This paper was presented at Strategic Management Society 42nd Annual Conference, London, September 17-20, 2022. The paper was nominated as candidate for the SMS Annual Conference Responsible Research Paper Prize.
Both business and institutional environments have become significantly more volatile, uncertain, complex and ambiguous. The acronym VUCA is often used to refer to this environment (Hicks & Townsend, 2002; Johansen, 2007). The recent situation conflating Covid 19, geopolitical instability, supply chain breakdowns, maldistribution of food supplies and social unrest provides a perfect example of VUCA. Rather than a transient phenomenon VUCA is here to stay.
Volatility refers to situations where change is frequent and increasingly unpredictable, e.g., number of people infected by Covid- 19 and the number of likely waves over the duration of the pandemic. While the root causes of volatility are often, or can be, understood, the frequency and unpredictability of duration create problems for decision makers. Uncertainty refers to lack of information regarding what will happen, the range of events that could materialize, and their potential impact; clearly this creates risk. This risk is often referred to as Knightian risk (Knight, 1921). It is different from conventional “risk” wherein the odds can be accurately ascertained though the outcome of a particular situation is unknown. This is well illustrated by the difficulty in knowing what the outcome of the current war in Ukraine and its impact on firms operating in both Ukraine and Russia will be. Compounding uncertainty are the increases in Black Swan events, events that cannot be predicted in advance but have severe consequences should they occur (Taleb, 2010).
Complexity is generated by interconnections, often convoluted, across different elements of a system. An example is the healthcare system where the actions of stakeholders – governments, insurance companies, pharmaceutical companies, doctors, allied health professional among others – with diverse strategic intents and goals impinge on each other in often unpredictable ways.
Ambiguity refers to lack of knowledge regarding the basic rules of the game. As example, firms in UK and Europe have faced, and continue to face, considerable ambiguity in their operations from lack of clarity in the post-Brexit relationship between the UK and the EU. Likewise, firms operating in Finland and Sweden face considerable ambiguity as a result of their governments’ decision to seek NATO membership despite Putin’s threats to take severe action should they do so and Turkey’s objection to the membership.
Several frameworks have been developed to help decision-makers understand and deal with contexts underpinned by VUCA. The Cynefin framework (Snowden, 2005) is one such. It categorizes contexts facing decision-makers as simple, complicated, complex, chaotic, and disordered and suggests strategies appropriate for dealing with the same. According to Snowden, decision-making and execution are relatively easy and straightforward in simple contexts; decision-makers can be reasonably sure that actions following from their choices would accurately follow the charted path and outcomes would be in line with those anticipated at the time of the decision.
However, as one moves from the simple to the complex and then to the disordered, cause-effect relationships become difficult to discern and, in the disordered context, well-nigh impossible. In fact, Doz et al. (2017) assert that in chaotic and disordered contexts, cause and effect can only be deduced in retrospect. As VUCA intensifies, firms are likely to face an increasing number of chaotic and disordered contexts in the future. Consequently, decision-making, particularly strategic decision-making will become very challenging. Conventional approaches which assume the future will reflect the past will not work. What then? We explore some possibilities below.
1.1 VUCA and Wicked Problems
Disordered, even chaotic contexts coupled with the ambiguity in cause-effect relationships confront decision makers with “wicked” problems, problems that are one-off, possess multiple, often interrelated, facets and are difficult to formulate, with any degree of accuracy or clarity, for problem-solving purposes (Rittel & Webber, 1973). Climate change is an example of a wicked problem. Given the fuzziness of wicked problems they cannot be dealt with conventionally, i.e., in a rational, linear, logical fashion. Rather, decision-makers have to use multiple probes or experiments to arrive at some sort of a solution whose “correctness” is difficult, if not impossible, to ascertain (Snowden & Boone, 2007). Decision-makers must be willing to generate alternative solutions should their initial solution prove inadequate, as is often the case (George, 2017). In addition, decision-makers have to realize that seeking an optimal solution is futile. “Satisfactory” solutions are the best they can hope to achieve.
Though managers generally perceive chaotic and disordered contexts as threatening they can also present high-value, complex business opportunities. Increasingly, many such opportunities are at the intersection of private and public spheres. Recent examples include dealing with global pandemics, climate change, and rising societal inequalities. Addressing these effectively requires a fundamental shift in the mind-sets of decision-makers in both the public and private spheres. Public sphere representatives – politicians and government employees for example – must be open to expanding their talent and resource pool by collaborating with the private sphere rather than rejecting such collaboration out of hand. Likewise, private-sphere decision-makers must work to gain an understanding and appreciation of the institutional environment and be willing to act for the public good alongside seeking fair returns for their shareholders.
Such an approach enables decision-makers to respond appropriately to socially constructed beliefs about what constitutes efficient and effective behaviour (Suddaby, 2013). It also enables them to see value creating and value capture opportunities more clearly (Paroutis et al., 2013). Firms, by paying attention to societal issues and agendas, both cultural and political, can gain legitimacy in the eyes of customers, investors, and citizens. Such legitimacy can be invaluable when they seek to gain and sustain long-term viability.
Addressing the diverse wicked problems created by intensifying VUCA can be time consuming (repeated probes, experiments) to arrive at some sort of an acceptable solution. This is challenging for the firms’ stakeholders, particularly shareholders, who may see such probes and experiments as “wasteful” eroding returns to shareholders. Waiting patiently for fair returns is particularly difficult for finance stakeholders in Anglo-Saxon capitalist economies. Given their predilection for assessing performance on a quarterly basis they are quick to seek removal of “poorly performing” managers.
