Environmental Turbulences

Strategic leaders have to adapt their actions to the basic characteristics of the organisation’s environment. Their task is to find a way to get the organisation harmonized and almost imbued with its overall surroundings, both present and future.

Complexity, uncertainty and lack of definition are characteristic of both profit and non-profit organisations, regardless of their size or character, posing a great challenge for leaders and organisations alike.

Beyond the boundaries of the organisation, there lies a world of limitless possibilities and strong, sometimes destructive threats, including smaller or larger crises, sudden and sometimes fantastic opportunities, technological and market-related shocks, structural social changes, new institutional and legal arrangements, changes in sociopolitical and economic conditions, and a whole series of other environmental factors.

The more complex and dynamic the environment, the more uncontrollable variables there are, which means that leaders are faced with more difficulty when it comes to creating strategy and adjusting the organisation to its surroundings.

Environmental turbulences can be identified in a combination of three categories (Volberda, 1998). These are: dynamism (intensity and frequency of change in the environment), complexity (number, relatedness and diversity of environmental factors) and unpredictability (cyclical nature of changes and clarity of data).

Environmental dynamism shows the nature and strength of the powers that drive strategic changes. A dynamic environment is characterised by fast-occurring, strong, often very deep changes in its key elements. Stable environments, with slight, slow-occurring changes, are rare in modern-day world.

In most cases, strategic leaders have to base their action on the premise of changeability beyond organisational limits. Technological advancement, inventions and innovations, development of new business models, creation of completely new demands, increased eco-awareness and other factors influence the intensity and frequency of change, or in other words, the dynamism of the environment.

Environmental complexity is determined by the number of factors that surround a company, their relatedness and diversity.

Situations where organisations interact in a simple environment are not very common. If the environment involves a multitude of diverse elements that the leader has to monitor, it becomes that much more complex. There are contexts in which a multitude of various factors exist, with complex mutual relations that are hard to grasp; it is not easy to simplify and create easy-to-understand environment models that can facilitate understanding and effective managerial action.

Environmental unpredictability is defined as a lack of identifiable patterns of change in the environment and inaccessibility (or ignoring) of relevant information.

Predictability has two measures: the first is the degree of change, which can range from slow to fast, and the other is visibility of the future as a measure of availability and usability of information used for making predictions. Modern-day strategic leaders can rarely make predictions considering the frequent waves of changes that come rolling in suddenly and upturn organisational reality.

In this context it appears that turbulence is greater the greater the dynamism, complexity and unpredictability of the environment. Such storminess brings uncertainty and creates and interesting paradox: on the one hand, greater uncertainty reduces the usability of collected information, but on the other hand, it creates the need for additional information.

The role of strategic leaders can be compared to the role of a ship’s captain steering the ship across stormy seas full of surprises and uncertainty. To be able to reach its port of destination, the captain has to have a clear plan and guidelines for navigation—or in other words, he needs a strategy in terms of ways to adapt to changes that are happening around him and that may affect the success of his endeavour. On the other hand, leaders’ strategic choices are often restricted because of their limited and insufficient understanding of the environment in which their organisations operate: they often find themselves in a situation where they do not really know what they want or how to achieve it (Simon, 1997).

Necessity of survival forces the organisation to find modes of interacting with the environment. Successful organisations have to be very adaptable and reactive, and they have to develop systems that will enable swift and flexible innovations in response to increasingly fast, unpredictable environmental changes.

Objective and Subjective Environment

An environment is a construct that can be understood and interpreted in different ways. Estonian biologist and founder of biosemiotics Jakob von Uexküll made a distinction back in 1909 between the objective environment (in German: Umfeld) and subjective environment (in German: Umwelt) (Kreye, 2013, p. 139).

The subjective environment is the way an organism sees and perceives the environment around it, whereas the objective environment encompasses and affects all entities in an environment.

The objective environment (“objective external reality”), if such a thing even exists, is not a relevant construct from the perspective of organisational leaders and managers; they perceive and understand things and act based on their own subjective environment, which is a construct of their own, created as a result of a specific social context existing in certain space and time.

Leaders (and other social actors) across different historic and cultural contexts and traditions perceive and shape their subjective environment differently, forming different patterns of interaction with that environment. An interesting example of subjectivity was given by Kreye in the paper referred to in the references, describing the differences in how Europe and the USA perceive the present. In Europe, the present is seen as the most recent point in history, whereas in the USA it is viewed as the beginning of the future.

There is no doubt that modern-day leaders operate in a complex and interconnected world riddled with uncertainty. They are inextricably connected with the environment that has created them and that significantly affects the manifestations and forms of their behaviour.

Recognition and structuring of the subjective environment, the disambiguation, segmentation and ultimately construction of that environment—in fact, the process of giving sense to an incredibly large number of elements that surround the organisation—depend on factors that have a crucial impact on changes in the world we live in.

