Strategic Management

Review of General Management, Volume 30, Issue 2, Year 2019 55

COMPLEXITY AND FLEXIBILITY IN STRATEGIC MANAGEMENT

Oriana Helena NEGULESCU�� Abstract: In today's economic environment, characterized by complexity and vola- tility, the organization's management must continually adapt its strategy, even if it is designed according to the strategic mission and vision of the organization. How- ever, organizations themselves are complex organisms. In an external and internal environment characterized by complexity, the management of the organization faces the difficulty of designing the strategies, which, related to the environment and the organization, become complex. Practical reality demonstrates that the primary tool that can be used by management in the exposed conditions is flexibil- ity. In this context, the paper focuses on these four challenges of strategic man- agement: the complexity of the environment, the complexity of the organization, the complexity of the strategies, and the flexibility in elaborating and adapting the strategies of the organization. The research methodology is based on the study of references, observation, and own opinion on the treated subject. Key words: Environment complexity, organizations’ complexity, strategies com- plexity, flexibility, strategic management JEL Classification: L10, L20, M10

1. Introduction

The word “complex” can be defined as “consisting of interconnected and interwoven parts” (Van Dijke & Scheele, 2019). The entire world is complex. It may be seen as a sandwich between a view that the world works

like a machine and a belief that the world is chaotic, unpredictable, and

without structure (Boulton et al., 2015).

There is the explicit recognition that a complexity perspective entails

the rejection of assumptions of predictability and control in management,

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56 Volume 30, Issue 2, Year 2019 Review of General Management

and the adoption of assumptions of multiple, interacting self-organizing en-

tities that learn and change over time. While there are periods of stable be-

haviour and features of the system that function as constraints on elements

of the system, the diversity and adaptation of entities creates the possibility

for both evolutionary and unpredictable, sudden changes (Eppel & Rodes,

2018).

Nevertheless, complexity is found in any of the activities of an organi-

zation. Some authors have addressed complexity in business: in sales and

market (Swait & Adamowicz, 2001), in production (Azadegan et al., 2013),

in decision making (Gorzeń-Mitka & Okręglicka, 2014). But complexity is also present in other areas, such as medicine, education, or in public organi-

zations.

In strategic management, the most critical challenges are related to the

complexity of the environment (Andelman et al., 2004; Cannon & St. John,

2007; Kirschke & Newig, 2017; Tsitaire Arrive & Feng, 2018; Collier et al.,

2019), complexity of organization, structure and social aspects (Liu et al.,

2015; Kaplan, 2018; Van Dijke & Scheele, 2019) and the complexity of

strategies (Stacey, 1993; Williamson, 1999; Boulton et al., 2015).

In complex environments, there is no correct answer, and no one can

know the whole environment. The most valuable insight is not the correct

one – because no one has such a solution – it is the one that is best able to synthesize many different perspectives on a situation (Leadership in Com-

plex Environments, 2017). The environment provides the fuel for innova-

tion, evolution, and learning (Boulton at al. 2015).

Laroux (2014) emphasised some principles for fundamental shifts in

organizational architecture to manage complexity:

� From short term profit maximization to shared purpose and value creation;

� From hierarchy and bureaucracy to distributed and autonomous teams;

� From command-and-control management to enabling leadership; � From rigid planning to safe-to-try experiments; � From information and communication secrecy to transparency. The author also introduced a framework for these emergent structures,

labelling it “Teal.” The Teal model has three core characteristics: � Self-management based on peer relationships rather than hierarchy;

Review of General Management, Volume 30, Issue 2, Year 2019 57

� Wholeness based on bringing the whole person to work; � The evolutionary purpose at the core of work and emergence

amidst complex systems.

To face complexity, managers need to use flexibility to solve prob-

lems regarding adaptation and change in strategies.

The cognitive flexibility is a required quality within individuals and

organizational cultures, due to the urgency of global problems and the diffi-

culty in making sense of security environment complexity. Any approach

needs to be flexible and non-assumptive, developing a continuously grow-

ing and deepening understanding. (Lummack, 2017).

