Strategy Dynamics - Static Models of Strategy and Performance

Static Models of Strategy and Performance

The static assessment of strategy and performance, and its tools and frameworks dominate research, textbooks and practice in the field. They stem from a presumption dating back to before the 1980s that market and industry conditions determine how firms in a sector perform on average, and the scope for any firm to do better or worse than that average. E.g. the airline industry is notoriously unprofitable, but some firms are spectacularly profitable exceptions.

The ‘industry forces’ paradigm was established most firmly by Michael Porter, (1980) in his seminal book ‘Competitive Strategy’, the ideas of which still form the basis of strategy analysis in many consulting firms and investment companies. Richard Rumelt (1991) was amongst the first to challenge this presumption of the power of ‘industry forces’, and it has since become well-understood that business factors are more important drivers of performance than are industry factors – in essence, this means you can do well in difficult industries, and struggle in industries where others do well. Although the relative importance of industry factors and firm-specific factors continues to be researched, the debate is now essentially over – management of strategy matters.

The increasing interest in how some businesses in an industry perform better than others led to the emergence of the ‘resource based view’ (RBV) of strategy (Wernerfelt, 1984; Barney, 1991; Grant, 1991), which seeks to discover the firm-specific sources of superior performance – an interest that has increasingly come to dominate research.