Environmental Uncertainty

In strategic management, the environment of an enterprise is analyzed in four theoretical perspectives: adaptive, resource-based, cognitive, and ecological (Fahey & Narayanan, 1986). Research is dominated by the adaptive perspective (Frishammar, 2006) in line with which the environment impacts the operation of enterprises that actively adapt to changes occurring therein. Assuming this perspective, the features of this environment were focused on because they, to a large extent, determine the need to search for new methods of operation.

The environment of modern enterprises is surely characterized by dynamism, understood in a narrow meaning as the intensity and frequency of changes occurring therein (Volberda & Van Bruggen, 1997), and in a broader sense as velocity, instability (Dess & Beard, 1984), and unpredictability (Eroglu &C Flofer, 2014). However, some authors use diverse terminology to determine changes occurring in the environment and their dynamics. It is often indicated that the environment is characterized by complexity, uncertainty, hyper-competition, high velocity, and operation on the brink of chaos or turbulence. Some of these features are more synthetic in nature, encompassing the remaining features, whereas other features are defined in a narrower semantic perspective. Examples of meanings of individual features that characterize the modern environment of enterprises are presented in Table 2.1.

Due to absence of accuracy as well as diversity of changes occurring in modern environments, it may be assumed that turbulence of environment is the most aggregated feature that demonstrates the specificity of its volatility in the most comprehensive manner. The very notion of turbulence of environment was introduced by Ansoff (1965) to define the degree of growth in the complexity of environment, changes occurring therein, and the intensity and novelty of changes. Taking that and the views of other researchers (Table 2.1) into consideration, it may be concluded that dynamism and complexity are the basic properties of turbulence. However, a turbulent environment understood in this manner should be equated with an uncertain environment, because changes occurring in the environment may be not only complex and dynamic but also predictable to some extent (Volberda & Van Bruggen, 1997). Therefore, the

Table 2.1 Features of Environment of Modern Enterprises: Review of Selected

Research

Feature

Characteristics

References

Complexity

Covers differences in competitors’ tactics, clients’ tastes, product lines, distribution channels, etc., which require various marketing, production, and administrative practices

(Miller & Friesen, 1983)

Number of elements taken into consideration simultaneously, their diversity, and cross-links

(Schneider, Wickert, & Marti, 2017)

Uncertainty

Often referred to as dynamics, it is characterized by speed of changes and innovations in industry, as well as uncertainty or unpredictability of actions undertaken by competitors and clients

(Thompson, 1967)

It is determined by complexity and dynamics (intensity of changes). An uncertain environment is complex and unstable

(Duncan, 1972)

It is characterized by three factors: complexity, dynamism, and generosity (or absence of hostility), and the first two factors are of key importance

(Dess & Beard, 1984; Castrogiovanni, 2002)

Predictability of behaviors of suppliers and customers, and changes in government regulations

(Pagell & Krause, 1999)

Hypercompetition

High volatility in core areas such as requirements of customers and production methods in industry in which a business competes, taking into account the degree of uncertainty that causes deficits in information necessary to identify and understand the cause-and-effect links

(Chen, Lin, & Michel, 2010)

It is also typical of sectors demonstrating turbulence, unpredictability, and strong competition

(Kriz, Voola, & Yuksel, 2014)

High

velocity

Such an environment is characterized by quick, intermittent changes in demand, competition, technology, and regulations. Complex and unpredictable changes are frequent and take the form of market shocks

(Wirtz, Mathieu, & Schilke, 2007)

Feature

Characteristics

References

Velocity is determined by speed and direction of changes. A high-velocity environment is an environment wherein changes occur quickly and intermittently

(McCarthy et al., 2010)

Chaos

An environment that is characterized by a growing rate of nonlinear changes

(Bettis & Hitt, 1995)

Highly dynamic and uncertain environment

(Davis, Eisenhardt, & Bingham, 2009)

Turbulence

Means an environment where its features change, which is dynamic, unpredictable, and prone to fluctuations

(Khandwa, 1977)

It is determined by three factors: dynamics (intensity and frequency of changes), complexity (number and degree of linkage/s between elements of the environment), and predictability (availability of information, predictability of changes), with the first two factors being of key importance

(Volberda & Van Bruggen, 1997)

It characterizes the environment in which changes are nonlinear and intermittent

(Kamasak, Yavuz, 8c Altuntas, 2016)

predictability is the feature that moderates the link between turbulence and uncertainty of an environment, which is related to the availability of information, processing and analysis skills, and the ability to foresee the directions of future changes. The more dynamic and complex (intermittent and nonlinear) these changes, the more difficult access to information on them and the weaker the analysis and reasoning skills under pressure of time related to the dynamics of changes, the more uncertain an environment is. At this point it should be stressed that there is always a certain element of unpredictability in an environment, referring to random factors, sometimes demonstrating features of economic and market shocks. The linkages between turbulence and uncertainty of an environment are presented in Figure 2.1.

