The relationship between strategic change and firm performance in JSE listed firms in South Africa

Abstract

This study was conducted in order to investigate the relationship between strategic change and firm performance. Organisations operating in today’s business environments are faced with several disruptive forces such as digitisation, globalisation and urbanisation but to name a few. These forces create very complex and unpredictable environments that can make it difficult for businesses to understand how and when to change their strategies to achieve optimum performance within their industries. Many academics and industry professionals also believe that these disruptive forces have rendered traditional strategic methods such as the five forces that shape strategy (Porter, 1979) and the resource based view (Wernerfelt, 1984), obsolete. New theories however such as the theory of transient advantage by McGrath (2013) seem to be more compatible with current business conditions. This theory revolves around the concept that competitive advantage needs to be seen as fleeting, and that strategic change should exploit these advantages in the short term, creating what is termed a transient advantage cycle. However, in order for companies to implement such an approach, they would first need to understand what impact strategic changes have within their organisations over a period of time. This study therefore aimed to analyse the relationship between strategic change and firm performance to determine to what degree transient advantage strategies could be successful. This research was performed on a set of Johannesburg Stock Exchange listed companies to frame the study in a South African context. The results of the study found a positive U shape relationship between strategic change and firm performance, suggesting that many firms within the study have not found the optimum level of strategic change to make within their organisations. This result therefore suggests that the implementation of a transient advantage strategy may result in erratic firm performance and that these firms should first determine what the optimum level of strategic change is before implementing dynamic strategies such as those based on McGrath (2013).