Negotiating Punctuations: Ambiguity, State Uncertainty and Strategic Behavior of Firms

Punctuations in the external environment motivate as well as, paradoxically, debilitate organizational change. They help firms overcome inertia that inhibits change, yet they confound change as they are laden with ambiguity and state uncertainty. This paper integrates the influence of ambiguity and state uncertainty into models of firms’ adaptation to punctuations in external environment. Our study highlights the importance of interpretation and the consequent framing of strategic issues on the behavior of firms as they respond to punctuations. A key argument of this study is that interpretations and thereby behavior of firms could vary across strategic issues. Firms could interpret the punctuation as an opportunity for one strategic issue while, at the same time, interpret the situation as threat for another strategic issue and hence respond very differently. We use the 1991 economic liberalization in India as a natural laboratory to test our arguments and find significant support. Additionally, by empirically investigating the response of firms to widespread institutional change caused by regulatory punctuation, the study fills an important gap in literature.