Turbulent and unpredictable changes in an environment cause uncertainty, which in turn forces enterprises to be more adaptive in response to this type of challenge (Cao, 2011) and translates into the search for new methods of operation, such as the relatively new method known as the ambidexterity concept. Current research has shown that the environment and its features are an important antecedent to ambidexterity.

Turbulence vs. Uncertainty of Environment

Figure 2.1 Turbulence vs. Uncertainty of Environment

For instance, Jansen, Van Den Bosch, and Volberda (2006) researched 283 managers of a multi-entity financial services corporation and demonstrated that organizational units operating in a dynamic environment (determined by the rate of changes and degree of instability) deliver better financial results using the exploration strategy, preventing, at the same time, the company’s competence from growing old through the development of new products and entering new markets. On the other hand, entities concentrated on exploitation in such environmental conditions yield lower financial results because, by trying to improve existing products and exploit current markets, they are unable to keep up with the changes. Additionally, in a strongly competitive environment (intensive competition), exploitation strategies increase the financial results of a business through improvement of current products and defense of the position on current markets, for example, by boosting customer loyalty. In such cases, the exploration strategy does not significantly reduce the financial results of a business (as the researchers assumed), which was justified by the duration of the intensity of competition. Thus, while in a strongly competitive environment, the exploration strategy may have a negative impact on the financial results of an enterprise in the short term; in the long term it may be the only way to meet the intensity of competition. Bearing these results in mind, one may assume that the ambidexterity strategy' is ideal for enterprises operating in a very competitive and dynamic environment, thus contributing to the increase in their results.

The assumption that the ambidexterity strategy is appropriate for a highly competitive and dynamic environment was confirmed by researchers in the previous year (Jansen, Volberda, &c Van den Bosch, 2005). They proved that the higher the dynamism and competitiveness of a local environment, the higher the ambidexterity of the organizational unit (determined by contextual ambidexterity); however, they did not test this assumption in relation to the results gained by the business. That was tested by Vahlne and Jonsson (2017), whose longitudinal research of two cases (AB Volvo and IKEA) operating globally helped to notice that the ambidexterity strategy allowed the business to yield better results in a rapidly changing international environment.

Also, Dutta (2013b) stressed the need to develop the ambidexterity skill, in particular in complex (i.e., composed of numerous and diverse elements) and dynamic (high rate of change and instability) environments. Based on a survey conducted among 222 high- and medium-level managers in 11 stable Indian companies representing various industries, the researcher confirmed a positive link between the complexity' and dynamics of the environment with ambidexterity, while the better the organizational context (systems, processes, values, and beliefs) for exploration and exploitation activities, the higher the ambidexterity level. Therefore, the researcher confirmed that organizational context is the mediator of the relation between environment complexity and dynamism, and achieving ambidexterity.

Moreover, Bratnicki (2008) indicated a situational dependence of strategy on the features of environment. He reasoned that the linearity- based exploitation strategy is effective in a simple environment, while in a complex environment the opportunistic strategy shifting the organization from exploitation to exploration is more effective, in line with the logic of time separation and spot balance, which is connected with selforganization, breaking the current path of development, and emergence of a competitive advantage due to discovery, risk-taking, differentiation, experimentation, and innovation.

Bratnicka (2017), on the other hand, while researching 355 medium-sized and large enterprises operating in Poland, noticed that the dynamism of the environment and its hostility' (demonstrated by strong competition) are effective moderators of the relationship between ambidexterity (defined through organizational output) and organizational performance of an enterprise in the aspect of competitive advantage and the retention of value by the enterprise. Therefore, the researcher concluded that bilateral organizational output is a strategic response to a hostile and dynamic environment (Bratnicka, 2017).

