English name: Huu Phuoc, Nguyen (Brian)

Chinese name: 阮 友 福
Student ID: 1127167
Class: CM722 - Business Strategy Planning and Practice

A Firm’s role in disturbing economic equilibrium and responding to the

changes in the marketplace

Introduction

In the landscape of today's dynamic economy, the concept of economic equilibrium represents a
delicate balance achieved when market forces find stability. It's a theoretical state where supply
meets demand, prices stabilize, and there's an optimal allocation of resources. However, the
modern economy is rarely in a state of perfect equilibrium due to continuous changes in technology,
consumer preferences, and global events.

The impact of a firm in disturbing economic equilibrium and responding to market changes is
profound. A firm can significantly disrupt economic equilibrium by introducing groundbreaking
products, innovative business models, or challenging established market norms. Examples like
Netflix revolutionizing entertainment, or Tesla redefining the automotive industry, illustrate how
a firm disrupts equilibrium. Moreover, the ability to adapt to shifts in consumer behavior,
technology, and global events determines their survival and success. This adaptability can be
observed in retail giants like Amazon have been swift in adapting to changing market dynamics
by integrating advanced technologies such as artificial intelligence and machine learning.
Amazon's use of AI algorithms to predict customer preferences and behaviors has enabled
personalized shopping experiences, dynamic pricing models, and efficient supply chain
management.

In this essay, I will delve into various aspects that enable businesses to create turbulence and adapt
to market transformations. Additionally, I will discuss the values that these actions can instigate
within the market.

Disturbing Economic Equilibrium

Strategic Planning as a Foundation

Strategic planning is the cornerstone of a firm's ability to disturb economic equilibrium. Firms of
all sizes and industries can contribute to economic dynamism by adopting a well-defined strategy.
As Hambrick & Fiedrickson (2005) suggests in their article, "Are you sure you have a strategy?"
a comprehensive understanding of the strategic management process is essential for firms. A well-
crafted strategy not only enables firms to compete effectively but also empowers them to disrupt
existing norms and create a competitive advantage.

For example, consider the case of Apple Inc. Its strategic planning, including the development of
innovative products like the iPhone and iPad, has not only disrupted traditional industries but has
also reshaped consumer behavior and expectations. Apple's strategy of creating an ecosystem of
products and services, combined with an emphasis on design and user experience, has allowed the
company to disturb the equilibrium of the mobile and computing industries continually.

Strategic management theories, as highlighted in "Introduction to Strategic Theories and

Development" paper, provide firms with a robust framework for understanding the nature of
strategy. The domain of strategic management has dynamically evolved, adapting continuously to
the shifting dynamics of the business environment. A well-informed and strategically driven firm
can intentionally disturb economic equilibrium in its favor.

Amazon, under Jeff Bezos's visionary leadership, offers an example of strategic management
theories in action. Amazon's customer-centric strategy disrupted traditional retail by expanding its
product range and introducing the marketplace model, allowing third-party sellers to use its
platform and small businesses to reach a global customer base. Data-driven decision-making, as
seen in Amazon Prime and AWS, further propelled its growth. By consistently innovating and
diversifying its offerings, Amazon disturbed economic equilibrium, reshaping industries, and
becoming a global e-commerce and technology giant.

The Role of Competitive Advantage

Competitive advantage, influenced by Porter's theory (1985), represents a firm's ability to establish
a distinctive and valuable position in the market. According to Prahalad (1999), “Changes in the
competitive battle field,”, Prahalad's insights emphasize the necessity for businesses to grasp the
evolving competitive landscape. He advocates that strategists comprehend global forces, respond
swiftly, and perpetually innovate to align their business models with emerging paradigms. His
focus on understanding new competitive realities and the need to navigate and adapt to these
changes resonates profoundly with contemporary market dynamics.

Amazon, as an example, illustrates this philosophy in action. Initially established as an online

bookstore, Amazon's transformation into a multifaceted e-commerce giant, cloud service provider,
and content creator embodies the essence of staying adaptable to evolving markets. Prahalad's
emphasis on perceiving the contours of a changing industry structure finds a powerful reflection
in Amazon's ongoing adaptability and forward-thinking strategies.

