DOI: https://doi.org/10.62204/2336-498X-2023-4-7

FORMATION OF THE ENTERPRISE STRATEGY

IN CONDITIONS OF TURBULENCE

Viktoriia Soroka,

Master’s degree student,

National University of Kyiv-Mohyla Academy, Ukraine,

vika.soroka@ukma.edu.ua; ORCID: 0009-0007-7317-6401

Iryna Ignatieva,

Doctor of Economics, Professor,

 National University of Kyiv-Mohyla Academy, Ukraine,

iignatyva@ukr.net; ORCID: 0000-0002-9404-2556

Annotation. This article examines the development of business strategies for enterprises in turbulent environments, focusing on the Ukrainian business context. The author analyzes the economic conditions and challenges faced by Ukrainian enterprises during turbulence, providing practical advice and potential business strategies. Using an analytical approach, the study identifies strategies to mitigate risks and capitalize on opportunities. Emphasizing effective decision-making and resource allocation, the paper highlights the importance of longterm success in turbulent business environments. Despite various strategies available, the article recommends a thorough analysis of organizational strengths and weaknesses, considering the specificities of the business environment for an effective and tailored strategy that balances economic benefits with potential risks.

Keywords: business strategy, enterprise strategy, turbulent external environment, anti-crisis strategies, strategic planning, re-location.

Problem statement. The topic of business strategy in turbulent conditions is extremely relevant for the whole world and especially for Ukraine in 2023, as the country faces significant challenges and uncertainties after the outbreak of war. Among the key challenges that Ukrainian businesses are likely to face in 2023 are political instability and economic uncertainty caused by the consequences of the war, and the ongoing COVID-19 pandemic.

In this context, Ukrainian businesses will need to adopt a strategic approach to overcome these challenges and ensure their long-term survival and growth. This may involve developing contingency plans for different scenarios, remaining flexible and adaptable in response to changing market conditions, and investing in innovation and new technologies to remain competitive.

In addition, Ukrainian businesses may need to focus on building strong partnerships and networks both domestically and internationally to expand their customer base and reduce risks associated with the domestic market.

Overall, the ability of Ukrainian businesses to develop and implement effective strategies in response to the challenges of a turbulent environment will be critical to their success in 2023 and beyond.

Some of the unresolved parts of the overall problem are the lack of effective risk management practices in many Ukrainian enterprises, limited funding and resources for research and development, and the need for empirical research on effective strategies in the Ukrainian context.

Analysis of recent research and publications. Among the prominent foreign scholars who have studied business strategies in turbulent times are Donald Hambrick, Robert Burgelman, and Michael Tushman [1-3]. Their research focuses on such topics as strategic management, organizational change, and innovation. Rita McGrath, Clayton Christensen, and Henry Chesbro have also made significant contributions to our understanding of the challenges and opportunities of businesses in a turbulent environment [4-7]. 

Although the study of enterprise strategy formation in turbulent environments is a relatively new field in Ukraine, there are several prominent domestic scholars who have also contributed to this area. Among them are Oleksandr Kubatko, who studied the impact of economic turbulence on business strategies, and Natalia Bondarenko, who investigated the role of innovation in developing effective strategies in a turbulent environment [8-11]. Other well-known Ukrainian scholars in the field of strategic management include Ihor Malyshko and Mykola Kozlov, who studied the challenges and opportunities of strategic change in turbulent conditions [12-14]. However, the topic of forming and applying business strategies in a turbulent period seems to be insufficiently covered and requires special attention.

The purpose of this research article is to investigate how enterprises can develop a strategy to operate successfully in a turbulent business environment. To achieve this goal, the author analyzes the economic situation in Ukraine and, in particular, the business sector during the period of turbulence. The author also examined the challenges faced by Ukrainian enterprises and provided practical advice and possible business strategies for further development of enterprises.

