Environmental variation, strategic change and firm performance: A study of railroad deregulation

Analysis of the effects of deregulation on strategic management in the railroad industry suggests that most firms changed their strategies in response to environmental variation, and that those that did change their strategics out‐performed those thatdid not.

Abstract

Abstract Concepts from the literature on the relationship between environmental variation and strategic change are used to analyze the effects of deregulation on strategic management in the railroad industry. Specific hypotheses are presented about the impact of regulation and change in regulation on strategy, strategic change and performance. A survey of experts identified the strategies of 27 railroads prior to and after deregulation. Five different railroad strategies and five different kinds of strategic changes are identified and described. Results suggest that most firms changed their strategies in response to environmental variation, and that those that did change their strategics out‐performed those that did not. Among the strategic changes, those involving innovation and contingency strategies were found to be the most profitable. Other empirical results are presented and discussed.