Discontinuities of Environmental Elements, Firm Responses, and Dynamic Capabilities: An Empirical Investigation of Interrelations in Select Indian Manufacturing Sectors

Abstract

Continuities, discontinuities (deletions), and additions of environmental elements are important realities of a firm’s environment. They pose distinct managerial challenges and demand capabilities to enable the firm to respond. Response to the challenges involve comprehending the developments in the environment at a point in time, anticipating subsequent developments over a time horizon, generating and evaluating options for response, and reconfiguring the resource base of the firm for executing the chosen response. The capabilities that enable the firm to respond sustainably to environmental developments have been referred as dynamic capability. Their detailing is in terms of capabilities for sensing, seizing and reshaping. A review of extant literature on firm and its environment points to a gap in recognizing the developments appropriately in terms of its different elemental dimensions and relating them to firm’s strategy, functioning and performance. The literature does not distinguish between addition to the environment and deletions in the environment. It recognizes and clubs both within the folder of ‘major change’. Review also indicates inadequate attention to the understanding of interrelations among discontinuities (deletions) in the environment, firm responses, and dynamic capabilities. This thesis argues that it is important to identify the deletions distinctively and study the response of the firm to them. In doing that, it attempts to identify deletions and related developments in steel and textile manufacturing sectors in India and study the response of select firms-

two in each sector- to the deletions using case based methodology. The analysis identifies and categorizes nature of deletions, firm responses, and dynamic capabilities. Deletions are identified with respect to its implications, related content, period of continuity prior to it, nature of occurrence, linkages, simultaneity, and specificity. These categories are given distinct titles like historic or historic, single or multiple, linked or unlinked, impending or sudden, generic or specific. It explicates strategic response options like entry, expansion, diversification, integration, or exit and categorizes responses as proactive or reactive and with long term or short term decision making horizons. The enablers of response are identified as capabilities for developing and integrating knowledge, accessing and transferring knowledge, identifying and capturing value, and redefining boundaries of business. Based on within and across case analysis the thesis builds a framework of interrelations among deletions of environmental elements, firm responses, and dynamic capabilities. The thesis contributes to the literature on firm and environment. It supports the strategic choice view of literature by empirically validating firm’s anticipations about environmental developments and its specific responses. The thesis also adds the concept of deletions of environmental elements to the discussion of firm and environment in Indian context by a longitudinal study of responses of firms in steel and textile industries to the developments in pre-independence, post-independence and post liberalization phases of Indian environment. It recognizes multiple of such developments in these phases and analyzes the firms’ responses. Based on this analysis it develops propositions relating the deletions of environmental elements and nature of response and dynamic capabilities. It contributes to strategic management practice by arguing for disaggregating developments in the environment as deletions, continuity, and additions, identifying challenges and developing response with dynamic capabilities. It adds value by identifying the details of dynamic capabilities involved in responding to specific dimension of discontinuous changes. It creates a platform for further studies in other sectors like pharmaceuticals, chemicals, financial services, education, publishing, and machine tools focusing on various types of deletions and relating them to firm’s strategy, functioning and performance. The propositions developed pave the way for hypothesis testing and generalizations.