Leaders and other organisational actors seek the purpose of their own action, they give meaning to the identified and constructed constituents, and create a world of their own interpretations in a socially constructed ambience they call environment. They interpret the environment based on their own cognitive maps, cognitive schemata or mental models: various knowledge structures in the form of ideas or images they have about how the world around them functions (De Wit & Meyer, 2010, p. 77).

Mental models are developed in social interaction and they are inseparable from the context in which they function. They serve as the instrument for giving meaning to information extracted from the environment; for example, when it comes to companies, this may involve the context of the industry, boundaries of competitive arenas, identities of competitors and the way they compete with the company, their position in the environment, and other similar information. They are necessary simplifications that help managers overcome the flood of information and their own cognitive limitations (Narayanan et al., 2011).

Reality is, hence, inseparable from cognition (how we understand the world we perceive), the way we express ourselves (language, both spoken and written word), and the way we interact with the environment we have created—not only we as individuals, but also the groups and organisations we belong to, and the society as a whole.

We have already mentioned when we cited Smircich and Stubbart (1985) that organisations and environments are constructed simultaneously in the process of social interactions between key actors. The two authors identified three models of the environment that strategic leaders have to take into account: (1) objective environment, with a clear “organisation–environment” dichotomy, (2) perceived environment, which is identified as a sort of simplification of a multitude of unclear information, and (3) enacted environment, which is created by constructing the world, categories and relationships between the organisation and the environment.

There is no objective reality within an organisation. Leaders create elements of a constructed environment through organisational routines, rhetorical devices, shared values and ceremonies (Mir & Watson, 2000, p. 945). This sometimes creates “multiple realities” within the organisation, depending on the different perspectives and understanding of the ambience in which the organisation interacts with its environment.

Consequently, a leader’s primary responsibility is to define reality (DePree, 1989, p. 19) which in fact implies defining the reality of others (Worden, 2003, p. 32) by influencing the systems of meaning and rounding-off the organisation’s continued existence in time.

Environment Modelling

A model of the environment is the result of strategic leaders’ cognition and experience, but also of harmonisation and convergence of mental models of a larger number of people at a certain point in time, in a certain activity or fragment of social reality.

Leaders recognise the environment in constructed structural elements that have been created and shaped through their cognitive processes or borrowed from existing methods of shaping the environment from available narratives, good business practices and conventional wisdom; they give sense to those elements and use them as the basis and foundation for development of strategy and strategic decision-making.

Strategy is bounded by their understanding of the environment or, more precisely, it is the answer to the environment that they themselves have created.

The collective understanding of the environment defines the permissible space for organisational action, seeing that key actors from the environment and their mutual relationships are embedded in the cognitive structures of strategic leaders. A change of environment happens retrospectively when the predominant cognitive structure is reformulated (or replaced) to give meaning to unexpected events that do not fit into the existing model of the environment.

Moreover, we can model the environment based on the characteristics of the era in which the organisation exists (Lenz & Engledow, 1986). According to this approach (the era model), environment is a set of social structures, values and assigned of social roles that characterise a certain period. Perspectives on environmental factors are harmonised and widely accepted among important social actors. The ambience in which organisations operate is perceived singularly: objectives, institutional relationships, ideologies and value creation methods define the point of view of strategic leaders. Organisations are firmly and inextricably incorporated in the complex network of social relationships existing at a given moment in time.

Perspective of the environment changes during the process of turbulent transition in which the existing order is replaced by a completely new one—one that will produce new structural elements, constellations and values. For example, a radical shift from one industrial revolution to another changed the strategic leaders’ model of the environment. Similarly, the transition from real socialism towards capitalism that occurred in Eastern Europe thirty years ago changed the perspective of almost all social actors.

Not only radical social changes, but also technology and experiments of individuals in pursuit of self-fulfilment within the context of dominant institutions (such as family, organisations, society) can change the ambience. One has to keep an eye out for megatrends, chaotic and sudden events that upturn social developments and that can change the existing view of the world from the bottom up.

Finally, the model of the environment can be the result of plausible and accepted conceptualisations that strategic leaders use to better cope with environmental challenges.

In short, environment is a common name for a set of constructed and recognised factors that exist beyond organisational boundaries and affect, to a larger or lesser extent, the organisation’s existence and actions in the present and in the future. An example of modelling is a generic environment model, which can be adapted to organisational specificities in any possible ambience, irrespective of the purpose or duration of the organisation (Fig. 4.1).

Fig. 4.1
A model diagram with 3 concentric circles, and a horizontal arrows extends out from the center with an increased need for adaptation and a decrease in the influence of organizations in the environment marked on ends. Starting from the innermost, they are as follows. Organization, interactional and transactional environment, and macroenvironment.

Generic environment model

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A generic environment model represents a cognitive simplification of reality depending on the era, organisational activity and characteristics of strategic leaders and other important members of the organisation. It is presented based on two groups of constituents depending on the distance and relations between them and the organisation.

