Strategic choice in times of stagnant growth and uncertainty: An institutional theory and organizational change perspective

Abstract

This conceptual study provides insight into the strategic behaviors of firms facing slow growth in times of economic stagnation. Recognizing the inevitability of periods of economic stagnation—with another downturn expected as early as 2022, we note that most industry classifications are considered mature and characterized by a few extremely large companies in each industry group. We introduce the Fortune 500 as an important cross-industry collective of these large firms and suggest that they now comprise an institutional field. This development explains their isomorphic behavior during the recession triggered by the financial crisis of 2008 as well as their subsequent motivation for change. Using the pertinent literature from institutional theory and organizational change, we posit that the appropriate firm-level response (strategic choice) during periods of slow growth is to maintain legitimacy and membership in the field by adopting a proactive approach that focuses on improving top-line growth. We synthesize frameworks found in the literature and provide a “menu” of five strategic options companies should consider to turn their firms around by redirecting growth from the short term to the long term. We discuss implications for boards and executives anticipating significant economic deceleration.