What is dynamic consistency?

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Understanding dynamic consistency in strategy

Dynamic consistency refers to the extent to which the firm’s strategy remains consistent over time. If there is a high degree of dynamic consistency, historical decisions are reinforced by later actions of the firm. The strategy of the firm helps ensure that the direction that the company is taking remains relatively consistent, and subsequent decisions are aligned with earlier actions of the firm.

Why is dynamic consistency important

Dynamic consistency for a firm is important because it allows the company to build on prior success. If the firm is constantly changing, later decisions may undermine or go against earlier actions taken by the company. It may be hard for customers to ascertain what the firm stands for if it is constantly changing its image. Similarly, it may be hard to build a specific competitive advantage if there is no consistency in the actions being taken. 

Recognizing some elements of change are needed to a firm's strategy

While some degree of dynamic consistency is important for firms, there may be times where some adaptations are also required. The environment that a company operates in is constantly changing, and similarly, competitors may adapt their offerings or ways of competing. Not all of these changes can be anticipated from the outset, and thus it may be necessary for the firm to change the approach over time to better align with the external environment and the new conditions that the firm is facing. 

The trick is recognizing elements of the strategy that can be tweaked and adapted, without undermining the approach that the firm is taking. Better aligning the company with the environment need not necessarily result in fundamental shifts from the past. Consider opportunities for strategic pivots, without fundamentally shifting the firms direction.