In the light of such performance pressures, managers are prone to favour quick fix solutions over potentially better, longer-term strategic choices. Utility companies, for example, address climate change by investing in solar energy even though this may require them to clear-cut hundreds of acres of carbon dioxide absorbing forests without exploring other more comprehensive options. That this short-termism persists, despite increasing research and empirical evidence that a long-term orientation to arrive at a more comprehensive solution creates more shareholder value (Flammer & Bansal, 2017; Bebchuk, 2021), demonstrates the power that Wall Street or the City in London have on strategists struggling to deal with VUCA contexts.
For their part, institutional actors also lean toward short-term, quick-fix approaches to demonstrate to their constituents that they are actively pursuing solutions to their problems. Often these “solutions” create other problems that must be dealt with by the very actors who created them. Fracking restrictions, for example, put in place by the Biden administration has contributed to rising gasoline prices which in turn has contributed to inflation. Trying to curb inflation could trigger a recession, and so on.
1.2 VUCA, Hypercompetition and Short-Termism
As VUCA increases in intensity, firms in the private sector often face rising competitive pressures. D’Aveni et al. (2010) argue that such intensity often leads to hypercompetition. In such instances, D’Aveni asserts that strategic decision-makers have to abandon thoughts of generating and sustaining competitive advantage. According to D’Aveni a better approach for strategists is to conceive of strategy in terms of dynamic manoeuvring to generate a series of temporary advantages as solution to the hypercompetition problem.
Echoing D’Aveni’s view, McGrath (2013) asserts that a worldview where successful strategies are grounded in sustainable competitive advantage becomes obsolete with intensifying VUCA and advocates that decision-makers responsible for strategy should start to think in terms of transient advantage. This is a difficult and unsettling notion for most strategists to accept; they fear that frequent changes in quest of transient advantage would unsettle the organization and reflect poorly on management’s strategic decision-making capabilities. One could also argue that pursuit of transient or temporary advantages to meet the quarterly expectations of Wall Street or the City could reinforce short-termism with managers focusing more on tactical decisions and failing to invest in creating and developing capabilities and resources required for longer-term success and viability.
Given the persistent problem of short-termism identified above, Martin (2021) advocates re-examining existing governance structures that reinforce short-termism. He advocates developing governance structures and organizational configurations that encourage managers to focus not only on the well-being of their shareholders and their ecosystem but also on the societies in which they operate, i.e., encourages managers to adopt a broader and longer-term view of firm performance. Given this call we wondered whether member-owned cooperatives possessed the right governance structure and configuration called for by Martin and would be better positioned to address evolving VUCA demands.
According to the International Cooperative Alliance (2021), cooperatives have an ideology of fairness, openness, equality, and social justice and aim to create “sustainable enterprises”that generate long-term jobs and prosperity for stakeholders. Cooperatives face the challenge of maintaining a balance between a pure business orientation (profit maximation), delivering on their members’ needs and aspirations by balancing short-term and long-term considerations and acting to have a positive impact on society.
In order to find out whether cooperatives were capable of dealing effectively with evolving VUCA without falling a victim to short-termism threatening long term competitiveness and viability we studied a major cooperative conglomerate in Finland as the context evolved from simple and stable to chaotic and disordered. While doing this our aim was to delineate the processes and actions undertaken to increase the Group’s long-term viability in the face of a VUCA environment.
2.1 S-Group and the Changing Context
S-Group is a 118-year customer-owned cooperative. It has a unique holding structure whereby 2,4 million participants (44 percent of Finnish households) own 19 regional cooperatives. In turn, the regional cooperatives own SOK, the company Centre that provides services to the regional cooperatives. With 39,000 employees, S-Group operates more than 1800 retail outlets comprising supermarkets, department stores, specialty stores, travel stops selling fuel and convenience goods, restaurants, and hotels. S-Group currently has a 46% market share in retail in its home market. Additionally, the Group’s bank, S-Bank, offers a wide range of banking services across the country. Some affiliated regional cooperatives also operate car dealerships and engage in agricultural trade. S-Group’s turnover was 12,3 billion euros in 2021 (S-Group, 2022).
S-Group’s environment has witnessed an increase in VUCA over the past 30 years. This has resulted in S-Group’s context evolving from simple and stable to complex and even chaotic and disordered. A major driver for this evolution was the collapse of the Soviet Union in 1991. Prior to the collapse of the Soviet Union, Finland had operated under the aegis of a “Bilateral Foreign Trade Treaty” with the Soviet Union that required imports and exports to be in balance. With the Soviet Union accounting for 15% of Finnish goods exports, the collapse of the Soviet Union led to a slump in Finland’s eastern trade. This, in turn, led to the deepening of the recession that had been created by a crisis in the financial and banking sectors that had required a radical restructuring creating stress and substantial uncertainty for Finnish firms.
The recession was prevented from turning into a depression by growth in the electronics and telecommunication sectors led by Nokia. Nokia contributed greatly to the post-Soviet era recovery by exporting, globally, radio sets, telecommunication equipment and mobile phones. The Finnish Forest industry and Machinery and Metal Industries were also key contributors to the recovery through exports of their high-value-added products (Bank of Finland, 2015).
