Operating and competing in volatile environments, such as in Indonesias TV broadcasting industry during the period 1989-2005, will always be a challenge for companies, regardless of their size or years in operation. Frequent regulatory changes, transient competitiveness, shortening program lifecycles, hypercompetition, and high uncertainty are characteristic of business volatility. Responding strategically to these circumstances helps ensure a firms competitiveness and sustainability. This study is about firms strategic responses in a volatile environment. Literature examining both the resource-based view (RBV) and the capability-based view (CBV) of the firm indicates that a firms co-evolutionary uses of its resources and capabilities underpin strategic responses to volatile environments. However, the co-evolutionary relationship between a firms resources and its capabilities has not been well understood to date, despite calls from strategic management researchers to investigate this fundamental issue. By exploring this issue, we can better understand changes in firms competitive advantage and disadvantage over time. Therefore, this research aims to answer the question: How does a firm respond to a volatile environment through the co-evolution of its resources with its capabilities? Ten free-to-air TV firms, which made up the total population of Indonesias TV private broadcasting industry, were the setting for investigating this research question, by means of case study. These firms operated and competed in Indonesias volatile business environment in 1989-2005. Data were collected over a two-year period in 2004 - 2005 from key informants, observations, company documents, and publicly available secondary sources. The collected historical events of the observed firms were then reconstructed and systemised in a case study report for each of the firms, and also in an aggregate industry report on Indonesias rapidly changing TV broadcasting industry. To analyse the collected data, a five-step investigation strategy was developed and used. Using the three-stage capability lifecycle model of Helfat & Peteraf (2003), the first step of the investigation strategy reconstructed each of the TV firms capability trajectories. The second step identified critical events along the capability trajectory and their determinants. These events triggered by the volatile environment and internal factors within the observed TV firms were labelled as capability-critical events. The third step investigated the firms salient resources that played significant roles in dealing with the critical events. The fourth step reassembled the resources into configurations at the firms capability founding, maturity, and development stages. The final step examined the performance impacts of the resource configurations at different capability stages. The processes of data collection and data analysis for this research were conducted in parallel and resulted in the finding that a firm responds to its volatile environment by continuously reconfiguring its four salient resources of dominant logic, network capital, routine design, and social cohesion at different capability stages. These resources were configured idiosyncratically at different capability stages, creating simultaneously a series of transient competitive advantages and internal system stabilities. These main findings lead to the development of a process model for firms strategic responses in a volatile environment. The process model can be used as a road map for a firm aiming to become a self-renewing organisation, which can perform and respond strategically in volatile environments where competitiveness is short-lived. By examining strategic responses in such rapidly changing and turbulent environments, this research reviews and extends theories in the RBV and the CBV of the firm, particularly in regards to capability lifecycle, co-evolution, self-renewing organisation, and performance perspectives on firms resources.
