Strategic Renewal in Regulatory Environments: How inter- and intra-organisational institutional forces influence European incumbent energy firms

How do incumbent firms strategically renew in regulatory environments? Assuming that regulation can both constrain and enable a firm’s strategic renewal opportunities, we investigate how and to what extent incumbent firms undertake exploitative and explorative strategic renewal actions in order to remain competitive. Exploitative strategic renewal involves those actions that strengthen or optimise a firm’s current resource deployments, whereas explorative strategic renewal relates to actions that generate new sources of value creation for the firm. Based on old institutional theory, new institutional theory, neo-institutional theory and institutional entrepreneurship literature, a multi-level framework that combines selection and adaptation arguments has been developed and applied to investigate strategic renewal behaviour of a sample of European energy incumbents. At industry level of analysis, results show how inter-organisational institutional forces significantly impact firms’ choices of exploitative and explorative strategic renewal actions through regulative, normative and cognitive forces. At organisational unit level of analysis, we find that the extent of intra-organisational regulative forces is positively related to exploitative strategic renewal actions. In addition, entrepreneurial proclivity appears to be a catalyst of both exploitative and explorative strategic renewal actions. Finally, our results provide insights how environmental selection and firm level adaptation are interrelated in the context of regulation. The extent of inter-organisational regulative forces positively moderates the relationship between intra-organisational regulative forces and exploitative strategic renewal actions.