The need to find markets for products and services that were previously exported to the Soviet Union saw Finnish firms venturing westward and seeking non-traditional global markets by creating innovative products, services, and even innovative business models. Finnish companies were now exposed to aggressive global competitors in turn who saw an opportunity to address the Finnish market after the collapse of the Soviet Union. The S-Group was not exempt from this development; its dominant position in retail started to be threatened by the entry of low-priced competitors, such as Lidl, the German brick-and-mortar retailer, and other on-line entrants. The intensifying competition started eroding the profitability of many of the Group’s retail entities, particularly supermarkets, department stores and even specialty stores. With hypercompetition on the horizon, “business as usual” was no longer an option. We were curious to understand how S-Group would respond to this situation.
1.2 Data Gathering
In studying S-Group, we adopted a qualitative, process-oriented research approach that captured insights from “elite informants” (Aguinis & Solarino, 2019; Jané et al., 2018; Langley, 1999), viz. senior leaders who play key, decision-making roles in the group. Specifically, we interviewed Mr. Heikkilä, the President and CEO of SOK once or twice a year (for a total of eight) during the 2014-2020 period, and senior executives (CEOs and members of the top management team) of regional cooperatives once or twice during the period 2018-2020. The main objective of these semi-structured interviews was to understand critical strategic challenges facing the Group, their respective units and S-Group’s response to these challenges created by VUCA.
Data collected during these 1 – 2-hour interviews were documented in memos. We were also privy to strategy documents, copies of strategy-presentations, as well as archival reports and publications. These were supplemented by selected press and media coverage of the S-Group ranging from early 1990’s to 2021. The authors analyzed the data through mutual sparring, which was helpful in coding and analyzing the data, identifying critical events, and generating ideas on why and how strategizing stretched towards institutional arena (Giudici et al., 2018).
Our initial analyses and inferences were also discussed with the decision makers interviewed to check for accuracy and obtain a more nuanced understanding of the dynamics of the processes dealing with the challenges confronting the group. A final check of our analyses was made in early 2022 by sparring with the current and former President and CEO of the S-Group.
FINDINGS AND DISCUSSION
3.1 Coping with Intensifying VUCA
Operating in a relatively simple, stable environment for decades, S-Group had adopted, and been widely recognized, for its systematic and structured strategic planning process. The Centre, SOK, provided direction and explicit strategies for its main business units and the regional member cooperatives. These entities were then expected to execute these with little or no deviation. Interestingly, rather than having a formal strategic planning group at the Centre, planning was a team effort involving leading strategists from SOK and the regional cooperatives. This approach created buy-in from managers who were ultimately responsible for executing strategies. A related significant benefit of this approach was that it helped prevent the emergence of silos (Gardner, 2017) that would limit cooperation between group members.
As competition intensified in the Finnish economy, the success of low-price competitors like German discounter Lidl was an eye opener for the S-Group that, historically, had had pricing power given its dominant retail market share. As S-Group’s built-in customer base (member-owners) had buffered the Group from the adverse impact of this intensifying competition it delayed recognition of an impending crisis.This changed, however, when the price gap between the discounters and the Group’s retail units widened. The regional cooperative units who were in direct contact with their customers were the first to feel the pressure. They quickly recognized that strategies that were handed down from the Centre limited their ability to respond to their aggressive competitors in a timely manner. They started pressuring the Center to provide them strategic and tactical flexibility.
Despite the initial buffering, continued pressure for change from the regional cooperatives convinced the CEO of the S-Group Center (SOK) that its historical strategizing approach was unlikely to work in the future. He also realized that regional cooperatives had to have the necessary autonomy to respond, in an agile manner, to developments in their own regions even if it meant that strategies and tactics diverged across regions. His prior experience as the CEO of one of the regional cooperatives and as head of the Strategic Planning Process, helped him to realize that regional autonomy and responsibility were critical to provide the local agility to deal with intensifying competition. Soon after assuming his job as the CEO of SOK he became firmly convinced that the time had come to make a clean break from the traditional approach and start fresh to address various challenges posed by VUCA.
Consistent with the desire to obtain a fresh perspective, S-Group’s key strategists met at an off-site in Geneva in 2014 to identify and address future challenges from VUCA. After considerable debate and discussion, the 30 top executives of the Group agreed to an approach labelled “Cheapening” or “The Geneva Treaty”. Acknowledging that price-based competition was here to stay, the objective of Cheapening was to proactively reduce prices to reduce the price gap with the discounters (something unimaginable during the Group’s era of retail dominance) to prevent customers from defecting and make life difficult for their current and potential competitors. Cheapeningwas also designed to put pressure on the Group to improve its internal efficiency to ensure that the drop in margins following price reductions was marginal. Internal efficiency considerations had not been a problem for the Group when it had market dominance and faced relatively weak competitors.
Unlike previous planning sessions that had resulted in detailed plans leaving little scope for improvisation by the regional entities, Cheapening was designed to be an umbrella concept. Group members had a degree of flexibility with respect to the specific strategic and tactical actions they could undertake to strengthen their position in their respective domains.
A major fear of managers at the Centre when providing strategic and tactical autonomy to decentralized units was that they could go rogue and adversely affect the group as a whole. Our study appeared to indicate that this fear was minimized from S-Group’s organization as a cooperative. There was a strong “One Firm” mindset that caused managers across the Group to act in the best interests of the S-Group rather than their own units. The cooperative nature which creates a commitment orientation (rather than a transaction orientation in conventional profit-oriented firms) also generated substantial support and cooperation across all levels. Clearly, member-employees did not fear losing out from the changes that were contemplated.
