Description
2. Read Two Journal Articles Due Tonight by 10pm
1. The seminal 1985 article Henry Mintzberg and James Waters: Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6(3), 257-272.
2. History of Strategic Management article by Robert Hoskisson and colleagues: Hoskisson, R. E., Wan, W. P., Yiu, D., & Hitt, M. A. (1999). Theory and research in strategic management: Swings of a pendulum. Journal of Management, 25(3), 417-456.
3. Create a Top 5 List: After completing these readings, develop a top 5 list that integrates the research articles with the chapter and applies the material to modern business happening
Move details and examples in pdf form below.
Unformatted Attachment Preview
Chapter 1 Assignment (10 points)
For this assignment you will submit a document to the discussion forum. This posting will remain private
until beyond the due date. Discussing others’ documents is optional; the purpose of posting to the
discussion forum is to allow you to read others’ top 5 lists after the due date (if you wish to do so).
1. Read Chapter 1
2. Read Two Journal Articles uploaded to this Module:
1. The seminal 1985 article Henry Mintzberg and James Waters: Mintzberg, H., & Waters, J. A.
(1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6(3), 257-272.
2. History of Strategic Management article by Robert Hoskisson and colleagues: Hoskisson, R.
E., Wan, W. P., Yiu, D., & Hitt, M. A. (1999). Theory and research in strategic management:
Swings of a pendulum. Journal of Management, 25(3), 417-456.
3. Create Five Syntheses Paragraphs: After completing these readings, develop five examples that
integrate the research articles with the chapter and applies the material to modern business happenings:
Here is what one of your five examples might look like: Firms should consider both internal
and external factors to achieve their realized strategies. In chapter one, the (unknown) authors
(2015) describe realized strategy as a blend of intended strategy and emergent strategy. This
appears to stem from Figure 1 in Mintzberg and Waters (1985) seminal article. In Hoskisson et al
(1999), the authors explain how strategy has historically varied and has been derived from
internal focus, external focus, or a balance of both. A connection among these readings seems to
suggest that firms could focus more on their internal capabilities to develop much of their
intended strategy but that management must stay astute of external factors to better develop
emergent strategies. Together, this will help firms pursue their realized strategies. An example of
this is through the recent acquisition of Waitr by Leucadia National Corp. You may have seen
Tilman Fertita on CNBC (i.e., Billion Dollar Buyer). His corporation recently acquired Waitr for
approximately $300M. Tilman’s corporation focuses on entertainment and owns many
restaurants. Hence, it seems reasonable to suspect that one of his firm’s intended strategies was
likely much more focused on providing valuable (and profitable) dining experiences to
customers. However, in light of mobile applications and food delivery services in the past five
years, acquiring these capabilities provides an emergent strategy and related diversification for
his corporation. Taken together, his firm’s realized strategies are evolving.
Sources:
https://www.bizjournals.com/houston/news/2018/05/17/fertitta-s-blank-check-co-to-acquirerestaurant.html
https://www.cnbc.com/tilman-j-fertitta/
A weak example: Many business have an emerging strategy to serve gluten free menu items.
4. Quizzes: Please remember to complete the quizzes associated with this Module. While our assignments
often stretch us beyond the textbook, the quiz questions are primarily derived from the text.