Summary of the main material. First of all, in order to thoroughly analyze the topic, it is necessary to understand the essence of such a concept as “turbulent environment for business”.

According to F. Kotler and J.A. Cascione, “market turbulence” means unpredictable and rapid changes in the internal and external environment of an organization that affect its activities [15]. This phenomenon is similar to turbulence in nature, which is characterized by aggressive, unpredictable and chaotic behavior.

Physicists have long been interested in modeling and predicting turbulence, but it remains a challenging task despite advances in data processing and supercomputing [16]. The behavior of dynamic systems whose state evolves in time looks chaotic, although chaos is not a negative component of it, and a small initial effect can lead to a dynamic increase in deviations in the future. Chaos theory was developed by physicists to study how events can unfold based on initial conditions and deterministic assumptions [17].

In the context of the modern economy, business environment turbulence is defined as rapid, unpredictable, and contrasting changes that are difficult to influence through government regulation [15]. Traditional economic characteristics described in empirical textbooks on economic theory do not apply to the “new normal” economy, which is turbulent. The differences lie not in the characteristics themselves, but in their manifestations for the traditional (normal) economy and the turbulent (new normal) economy (Table 1).

Table 1 Differences between a normal economy and a new normal economy

Feature	Normal economy	The economy of the new normal
Economic cycles	Predictive	None
Growth / sharp increases	Determined (on average 5-7 years)	Unpredictable, volatile
Recessions/crises	Determined (average 10 months)	Unpredictable, volatile
Possible influence of factors	Low	High
General structure of investments	Expanding, wide	Cautious, focused
Attitude to market development	Acceptance	Avoidance
Consumer status	Confidence	Uncertainty
Customer preferences	Resilient, evolving	Fears, desire for security

 

Source: [15, с. 31].

Therefore, it can be concluded that in the current economic environment, significant shocks and painful downturns can be expected, leading to an increase in overall risks and uncertainty for companies. The increased turbulence of the economy is a constant reality to which companies must adapt by studying in detail the catalysts of turbulent processes. These catalysts include technological progress, the information revolution, innovation, continued economic growth, hypercompetition, as well as the development of financial markets, the emergence of new financial instruments and the involvement of financial markets in globalization.

Turbulence creates challenges, but also opens up new opportunities as new resources emerge and consumer needs change. Effective strategies require a timely response to positive foreign experience, untapped potential, and cost optimization, not just innovation.

According to D. Sall, “If you run a company, turbulence should become a way of life for you. The world around us is changing, but some companies, instead of changing with it, start doing more of what they are used to. This usually doesn’t lead to anything good. This is active inertia, meaning that the company tries to do something, spends much more time and effort, but remains completely inert in terms of change” [18].

Therefore, to succeed in a turbulent environment, companies must adopt a dynamic approach. They need to become more agile, responsive and flexible to adapt to changing circumstances instead of maintaining a fixed, unchanging approach.

First of all, when developing a strategy, enterprises should assess turbulence by analyzing a number of internal and external factors that may affect their operations. These factors may include changes in economic conditions, political instability, technological disruptions, increased competition, regulatory changes, as well as social and environmental issues [19].

Assessing the turbulence of the business environment is an ongoing process that businesses must undertake regularly to stay ahead of the curve.  A turbulent business environment can be a challenge for any enterprise, but with the right strategy, success and even prosperity can be achieved.

If we delve deeper into the study of business strategies during the pandemic, which has created unprecedented turbulence around the world and affected the economic and business environment, we can see different strategies for businesses to adapt to harsh conditions. Zhanna Aksyonova very accurately noted that the pandemic has created a new turbulent business environment due to its suddenness, intensity, globalization, inclusiveness and uncertainty. It has slowed down globalization and led to structural shifts, and the greatest potential for effective implementation by companies in turbulent conditions is an ambivalent strategy that allows companies to use certain elements of the cost reduction strategy and investment strategy at different stages of adaptation [20].