Leaders at the Centre (SOK) proposed to make substantial, targeted investments in technology to facilitate improvements in internal efficiency. They also sought to obtain a better understanding of its retail customer needs and expectations, something that the Group had not seen as critical when its member-owners were predisposed to buying from Group entities. For instance, ABC travel shops, which drew from a cross section of customers, were employed to obtain insight into customer expectations and purchasing behavior.
In addition to insights with respect to pricing, merchandising and related retail elements, an important insight obtained was that customers of S-Group were becoming increasingly interested in sustainability issues. This trend was consistent with that of other Nordic countries. Based on these insights, ABC reconfigured its offerings and messaging to resonate with its current and potential customers. Subsequently, the Group started to address broader environmental and social concerns in their offerings and messaging.
In adopting Cheapening and investing in digital technology, S-Group’s management indicated that it was willing to sacrifice short-term profits to strengthen its long-term competitive position. In our judgment, the Group’s structure as a cooperative enabled it to take this approach without having to worry about adverse reaction from the financial community as would have been the case if it were a conventional for-profit organization operating under Anglo-Saxon capitalism norms and expectations.
Even as competition was intensifying in S-Group’s retail sector, competition in its hospitality sector was somewhat muted despite entry by numerous competitors, many of whom were associated with major brands such as Hilton, Burger King, and McDonalds. S-Group’s hotels and restaurants were able to maintain their strong position thanks to their local knowledge and well-established prime locations. Rather than remaining complacent, following the lead of the Group’s retail entities, hospitality sector managers started to focus on customer segmentation and invested in technology and systems to refine segmentation to maintain pricing power going forward.
While the challenges confronting the S-Group were no different from those confronting other private sector players, the speed with which the Group was able to react (once the threats were recognized) was facilitated by the “One Firm” cooperative ideology. A related benefit of this cooperative ideology was the absence of entrenched silos. This facilitated transferring insights and learning from each other.
The success (in terms of market share and financial performance) of Cheapening reinforced the correctness of the decision to let regional strategies emerge under the Cheapening umbrella given that competitive dynamics varied across geography and industry. It also confirmed that it was best for people closest to the action to have the authority and leeway to take decisions. This autonomy was key in generating local agility that was to prove critical in dealing with the evolving hypercompetition and intensifying VUCA. As Mr. Heikkilä, stated: “Cheapening has been by far the most powerful strategic decision made by the Group in the 2010s. It has gone a long way in building a platform for our long-term competitiveness and survival.”
Towards the end of 2010’s it became evident that while Cheapening was valuable in addressing evolving hypercompetition it was defensive in character being overly focused on internal efficiency to ensure ability to be price-competitive vis a vis discounter. Thus, it became clear that it was time to undertake some initiatives to address growth and shift the basis of competition away from price. Four strategically important initiatives were launched to:
- Create an open, agile organization to address and deal with changes generated by VUCA on an ongoing basis,
- Develop a point of view of the future by recognizing weak signals and developing capabilities and competencies to deal with the same,
- Craft new product and service offering and explore innovative business models and
- Create and enhance a culture of innovation across the entire S-Group.
These initiatives were not meant to be discrete with individuals or units choosing to participate in one or the other; rather, they were designed to open up the strategy space for S-Group and ensure that strategic thinking and innovation became an integral part of the Group to generate meaningful quality growth. Mr. Heikkilä was of the opinion that this could not be achieved without creating an organizational culture that facilitated risk-taking and was open to failure in the Group’s quest for growth.
Following the launching of these initiatives some Group managers started examining successful companies in other industries and geographies to determine how they had dealt with intensifying VUCA and to assess whether there were elements that could be incorporated into S-Group’s strategies and tactics going forward. They also started interacting more closely with their suppliers and other ecosystem members to obtain their points-of-view of the future, generate new ideas and obtain a more global perspective on strategy. The objective here was that such insight could lead to the creation of new offerings and innovative business models. Without explicit recognition these managers had taken steps toward Open Innovation and Open Strategizing (Stradler et al., 2020; Baliga & Santalainen, 2016).
For open strategizing and innovation to take root across the organization it is necessary for the majority of organizational members to unlearn their traditional and conventional approaches to strategy. As is true for most organizations shifting from closed strategizing and innovation to open strategizing and innovation turned out to be a major challenge for many S-Group leaders. Even though they understood, cognitively, that evolving VUCA did not permit the conventional, linear, sequential approach of the past it was emotionally difficult for them to let go of a practice that had been honed over decades.
Inertia too appeared to play a part here. While some members were willing to abandon their traditional strategy planning process, they were reluctant to embrace open strategizing for fear that the Group’s strategies would leak to competitors who shared common ecosystem members. Likewise, some members were reluctant to embrace open innovation for fear of becoming overly dependent on external agents and losing control of the innovation process. Despite these initial hiccups open strategizing and open innovation gradually became an integral part S-Group functioning.
Responding to intensifying VUCA contexts necessitates that strategic managers are open and sensitive to contextual changes on a continuous basis, and act appropriately in an agile manner. This requires them to stop thinking of crafting strategy and executing strategy as comprising two distinct sequential phases. This change in perspective though difficult for managers who have long operated in simple, stable contexts to accept is essential for successfully navigating VUCA environments.