Journal of Management
1999, Vol. 25, No. 3, 417– 456
Theory and research in strategic
management: Swings of a pendulum
Robert E. Hoskisson
University of Oklahoma
Michael A. Hitt
Texas A&M University
William P. Wan
Daphne Yiu
University of Oklahoma
The development of the field of strategic management within the
last two decades has been dramatic. While its roots have been in a more
applied area, often referred to as business policy, the current field of
strategic management is strongly theory based, with substantial empirical research, and is eclectic in nature. This review of the development
of the field and its current position examines the field’s early development and the primary theoretical and methodological bases through its
history. Early developments include Chandler’s (1962) Strategy and
Structure and Ansoff’s (1965) Corporate Strategy. These early works
took on a contingency perspective (fit between strategy and structure)
and a resource-based framework emphasizing internal strengths and
weaknesses. Perhaps, one of the more significant contributions to the
development of strategic management came from industrial organization (IO) economics, specifically the work of Michael Porter. The
structure-conduct-performance framework and the notion of strategic
groups, as well as providing a foundation for research on competitive
dynamics, are flourishing currently. The IO paradigm also brought
econometric tools to the research on strategic management. Building on
the IO economics framework, the organizational economics perspective
contributed transaction costs economics and agency theory to strategic
management. More recent theoretical contributions focus on the resource-based view of the firm. While it has its roots in Edith Penrose’s
work in the late 1950s, the resource-based view was largely introduced
to the field of strategic management in the 1980s and became a dominant framework in the 1990s. Based on the resource-based view or
developing concurrently were research on strategic leadership, strate-
Direct all correspondence to: Robert E. Hoskisson, Michael F. Price College of Business, University of
Oklahoma, Norman, OK 73019-4006; Phone: 405-325-3982; Fax: 405-325-1957; e-mail: [email protected].
edu.
Copyright © 1999 by Elsevier Science Inc. 0149-2063
417
418
THEORY AND RESEARCH IN STRATEGIC MANAGEMENT
gic decision theory (process research) and knowledge-based view of the
firm. The research methodologies are becoming increasingly sophisticated and now frequently combine both quantitative and qualitative
approaches and unique and new statistical tools. Finally, this review
examines the future directions, both in terms of theory and methodologies, as the study of strategic management evolves. © 1999 Elsevier
Science Inc. All rights reserved.
The evolution of the field of strategic management since its inception has
been impressive. From its “humble” beginnings as the limited content of a
capstone general management course in the business school curriculum,1 strategic
management is now a firmly established field in the study of business and
organizations. During a relatively short period of time, this field has witnessed a
significant growth in the diversity of topics and variety of research methods
employed. While proliferation of topics and methods is generally encouraging,
reflecting the vigor of the field, it is also worthwhile at this juncture to review the
state of theory and research, examining accomplishments, and preparing for
continued progress in the next century.
Owing to its roots as a more applied area, strategic management has traditionally focused on business concepts that affect firm performance. Herein, the
key theories and topics of strategic management along with the methods used in
its study are reviewed. The field of strategic management is eclectic in nature, but
with the recent development of the resource-based view (RBV) of the firm (e.g.,
Barney, 1991; Wernerfelt, 1984), it has, once again, increased emphasis on firms’
internal strengths and weaknesses relative to their external opportunities and
threats. Calls for the use of qualitative methods to identify a firm’s resources are
increasing as each firm is considered to have a distinctive bundle of resources.
This approach often uses single case studies as used in instruction and by early
strategy scholars (e.g., Learned, Christensen, Andrews, & Guth, 1965/1969) to
study particular firm strategies or industry structure. Thus, we ask the question:
Has the field of strategic management come back to its roots similar to the swing
of a pendulum? To explore this question, this article traces and reviews the
various major stages of developments in strategic management as an academic
field of study over the last several decades. The emphasis is on the prominent
theories developed and the corresponding methodologies employed in past and
current strategic management research. Moreover, we explore how the field will
continue to develop in the future. First, a historical overview of the development
of strategic management is provided, tracing the field’s disciplinary roots and
depicting various swings of the pendulum.