Complexity and uncertainty, which characterize the environment in

which enterprises are functioning, force them to continuously improve and

search for new, often unconventional solutions for shaping decision making

processes. It refers both to organizational, technological, and managerial

solutions (Gorzeń-Mitka & Okręglicka, 2014). In this context, this paper is aiming to discuss and analyse how the

business organization management is dealing with the environment, organi-

zational, and strategy complexity and, also, to find the answer to the ques-

tion of why flexibility is the primary tool to face the chaotic elements?

2. Environment complexity

The increasing volatility of the environment due to the acceleration of

changes in information and communication technology requires organiza-

tions to cooperate with the increasingly complex external environment.

Organizational management, according to Hamel and Prahalad (1994),

has to consider four specific areas of the volatile and complex environment

to make effective decisions that will lead to competitive success in the fu-

ture:

� to focus on opportunities and less on the market share gained by developing the skills that capture these opportunities. For example:

to invest in new products, brands, e-business, etc.;

� to focus on creating integrated systems and collaborative compe- tences throughout the organization. For example: setting up alli-

ances, mergers and joint ventures;

� to persistently pursue the development of sustainable responsibility and skills appropriate to the new technological achievements of

58 Volume 30, Issue 2, Year 2019 Review of General Management

managers at any hierarchical level. For example, the Internet, digi-

tal systems, biotechnologies, etc., even if for a period the profits of

the company do not increase;

� to accept the lack of organizational structure or a simple structure. When the competition’s nature is going to change in the complex and

volatile environment, as well as the quality of competitiveness, the recon-

figuration of new organizational structures in strategic decisions-making of

the management is required. Management also needs to consider the skills

and abilities of workforce, its flexibility, and adaptability.

3. Organizations’ complexity

Organizations are complex systems that cannot be actually defined

because there are no precise accepted criteria, but several characteristics that

make them different from other systems in nature, such as mathematics,

physics, etc. can be highlighted, namely:

� they are social systems, where individuals are connected through informal networks;

� they generate levels of structure: sometimes they have a complex structure, sometimes they are multidimensional;

� they have no borders and are continually moving in new fields, in- dustries, markets;

� it changes over time as organizations learn; � is based on a system of nonlinear relationships; � the decisions taken have side effects and tertiary effects that cannot

be anticipated;

� they exist in the external environment compete and interact with the outputs of other organizations.

According to Mathews et al. (1999), organizations exist in two forms

(figure 1):

� in a stable equilibrium determined by negative feedback and � in a sustainable imbalance caused by positive feedback.

The negative feedback adjusts the actions of the organization. For ex-

ample: if the budget of a company is flexible through negative feedback, the

management needs to make necessary corrections. The analysis of the re-

sults against the budget is carried out under real conditions so that the man-

agerial decisions are made aware in a stable environment.

Review of General Management, Volume 30, Issue 2, Year 2019 59

Figure no.1. The organization forms according to the type of feed-back

Source: upon Mathews, 1999

Positive feedback amplifies the effect of changes and changes their di-

rection by placing them in a vicious circle. For example, an increase in wag-

es by 20% without being found in the growth of turnover leads to a rise in

costs. In turn, these costs lead to the continuous diminution of profit and

bankruptcy.

In reality, organizations never reach a stable balance because the or-

ganizational behaviour and management bring limitations. Through strategic

managerial decisions (for example, investments, prices), organizations tem-

porarily attain apparent stability. As complex organizations operate in a vol-

atile environment, management cannot use forecasts but scenarios based on

vague or subtle sets. Sometimes, however, some phenomena can be fore-

seen, as instability is restricted by the organization itself or by market

boundaries (for example, antitrust rules, legal regulations to put barriers to

new competitors in the market).

60 Volume 30, Issue 2, Year 2019 Review of General Management

To survive and thrive in the complex and volatile external environ-

ment (under conditions of globalization, the European Union, other regional

blocs, etc.), organizations must "adopt adaptive behaviour, with some struc-

ture, but not too much" (Brown & Eisenhardt, 1998). The key to success in

managing an organization operating in a volatile environment is self-

organization. The management must focus on hierarchical control systems

and procedures, lead through formal meetings with the managers empow-

ered to decide at their level of action, analyse the results, impose actions for

efficient allocation of resources through plans, budgets, and targets to be

achieved. The time allocated by managers to strategic issues must increase,

and conditions must be created to encourage self-organization.

