Strategy by Doing and Product-Market Performance: A Contingency View

Abstract

The strategy-by-doing perspective argues that firms operating in highly dynamic environments can benefit from taking strategic actions in lieu of advance planning because such actions have learning effects that help the firm keep pace with changes in the environment. The implicit assumption is that strategy by doing is effective in dynamic environments but likely not in stable environments. This study challenges this notion and expands the purview of the strategy-by-doing perspective. We first argue that strategy by doing is generally an effective strategy due to the organizational learning it facilitates. We next discuss how environmental dynamism is multidimensional, encompassing both market and technological dynamism. The positive effects of strategy by doing on product-market performance are amplified in highly dynamic environments that feature high levels of both market and technological dynamism. We go on to argue that stable environments are also suitable for strategy by doing, where it can facilitate opportunity creation. However, strategy by doing may hinder performance in mixed environments where one form of dynamism is present and the other is not. Focusing on strategy by doing in the form of product changes, our analysis of 4,000 firms over a period of 20 years shows support for our arguments about environmental contingencies affecting the relationship between strategy by doing and performance. We discuss how these findings have implications for theory and practice.