Furthermore, Prahalad's premise underscores the significance of going beyond established industry
positions to envision and anticipate the evolving industry structure. Amazon's endeavors in
innovative logistics—such as exploring drone deliveries—resonate with Prahalad's call for
strategists to move beyond the established norms. His belief that strategists must transcend
positioning their company in a known industry space and instead visualize and adapt to an
emerging industry structure echoes the sentiment encapsulated in Amazon's continual adaptiveness
and proactive approach to market shifts. The tech giant's remarkable shift from an online bookstore
to a diverse e-commerce hub demonstrates a real-world manifestation of Prahalad's philosophies,
where adaptability and proactive strategies redefine the trajectory of a company within an evolving
market, showcasing how adaptability and forward-thinking strategies can disturb and redefine
economic equilibrium.

Responding to Marketplace Changes

Be Agile to Adapt Dynamic Marketplace

The modern marketplace is characterized by constant change. Firms must be agile in their
responses to maintain their relevance. Prahalad (1999), “Changes in the competitive battle field,”,
as emphasized in the article, underscore the dynamic nature of competition. This dynamic
environment necessitates that firms adapt rapidly to evolving conditions. Those who can anticipate
and respond effectively to these changes are better positioned for growth and sustainability.

Empirical evidence from Australian manufacturing SMEs (Liao et al. 2015), as presented in "The
Vicissitudes of Competitive Advantage," further underscores the significance of adapting to
marketplace changes. The study demonstrates that firms that successfully adjust their competitive
strategies in response to evolving market conditions are more likely to maintain a competitive edge.
By embracing technological advancements, shifting customer preferences, and changes in market
dynamics, firms can secure their positions in the marketplace.

One compelling example of a firm adept at responding to the evolving marketplace dynamics is
Netflix. Originally established as a DVD rental service, it quickly adapted to the changing
landscape by transitioning into the streaming industry. Recognizing the shift in consumer behavior,
they responded swiftly to emerging preferences for on-demand content by launching their digital
platform.

The Role of Action Characteristics

The study "Action Characteristics as Predictors of Competitive Responses" (Chen et al. 1992)
highlights the importance of a firm's actions in determining its ability to respond to marketplace
changes. Characteristics such as the speed, direction, and intensity of these actions play a crucial
role in a firm's ability to adapt and leverage disruptions for their benefit. Firms that act swiftly and
decisively tend to be more successful in adjusting to market dynamics.

For example, consider Netflix's rapid response to market changes. When the company identified
the shift in consumer behavior toward streaming content, it swiftly transformed its business model
from a DVD-by-mail service to an online streaming platform. This strategic shift allowed Netflix
to not only respond to the changing media landscape but also to create a disruption by challenging
traditional cable and satellite TV providers.

Moreover, firms should consider the concept of organizational ambidexterity, as discussed by

Tushman and O'Reilly (1996). Organizational ambidexterity is the ability of a firm to explore and
exploit simultaneously. Exploration involves seeking new opportunities and innovations, while
exploitation focuses on optimizing existing processes and capabilities. Firms that can balance these
activities effectively can not only respond to market changes but also create disruptions by
introducing innovative products, services, or business models.

Amazon is an example of a company showcasing organizational ambidexterity. Known initially as

an online bookstore, Amazon effectively explored emerging opportunities and evolved to become
a major player in multiple industries. The company explored new technological advancements and
market opportunities, which led to the introduction of the Kindle e-reader, AWS (Amazon Web
Services), and the development of streaming services. Simultaneously, they optimized their
existing resources and capabilities. Leveraging its logistics infrastructure for its retail operations,
Amazon also invested heavily in enhancing its supply chain management and distribution
networks to handle the surging demand in the e-commerce sector. This dual approach of
exploration and exploitation enabled Amazon not only to respond to market changes but to
proactively create disruptions in various sectors, consolidating its position as an industry leader.

The Significance of Innovation

Innovation, often considered the lifeblood of firms, is a critical element in responding to

marketplace changes. Innovation can come in various forms, including product innovation, process
innovation, and business model innovation. Firms that lead in innovation can disturb the
equilibrium by introducing new products or services that redefine the market. Firms that
continuously innovate are better equipped to respond to shifting consumer preferences, emerging
technologies, and evolving competitive landscapes. They adapt their products, services, and
operations to remain competitive.

One notable example is Tesla, Inc. The electric vehicle manufacturer has not only disrupted the
automotive industry but has also redefined the way we think about transportation and sustainability.
Tesla's innovation in battery technology and autonomous driving capabilities has set new standards
in the automotive sector. It has effectively disturbed the equilibrium by challenging traditional
internal combustion engine vehicles and has become a market leader in electric mobility.

