Companies that alter their strategy at consistent times and for consistent durations perform better than those who make these changes in a less predictable manner, according to a study by Patricia Klarner of the University of Munich & Sebastian Raisch of the University of Geneva.
In this study, the strategic changes of 67 European insurance companies that occurred between 1995 and 2004 were categorized as either regular or irregular. Strategic changes includes a company’s entrance into a new market (i.e., diversification) and a company’s withdrawal from a country or a business segment (i.e., refocusing). An example of a regular change is a company that diversifies or refocuses in years 1995, 1997, 1999, 2001, and so on, whereas an example of an irregular change is a company that diversifies or refocuses in years 1995, 1996, and 2001.
Further, within the category of irregular change, there were three types of change: focused, punctuated, and temporarily switching. For instance, a company that engages in focused change will have long periods of change interrupted by a brief period of stability; a company that engages in punctuated change may have long periods of stability interrupted by a brief period of change; and a company that engages in temporarily switching will have both long periods of change interrupted by brief periods of stability and long periods of stability interrupted by brief periods of change.
The relationship of these types of change to firm performance – as indicated by annual return on equity – was then evaluated. Via quantitative analyses, it was found that companies that alter their strategies in a uniform, steady, and even manner perform better than those that alter their strategies at less regular intervals. So, in pursuit of performance, try to be consistent and predictable as you create and implement different strategic changes.