Recent research shows that the most important factor determining the competitiveness and profitability of organizations is the extent to which they match their strategies and capabilities to the environment in which they operate. For every level of turbulence, Ansoff has identified a particular type of strategy and capability for success
Level 1: Repetitive Environment: In this stable and repetitive
environment, firms do not change their products and services unless forced by a
threat to their survival. Firms operating at this level are hierarchical,
highly structured and executives work according to precise job descriptions.
Level 2: Expanding environment In this environment which changes
slowly and incrementally, firms succeed by adapting reactively to change. These
firms make incremental moves based on experience and do not change their
products and services in the absence of threats from competition. The
successful firms are productionoriented with emphasis on internal efficiency
and productivity. Little attention is paid to the market and customers since it
is assumed that minimization of cost will automatically lead to success in the
market place. Firms operating at this level are likely to achieve success by
maximizing market share.
Level 3: Changing Environment: In this environment, the successful
firms seek to progressively improve their products and services in anticipation
of the evolving needs of the customers. The prescription to ”stick to the
strategic knitting” suggested by Peters and Waterman is appropriate for firms
operating at this level. These firms are extroverted and market-driven. The
focus is on servicing the future needs of existing customers using the existing
strengthsof the firms.
Level 4: Discontinuous Environment: This is the most difficult
level to manage and there is a radical difference between successful firms at
level 3 and those at level 4. The distinctive characteristic of a successful
firm at this level is that it is ready to abandon its historical position. It
is driven by its perception of the new opportunities that will exist in the
environment. There is no attachment to particular customers, technologies or
products. The firm is prepared to move to where it perceives the profits to be.
This is rather different from firms at level 3 which concentrate on servicing
the future needs of their existing customers using the historical strengthens
of the firms.
Level 5: Surpriseful Environment The success formula at this level
is to develop products and services with the cutting edge innovation and
technology. The firms seek to create their own environment. They are flexible
and totally committed to creativity. Ansoff’s strategic success formula states
that for optimum return on investment, both the aggressiveness of the firm’s
strategy and its capabilities must match the turbulence of the environment.
Thus, capabilities that are appropriate for a high level of turbulence will be costly and wasteful for firms operating in a low level of turbulence. Capabilities that are adequate in a low turbulence environment will leave afirm badly positioned in a highly turbulent environment. In stable environments, the firm’s strategic planning is based on extrapolation of historical success strategies