Value Creation Beyond Disruption: The Impact of Market-Changing Companies on

Industry Dynamics

Companies that disturb the economic equilibrium and respond effectively to market changes create
several types of value for other companies in the market:
 • Innovation and Competition: They drive innovation and competition, pushing other
companies to improve their products, services, and strategies. This can lead to a more
vibrant and competitive market, benefitting consumers.

• Learning Opportunities: Other companies can learn from their successes and failures. By
observing what works and what doesn't, they can adapt and make more informed decisions.

• Economic Growth: The overall market and industry can experience economic growth
when companies disrupt equilibrium. This can lead to increased investments, job creation,
and higher market valuations.

• Market Expansion: Companies that respond to changing market dynamics often explore
new market segments and niches. This can create opportunities for other companies to
expand into related areas.

• Customer-Centric Focus: Disturbing economic equilibrium often involves a focus on

meeting customer needs better. This customer-centric approach can inspire other
companies to improve their customer service and offerings.

• Technological Advancements: Firms that respond to market changes may drive

technological advancements. These innovations can become available to other companies
in the industry, fostering further growth.

• Efficiency Improvements: Responding to market changes often involves becoming more

efficient and cost-effective. This can establish new benchmarks for operational efficiency
that other companies can strive to match.

In summary, companies that disturb economic equilibrium and respond to market changes not only
benefit themselves but also contribute to the overall health and growth of the industry, providing
valuable lessons for their peers.

Limitations and Challenges

The paper "The Vicissitudes of Competitive Advantage," (Liao et al. 2015) highlights how firms
can encounter impediments when striving to innovate or adapt. Resource limitations or
organizational rigidity can hinder their agility in responding to market changes. This stance aligns
with the discussions on the constraints faced by SMEs, elucidated in "Action Characteristics As
Predictors Of Competitive Responses," (Chen et al. 1992) SMEs often grapple with restricted
resources and limited market access, making adaptation and innovation more challenging.

The volatility of market changes, as portrayed in "Introduction to Strategic Theories and

Development," (John Kay) can add further complexity. The unpredictability and rapid alterations
in consumer behaviors or technological shifts can pose difficulties in anticipating market trends,
affecting a firm’s ability to respond effectively.

Furthermore, the scale and industry type significantly dictate a firm's impact on economic
equilibrium. The paper "Changes in the Competitive Battle field" (Prahalad 1999) emphasizes how
different industries present unique challenges and opportunities, shaping the extent and nature of
market disturbances initiated by firms. The impact of market responses also varies concerning the
firm's size, as illustrated in "The Vicissitudes of Competitive Advantage," (Liao et al. 2015).

Conclusion

Firms play a dynamic role in disturbing economic equilibrium and responding to changes in the
marketplace. Their strategic planning, ability to gain a competitive advantage, innovation, and
adaptive actions are critical components of this role. While challenges and limitations exist, firms
that successfully disrupt existing norms and respond effectively to market changes contribute to
economic dynamism and play a crucial role in shaping the future of the global economy. Their
actions are essential in driving economic growth and ensuring the sustainability of businesses in a
rapidly evolving world. The cited papers provide valuable insights and through embracing
concepts such as dynamic capabilities, organizational ambidexterity, and innovation, firms can not
only navigate the disruptive forces of the market but also become the catalysts of change, fostering
economic progress and prosperity.

References
Hambrick, D. C., & Fiedrickson, J. W. (2005). “Are you sure you have a strategy?,” Academy of
Management Executive, 19(4), 51-62.
John Kay. “Introduction to Strategic Theories and Development,”
Porter, M.E. (1985). “Competitive Advantage. Creating and Sustaining Superior Performance,”
Free Press, New York, 557.
Prahalad, C. K. (1999). “Changes in the competitive battlefield,” Financial Times, 4, 1999.
Liao, T.-S, J. Rice, & Lu , J-C (2015). “The Vicissitudes of Competitive Advantage: Empirical
Evidence from Australian Manufacturing SMEs,” Journal of Small Business
Management, 53(2), 469–481.
Chen, M.-J, Smith, K.G. & Grimm, C.M (1992). “Action Characteristics as Predictors of
Competitive Responses,” Management Science, 38(3), 439 – 455.
Tushman, M.L. and O’Reilly, C.A. (1996). “The Ambidextrous Organizations: Managing
Evolutionary and Revolutionary Change,”. California Management Review, 38, 8-30.