The first group, comprising factors that exist externally, at a certain distance from the organisation, is usually referred to as the macroenvironment. The second group is comprised of the closer, interactional and transactional environment (sometimes also referred to as task environment), and in most cases it has a greater impact on the organisation than the macroenvironment.

Macroenvironment. Influence on the macroenvironment is limited; strategic leaders and organisations have to accept it as a set of uncontrollable variables and adjust the strategy to its specific characteristics, regardless of whether it generates threats or opportunities.

Macroenvironment-related factors are factual from the organisation’s point of view. Leaders have to direct organisational action in accordance with imposed limitations and pressures. Some factors are more important than others; some represent major threats whereas others create special opportunities that are to be taken advantage of; there are also those that represent both a threat and an opportunity at the same time, and others that only have a negligible impact on the organisation.

Strategic leaders and their associates need to identify the factors that are important and they especially have to understand the structural determinants of the macroenvironment. They have to continually monitor and analyse the macroenvironment, particularly they have to be able to recognise the early signs of significant changes in the structure and relations between the most important factors, and think about interpreting the environment from various possible, often alternative perspectives (e.g., in terms of existing and potential competitors’ view of the macroenvironment, threats and opportunities that may arise).

Analysis of the environment should help them interpret the important elements of the environment and understand their significance and influence on the organisation.

Assessment of the macroenvironment is an obligatory part of strategic leaders’ work: without understanding the existing influences and defined frameworks, the degree of uncertainty and dynamism, or expected future changes in the constellations of environmental factors, it is impossible to create strategy and make rational strategic decisions.

Macroenvironment has to be sorted into sets of political, legal, institutional, economic, sociodemographic, technological, scientific, cultural and other important factors existing in the organisation’s ambience.

Good examples of macroenvironment-related factors would be the COVID-19 pandemic and its impact on organisational action, or a change of government following an election in a country, a new scientific discovery or a radical technological change that affects the business model, or the demands of the users of services or products supplied by the organisation, and similar factors.

Strategic leaders have to adjust their intentions and organisational action to macroenvironment-related factors.

Interactional and transactional environment. The environment is a place of interaction sui generis: through its actions, the organisation affects the environmental factors and at the same time responds and adjusts to their influences. The forces of competition and cooperation interchange and complement one another, and sociopolitical and socioeconomic relations between organisations and other factors determine the elements of success or failure.

Every organisation can be observed as a system in which inputs are transformed in order to produce outputs. Transactions and interactions between the organisation and the environment include exchange of various types of resources, such as information, knowledge, money, property, services, products, and other, but they also involve a certain power play between competing organisations in their attempt to achieve the best possible market position to ensure their survival and further development.

Analysis of interactional and transactional environment involves identification of factors that the organisation affects more significantly and that play an important role in its transactions or interactions.

Factors belonging to this segment of the environment impact the organisation’s conduct, performance and decisions, but in turn, the organisation can also influence those factors, and the intensity of those factors, through its own actions.

For example, a strategic analysis of a business organisation is intended to assist in assessing the structure and dynamics surrounding a specific task, and in understanding the competition-related circumstances with a view of predicting the key variables of competitiveness in the relevant industry. It is important for the analysis to determine the key factors of market success and foresee their potential changes, as well as the means and methods of potentially achieving competitive advantage.

Successful strategic action requires good knowledge of the factors and characteristics of transactional and interactional environment.

That environment can be structured differently. Factors inherent in the transactional and interactional environment of business organisations can, for example, be service users and consumers, customers, suppliers, current and potential competitors, agents and distributers, strategic partners, financial institutions, other creditors or potential investors.

It is important to highlight the existence of cooperation and competition relations between the organisation and its environment. Suppliers and customers, for instance, appear both as partners and rivals of an organisation in the value creation chain. The same applies to competitors, who can appear as partners in research projects, or associates when it comes to establishing competition standards, or other.

An organisation’s strategic direction and strategic leaders’ decisions directly depend on existing constellations of factors from the organisation’s interactional and transactional environment.

From this perspective, external adaptation can be seen as a strategic leader’s action toward positioning the organisation in both of the two mentioned segments of the environment, specifically to a position that promises the best chance of survival in the long run. This is very appropriately phrased in Charles Darwin’s famous sentence, where he said that it is not the strongest or smartest that survive, but those most responsive to change.

Institutional Pressures

No organisation is an entity with complete autonomy to act: it is restricted and limited by the institutional context. Institutional pressures shape behaviour, directly or indirectly pressuring organisations and their leaders to act in a more or less restricted space.

Institutions are types of man-made, formal or informal restrictions that structure political, economic and social interaction and consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights) (North, 1991, p. 97), representing points where discourses create so-called communities of agreement (Mir & Watson, 2000, pp. 942–4). Institutions are imbued with symbolic elements, dependent on technological progress and material resources, and reliant on history in that they take into consideration previous practices and decisions (Scott, 2004).