According to the results of the 11th monthly survey of Ukrainian enterprises “Ukrainian Business in Times of War” by the Institute for Economic Research and Policy Consulting (IER), as well as the analysis of the survey of business managers conducted by the National Bank, Ukrainian business continues to face numerous challenges in the context of the economic crisis and war in the country. The political instability caused by the conflict in eastern Ukraine and the annexation of Crimea creates uncertainty for businesses and complicates long-term strategic planning. In addition, the devaluation of the national currency, high inflation and decreased purchasing power of the population create difficult conditions for business, leading to a reduction in consumption and sales [21].

These challenges have been exacerbated by reduced foreign investment, market closures, supply chain disruptions, and increased costs due to the conflict. The sanctions have also resulted in significant losses for Ukraine, as the lack of access to the Russian market has led to reduced exports and losses for exporters. Some businesses have suffered physical damage due to the conflict and have been forced to reduce or completely cease operations, which has caused serious difficulties in the context of the economic crisis and war, as these businesses have not only lost potential profits but also suffered significant material damage.

In Figure 1, we can see the dynamic indicators of the functioning of business entities in Ukraine during the first year of the war, and based on this data, we can conclude that there is a positive trend in the work of enterprises. 12% of enterprises reported an increase in the volume of work compared to the period before the full-scale invasion, and another 9.3% of enterprises reached the indicators of 2021.

The overall indicators of business climate and conditions have remained positive over the past three months, as evidenced by the index of the current financial and economic situation at the enterprise, which, although it remained without significant changes, continued to gradually increase and amounts to -0.10 compared to February 2023 (-0.11). It is also worth noting that the expectations of enterprises regarding changes in the financial and economic situation in the six-month perspective have been increasing for four months in a row, in March the value of the corresponding index increased from 0.34 to 0.48. However, the value of the index of Expectations of Changes in Business Activity over the next two years decreased from 0.27 to 0.23, due to the transition of a small percentage of firms that planned to expand their activities to those that do not plan any changes. If we talk about the production sector, we can also see positive dynamics, the index of changes in production for the first time since the full-scale invasion changed its sign to positive from -0.06 to 0.18, which indicates a predominant share of those who increased production over those who decreased it [21].

Fig. 1.  Performance indicators of Ukrainian business entities in 2022

Developed by the author based on the source [22]

Based on the analysis of the economic situation presented above, the development and implementation of crisis management tools is now a prerequisite for the effective functioning of enterprises. Crisis management can be defined as management that provides for possible crisis phenomena in the company’s activities, analysis of its symptoms, development of measures to reduce the negative effects of the crisis and use of its factors for further development [23].

However, the turbulence and unpredictability of the business environment require a change in the approach to the concept of strategy creation and formation. A protracted and inflexible strategic planning process can be not only ineffective but also harmful in a highly turbulent environment. Therefore, it is necessary to change the strategic management procedure. This change must meet two conditions: first, the new procedure must ensure the flexibility of the process, which will allow for constant adaptation to new challenges and development. Second, it must ensure continuity of operations. The procedure cannot be seen as a process that is repeated only from time to time. Moreover, the simultaneous creation and implementation of the strategy is a difficult task, since in conditions of high uncertainty these stages occur simultaneously and are difficult to separate from each other [24]. Therefore, the process of forming an enterprise strategy in turbulent conditions should be divided into four main stages (Table 2).

The essence of the differences between the logic of strategic management in turbulent times and the classical concept is primarily in the departure from strict adherence to the stages of strategy creation and implementation, as well as in changing expectations from this procedure. Strategic planning is no longer considered a sufficient condition for a company’s success, as it was in the classical approach, but plays a supporting role and is a useful tool.

In the current economic environment, strategic planning should be used to develop an anti-crisis strategy for an enterprise as a long-term program document containing a set of consistent actions and management decisions aimed at ensuring the company’s overcoming crisis situations, competitiveness, solvency and financial stability [25].

