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The current state of strategic management and organizational change literature provides an insight into the nature of the strategic choices made by firms in turbulent environmental conditions. The two most prevalent perspectives on the role of environment in shaping organizational activities are environmental determinism and strategic choice. In 1985, Lawrence G. Hrebiniak and William F. Joyce published their seminal article to show that environmental determinism and strategic choice were not mutually exclusive but, on the contrary, represented two independent variables that could be positioned on two different continua to help organizations adapt to changes in the environmental conditions. The concept of environmental determinism emphasizes the dynamic relationship between the firm and the context, in which it operates. As the same time, the environmental determinist position displays considerable limitations. Still, environmental determinism greatly contributes to understanding the notion of the environment-performance fit within organizations and, when necessary, provides the basis necessary for the successful adaptation to the changing environmental circumstances.
Environmental Determinism and Organizations: Essential Features
According to Li (2001), present-day organizational literature is being torn between the diverse perspectives on the role, which environment plays in shaping organizational strategy. Numerous scholars tried to explain how and why organizations pursue profitability and sustained competitive advantage. Environmental determinism is one of the most popular paradigms discussed in strategic organizational studies (Li 2001). Li (2001) writes that environmental determinism “tends to view the environment as a deterministic influence and strategic decisions of the firms are expressing adaptation to opportunities and threats in the environment” (p.184). For instance, it is commonly claimed that in highly uncertain and dynamic environments firms are more likely to use marketing differentiation and innovations to adapt themselves to these complex environmental conditions (Li 2001). In a similar vein, in industrial organization research, scholars keep to the prevailing view that the environment influences and, actually, unilaterally determines firms’ strategic choices (Li 2001).
One of the fundamental features of environmental determinism is that this theory reduces the relevance of strategic choices and makes them illusory (Combe & Botschen 2004). When applied in the strategic management domain, the determinist paradigm implies that managers and strategies play a minor role compared to the effects, which environment causes on firms. In other words, through the prism of the determinist paradigm, firms cannot change their position and expand their chances for long-term survival (Combe & Botschen 2004). It is the environment that makes firms more or less successful. At the same time, some scholars express a more balanced view that, although environment is deterministic, many company’s internal resources have been shaped in a non-deterministic fashion (Combe & Botschen 2004). Therefore, firms still have an opportunity to balance the strategic impacts of the environment with those of their internal resources and capabilities.
It is interesting to note that the roots of environmental determinism can be traced to the theory of evolution and the concept of natural selection. At times, environmental determinism is described as the “Darwinian paradigm”, since it is based on Darwin’s natural selection theory (Combe & Botschen 2004). All these theories, like environmental determinism, suggest that the origin of any adaptation is in natural selection; as a result, organisms and organizations by themselves are non-adaptive (Combe & Botschen 2004). In this situation, when the environment acts as a powerful adaptive force on all organizations and organisms, only those which fit this environment can survive. As a result, it is the external environment that acts as the ultimate and, actually, the only possible force driving organizational adaptations, whereas organizations are inherently unable to adapt themselves to changes in this environment (Combe & Botschen 2004). Certainly, in this situation, no strategy can be valuable, since only external environment determines which organizations survive and become successful.
The only advantage of the environmental determinist theory is in that underlines the dynamic and complex relationship between the organization and its environment. Organizations are generally required to have some kind of environmental intuition, to be able to predict, anticipate, and react to changes in external environment. Still, the limitations of environmental determinism are so significant that it is difficult to imagine that a modern organization could use the paradigm in its strategic decisions. First and foremost, environmental determinism zeroes the relevance and value of rationalism and strategic choices (Combe & Botschen 2004). In the environmental determinism paradigm, firms are passive and incapable of adapting to changes in the external environment. As a result, even when firms recognize the need to change, they will not change, thus losing their potential chance for success and survival (Bloodgood & Morrow 2003). Another deficiency of environmental determinism is in that it depicts environment as a force that limits firms’ strategic choices, while in reality external environments can enable firms to move towards the desired goal (Bloodgood & Morrow 2003). As a result, firms that rely on the principles of environmental determinism tend to overemphasize the function of external environment. Consequently, they fail to develop important facilitation mechanisms to reduce the negative and utilize the positive impacts caused by the external environment.