Our data suggested that, despite some mixed experiences, most of the common benefits of open strategizing were realized by the Group from the four initiatives (cfr. Birkinshaw, 2012; Baliga & Santalainen, 2016; Whittington et al., 2011):
1) Improved information for developing a Point of View (POV) and based on that, crafting strategy. The involvement of a diverse set of internal and external network members increased management sensitivity to weak signals. It also helped with their interpretation and assessment of these signals as individual or dominant-coalition biases were weakened or suppressed.
2) Overcoming process rigidity. Opening up the strategy processes facilitated moving away from the traditional template driven strategy creation approach. This in turn helped open other organizational processes. Connections built through open strategizing increased internal and external lateral cooperation enabling organizations to seize cross-organizational opportunities. This brought much needed agility to cope with VUCA.
3) Overcoming incrementalism. Ideas and perspective brought into play by both external partners and internal collaborators helped overcome preferences for the status quo and helped reduced tendencies to adopt an incremental approach. This facilitated the development of new business models and innovative offerings. As many of these became successful, it helped foster a culture of innovation.
4) Improving internal and external strategy communication. The Involvement of diverse participants and extensive use of social media helped clarify strategy to various stakeholders.
5) Increased execution energy: This resulted primarily from the increased transparency, credibility and commitment gained by broader participation in the strategy creation process.
These benefits are no different than those that would accrue to any firm that was able to effectively adopt open strategizing and open innovation, i.e., here analysis of our data did not suggest any distinct benefits from being a cooperative.
3.2 Clarifying S-Group’s Ideology
As the initiatives were unfolding Mr. Heikkilä took the opportunity to examine and clarify the meaning of the Group’s cooperative ideology in the context of the evolving environment. According to Mr. Heikkilä, customer orientation, continuous development, accountability to organizational members, responsible profitability and contribution to society at large continued to be core values of S-Group’s cooperative ideology. In Mr. Heikkilä’s view it was these core values that differentiated S-Group from firms in the private sector whose primary concern was growing shareholder value even as they espoused customer orientation and social responsibility.
It was Mr. Heikkilä’s belief that articulating this ideology and purpose would serve as a guide to the Group’s actions and establish legitimacy for the Group’s continued functioning in Finnish society. He felt that the cooperative ideology resonated with the younger members of the organization. Mr. Heikkilä’s felt that whole-hearted engagement of younger organizational members was crucial for future growth and S-Group’s ability to adapt to an increasingly digital world.
Following this clarification of its cooperative identity and core values, managers of regional cooperatives began to see their decisions and actions from a broader perspective. They began to realize that they now had the flexibility and the authority to make important decisions going beyond competitive considerations as long as they were aligned with the Group’s ideology and core values.
3.3 Stretching Competitive Advantage toward Viability Advantage
Even though the primary focus of the S-Group was on creating an appropriate context for their various businesses to remain competitive, senior managers were becoming increasingly concerned about the Group’s long-term viability in the rapidly unfolding VUCA environment. With the help of a strategy consultant, they started to examine competitive advantage and viability issues in a more nuanced fashion (Santalainen, 2019). They started to understand that while the focus of competitive advantage was directed at generating and sustaining greater economic value creation and capture than competitors, viability advantage was concerned with ensuring the long-term survival of the organization, even if short term competitive considerations had to be sacrificed.
The bailout of General Motors (Rattner, 2010) and some of the larger banks in the US (Barofsky, 2012) are perfect examples of viability advantage. Given that the US prides itself on being a capitalist society where firms that cannot compete are expected to fail the bailout of General Motors and the larger banks under the guise of “too big to fail” would not have happened if there wasn’t strong grassroots support for the bailout. As another example, recognizing the value of community and grassroot support, Toyota USA has located its operations across many states and communities (sacrificing scale and potentially some competitive advantage in the process) in order to have maximum political and social support should the tide turn against Japanese companies.
Recent Covid-19 years offer numerous examples from around the world that without government support a huge number of business firms, industries (airlines, hospitality businesses, entertainment as examples) – and societies – would have lost their platforms for future viability.
More and more managers have now started to realize that while attention had to be paid to both competitive advantage and viability advantage, poor competitive positions could be turned around by adopting appropriate turnaround strategies. Ensuring viability in VUCA is substantially more difficult as threats to viability come from multiple sources such as changing social mores (response to gun violence) governmental policies, (nationalization to prevent exploitation) disruptive technologies (fossil fuel companies), or ironically even from success (Tech companies such as Google and Facebook which are deemed too powerful). Following this recognition, key decision-makers have started to accept that increasing viability requires them to think beyond the contours of their current organizational configuration and business model. In the extreme, it was conceivable that the organization could be so transformed that its original contours were no longer recognizable.
3.4 Refreshing S-Group’s Mission
Mr. Heikkilä was insistent that in quest of long-term viability S-Group could not sacrifice its focus on operational efficiency and competitive fitness. Through open strategizing the S-Group had realized the importance of leveraging ecosystem members’ capabilities and competencies to respond to competitors and exploit emerging opportunities that they could not do on their own. In developing viability advantage S-Group leaders realized that institutional players could be valuable partners for addressing societal concerns consistent with the Group’s cooperative ideology.
Following these insights S-Group refreshed its mission in 2019 as: “Together we will make a better place to live” (Heikkilä, 2020). This mission was the culmination of an open initiative with widespread participation from both within and without the Group. The mission clearly went beyond core business concerns and resonated with organizational members, particularly the younger ones, who could now see their actions as contributing to making the world a better place whilst enabling them to fulfil their desire for leading a more meaningful life.