Kriz, Voola, and Yuksel (2014) tried to answer the question of whether ambidexterity is a success factor, especially in highly competitive markets. Researchers used the case study method to conduct qualitative research. Seven medium-sized and large enterprises from Australia were selected, which operated in diverse environments (four of them operated in a hyper- competitive environment, characterized by high instability and intensity of competition, and three in more stable conditions, i.e., not hyper-competitive). The results confirmed that when markets become hyper-competitive, the ability of a business to be ambidextrous may become a source of temporary competitive advantage, which is dedicated just to such operating conditions. On the other hand, researchers found only fragmentary evidence suggesting that ambidexterity is perceived as a key success factor in hyper-competition, which means that the exploration strategy is effective also in this case, while in more stable markets, ambidexterity is not considered to be such a factor.

The ambidexterity strategy is also recommended for innovative markets, in which rapid technical and technological changes occur and products demonstrate increasingly shorter life cycles, for example, for ICT or, more broadly, high-tech industry (Kollmann, Kuckertz, & Stockmann, 2009; Wang &C Rafiq, 2014) because in such cases exploitation activities are not sufficient, and strong exploration is necessary. This fact was already pointed out by Tushman and O’Reilly (1996), who stressed the need to develop the ambidexterity skills in rapidly changing markets and the absence of such a need in stable or gradually changing markets, in which radical technological changes occur.

On the other hand, Qaiyum and Wang (2016) researched 260 high-tech companies operating in India, representing the biotechnology, electronics, and IT industries, and proved that strategic ambidexterity (combining the intended and emergent strategic processes) has a universal impact on the ambidexterity strategy (both in a single domain and in separation) and does not depend on the environment’s turbulence level. The results were justified by the specificity of the high-tech sector, in which, in any industry, the turbulence level is high, and by the fact that they do not focus on financial efficiency of enterprises (which was the context of earlier research) but on the form of ambidextrous strategy (carried out either within a single domain, i.e., product ambidexterity and market ambidexterity, or within various domains, i.e., market development strategy or product development strategy) (see Figure 1.6). Sarkees, Hulland, and Prescott (2010) indicated an absence of significant differences in the implementation of the ambidexterity strategy and results gained by the business depending on the features of the environment, such as market and technological turbulence and intensity of competition. The researchers justified this by limiting the research only to the strategy implementation process.

In light of current deliberations, it should be stated that the great majority of studies corroborate the fact that the environment and its features are an important antecedent to choosing ambidexterity as a strategy of enterprise development, while the impact of the environment and its features were measured and determined in various manners. Primarily, they were analyzed through the dynamism of the environment (e.g., Lee, Lee, & Lee, 2003; Sig- gelkow & Rivkin, 2005; Jansen, Van Den Bosch, & Volberda, 2006; Andersen &C Nielsen, 2007; Mom, Van Den Bosch, & Volberda, 2009; Chang & Hughes, 2012; O’Reilly & Tushman, 2013), its complexity (np. Simsek, 2009; Cantarello, 2011; Dutta, 2013b), or unpredictability (Lin, Yang, & Demirkan, 2007; Judge & Blocker, 2008; Cingoz & Akdogan, 2013; Bedford, 2015). Taking these features into consideration jointly and assuming, in line with the proposed approach (Figure 2.1), that the uncertainty of the environment takes into account both its turbulence (i.e., dynamism and complexity) and unpredictability, the following hypothesis was made:

H2. Uncertainty of environment is positively linked to the selection of the ambidextrous strategy in the sense that the higher the (a) dynamics, (b) complexity, and (c) unpredictability of the environment, the higher the company’s inclination to select the ambidextrous strategy.

An uncertain environment characterized by a multitude of elements and their diversity, as well as intensity, frequency, and pace of changes that are difficult to predict, means that in such an environment there are potentially many opportunities that enterprises should identify through exploration activities. On the other hand, this uncertainty means that these activities are high risk, and concentration on exploration only may inhibit the development of key competences. Therefore, the ambidextrous strategy seems to be the most adequate one for an uncertain environment because, on the one hand, it allows the avoidance of the competence trap related to concentrating solely on exploitation, and, on the other hand, it permits flexibility through exploration activities (Simsek, 2009), which facilitates the generation of many temporary competitive advantages (Hughes et al., 2010). However, focusing on exploitation is recommended for enterprises operating in more certain conditions, that is, low turbulence and higher predictability of changes. Then, improving current products and increasing the share in current markets through incremental innovations become the source of competitive advantage (Gilsing &c Nooteboom, 2006).

The environment and its features are an external antecedent to choosing the company development strategy, but the intraorganizational factors discussed in the following section are of equal importance.

 
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