Companies need to develop strategies that ensure their long-term competitive capacity, especially in turbulent environments [2
]. However, managerial decisions can only be as good as the available information and the capacity of the decision-makers to process it. Companies therefore face two problems: First, in volatile environments, information is dispersed and changes rapidly. Second, the integration of behavioral decision theory into the strategic decision-making literature shows that the judgments of decision-makers in complex environments may be subject to systematic biases due to the rational limitations of the actors involved [20
]. This applies in particular to the observation that individuals tend to stick with the status quo [22
]. However, in a complex environment, it is essential for a firm’s survival to adapt quickly and break away from old patterns. Applying a systemic approach is needed to overcome the limits of decision-making and information processing and to reduce biases in strategy development. In the following, we propose a methodical guidance for systematically collecting, analyzing and processing information about the environment and analyzing the internal competencies of the firm in order to properly prepare for decision-making. We argue that effective strategy development in complex environments is only possible by considering the external and internal system perspectives. They are both needed as prerequisites to strategy development. The strategy must build on the match between the internal factors of the firm (e.g., competencies, resources) and the external factors in its environment (e.g., customer demands, political requirements).
3.1. Strategic Foresight and Scenarios: A Methodical Approach to Analyzing a Firm’s Environment
As discussed in Section 2
of this paper, the success of a company depends on how well it fits its environment. In today’s complex business and market environment, it is hard for companies to maintain an overview and gather information about their continuously changing environments. Therefore, we want to provide guidance on how companies can systematically obtain information and track changes in their environments.
Strategic Foresight is a research field dealing with changes in a system’s environment. Strategic Foresight can be defined as a set of tools, methods and processes that facilitate strategic decisions in an uncertain future [23
]. We can distinguish foresight methods into those used for monitoring change (e.g., weak signals detection, trend management) and those used for thinking about possible futures (e.g., scenario technique, Delphi method). The application of foresight in the corporate context is often referred to in the literature as Corporate Foresight. Here, scholars analyze the ways in which companies can develop routines to systematically respond to external change [25
The scenario technique is an important method of Strategic Foresight. Scenarios illustrate multiple probable, plausible and possible futures, and can serve as the framework for strategic planning and decision-making. Scenarios try to draw holistic images of the future considering various aspects of today’s world [24
]. Robust strategies can be developed by analyzing scenarios. Furthermore, the scenario technique sensitizes mangers for possible changes in the environment, thus supporting prompt reactions [26
Some principles of the scenario technique are helpful for the systematic observation of the company’s environment: First, in order to obtain a holistic view, the environment can be grouped into three holistic spheres of influence: Market, business and global environment, with an increasing distance to the company (see Figure 3
). These spheres are interrelated, i.e., changes in the global environment affect the business and market spheres and vice versa. The connections and interrelations of these spheres depend on the specific case. These spheres can be further subdivided into fields of influence (e.g., supplier, customer or politics) (see Figure 3
Second, influencing factors that might have an impact on the specific strategic question involved are collected in each field. By collecting factors in each field, the dynamics of the company’s environment is considered as a whole. At the same time, information is collected purposefully according to the specific strategic question addressed. As an example, let us assume our company is an OEM supplier producing powertrain components that is thinking about how electric mobility might change their business and if they should produce powertrain components for electric vehicles. In this case, influence factors are, amongst others, the mobility behavior in the society, the progress of battery development, and the charging infrastructure.
Third, the interdependencies between all the influencing factors are analyzed, for instance using pair-to-pair comparison in a dependency matrix, to answer two questions: How much does one factor influence the other, and how much is each factor influenced by the other? Continuing the previous case we would for example compare the two-influence factors “progress in materials research” and “progress in the development of battery cells”. “Progress in materials research” has a high influence on “progress in the development of battery cells” but not the other way around. Those factors with the biggest overall influence are identified as the key influencing factors and are the most relevant ones for further actions and measures (e.g., standardization of electric powertrain components). On the other hand, those factors which are most influenced by others can be used to continuously monitor changes in the environment (e.g., image and acceptance of electric vehicles).
The systematic approach of the scenario technique offers several benefits to strategy development by mitigating biases in decision-making. First, it helps to reduce complexity: Influence factors are considered separately before taking into account the connections between them [28
]. Second, it widens the search space for new opportunities and increases the likelihood for discovering potentially disruptive technologies. [29
]. A continuous scanning activity not only helps to anticipate potential changes in the environment, but also allows the detection of ‘weak signals’, meaning trends that are less easy to perceive than mega trends [31
]. The detection of weak signals is particularly relevant since it allows identifying underlying trends that might challenge the current business activities [29
]. An example for weak signals in our example of an OEM supplier could be the increasing reports of small firms working on the development of electric cars starting from the early 2000s, e.g., the presentation of the car Venturi Fétish on the exhibition “Ever Monaco” or of the sports car Tesla Roadster in 2006.
Therefore, the scenario technique allows managers to widen their perspective in three ways: First, it shifts the perspective from short-term to long-term. Second, it draws attention from the current customers to other potential customer groups and future needs. Third, the scenario technique encourages one to envision multiple possible futures by contrasting different scenarios. By this, it helps reduce the status-quo bias of decision makers since it allows the systematic consideration of various options [28
3.2. Differentiation of Competencies: A Methodical Approach to Analyzing a Firm’s Potential
In order to survive in turbulent environments, companies need to maintain their competitive advantage. This advantage is based on distinctive strategic resources [32
]. The term competence in the context of strategic management goes back to the so-called “resource-based view” [32
]. According to Hamel and Prahalad, core competencies are a corporate-wide bundle of resources and capabilities that make a significant contribution to the customer benefits of the product and provide access to a wide variety of markets [33
]. Core competencies are used across the organization and need to be maintained. They ensure the company’s long-term competitive differentiation and market effectiveness (customer value or business value). Thus, they are to be understood as a source of sustainable competitive advantage and profitability.
However, a change in the environment can make resources that were once essential suddenly irrelevant [25
]. Given the need to react to environmental changes, successful firms are those able to transform their strategic resources over time. This ability is described by Teece as a dynamic capability [34
]. Companies often struggle to develop these dynamic capabilities. Therefore, we argue that, in strategy development processes, companies need to analyze the status quo of their capabilities first and then develop a roadmap for how their competencies need to evolve. In order to analyze the company’s capabilities, one of the first steps is to become aware of the company’s internal strengths and weaknesses and how important they are.
We propose using the competence model according to Wildemann to structure the different kinds of competencies [35
]. This model is a strong analytical tool that allows not only the identification of current core competencies, but also the identification of strategic (dis)investments that lead to the development of future competencies [35
] (see Figure 4
An important strength can be a key or core competence depending on its differentiation potential in the competition (quadrants at the top). Both have high market effectivity, i.e., value for the customer, but only core competencies are unique to the company. A core competence for an OEM supplier producing powertrain components might be the reliability of components. A key competence on the other hand, might be safety. Basic competencies are less important strengths. They have only low market effectivity and differentiation in competition, e.g., efficient cost management. Potential competencies are unique to the company but are not yet effective in the market, e.g., electrification.
The classification of competencies depends on market effectivity and differentiation in competition; both are determined by external factors in the company’s market, business and global environment. For example, a change in the company’s environment might lead to a core competency becoming a mere key competency if imitated by other competitors. A potential competency might become a core competency if the market situation changes. A company can only compete successfully in the market by formulating and implementing a strategy that has a good fit with its environment and leverages its unique portfolio of resources and capabilities. This is the reason why companies need to understand their own competencies and it is important to emphasize that competencies can change over time.