Edited by Shaker A. Zahra, Donald O. Neubaum and James C. Hayton
Chapter 6: Strategic renewal and firm performance: implication of incremental versus radical change after environmental upheavals
Scifres, Chrisman and Memili examine the role of environmental change in fueling corporate entrepreneurship (CE) activities in the US banking industry, which has been the subject of considerable upheaval because of technological and regulatory changes. These environmental shifts have added much dynamism, but have also introduced considerable hostility into the industry. As a result, the pursuit of CE has become essential for achieving strategic renewal and effective adaptation. Using data from 797 US banks which experienced an environmental revolution, Scifres et al. advance three hypotheses: a) more organizations will engage in strategic change; b) most of these strategic changes will be incremental in nature; c) incremental rather than radical changes will be more strongly correlated with organizational performance. Scifres et al. use five strategic groups to test their hypotheses. They find that more of the banks pursued strategic change than showed no such change, supporting their prediction. Analyses also revealed that the majority of firms engaged in incremental changes. Analysis of covariance showed a curvilinear relationship between the degree of change in strategic renewal and bank performance. Banks that undertook incremental changes experienced lower declines in their financial performance compared to other strategic groups. In a way, these are counterintuitive findings but they make the point that companies that aggressively pursue strategic renewal through CE may pay a price—that is, too much change further disrupts internal operations and depresses performance. Managers need to be careful as they embark upon strategic renewal efforts amid rapid and unpredictable environmental changes.
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