Why do firms need to change their strategy? Below are 5 key reasons to explain strategic change.
Reason 1: The broad environment has changed
The first reason that firms may need to adapt their strategy is that the broad environment that they operate in has changed. There may be changes in the political, economic, social, technological, ecological, or legal environment (the PESTEL dimensions) that impacts the firm, and requires some adaptation to be made by the firm.
Reason 2: Competitors have made a strategic move
Something else that may impact the firm is if competitors make a change to their approach or strategy. Significant moves by competitors may impact upon whether it is viable for a company to continue with its own approach or not. While not all competitor actions should be directly imitated (indeed, it may be better to identify a different way of responding), the firm should be aware of the impact of changes that competitors have made.
Reason 3: The industry has changed
Another broad change that can impact fims is changes at the industry level, such as power relationships with suppliers or customers. A concentration of your suppliers or customer base may start to put greater bargaining pressure on your firm, resulting in a change needed to your strategy to equalize or remove the bargaining power, such as forward or backward vertically integrate.
Reason 4: The strategy was not working
Another reason why a strategic change or pivot may be required is that the strategy is not working. There may be elements that are not going as intended necessitating some adaptations to be made based on learnings in the market.
Reason 5: New growth opportunities
A final reason why firms may want to adapt their strategy is to take advantage of new growth opportunities. The firm may identify, for example, that a closely connected industry is quickly growing, and in turn, decide to diversify the firm to pursue this new growth opportunity.
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