Simultaneously, overcoming environmental determinism can be more difficult than managers imagine (Greenley, Hooley & Saunders 2003). Managers who ignore the meaning of external environment are more prone to underestimate the complexity of the organizational and market settings, in which the firm operates (Greenley et al. 2003). Furthermore, the environment can generate internal organizational conflicts, since managers tend to propose conflicting strategies to tackle with the environmental change (Greenley et al. 2003). Also problematic is the lack of consensus among managers with regard to their ability to manage the external environment (Greenley et al. 2003). Many managers fail to consider their past mistakes and envision long-term changes and, being unaware of the seriousness of environmental challenges, are much more likely to overestimate their abilities and set objectives that are too high (Greenley et al. 2003). Despite these limitations, environmental determinism points to the difficulties managing external environment and greatly contributes to the current understanding of the environment-organization fit.
Environmental Determinism: Understanding the Concept of Fit
The concept/ philosophy of organizational fit is based on the assumption that, in order to achieve their strategic objectives, firms should first ensure the strategic congruency of various resource objectives (Ensign 2001). “Organizations exist in different environments with various units (elements) that must be interrelated or associated if the organization is to be effective” (Ensign 2001, p.289). Successful firms are those, which can manage environmental and system interdependencies both within and across organizational levels (Ensign 2001). As a result, environmental determinism plays one of the most crucial roles in fostering the desired level of strategic fit between the organization, its performance, and the environment. On the one hand, environmental determinism helps determine the types of strategies and models that are better suited to the given environment (Ensign 2001). On the other hand, environmental determinism makes organizations reconsider the relevance, validity, and usability of their strategies and choices; here, the main question to be answered is whether at all any strategy can help the organization deal with the existing environmental complexities.
To those who underestimate the impacts of the environment on their organization, environmental determinism once again reminds of its dynamism, complexity, and munificence (Ensign 2001). At the same time, along with strategic choice, environmental determinism creates and help to sustain the optimal balance of forces, sources, and resources needed to make the organization more adaptable to the environmental changes and, at the same time, utilize the existing market opportunities to the fullest (Greenley et al. 2003). For instance, when it comes to determining the strategic roles of the subsidiary, local environmental determinism assumes that the subsidiary is heavily influenced by the host country, whereas subsidiary choice suggests that the subsidiary has sufficient freedom to define and redefine its roles (Birkinshaw, Holm, Thilenius & Arvidsson 2000). Achieving the desirable fit between the subsidiary and its environment is impossible without considering both the environmental conditions and the existing internal resources. Thus, the firm cannot achieve and sustain its strategic fit without considering the complexity and dynamics of its environment. However, firms should not view environment as debilitative. Rather, they should understand that environment is a motivating force in the choice of the most unique organizational strategies (Bloodgood & Morrow 2003). In this sense, it is better to use the term “environmental structure” than “environmental determinism”, thus turning the environment into a more realistic and optimistic strategic organizational construct.
Environmental determinism is an interesting and useful organizational paradigm, which has considerable advantages and serious limitations. The roots of the determinist philosophy can be found in Darwin’s theory of natural selection, which implies that organisms (and, as a result, organizations) have no inherent capability to adapt to their environment. Environmental determinism posits that environment is the ultimate source of influence on organizations, and it is the environment that makes organizations more or less successful. Still, the value of organizations’ internal resources should not be disregarded. Environmental determinism provides an interesting insight into the nature and implications of the environment-performance fit. It reminds organizations of the dynamic flexibility of the external environment and, at the same time, motivates managers to leverage internal resources to achieve ideal congruence with the environment.