Analyzing the possible anti-crisis strategies that can be chosen in a turbulent period, they are classified at the enterprise level according to various criteria.

According to the nature of their behavior, these strategies can be divided into survival strategies and breakthrough strategies. Survival strategies are aimed at maintaining the company’s status and prioritizing short-term goals to help the business weather the storm during a crisis. In contrast, breakthrough strategies focus on long-term success and growth by investing in innovation and market leadership. These strategies require significant investment and may not be feasible during a crisis.

Anti-crisis strategies can be classified as defensive or offensive, based on the nature of market behavior. Defensive strategies are aimed at protecting the business from the negative impact of the crisis, while offensive strategies are intended to take advantage of opportunities that may arise during the crisis. Defensive strategies prioritize stability and security, while offensive strategies require a willingness to take risks and make strategic investments. Defensive strategies can help businesses minimize losses and maintain a stable position, while offensive strategies can be effective for businesses that have the resources and flexibility to respond quickly to changing market conditions.

Table 2

The main stages of forming an enterprise strategy in turbulent conditions

The stage of strategy development	Main features and tasks
Stage 1	It involves formulating the company’s vision and mission and defining the main goals of its activities based on them. It is the most general component of strategy development, relying more on intuition and imagination than on specific procedures. It serves as a guide for finding strategic goals that can be realized independently of other elements of strategy development or can be the result of previous analyses, decisions, and actions. The vision and mission serve as the basis for formulating specific strategic goals for the company.
Stage  2	It involves a comprehensive analysis of both the internal and external environment of the company. The strategic analysis process should be continuous and cover three areas: macro analysis, competitive environment analysis, and internal environment analysis. The analysis of weak signals is crucial for generating development ideas, but it is impossible to process all impulses continuously due to the limitations of information processing capabilities within the company.
Stage  3	It involves creating a strategy by generating options and selecting one of them, which is influenced by the strategic analysis. The choice of strategy initiates the analysis of new areas, and there is a close connection between strategy creation and the first stage, where ambitious visions and goals inspire the search for new development concepts, but also provide stabilization for new strategic concepts.
Stage  4	It involves implementing the strategy and monitoring its results. The process of implementation and monitoring complements the previously made strategy choice. On the other hand, difficulties in implementing previously developed concepts may lead to their revision. Thus, there is a feedback loop between the third and fourth stages. Similarly, the other stages of the strategic management process interact with each other, despite their different goals and objectives.

 

Developed by the author based on the source [24].

Based on the main direction of the company’s management, the types of anti-crisis strategies are: stabilization strategy, reduction strategy and restructuring strategy.

The stabilization strategy is aimed at stabilizing the company’s operations during a crisis. Depending on the pace of production, investment, and project implementation, it can be divided into pause, cautious progress, no change, and profit extraction.

The downsizing strategy is aimed at reducing costs and improving the company’s financial position. It can be implemented through various approaches, such as cost cutting, harvesting strategy, reduction of the organizational structure, and liquidation.

A cost-cutting strategy focuses on identifying opportunities and taking steps to reduce costs. The “harvesting” strategy involves maximizing revenue in the short term by abandoning the long-term perspective of a particular business. The organizational structure reduction strategy involves closing or selling one of the company’s divisions to change the boundaries of its operations in the long term. The liquidation strategy is an extreme case of the downsizing strategy and is implemented when the company cannot continue its operations.

A restructuring strategy involves significant changes in the structure and operations of the company in order to improve its efficiency and adapt to changing market conditions. It may include such measures as mergers and acquisitions, asset sales, and changes in the company’s culture and management practices [26].

