.

Firms with strategies that fit their environments, may erect barriers that prevent others from imitating their strategies (Mascarenhas/Aaker 1989, Hatten/Hatten 1987). Or, even though external forces present few barriers, internal resource profiles might prevent some firms from following strategies that fit an environment (Barney 1991). Conflicting demands of different environmental elements represent other reasons why firms might deviate from ideal strategies (Gresov 1989).

Since implementing strategies takes time, firms may benefit sometimes by deviating from fitting strategies. The changes in internal systems and structures needed to maintain internal fit (Miller 1992) face resistance (Meyer/Rowan 1977, Fombrun/Ginsberg 1990), delaying the adaptation process. The possibility of first-mover advantages (Lieberman/Montgomery 1988) gives firms reason to respond early to environmental changes. Consequently, when firms anticipate environmental changes, they benefit by deviating from strategies that fit current environments.

This paper extends the discussion on strategy-environment fit by examining one instance when firms benefit by deviating from fit - namely when environments change. It differs from previous studies that have discussed firms deviating from fit (Gresov 1989) by arguing that firms actually benefit, though in future periods, from their deviation. The paper examines this proposition with evidence from the Savings and Loan Association (SLA) industry in the United States. The industry provides a useful site to test these propositions since it experienced two, anticipated, instances of environmental change in the early 1980s when regulations about the products the industry could offer changed dramatically.

This paper is structured as follows. The following section develops principal arguments. The subsequent section describes methods. Results and discussions are followed by brief conclusions.

Theory

The idea that firms deliberately deviate from strategies that fit their environments, is not new. Strategic groups (Caves/Porter 1977, Hatten/Schendel 1977, Mascarenhas/Aaker 1989) pose barriers to the mobility of firms between them, limiting some firms' abilities to follow chosen strategies viably. Consequently firms often settle for strategies that do not yield optimal results in their environments.

Firms' resources also limit strategies they may follow viably. Firms that attempt strategies not supported by their resources, run the risk that others with more appropriate resources might imitate their strategies with greater effectiveness (Barney 1991). Once again, strategies suited to an environment may not be viable for all firms attempting to compete in that environment.

Gresov (1989) demonstrated that firms deliberately deviate from ideal designs when facing multiple, often conflicting contingencies. Rather than adopt designs that might be completely unsuited to any one contingency, firms choose to deviate from fit in order to minimize cumulative penalties. Such a rationale might similarly cause firms to deviate from fitting strategies.

Future Performances - Another Reason to Abandon Fit

This paper extends the preceding arguments by suggesting that firms also abandon fit when they anticipate that environments will change. We view strategies in this paper as processes involving the establishment of objectives for the firm and the deployment of resources to achieve them (Chandler 1962, Shapiro 1989).

If firms could implement strategies instantaneously, they would always try to adopt the ideal strategies for their environments. …

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