Pressures on organisational action are exerted by formal or informal institutions, but a prominent role in this context belongs to shared beliefs and all forms of categorisation that contribute to objectivization and constitution of a social reality that the organisation is embedded into.

Scott (2001) noted that the process of institutionalisation yields three types of institutions that create a framework for, and rules of, conduct: (1) regulatory institutions, which rely on compulsory rules of conduct (mostly laws and regulations) that have to be observed or otherwise sanctions will be imposed, (2) normative institutions, which are based on norms of behaviour, social values and professional standards, and (3) cognitive institutions, which define social reality through shared values and concepts (socially acceptable behaviour is most often taken for granted as the only type of behaviour that is appropriate).

Strategic leaders are left with limited choices: the way they guide the organisation has to fit into the institutional framework. This reduces uncertainty and unclarity, and legitimises conduct from the point of view of the society. Legitimacy is, according to Suchman (1995, p. 574), a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs, and definitions.

Leadership is faced with a problem when the institutional framework is inconstant and fluid, or when it is in the stage of transition to a new institutional balance.

Institutions are, in most cases, very resilient and reluctant to change. Changes at an institutional level happen rarely and usually externally, and organisations mostly accept a certain conduct within the institutional area by making normatively rational choices in line with social expectations, norms, values and beliefs present in the institutional environment.

The environment defines the patterns of desirable action: those that fail to fit in cannot survive. As a result, leaders develop and implement socially acceptable forms of action (strategies, organisational structures and practices) that are in line with institutional requirements and pressures, with a view of legitimating the organisation in the environment, i.e., getting the social approval of its actions. In other words, conduct that is in line with social expectations increases the likelihood that the key environmental factors will support them in their activities and decisions (Meyer & Rowan, 1977; DiMaggio & Powell, 1983; Scott, 1995).

Institutionalists emphasise that (1) all organisations exist in a milieu of institutional rules (there is no such thing as a market—all markets are socially constructed), (2) all organisations are settings established based on social expectations that force them to take only the kind of action that is acceptable, and (3) all leaders and managers are socialised through accepting the appropriate view of the world that outlines their understanding of the available options. In other words, managerial discretion is very limited.

Leaders and managers are not and cannot be autonomous agents; they are restricted by social norms and expectations comprising assumptions about their organisational world and appropriate behaviour (Jenkins et al., 2007, p. 16).Footnote 1 There is no unrestricted human agency in strategic decision-making and action. As underlined by Tolbert and Zucker (1983), people make decisions but this is in no way free or unrestricted: their conduct is always conditioned by social pressures.

When viewed from this perspective, strategic leaders’ behaviour serves to adapt the organisation to the presented demands of the institutional environment and to achieve social legitimacy, or in other words, to action that will be congruent with the values and expectations of key factors in the social environment. Acceptance of norms, rules and practices of the institutional environment is an imperative that shapes strategic choices and decisions.

External adaptation, from this point of view, implies adaptation to institutional pressures. The greater the demands, formalisation of behaviour and restrictions, the easier it is for organisations to accept and implement quick and simple strategies of aligning with such institutional norms, with a view of avoiding being recognised in their field as non-legitimate (Krajnović, 2018, p. 48). This significantly restricts the space available for strategic leadership action.

Furthermore, successful adaptation and conformity with institutional pressures will make all the entities in the organisational fieldFootnote 2 mutually alike, which leads to a phenomenon known as institutional isomorphism.

Institutional isomorphism is a homogenisation of organisational practices in the process in which organisations become increasingly similar to one another in their intention to achieve social legitimacy. DiMaggio and Powell (1983, p. 149) define isomorphism as a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions. At the population level, such an approach suggests that organizational characteristics are modified in the direction of increasing comparability with environmental characteristics.

There are three types of institutional isomorphism: coercive, normative and mimetic isomorphism (DiMaggio & Powell, 1983). Coercive isomorphism emerges as a consequence of institutional pressures exerted on the organisation by the entities on which the organisation depends (it is the result of formal and informal pressures by the government, legislative bodies, regulatory agencies, but also cultural expectations from the organisation in the eyes of the society). Normative isomorphism is the result of professionalization within a certain organisational field. Mimetic isomorphism represents the process of copying and adopting practices and structures of an organisation perceived by others as being successful and legitimate.

DiMaggio and Powell (1983) noted in this context that one should not forget the phenomenon of structuration, which refers to processes through which institutionalised social structures shape action and behaviour, but also the processes through which those structures are recreated and reproduced through preformulated action and behaviour. Conformist behaviour on the part of organisations thus serves to reinforce existing social structures. The authors also underlined the problem of reproduction dynamics: institutional structures emerge from social interaction, serve to direct those interactions, and are ultimately reproduced through those interactions.

