value insights

Managing Strategic Threats and Reconfiguration- Valutrics

The successful identification and calibration of technological and
market opportunities, the judicious selection of technologies and
product attributes, the design of business models, and the com-
mitment of (financial) resources to investment opportunities can
lead to enterprise growth and profitability. Profitable growth will
lead to the augmentation of enterprise-level resources and assets.
Success will cause the enterprise to evolve in a path-dependent
way. A key to sustained profitable growth is the ability to recom-
bine and to reconfigure assets and organizational structures as the
enterprise grows, and as markets and technologies change, as they
surely will. Reconfiguration is needed to maintain evolutionary
fitness and, if necessary, to try and escape from unfavorable path
dependencies. In short, success will breed some level of routine,
as this is necessary for operational efficiency. Routines help sustain
continuity until there is a shift in the environment. Changing rou-
tines is costly, so change will not be (and should not be) embraced
instantaneously. Departure from routines will lead to heightened
anxiety within the organization, unless the culture is shaped to
accept high levels of internal change. If innovation is incremental,
routines and structures can probably be adapted gradually or in
(semi-continuous) steps. When it is radical, possibly because it is
science based, then there will be a mandate to completely revamp
the organization and create an entirely new “break out” structure
within which an entirely different set of structures and procedures is established.

Incumbent enterprises possessing fixed assets may further tend to limit their new investments to innovations that are “close-in” to the existing asset base.
They tend to narrowly focus search activities to exploit established
technological and organizational assets. This effect makes it dif-
ficult for these enterprises to see potential radical innovations.
In addition, incumbent enterprises tend to frame new problems
in a manner consistent with the enterprise’s current knowl-
edge base, assets, and/or established problem-solving heuristics
and established business model. This second effect means that
managers may not successfully address opportunities or potential
innovations even when they do recognize them. Managers face
and must overcome at least two constraints—cognitive limita-
tions and framing biases—arising from established assets.

As the enterprise grows, it has more assets to manage and to
protect against malfeasance and mismanagement. Shirking, free
riding, the strategic manipulation of information, and internal
complacency are all issues that established enterprises will confront
continuously. As discussed earlier, over time successful enterprises
will develop hierarchies and rules and procedures (routines) that
begin to constrain certain interactions and behaviors unnecessarily.
Except in very stable environments, such rules and procedures
are likely to require constant revamping if superior performance
is to be sustained.

Top management leadership skills are required to sustain
dynamic capabilities. An important managerial function is achiev-
ing semi-continuous asset orchestration and corporate renewal,
including the redesign of routines. This is because the sustained
achievement of superior profitability requires semi-continuous
and/or continuous efforts to build, maintain, and adjust the com-
plementarity of product offerings, systems, routines, and struc-
tures. Inside the enterprise, the old and the new must complement
each other. If they do not, business units must be disposed of or
placed in some type of separate structure. Otherwise, work will not
proceed efficiently, and conflicts of one kind or another will arise.
Put differently, periodic if not continuous asset orchestration—
involving achieving asset alignment, coalignment, realignment,
and redeployment—is necessary to minimize internal conflict and
to maximize complementarities and productive exchange inside
the enterprise.

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