Strategic Flexibility and Business Performance through Organizational Ambidexterity: History
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Contributor:
Panagiotis Kafetzopoulos
,
Evangelos Psomas
,
Anastasia A. Katou

Strategic flexibility (SF) is a firm’s capability to operate productively or more efficiently than their competitors. It is defined as “an organization’s ability to take appropriate actions in response to external environmental changes”. Business performance is the ultimate measurement tool for evaluating organizational outcomes and strategic goals. It is influenced by various market contingencies and organizational factors.

  • organizational ambidexterity
  • business performance
  • strategic flexibility

1. Introduction

During periods of uncertainty and change, firms should apply new discoveries to the market and represent their values in order to increase their performance and ensure their survival [1]. Some researchers suggest that organizations must strike a balance between capitalizing on their current business field and exploring new business fields [2]. These distinct sets of activities can be encapsulated by the concepts of exploration and exploitation in OA [3].
It is imperative to manage exploration and exploitation simultaneously, as the failure to do so can have a counterproductive effect on overall performance [4]. In the short term, exploitation and exploration activities mutually reinforce each other and play a vital role in ensuring an organization’s long-term survival [5]. Thus, ambidexterity is conceptualized as the extent to which exploration and exploitation are in balance [6]. The contradictory nature of exploration and exploitation within an ambidextrous orientation gives rise to significant managerial challenges, which, in turn, have an impact on organizational outcomes [7]. Ref. [8] posit that exploitation activities aim to refine and extend existing knowledge to improve efficiency, while exploration activities involve experimenting with new concepts and applying that knowledge to one’s context to develop new knowledge. Ref. [9] points out that companies capable of maintaining a balance between stability and innovation in their operations and strategies are better equipped not only to survive, but also to enhance their performance and flexibility in a fiercely competitive business landscape. The business environment exerts pressure on firms to engage in both exploitative (incremental, efficient) and explorative (discontinuous, radical, flexible) innovation activities [4][10] leading to the development of multiple contradictory structures, processes, and cultures within an organization’s boundaries [11][12].
Strategic flexibility (SF) is a firm’s capability to operate productively or more efficiently than their competitors [13]. It is defined as “an organization’s ability to take appropriate actions in response to external environmental changes” [7]. Empirical research has shown that an SF perspective can stem from an organization’s ability to identify important changes in its external environment and that it functions only if a firm has the capability to develop and allocate resources efficiently [14][15][16]. A fundamental question in the field of management is how firms can achieve and sustain SF [13] as the understanding on this topic is limited [17]. Thus, many authors [18][19] suggest a more multi-level approach to bring new knowledge and experience of SF into firms. Moreover, the existing literature is silent on how an organization can create SF and increase its performance through OA [20][21]. Although OA, SF, and business performance are crucial, there has been a lack of research into how they are interconnected. Research into the relationship between the ambidextrous approach (exploration and exploitation) and firm performance has primarily concentrated on historical financial metrics and related ratios (such as revenue, sales growth, or return on assets) [22]. Thus, there is a need for additional studies to examine the role of OA in SF and business performance simultaneously [23] using multiple performance measures [24].

2. Organizational Ambidexterity

Ambidexterity is used to refer to organizations that can engage in both exploitation (activities focused on refining and improving existing processes) and exploration (activities centered around discovering new approaches, planned experimentation, and innovation). Essentially, ambidexterity involves aligning with current activities to meet existing demands while also being adaptable and proactive in anticipating future changes [25]. OA refers to a firm’s ability to simultaneously develop and use new resources and skills through exploration while effectively utilizing and maximizing the value of existing resources through exploitation. In other words, it involves the organization’s capacity to explore new opportunities and innovate while also efficiently leveraging its current resources to drive performance and competitiveness [26][27]. It is argued that the simultaneous pursuit of both exploration and exploitation is not only feasible but also beneficial for enhancing organizational performance [11][28]. To effectively support an ambidextrous orientation [29], firms must maintain a delicate balance between exploration and exploitation activities. Striking this balance allows organizations to simultaneously explore new opportunities and exploit existing capabilities, leading to long-term success and adaptability in dynamic environments [30]. Even though both capabilities have the potential to significantly contribute to success and survival, the single usage of either exploratory or exploitative capabilities may create confusion. Overemphasizing exploitative capabilities in an organization may lead to a monotonous approach, while solely focusing on exploratory capabilities can prevent companies from fully utilizing their existing resources and capabilities [12]. In other words, focusing solely on exploitation can lead to a success trap (excessive emphasis on refining existing capabilities hinders the exploration of new opportunities), whereas focusing solely on exploration can result in a failure trap (excessive focus on innovation and experimentation while neglecting the efficient utilization of existing resources and capabilities) [31].

3. Strategic Flexibility

SF, in general, is a measure that indicates the degree of readiness of an organization to respond and adapt to environmental changes. It is considered a crucial mechanism that assists organizations in dealing with uncertain situations and improves their performance [32]. In the management literature, SF represents a form of dynamic capability that emerges through the adoption of innovative technologies [33][34]. It is defined as an organization’s ability to identify significant changes in the external environment. This ability empowers organizations to adapt to sudden alterations promptly and effectively both within their internal operations and in the external context [35].
Ref. [20] claim that “SF can enable organizations to obtain competitive advantages in the dynamic competitive environment, which motivates to explore how organizations obtain SF”. SF is characterized as a firm’s capacity to swiftly reconfigure its resources and activities in response to environmental demands [21]. Generally, SF enables companies to achieve and maintain a competitive advantage [36]. Ref. [37] was the first to propose the concept of SF, and he divided it into resource flexibility and coordination flexibility. Resource flexibility is very important for an organization as it must have the ability to allocate resources reasonably and flexibly, especially in order to solve problems concerning effective communication and transparent information sharing. Coordination flexibility is essential for organizations to sustain their competitive edge. A company’s coordination flexibility is higher when it can allocate its existing resources towards product strategies aimed at the development, distribution, and marketing of new products and services [36].

4. Business Performance

Business performance is the ultimate measurement tool for evaluating organizational outcomes and strategic goals [38][39]. It is influenced by various market contingencies and organizational factors [40]. For many managers and business owners, understanding how their companies perform in the marketplace is a primary concern [41][42]. Moreover, business performance expresses the degree to which a company can efficiently and effectively perform its activities, and it can be used to judge whether the implemented activities are successful and whether the company can survive in a certain market. In general, the performance measurements of a company can be broadly classified into two categories: financial performance and non-financial performance. From a financial perspective, measuring financial performance is considered one of the most critical assessments of overall performance [36]. Financial performance has great significance, and it can be measured using metrics such as sales growth, sales transactions, profits achieved, return on investment, market share, return on assets, and overall profitability [43][44][45].
On the other hand, non-financial performance refers to the aspects of a company’s performance that are not solely measured using monetary gains or profits. Non-financial measures encompass diverse methods of measuring long-term objectives. There are several kinds of non-financial performance measurements, such as SF, market share, quality, customer satisfaction, innovation performance (product performance, digital performance, and service performance), employee performance (employee commitment, employee satisfaction, and employee loyalty), operational performance, marketing performance (customer loyalty), and brand equity [46][47].

This entry is adapted from the peer-reviewed paper 10.3390/su151712997

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