Adaptive organizations (self-organizing) have, considering Pascale’s (1999) ideas, four characteristic features:

� they have many actors who act probabilistically, not hierarchically; � generates many organizational levels or structures; � have the ability to recognize patterns and patterns and use them to

learn and anticipate the future;

� they shake and die. Complex Adaptive Systems evolve and change with experience as

they “change and reorganize their parts to adapt themselves to the problems posed by their surroundings” (Holland, 1992, p.18).

Organizations operating in a complex environment must face the chal-

lenges of constrained instability, which is manifested when an isolated vari-

ation of the environment can produce enormous effects (positive or

negative). These variations cannot be controlled, but only redirected. For

example, rising oil prices cause increasing prices of raw materials, and as a

result of products, or lowering prices for vacuum cleaners by one producer

causes lower prices for all producers with significant effects on costs and

profit, which returns like a boomerang to the initiating organization.

4. Strategies complexity

The dynamic nature of complex systems requires adaptable strategies

(structures, guides, and procedures, rules in the context of an external envi-

ronment that cannot be predicted).

Review of General Management, Volume 30, Issue 2, Year 2019 61

Under these conditions, management must develop skills that enable

them to identify valid opportunities and adapt their decisions to market

changes.

Amram and Kutilaka (1999) consider that the management of organi-

zations operating in the complex and volatile external environment must

follow eight rules to establish the strategic options:

� not to elaborate assumptions about market boundaries, but to per- manently rethink these borders;

� to identify strategic opportunities (through flexibility); � to develop options by continuously identifying the resources en-

trusted;

� to become more and more flexible (even cancel projects started, if any);

� to design and follow a schedule of actions based on work steps; � to create options, by changing the direction of abandoning some

decisions;

� to establish priorities, focusing on strategic capabilities; � be ready to conclude contracts through a transparent selection. Strategy definition focuses on building a portfolio of strategic options.

“While companies can focus on executing a single strategy at any time, they must also build and maintain a portfolio of strategic options for the future. Investments in developing new capabilities and learning about new potential markets are required. A new way of thinking about how planning and op- portunism interact in determining strategy is needed” (Williamson, 1999).

Starting from the basic idea outlined by Williamson, the author pro- poses four practical steps for elaborating strategies in the complex and vola- tile environment: discovering hidden constraints, establishing the right process, optimizing the portfolio, and combining planning with opportun- ism, comment below.

Discovering hidden constraints

In general, the organization has a stock of strategic resources and ca-

pabilities (such as technologies, product and or service palette, process man-

agement, after-sales customer services, supply channels, etc.). The seller, if

the sale is made through dealers, intermediaries, or final sellers, has a wealth

of knowledge in the field of marketing-sales.

62 Volume 30, Issue 2, Year 2019 Review of General Management

Referring to the market, the organization does not have sufficient

knowledge in the field of marketing-sales, and the seller has no production

capabilities. In this situation, according to Williamson (1999), two types of

constraints are identified: the producer (who becomes a prisoner of his ca-

pabilities) and the seller (fig. 2).

Figure no.2. Hidden constraints matrix Source: Williamson, 1999

These constraints do not have to be hidden, and management must

scan the continuous environment to identify all weaknesses and gaps in the

level of knowledge about potential markets and not let the "myopia of the

market served" develop (Hamel and Prahalad, 1994).

Establishing the right strategic process

All the weaknesses identified and continuously invented should be the

basis for the development of methods for creating missing capabilities, es-

pecially for accumulating knowledge about market requirements. For this

purpose, the management of the organization must consider:

� the information obtained and the experiences gained from its rela- tions with the suppliers and beneficiaries;

� the information received from the beneficiaries regarding the quali- ty of the products and other complaints, to be treated seriously;

Review of General Management, Volume 30, Issue 2, Year 2019 63

� the information collected about the behaviour of competitors; � the lessons about organizations that have unconventional behaviour

in the same industry and other sectors of activity (problems en-

countered, how to solve them, experiments on new methods and

techniques);

� building and sustaining quality management as a source of devel- opment of the capabilities in the system, of creating the values and

norms specific to a thriving organizational culture.