There are also seven types of functional anti-crisis strategies:

• The financial strategy involves achieving revenue growth, cost control, financial performance and investment management goals.
• The investment strategy involves allocating resources to maximize profits and achieve long-term growth while managing risks.
• The organizational strategy focuses on optimizing efficiency, communication and employee engagement through effective management of the company’s structure and decision-making process.
• The technical development strategy is aimed at improving customer experience and operational efficiency through the introduction of new technologies.
• The logistics strategy deals with managing the flow of goods and services through the supply chain, with goals related to inventory management, transportation and cost reduction.
• The human resources strategy focuses on managing the workforce through recruitment, retention, training, development, and engagement.
• The social development strategy is aimed at increasing sustainability, corporate social responsibility and ethical behavior, taking into account the company’s impact on society and the environment.

Therefore, the choice of an anti-crisis management strategy will depend on the specific circumstances in which the business operates, including its resources, goals and market conditions, but in the current conditions of the Ukrainian business environment, there are also some enterprises that will not be ineffective in using the above business strategies because they are on the verge of survival in the combat zone or under temporary occupation, the Ukrainian Government, together with the Ministry of Economy of Ukraine, is implementing a program to relocate Ukrainian enterprises located in the zone of active hostilities. The main objectives of business relocation are to preserve assets and capacity, resume work for the benefit of the economy and save jobs.

Relocation is possible within the country and abroad, but state support is available only within the country. Business owners had high expectations and underestimated external factors when re-locating their companies abroad. When located abroad, domestic companies face differences in business styles, difficulties in finding qualified personnel, and problems with crossing the state border for some citizens.

While relocating a business has many benefits, such as preserving assets and jobs, it also carries risks, such as high costs, inability to predict costs, and limited access to resources. Therefore, when developing a business strategy in a turbulent environment, relocation will only be appropriate if all possible risks have been taken into account and the economic and financial benefits outweigh the risks.

I would like to share a successful case of re-location in Ukraine by EPAM. In response to the outbreak of a full-scale war, the company implemented a Business Continuity Plan (BCP) that focused on ensuring the safety of employees. A dedicated Human Resource Management (HRM) team, comprised of top managers, was responsible for coordinating all aspects of the BCP. During the first two weeks of the war, the company was actively involved in facilitating the evacuation and sheltering of its employees and their families from the regions under attack.

Different groups of employees have been assigned to address different aspects of BCP’s work, including the creation of a 24-hour support hotline to provide advice on a wide range of issues. To date, the hotline has processed more than 12,000 requests. In addition, the company organized the relocation of 14,000 employees from central, eastern and southern Ukraine, which was accomplished with the help of staff from various departments.

ERAM has long had a special department for internal and global relocations, as well as a unit responsible for organizing business trips. Thanks to these departments, the company was able to relocate 4,000 employees within Ukraine and send 2,500 people abroad. In addition, the company has set up temporary shelters in its offices and coworking spaces in several cities across Ukraine, including Lviv, Chernivtsi, Ivano-Frankivsk, Vinnytsia, Dnipro, Nadvirna, and Uzhhorod, where more than 5,000 people have found temporary shelter.

The company also provided financial support to its employees, in particular, by transferring USD 1,000 to each specialist during the first weeks of the war. Additional financial assistance was provided to employees who moved abroad and to those whose families were evacuated. The company also offered separate financial assistance to mobilized employees [28].

Conclusions. There are many strategies that can be implemented in a turbulent environment, such as crisis management, which in turn is divided into different types depending on the needs and problems of the enterprise, strategic planning and re-location. However, not all types of strategies can bring the desired financial stability and profit maximization for enterprises based on the economic and political conditions of Ukraine during the period of full-scale invasion.

Therefore, when formulating a business strategy in a turbulent external environment, it is recommended to analyze the strengths and weaknesses of the organization, take into account the specifics of the relevant business, production and provision of goods and services, so that the business strategy is truly appropriate and effective, and the economic and financial benefits cover all possible risks.

Thus, given the government’s business support policy, the right choice and successful implementation of a competitive strategy will allow companies to achieve competitive advantages and stabilize their operations during the crisis, laying the groundwork for future growth under more favorable economic conditions.

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