Following this new mission, employees, especially younger ones, started to generate numerous strategic and tactical initiatives at local, regional and national levels reflecting their own perspectives on making the world a better place. In addition to these bottom-up initiatives, S-Group’s Centre committed to doing its part to mitigate climate change by reducing Group emissions by 60% by 2030, improving energy-efficiency and increasing usage of renewable energy. They also committed to reducing food waste, and recycling materials more efficiently.
Societal responsibility, as a core value, was translated into active, public support for human rights reflected in pronouncements such as “We are committed to respecting all internationally recognised human rights and promoting them in our operations. We expect the same from our partners” (S- Group, 2021). Suppliers were now put on notice that they could lose their contracts with S-Group if they were found guilty of human right violations. This was a very meaningful commitment from the Group; it had the potential to have real global impact given that S-Group was Finland’s largest importer from developing countries, countries that were rife with human rights violations.
The mission also translated into a sense of community. As Mr. Heikkilä put it: “Community does not conflict with business.When we build circumstances for good living in villages and towns – be it sport halls, art premises, support for hobbies etc. – we assist in their wellbeing and create future clientele. If the community is not viable, young people leave first and the community dies. Hence, we want to develop vibrant centres in towns in collaboration with public actors. S-Group could become an ecosystem hub or platform for developing wider services for communities, in fact, for the whole country” (Heikkilä, 2020). Such thinking resulted in S-Group working collaboratively with institutional actors such as local governments to address and redress social issues in the community. Clearly its cooperative heritage was invaluable in adopting this perspective, a perspective that would have been difficult for conventional profit-oriented firms to embrace as it would have been as leakage of financial resources.
It is evident from these actions that S-Group saw itself not merely as a business entity but an organization that was an integral part of the society in which it operated along with all attendant responsibilities to ensure a healthy and vibrant society. As this approach aligned well with Finland’s institutional environment, i.e., political, social, and organizational rules and norms (Buchla & Kim, 2015), it enabled the S-Group to develop institutional advantage, i.e.,the capability to exploit its distinctive resources and activities in interactions with its institutional environment generating value that was greater than that of other players (Martin, 2014). Such institutional advantage is an important precursor to viability advantage as it reinforces the firm’s legitimacy and signals its importance to society in which it operates. Through these actions S-Group was well on its way to creating a robust viability advantage platform grounded in effective strategic and institutional management.
Intensifying VUCA contexts clearly confront firms with multiple threats and opportunities. As most managers tend to be focused on defending themselves against threats, they forego opportunities which increasingly lie at the intersection of public and private spaces and require a change in orientation centred on the need to collaborate with public sector entities and potentially sacrifice short term profitability. This requires managers to develop sensitivity to societal concerns and a willingness to address these as part of their ongoing operations. Done right this provides these corporations with institutional advantage that is a key driver of viability advantage.
Corporations have historically paid a great deal of attention to sustaining competitive advantage, a key thrust in strategic management literature. In the process they have overlooked viability issues (Baliga & Santalainen, 2016). Focusing on competitive advantage often catches firms by surprise when their viability is threatened, not from competitors, but elements outside their competitive space. The Covid pandemic has highlighted this vulnerability in spades as have geopolitical developments such as the war in Ukraine, Chinese claims over the South China Sea and N. Korea’s belligerency to cite a few recent ones.
Given increases in VUCA and the difficulty in establishing a strategic direction with any degree of certainty, dealing with competitors and viability requires firms to launch multiple probes and maintain resource slack to be able to commit resources in a timely manner to defend against threats or seize opportunities in an agile manner. S-Group was certainly able to do so responding to intensifying competition by adopting the Cheapening initiative followed by creating a mission statement consistent with its cooperative ideology which provided meaning and purpose to its organizational members. Senior managers of S-Group clearly understood that the continued viability of the Group, and its constituent regional arms, was greatly dependent on the health of the immediate institutional environment, i.e., communities, in which it operated.
By adopting open strategizing practices, a diverse range of actions with multiple institutional and societal actors were undertaken to ensure that communities remained vibrant. Viewed from the conventional lens of maximizing shareholder value such diverse actions may appear inefficient, but they are critical for ensuring long-term viability. Maintaining slack resources is, likewise, seen as inefficient but it enables firms to not only seize emerging opportunities rapidly but also collaborate with institutional actors toward gaining legitimacy for continued viability.
Our study of S-Group demonstrated the value of redefining the mission to incorporate societal elements and sensitizing organizational members to the complementary nature of competitive advantage and viability. Competitive advantages can lead to longer-term viability advantage provided decision-makers open and reorient their thinking and actions from the micro level (firm in its task environment) to the meso level. Key managers of S-Group did open their minds so that they understood both ideological meaning and long-term business potential of macro-level players in society. Meso-level understanding is born by bridging micro and macro elements for action which generates viability.
To clarify, the meso level falls between the micro and macro levels e.g., a community, network or ecosystem. The meso level is formed by the stable materially conditioned structures of interrelations and the rules for the joint functioning of the constituent parts (socio-economic system) that ensure the reproduction and stable dynamics of development of the entire system (Kim et al., 2016). Adopting a meso level perspective helps reveal connections between micro and macro levels that help position the organization for long term viability.
The ability to transform itself to deal with VUCA was certainly helped by S-Group being a member-owned cooperative. The increasing concerns in Anglo-Saxon capitalist economies regarding inequality and the power of the financial community over main street suggests that corporations are becoming increasingly vulnerable to government policies that would seek to curb this imbalance. Our findings from S-Group suggest that a cooperative, less subject to quarterly financial pressures, has the ability to work collaboratively with institutional players for the betterment of society as whole and improve its own viability prospects.