Optimization of the portfolio of strategic options

Strategic scenarios are developed, taking into account: � the cost of creating and maintaining the options; � the probability that the option will be put into practice; � the likelihood that the option will develop alternatives in the future. With these options, you build a portfolio that is continuously moni-

tored and updated.

Combining planning with opportunism

The organization needs a "strategic space" (Williamson, 1999) to de- velop in the future. Because the environment is complex and volatile, strate- gic forecasts and plans cannot be accurately elaborated, so the organization will not know clearly what products, markets, and beneficiaries it will have in the future.

The portfolio of options, elaborated taking into account the strategic opportunities that emerge and are identified or intuited, comes to complete these strategic plans, but under restrictions on the strategic directions and mission of the organization, considering the so-called "restricted opportun- ism" (Williamson, 1999).

Dynamic adjustments allow the management of the organization to redirect resources to a high potential of the activity (business) and to create value through a continuous process of change.

5. Flexibility in strategic management

Change requires flexibility and vice versa, and this virtuous circle cre-

ates management problems. The fundamental question for any management

64 Volume 30, Issue 2, Year 2019 Review of General Management

is: "How to apply the management of a discontinuous change without aban-

doning the capabilities that have led the organization to success?" A right

answer is: "Learn to develop additional capabilities to cooperate with

change by creating an organizational space" (Christensen and Overldorf,

2000).

These additional capabilities can be achieved through a series of stra- tegic actions, such as: cooperating with another organization that already

has these capabilities, developing within the organization these new capabil-

ities, or acquiring an organization that has the additional capabilities needed.

Also, in an extremely competitive market and an IT development environ-

ment, companies are trying to reduce or save costs, balancing their strategies

between internalization and externalization (Doval, 2016).

In the creation of additional capabilities, the organization structure is

of particular importance. A strong hierarchical structure leads to efficient

control of the changes, but also to the diminishing of the flexibility that is

necessary to adapt the organization to the changes of the environment (the

market).

The structure of the organization is an essential source of inefficiency

(an increase of administrative salaries, an increase of indirect costs, etc.);

therefore, the management must orient itself towards dynamic and flexible

structures. A flexible structure allows the organization to adapt to changes

in the environment without losing its flexibility.

Markides (1999) considers the following three capabilities required to

create flexible structures:

� ability to identify change early enough; � the existence of a culture that embraces and responds to change; � skills and competences for the competition. An increase in flexibility is usually offset by a decrease in efficiency,

as "increasing flexibility is a zero-sum game" (Volberta, 1998). To increase

flexibility without being followed by the reduction of the effectiveness and

the quality, it is necessary to consider two determinants: changes in the pro-

duction of technology and changes in the structure of the labour market

(Volberta, 1998).

The changes in the production of technology are aimed at the imple-

mentation of the new conquests of science in the field of information and

communications that allow the development of customized mass production.

Review of General Management, Volume 30, Issue 2, Year 2019 65

At the same time, in the labour market, there have been profound changes in

the structure of the workforce and the approach of the importance of skills

and competences. The value of the highly specialized workforce increases

continuously, and as a result, individual autonomy increases.

A more appropriate approach to the correlation between technology,

environment, and human resources involves "facilitating the organization to

participate in creating its environment as an ecosystem" (Henessy and Rob-

ins, 1991) and this, of course, aims to reintegrate the organization into the

global sustainable development strategy by maintaining flexibility.

Conclusions

Changing the environment makes markets more individualized, more

integrated, or global. In this complex environment, organizations focus on mass production, on

customer-oriented market segments, on specialized products and services, con- tributing to increasing complexity and uncertainty of strategies. As the envi- ronment becomes more complex and requires changes in the organization, management creates structures, functions, and activities, which increase inter- nal complexity, slow down decisions, and reduce flexibility.

For the organization to fit in with its complex and turbulent environment, management must use flexibility in a controlled manner; they must optimally seek strategic options by implementing new technologies, decentralizing organ- izational structures, establishing the autonomy of working groups, and estab- lishing interactive relationships with its beneficiaries and clients.

This paper presents only a few aspects regarding the four challenges of strategic management, i.e., the complexity of the environment, of the or- ganizations, and of the strategies that find a solution through flexibility. These issues may be subject to further studies.

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