strategy theory criteria

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Criteria for a theory of why firms choose and successfully implement strategy (Porter, 1991) --

  • A theory must deal simultaneously with both the firm itself as well as the industry and broader environment in which it operates. The environment both constrains and influences outcomes, which the more introspective resource view neglects.
  • A theory must allow centrally for exogenous change, in areas such as buyer needs, technology, and input markets. The pace and magnitude of exogenous change significantly affects the value of past resources of the organization. The choice of strategy is a series of ever changing games in which the position in one game can influence, but not determine, the position in the next one.
  • A theory must provide latitude to the firm only to choose among well-defined options but to create new ones. The firm cannot be seen only as optimizing within tight constraints, but as having the ability to shift the constraints through creative strategic choices, other innovative activity, and the assembly of skills and other needed capabilities. There are alternative strategies open. The extent to which the environment shapes initial conditions and choice, in contrast to idiosyncratic, creative decision-making processes within the firm, is a fundamental question.
  • A final issue which cuts across the other is the role of historical accident or chance. There is a growing belief that historical accidents influence competitive outcomes. Some of what economists term historical accidents may simply be good strategic choices, or reflect so far unmeasured aspects of the environment. The extent of randomness in competition, the role of true luck, has an important influence on how one develops a theory of strategy.

See competitive advantage for determinants of firm success, i.e. competitive advantage. See strategy for Stacey's classification of theories of strategy and his definition of strategic phenomena.