Based on our insights from the S-Group study, we argue that firms must go “beyond strategic management” (which has business and competitiveness as the focus) to understanding that firms, as an integral part of society, have to address societal issues in order to ensure long term viability, even if it may sometimes mean sacrificing some competitiveness and returns in the short term.
As example, let’s consider a firm that is not concerned with environmental issues and is unwilling to spend resources, say, on pollution control. While this would increase its competitive advantage and returns in the short run it would place the firm at odds with societal expectations, decrease its legitimacy and potentially reduce its long-term viability. This is in direct contrast to a firm that is willing to incur pollution control costs, suffer some competitive disadvantage in the short run, but in the process increases its legitimacy and its long-term viability.
Our findings also suggest that a firm cannot jump straight to meso level with the objective of finding sources of viability advantage. We maintain that, despite intensifying VUCA, developing viability advantage should include four complementary elements. A robust platform for obtaining viability advantage relies on the following four elements (Teulings, 1985; Kosonen & Santalainen, 2022):
1) Operational efficiency and strong execution power,
2) Clear insight into understanding customer needs and competitors’ strategies,
3) Developing strategic resources and dynamic capabilities consistent with an insight into the future and
4) Institutional management to affect rules and norms that would help strengthen
While elements focused on efficiency, customers and competitors are more concerned with competitive advantage, linking strategic resources and capabilities to effective institutional management is key to developing and sustaining viability advantage. There has to be a deep understanding that there must be cocreation of value by business and non-business players for viability.
The fundamental challenge in developing and maintaining viability advantage is to ensure that the organization is not dead before viability advantage kicks in. This requires senior leaders to successfully manage tipping points, i.e., changing organizational focus from one element of the platform to another at the appropriate time (Gladwell, 2002). In the case of S-Group, Cheapening initially focused on operational efficiency issues to deal with the intensifying competitive situation. When operational efficiency was achieved to a desired level that the Group could compete successfully with the discounters, Group leadership tipped it toward a focus on customers.
The next tipping point was move toward open strategizing to gain insights into the evolving environment. This was followed up with a tip toward clarifying the cooperative ideology which inspired the articulation of a new mission statement leading to institutional management considerations for legitimacy and long-term viability. The challenge in managing these tipping points is to get the timing right as there is limited room for error in VUCA. This requires firm leaders to have a good feel for, both environmental and organizational dynamics.
Recent supply chain disruptions have made it very clear that many firm managers did not have such a feel; not only did this result in competitive disadvantage for many firms but also threatened their viability, as was the case with Boeing. Unfortunately, rather than deal aggressively with manufacturing and supply chain issues it appears that Boeing has decided to double-down on the institutional side moving its Headquarters to the Washington DC area to be closer to politicians, policy makers and regulators (Isidore, 2022). Clearly, social responsibility and concern for the wellbeing of the institutional environment have to become an integral part of the firm’s strategic agenda it cannot be a substitute for effective business strategy management.
S-Group was severely tested by Covid 19 in 2019-21. Its hospitality business, however, took a body blow as tourism and domestic travel dried up. This caused some employees in the hospitality business to seek other opportunities despite being member-owners in the Group. Thanks to the actions described earlier, the Group demonstrated strong resilience. It was able to strengthen its position in retail despite strong competition and is well on its way to recovery as committed employees-owners have worked to absorb most of the slack caused by the departures during Covid-19. The Group also demonstrated its commitment to its human-rights values and response-agility by withdrawing from its retail and hospitality operations in Russia following Russia’s invasion of Ukraine.
The ability of the S-Group to not only deal with the challenges posed by VUCA, but to grow and move toward long-term viability, validates cooperatives as a desirable organizational form. Given that most Anglo-Saxon capitalistic economies do not have a long tradition of cooperatives what options do managers interested in long-term viability pursue? There are a couple of examples worth examining. The first one is the Employee-Owned (EO) company (NCEO, 2021).This comes closest to a cooperative. In an employee-owned company, employees are either full or part owners of the company. This aligns their personal interests with those of the firm permitting the firm to take actions similar to those of the cooperative S-Group, as discussed earlier.
Evidence in the US shows that employee-owned firms are less susceptible to short-term financial pressure and outperformed their private sector counterparts during the Covid-19 pandemic, a stressful VUCA period that saw the closure of many private sector firms (Joseph, 2021). Given that EO owner-employees are generally part of the community in which the firm operates ensures that maintaining community welfare is top of mind. This goes a long way toward ensuring viability.
Another option worth considering is to create organizations with a hybrid-identity such as Private University Hospitals in the US. Being private, these hospitals must generate the bulk of their funding themselves but are expected to serve indigent patients without making any distinction between indigent and paying patients in the quality of care. These hospitals do this through intense community involvement and institutional management to generate resources in addition to those from the paying patients. Failure to perform these activities has led to the closure of many private hospitals (Williams, 2020).
The concept of a hybrid is in line with Sabeti ‘s (2011) suggestion for the creation of a legal entity he terms as a “for benefit organization” which exists neither as a for-profit nor as a not-for-profit organization but something in-between, i.e., a hybrid organization that is concerned with generating profits which are then directed toward the greater good. As example, Sabeti cites the creation of community-operated and -oriented health care plans that combine the best of non-profit, for-profit, cooperative and public models. They are private consumer-oriented health plans designed to serve the social purpose of furthering the wellbeing of their members. To be successful they must attract customers, charge premiums and generate profits in order to maintain their solvency, but their profits must be directed toward improving benefits, enhancing quality of care, reducing premiums or otherwise advancing their mission.