Oliver (1991) claims that organisations can adopt a wide range of strategies, from extremely passive to extremely active ones. According to her, possible organisational reactions are: (1) acquiescence, (2) compromise, (3) avoidance, (4) defiance, and (5) manipulation.

It is important to underline that the institutional approach explains strategy as a socially acceptable adaptation of the organisation to the existing network of institutional arrangements, social networks and expectations. The role of strategic leaders lies in the performing of activities aimed at the best possible implementation of strategy.

Qualitative comparison between organisations is based on creating institutional advantage: some organisations will be better than others because they are better and more successful at socially legitimating themselves in a given organisational field.

The twenty-first century world is also changing the way organisations and leaders approach limitations and pressures of the institutional environment.

Some organisations act like true institutional entrepreneurs (DiMaggio, 1988), or in other words, they are active participants in a more or less radical change in the environmental factors surrounding their institution (Oliver, 1991). These changes can be correlated with the phenomenon of deinstitutionalisation, which is a process through which the legitimacy of an established organisational practice is lost or terminated (Oliver, 1992) and which serves to challenge, negate or disapply the established or imposed practices or procedures.

Nowadays, the influence of organisations of this kind is getting greater and greater—they are the creators of economic value that not only offer innovative products, services and business models but also undermine the foundations of contemporary society by changing existing institutional arrangements and opening up new spaces by shaping new social structures and rules.

What connects organisations and systems such as AirBnB, Uber, Bitcoin, PayPal, M-Pesa, Pirate Bay and many others, are not just revolutionary innovations in business, but also massive institutional changes that are created as a result of existence of such organisations. Such actors change the basic substance of society: customary practices, organisation and order that we have become accustomed to, as well as the methods of creating, appropriating and distributing value.

Their action more or less successfully destroys the rooted-in institutional logic and existing rules of the game. They do not accept the inherited social and market-related frameworks and do not hesitate to question the existing widespread categories and constructs: from money, capital market, goods and information, contracts, business models, to the character of entrepreneurial initiatives.

Some strategic leaders change institutions and create completely new organisational fields. Their success is not measurable by the level of institutional advantage in the existing organisational field, but by their ability to establish new institutional constellations and balances where they will have the pre-emptive advantage of social legitimacy in the eyes of organisations that they lead.

Neo-Darwinian vs. Adaptationist Discourse

There are two main discourses when it comes to understanding the relationships between an organisation and the environment that condition the actions of a strategic leader.

Neo-Darwinian discourse is based on the idea that there are evolutionary forces that affect survival in a population of organisations, whereas the adaptationist discourse relies on the hypothesis that organisational change happens as a managerial response to the dynamics of the environment (White et al., 1997). Based on the first approach, the role of strategic leadership remains in the organisational backstage, whereas based on the second approach, it is put on a pedestal as a key instrument and driver of change.

The key element in any evolutionary theory—regardless of whether it is in the field of linguistics, culture, technology, biology or economics—is the mechanism of creating new things, based on the concepts and logic of variation, selection and retention.

One continually questions whether it is possible to plausibly transpose evolution-related assumptions to social sciences, or whether it is just a trend among researchers, one that obscures the real nature of social phenomena involved in this process and reduces human behaviour to a game of natural selection, a so-called “blind choice” that remains outside the domain of people’s conscious decisions and intentions. On the other hand, it is unquestionable that ideas stemming from evolutionary theory have enriched and provided a different, sometimes complementary, perspective on the scientific disciplines dealing with economic and managerial processes.

In strategic management, the recent popularity of evolutionary ideas is, as Augier (2005, p. 352) noted the words of Sidney Winter, based on the fact that these ideas provide a fairly ‘big tent’, a fairly broad framework in which you can analyze the basic ideas of firm behavior. Firms commit themselves to trying certain things, and then the environment renders a verdict in terms of ‘success’ or ‘failure’ of those attempts. He also noted that that has so much descriptive plausibility that it is easy to think about strategy in that framework.

A special contribution to Neo-Darwinian discourse that concerns survival of entire organisations was given by Howard Aldrich (1979). He attempted to explain how variation, selection and retention, as key categories of the theory of evolution, can be observed as predictors of organisational change over time. His hypothesis was that an organisation’s greater or lesser adequacy to its environment (possessing of adequate organisational characteristics) translates into its prosperity or downfall much more than decisions and strategic guidelines selected by organisational leaders (Murmann et al., 2003).

In other words, the organisations that are best adapted to the environment will survive, while others will perish over time.

Evolutionary processes at organisational level can be presented as follows: Variations change existing structures or behaviour, and they can be planned, unplanned, accidental, circumstantial, systematic, predictable or heterogenous (Aldrich, 2017, p. 33). Processes of selection separate certain variations from all those that are available; i.e., they select the variations that will survive in the upcoming period.

Natural selection is the key mechanism of selection: Selection processes often generate unexpected consequences and there is no guarantee that selection will result in the survival of the most efficient.

