Strategic flexibility:Organizational preparedness to reverse ineffective strategic decisions

Abstract

Executive Overview In a highly uncertain and changing environment, managers need to have the strategic flexibility to respond to problems speedily. Strategic flexibility is the organization's capability to identify major changes in the external environment, quickly commit resources to new courses of action in response to those changes, and recognize and act promptly when it is time to halt or reverse existing resource commitments. This strategic flexibility requires managers to find the right balance between committing the resources necessary to carry out a decision and avoiding investment of good money in bad projects. This article seeks to help managers understand the importance of and difficulties in developing strategic flexibility. The challenge in doing this results from the substantial uncertainties inherent in making these strategic decisions as well as from psychological and organizational biases that affect the attention, assessments, and actions of decision-makers in ways that prevent them from recognizing problems and acting in a timely fashion. Being careful and rational is important but not sufficient if managers are to recognize when resource commitments should be halted or reversed and act quickly. We show that managers may become unconsciously trapped in a vicious cycle of insensitivity, self-serving interpretation, and inaction. We recommend six practical steps for avoiding such problems. We stress that managers and organizations should be prepared and proactive to overcome the biases, to avoid becoming trapped in the vicious cycle of rigidity, and to cope effectively with the uncertainties of a dynamic environment.