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Strategic Flexibility

Definition - What does Strategic Flexibility mean?

Strategic flexibility is the capability of an organization to respond to major changes that take place in its external environment by committing the resources necessary to respond to those changes. More importantly, the organization should be able to identify change markers so that it can go back to its previous state when the external environmental change is reversed.

Divestopedia explains Strategic Flexibility

Strategic flexibility can be a major asset to a firm because of its ability to react to changes effectively. Strategic flexibility can be used by organizations as both an offense and defense mechanism, depending on the nature of change and its impact on the organization.

For example, when a new player enters the market with a new product, it is a major change in the external environment of an existing organization. If the existing organization takes steps after a new player has entered the market, such as investing more in research and development (R&D) and/or sales, then it is a defense mechanism to protect its assets. On the other hand, if the organization takes these steps as a preventive measure before a potential new player has entered the market, then it is an offense mechanism.

Depending on the external change, there are four major aspects that need to be taken into account while formulating strategic flexibility:

  1. The amount of time available to respond to a major change;
  2. The range of different solutions available;
  3. The perspective of the organization with respect to the change; and
  4. The focus area of the flexibility that was created.

Managers have to take into account these four aspects while formulating a strategy; however, this process is not easy because there are still many uncertainties within the internal as well as external environments. Psychological and organizational biases further compound potential issues and make it that much more difficult for managers to identify changes and take appropriate actions within a quick time frame. The onus is on the managers to identify changes and assign appropriate resources to handle them; therefore, having a competent management team ensures the right decisions are being made as much as possible and resources are not being spent on unworthy projects that could be detrimental to the organization.

The ability to demonstrate strategic flexibility can increase the value of an organization as the business is able to more quickly adapt to change and therefore better manage risk.

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