The environment confronts organisations with contradictory selection pressures and, in most cases, it is completely uncertain which or whose strategies will be the ones to survive. The best way to tackle the future environment is to experiment and develop a multitude of minor strategic initiatives, some of which will be recognised by the environment as being good.

The trial-and-error approach redirects focus from developing coherent and consistent all-encompassing strategies to creating intraorganizational conditions that will allow for various responses to different changes in the environment to emerge over time. According to evolutionists, the environment will provide the metacriterion for selection of the best methods and versions of strategy; the role of strategic leaders and managers in this process is only a minor one.

Evolutionists emphasise that organisations (and their leaders) are not too competent when it comes to anticipating or adapting to changes in the environment. They underline that the importance of deliberate strategic creation by the upper echelons is overestimated, and that the concept of “long-term strategies” detracts managers’ focus from operational efficiency and the aspiration towards the greatest possible efficacy. Instead of this being done by rational leaders or managers who willingly select and implement what they think are the best strategic directions, it will actually be the market that will select ex post the best strategies.Footnote 3

It arises that the evolutionary perspective does not place too much importance on managerial choice or planned action; selection occurring in the environment will select those who are more capable (in evolutionary terms), those who have opted for strategies best suited to the forces present in the environment and who stand a better chance of survival as a result.

Contrary to the view that purposeful and deliberate creation of organisational future is overestimated, the adaptationist discourse emphasises the importance of leadership, organisational strategy and choice.

Leaders and managers make conscious decisions aimed at aligning the organisation with the characteristics of its environment; adapting it to the environment and the demands it brings and, to the extent possible, shaping the environment according to the needs, capabilities and expressed aspirations. A strategic leader is usually perceived as a completely rational individual on top of the organisational pyramid, a homo oeconomicus who acts rationally, maximising benefits. This discourse is based on strong trust in the leader, their abilities and capacity to make long-term plans and shape a strategy that can maximise profits or achieve another tangible objective that the organisation aspires to.

The classic adaptationist discourse developed over time into a systemic perspective on strategy, as seen by Whittington (2001, p. 26), which is based on the assumption that organisations (or those that manage them) are capable of planning ahead and being efficient in interacting with its environment. It describes how strategic objectives and processes paint a picture of the social systems in which strategy is created, and rationality of behaviour is determined based on a particular social context instead on some general criteria.

Rules that govern company strategy are less constrained by the cognitive framework of those that create strategy, and more so by cultural rules and norms existing on a local social level (e.g., the influence of social class, profession, gender, nation, country, family, or other), irrespective of strong influences of globalisation.

The systemic perspective de-centres strategy as a universal category and positions it into different segments of human reality in various different ways, which results in strategy becoming a discourse significantly dependent on contextual variables that determine the ambience in which the organisation exists. This is a truly post-modernist alternative: a major departure from classical adaptationist perspective where the rationale behind any strategy is recognised in its instrumental role, with the mediation of the upper echelons, in achieving the highest possible earnings for shareholders or satisfying the interests of other dominant stakeholders.

In conclusion it can be said that there is no doubt that organisational adaptation to the environment is not a simple phenomenon, just like strategy is not something that can be singularly interpreted.

Strategic leaders can in some situations enjoy freedom and complete control in the forming of strategy, whereas other times they may be significantly restricted by ideology, history and past organisational practices. Moreover, organisational adaptation can be based on strategy development through incremental improvement of organisational processes (e.g., Barnard, 1938; Burgelman, 1994; Quinn, 1980) or in other words, through daily adjustments of organisational routines that occur irrespective of the defined plans and guidelines (Mintzberg & McHugh, 1985).

The greater the uncertainty in the environment, the less usable any pre-designed action plans, because it becomes harder to turn them into reality. In such situations, other characteristics of the organisation become more important: ability to experiment, potential for organisational learning, and greater flexibility and adaptability. These characteristics can help to adjust to fundamentally unpredictable future events and emergence of patterns of the organisation’s behaviour that can then develop into a successful strategy (De Wit & Meyer, 2010, p. 114).

Strategic leadership has an important place in all the mentioned situations: in radical choices that create new configurations in the organisation-environment relationship, but also in the creation of a context and a stimulating climate that can indirectly and gradually lead to alignment of organisational components with important environmental factors. Strategy is an instrument of leadership in the dynamic interaction of the organisation and the environment; it is an adaptive response to important and critical changes that happen in it.

Strategy and External Adaptation

As already underlined, external adaption is an inextricable element of strategic leadership architecture and, together with strategic direction and integration of the collective, it affects organisational action and guides it towards the expectations and outcomes that contribute to the organisation’s survival.

An organisation can be observed as an open system that merges with its environment, consisting of interconnected and interdependent elements that function as a whole in that interaction. Organisation is a system that depends on its environment to survive and flourish.