Our analysis of S-Group data confirms that developing viability advantage necessitates the bridging of the micro (business) with the macro (institutional and societal) environments simultaneously as advocated by Durant (2012). In our judgment this is particularly critical to cope with the challenges posed by VUCA. Institutions not only shape the playing field of enterprises but also affect the resources and capabilities that they (firms) can acquire (Collewaert et al., 2021). Aligning enterprise-level interests with institutional-level macro interests has the potential of having significant impact on the viability of business.
Hence, if management can create synergistic interactions between the strategic and institutional management arenas, it can create a long-term viability advantage (Baliga & Santalainen, 2016; Kosonen & Santalainen, 2022). This necessitates recognition by senior leadership that businesses cannot stand apart from society, and those societal issues have to be addressed in order to ensure long term viability. As example, an auto manufacturer could probably increase its short-term competitive advantage and profitability by not addressing an environmental issue such as pollution. This action (inaction) could then place it odds with societal expectations which, in turn, would decrease its legitimacy ultimately leading to a reduction in viability. In contrast a firm willing to incur costs to curb pollution may suffer short-term competitive disadvantage while enhancing its long-term viability.
Wicked problems generated by VUCA make it necessary to harness the power of a diverse set of partners – businesses, public organizations, NGOs etc. – who can bring different skills, experience, capacity, and their own networks to tame the challenges (DeMeyer & Williamsson, 2020). As boundaries between organizations blur in VUCA environments, boundaries between the public and private sector also blur but do not disappear. Hence it is important that each stakeholder in such a public-private ecosystem knows its role and responsibility with public sector representatives providing the framework and some resources for interactions in the ecosystem and with private sector agents delivering products and services in a profitable and sustainable matter.
In order to be successful, the ecosystem needs to create a shared mission or vision aligning the interests of public and private sector agents. This requires tight, coordinated collaboration between key stakeholders (Mazzucato, 2018). The knowledge generated in such an ecosystem can then be used to enhance participants’ own innovation activities to create a range of offerings that can benefit the ecosystem as a whole without disadvantaging any particular individual participant.
The Public-Private Warp Speed Project to create a vaccine for Covid-19 is an exemplar of this. The project led to the creation of an ecosystem comprising pharmaceutical firms, government agencies, doctors and related health care professionals which not only created an effective vaccine in record time, but also enabled the various professionals involved to have a better understanding of the disease which enabled them to create diagnostic tests, anti-viral drugs that substantially reduced the pressure on limited hospital capacity.
Finally, data from our study revealed the impact of governance structure on viability. The market for corporate control in capitalist economies places substantial pressure on managers to show financial performance and growth on a regular, generally short-term basis. While such pressures have their disadvantage in terms of incentivizing managers to act to show short-term results it does force senior managers to reevaluate their business models and strategies. In contrast, as we saw initially in the S-Group case, the relatively low pressure from cooperative owners can make the organization complacent reinforcing business-as-usual. Hence vague or unclear development pressure from owners has a downside which may be critical both to competitiveness and long-term viability.
In such circumstances, the positions of CEO and other key decision-makers are critical to long-term viability. S-Group was fortunate in that Mr. Heikkilä was able to sensitize S-Group to the dramatic changes that threatened S-Group’s competitive advantage and viability and take steps to, initially, improve operational efficiency, reorient strategy and, finally, refresh its mission to drive viability. It was also fortunate that its member-employees and managers had personal values that were aligned with the re-defined mission which sought to combine business interest with societal good. Strategists whose personal values and codes of conduct make them truly believe that it is possible to create and sustain organization that can cater simultaneously to both business and societies’ interests are ideal for gaining and sustaining viability.
The intensifying VUCA context continues to test the S-Group. VUCA demands a constant review of assumptions and respond continuously to rapid fire changes. Extreme uncertainty turns an organization’s operating imperatives on their heads. To date the Group has demonstrated substantial resilience. Building resilience requires a holistic agenda that cannot be permitted to veer of course. In our judgment, S-Group was able to achieve such integrative resilience due to its cooperative ideology and “One Firm” culture that prevented silos for arising or dissolving existing silos and a willingness to engage in continuous learning. Given that it has been able to grow its retail business during a stressful period suggests that the Group has started to move beyond resilience toward anti-fragility (Taleb, 2012).
LIMITATIONS OF THE STUDY
Our study suffers limitations typical of fine-grained qualitative research. One of the strongest objections to qualitative research is that the questions posed by researchers can inadvertently influence the results. We aimed to mitigate this dilemma by using elite informants who were able to guide our study toward essential elements of the phenomena studied. We believe that the deeper insights obtained mitigate the problems of the rigor.
Since only one cooperative was involved, questions can be raised regarding replication and generalizability. Our experience of using elite informants as sparring partners leads us to believe that empirical replication is possible, i.e., using similar procedures can be used with different populations (Aguinis & Solarino, 2019). Our sample size of one clearly limits possibilities for wider generalization of our findings to other contexts (Defner-Rozin & Piteza, 2020). However, we believe that there is considerable value to examining viability issues using a diverse set of firms given that VUCA is here to stay.
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