Unpacking Environmental Dynamism: From Operationalization to Characterization

The level of dynamism within environments differs across time and across industries. These differences present firms simultaneously with problems and opportunities, and managers must learn how to respond to both. One of the challenges of past research in understanding the role of environmental dynamism has been to maintain a general but operational definition of the construct. This difficulty arises from the fact that environmental dynamism is a multi-dimensional construct, encompassing five related but distinct dimensions: velocity, ambiguity, complexity, unpredictability, and slack. Characterizing an industry along a single dimension of environmental dynamism can lead to unreliable outcomes, given an industry may be characterized by a high level of one dynamic dimension (e.g. unpredictability), but a low level of another (e.g. ambiguity). We argue that testing the effect of the separate subcomponents of environmental dynamism offers greater theoretical richness and more reliable results. Using data from 279 industries during 1980-2014, this paper attempts to fill this gap by characterizing industries along distinct dimensions. Focused analysis of three major industries - pharmaceuticals, computers and electronics - provides additional strong support of our arguments. This study also offers a major contribution by providing a precise operationalization for each of the dimensions which can be used in future empirical research.