The boundaries between the environment and the organisation can be perceived as fluid and variable, allowing for the comparison to a very unstable permeable membrane which de facto outlines the organisation as a distinct entity. Across these boundaries, organisations receive inputs, transform them, and return them to the environment in the form of outputs (information, services, products or other) which reflect their primary purpose.

The organisation is affected by environmental developments but at the same time it, too, affects the environment. At times its entangledness with the environment is greater, and at times it is lesser, depending on the intensity of their mutual influences.

Potential for resource exchange, control of key resources, issues of resource scarcity and availability, greater or lesser resource dependence on others, mutual influences and all kinds of adaptations as well as other sociopolitical and economic relationships, determine the degree of the organisation’s interwovenness with the environment.

The fundamental purpose and objective of any system, and consequently of any organisation, is survival. Successful adaptation to the present and future environment guarantees survival. This adaptation can be referred to as strategy, or as the organisation’s way of more or less coherently or consistently directing its relations to and relationships with the environment, regardless of whether some action has been planned by the strategic leaders or emerges as a result of years of experience and gradually developed and unplanned behavioural patterns.

Hence, strategy is the mediating force between the organisation and the environment which increases the chances of survival in the long term.

From the perspective of strategic leaders, developing a successful strategy means coordinating the organisational potentials to match the specificities of the environment; adapting to the environment and its demands and, to the extent possible, moulding the environment according to one’s own needs and capabilities.

In other words, strategic leaders need to continually strengthen their organisations’ adaptive potential: their effort is important when it comes to eliminating or mitigating threats and weaknesses, utilising opportunities and maximising strengths in order to succeed in making their mission a reality.

Disambiguation and “diagnostics” of the environment are obligatory in that process. This includes researching and interpreting political, economic, social, technological and other factors. Leaders should pay special attention to the events or trends that have the potential to change the world radically. Value shifts in the society, significant technological innovations, structural shifts and other paradigmatic changes could completely change the way market competition works, the role the organisation plays, and also the way it interacts with the environment.

Standard forecasting techniques and methods are of little assistance when it comes to the complex and variable ambience in which modern-day organisations operate. Most forecasting methods can only be implemented when there is information available about the past that can be quantified in the form of input data, and when it is possible to assume with a relatively high degree of certainty that past phenomena will continue in the future. Nowadays, it seems that forecasts and trends are not useful even when it comes to relatively short-term forecasts: elements of structure of the future change so quickly that quantified indicators and expected future data, which usually appear as outputs in a classic forecast system, lose their qualitative character, and this represents a much bigger issue than a mere numerical error, which could sometimes be tolerated.

This brings to mind the witty remark of great physicist Niels Bohr, who said: Prediction is very difficult, especially if it’s about the future.

A high degree of uncertainty that is inherent in the environment of contemporary organisations does not, from the adaptationist approach, reduce the need for strategic leaders’ visioning or the need to examine, explain and interpret the future by using organisational strategy, which is in essence a construct comprising the desired picture of the organisation’s future, main strategic direction and organisational action required to making all that a reality.

Scenario planning. Scenario planning can help the organisation better face the challenging turbulences and provide a good link between two components of strategic architecture: external adaptation and strategic direction. It helps in the analysis of the future environment and development of strategy, strategic objectives and initiatives by helping strategic leaders think outside the box when it comes to the future and future events, in order to be prepared for them as much as possible.

The main purpose of scenario planning is the creating of a comprehensive and integrative picture of the future that can affect the decisions that are to be made by strategic leaders at the present moment and the purposefulness of which is beyond question.Footnote 4

Scenarios are to be understood as schemata or schematic concepts that strategic leaders use to familiarise themselves with the consequences and actions involved in a hypothetical situation. Any possible future is presented based on a number of variables and their significant interrelations, and the term scenario is used for such a set of logically structured hypotheses the relevance and coherence of which can be empirically and analytically verified and the likelihood of which can be estimated, allowing for an estimate of opportunities and threats for the organisation in the future that require an immediate response (Tipurić, 1997).

Instead of the most probable future, scenarios focus on various possibilities and create room for thinking in terms of “if-then” statements. They are the tool for editing the perceptions of alternative future environments in which strategic leaders’ potential decisions and aspirations can be compared. The most important step in scenario analysis is identification of the most important trends and so-called critical uncertainties (various phenomena and factors) which could have a positive or negative impact on the organisation’s future ambience. By exploring their interaction, one can develop distinct structures of the future that serve as a basis for construction of scenarios as alternative futures that necessitate the organisation’s strategic adaptation and create a foundation for strategic leaders’ action.

Scenarios are developed as sets of only a few plausible stories that describe the organisation’s possibilities in the most important optional futures, and these are then planned down to a few scenarios, i.e., unique and rational stories with suggestive plots that can intrigue strategic leadership and facilitate the understanding of the possibility of change management (Tipurić, 1997).Footnote 5

Each scenario describes an outline of the future that is completely different from those presented in other scenarios. Wack (1985), for instance, claimed that the ideal number of scenarios was three, with one being a “surprise-free” scenario, and the other two presenting different perspectives of the world based on critical uncertainties of key variables. On the other hand, Schwenker and Wulf (2013) believed that it is reasonable to develop four scenarios that would be based on varying two important dimensions in the so-called scenario matrix. It would be inappropriate to design more than four scenarios, as most decision-makers cannot manage that many “worlds”.

Scenarios should help strategic leaders develop their own perceptions of the nature of the environment and the forces and factors operating in it, and also of the uncertainty brought on by alternative scenarios and concepts of interpretation of data about the future. The central point of a scenario is the impact on the strategic leader’s mindset: their internal model of reality, set of assumptions about the structure of the external world and the organisation’s place in it.

More than anything else, strategic leaders require plausible narratives about the future of the ambience. These serve to facilitate the designing and development of options that can prevent, redirect or encourage the constellations and processes in the environment that will have a key impact on the organisation in the future.

In short, external adaptation can be seen as a link created by strategic leaders between the organisation and its environment. Assessment of the present environment and anticipation of the future one helps to identify the potential space for important actors’ influence on planned organisational action. Scenario planning helps understand and contextualise uncertainty, and strategic direction rounds off the organisation’s mission and vision, serving as the foundation for decisions and moves that the leader and the organisation are going to take.

Coordinating one’s own intentions with expected actions of other mutually dependent entities, with a realistic assessment of the current position, helps create a strategic fit as the main objective of organisational adaptation to a variable and uncertain environment.

Analysis of the environment cannot be complete or purposeful without analysing the future, nor can strategy be contemplated without thinking about what tomorrow will bring.

Blending intention and anticipation. Strategy can be understood as blending intention and anticipation, both in leaders and in organisations, as noted by Wensley (2003, p. 105). Their relationship in external adaptation (in accordance with postmodernist discourse) should be observed from a synchronic perspective (which means that a diachronic observation of their relationship should be avoided).

Intention is connected with the leader’s and the organisation’s purposeful behaviour, and anticipation on the other hand is connected with understanding the behaviour of others who influence or could influence the effects of the organisation’s behaviour. They are indispensable in the conceptual scope of strategic leadership: they represent the totality of environmental factors that we can refer to as “Others.”

Hypothetically, an organisation could have only one important environmental actor with a stable and predictable set of actions that impact its existence. In such case, external adaptation comes down to a range of decisions and potential actions and reactions in that dyad.

The other extreme would be a huge number of all kinds of environmental actors, each with different objectives and intentions, whose actions cannot be predicted, making it necessary to develop alternative scenarios in the strategic anticipation process, and to group actors and factors from the environment by their similarities to create simplified models of the environment in which collective intentionality can be better understood and outlined. The more complex and variable the environment, the harder and more challenging the task to anticipate things in it.

In the range of possible situations between the two mentioned assumed extremes, external adaptation always comes down to potential and actual relations with “Others.”

Wensley (2003, pp. 123–129) presented a simplified situation based on strategic leaders’ intention and anticipation. Based on that approach, we can identify four types of external adaptation, depending on the intensity of those two constructs.

Where the intensity of strategic leaders’ intentions and anticipations is low, external adaptation can be referred to as meandering mode, in which everything that happens to the organisation will be the result of external forces and influences, without any actual knowledge about the environment or activities that could be implemented. There is no strategy in terms of a defined intent or plan, and meandering implies reacting to changes and demands presented by the environment.

High-intensity intentions and low-intensity anticipations lead to a situation referred to by Wensley as myopic mode of external adaptation. Despite their aspirations and clear intentions, strategic leaders cannot (or are unable to) analyse the influence of the “Others” or the possible future changes in their environment. This myopia increases with the increased intensity of turbulences in the environment. A low level of anticipation indicates the need to adapt in a short period of time and to implement certain activities that will not threaten the organisation’s existence in the long term.

Next, strategic leaders’ low-intensity intentions can be connected with high-intensity anticipation. This situation is referred to by Wensley as meditative mode. The leader and their associates understand the environment but they are not sufficiently active when it comes to shaping a desirable future for the organisation in a way that would involve a clear and precise strategic intent as the backbone of strategy. External adaptation is the result of the organisation’s dynamic adaptation to short-term and long-term changes in the environment. Major strategic decisions are rare and consequently, strategy has an adaptive character: the organisation gradually adapts to changes by following a logical incrementalism (for more detail, see Quinn, 1980).

Finally, high-intensity anticipation and high-intensity intention is associated with the manoeuvring mode. External adaptation is based on good knowledge of the ambience and an unquestionable plan or strategy that is to be realised. Excessive manoeuvring can get the organisation into trouble, especially in situations when strategic intent is not in harmony with the expectations of important actors from the environment or when it is perceived as Machiavellian (Wensley, 2003, p. 128).