Historical Overview
Theoretically, the recent rise of the RBV (e.g., Barney, 1991; Conner, 1991;
Wernerfelt, 1984), together with the two closely related content areas: the knowledge-based view (e.g., Kogut & Zander, 1992; Spender & Grant, 1996); and
strategic leadership (e.g., Cannella & Hambrick, 1993; Finkelstein & Hambrick,
1996; Kesner & Sebora, 1994) have returned attention to the internal aspects of
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
R.E. HOSKISSON, M.A. HITT, W.P. WAN AND D. YIU
419
the firm. Internal firm characteristics represented the crucial research domain in
the early development of the field. Early strategy researchers, such as Andrews
and his colleagues (Learned et al., 1965/1969) and Ansoff (1965), were predominantly concerned with identifying firms’ “best practices” that contribute to firm
success. This emphasis on internal competitive resources can be traced to the early
classics such as Chester Barnard’s (1938) The Functions of the Executives, Philip
Selznick’s (1957) Leadership in Administration: A Sociological Perspective, or
Edith Penrose’s (1959) The Theory of the Growth of the Firm. Researchers in this
stream share an interest in pondering the inner growth engines or “the black box”
of the firm, and argue that a firm’s continued success is chiefly a function of its
internal and unique competitive resources.
In between the early development of the field in the 60s and the rise of the
RBV in the 1980s, however, the pendulum had swung to the other extreme and
only recently has started to return. Developments in the field beginning in the
1970s fostered a move toward industrial organization (IO) economics (e.g.,
Porter, 1980, 1985), with its theoretical roots based on Bain (1956, 1968) and
Mason (1939). This swing shifted the attention externally toward industry structure and competitive position in the industry. For example, the adoption of IO
economics led to the development of research on strategic groups where firms are
classified into categories of strategic similarity within and differences across
groups (e.g., Hunt, 1972; Newman, 1973; Porter, 1973). IO economics considers
structural aspects of an industry, whereas work on strategic groups is largely
focused on firm groupings within an industry. Strategic groups research continues
to be a focus, especially by the population ecologists building on the aforementioned work.
Reemergence of internal firm characteristics was evident in the emphasis on
competitive dynamics and boundary relationships between the firm and its environment (e.g., Chen, 1996; Gimeno & Woo, 1996; Karnani & Wernerfelt, 1985).
Although this sub-field has borrowed more substantially from the theories of IO
economics, mainly oligopolistic competition (e.g., Edwards, 1955) and game
theory, strategic management research on competitive dynamics uses actual firms
and environments for the theory and data (D’Aveni, 1994), rather than abstract
simulations. Compared to standard IO economics, it moves much closer to the
firm and direct competitive rivalry between specific firms in the competitive
environment (Chen, 1996).
Also, with a focus on boundary relationships, the field began to emphasize
transaction costs analysis (Williamson, 1975, 1985), which examines the firmenvironment interface through a contractual or exchange-based approach. In a
similar vein, agency theory, also contractual or exchanged-based, suggests that the
firm can be viewed as a “nexus of contracts” (Jensen & Meckling, 1976). Both
transaction costs economics (TCE) and agency theory have their roots in Ronald
Coase’s (1937) influential essay “The Nature of the Firm,” and especially agency
theory evolved from the insights found in The Modern Corporation and Private
Property (1932) by Adolf Berle and Gardiner Means. TCE has fostered much
research on firm boundaries, markets versus hierarchies. For example, this work
has led to many studies on the adoption of the multidivisional structure (for a
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
420
THEORY AND RESEARCH IN STRATEGIC MANAGEMENT
review, see Hoskisson, Hill, & Kim, 1993), and vertical integration and strategic
alliances (Kogut, 1988). Additionally, a substantial amount of studies on corporate governance has been spawned by agency theory (Eisenhardt, 1989a; Hoskisson & Turk, 1990). Both of these perspectives have been used to examine a
variety of topics, such as mergers/acquisitions, divestitures, and downscoping
(e.g., Hitt, Hoskisson, & Ireland, 1990; Hoskisson & Hitt, 1994), greenmail (e.g.,
Kosnik, 1990), and leveraged buyouts (e.g., Wiersema & Liebeskind, 1995).
Methodologically, the pendulum appears to have swung back towards the
use of more qualitative approaches, at least ideally. The case method was
preferred by the early strategy scholars. There was little attempt to generalize
the findings of a case to strategy making in general, except for problemsolving skills. Largely because of this approach, strategic management was
not regarded as a scientific field worthy of academic study. As the field
embraced IO economics, it began to emphasize scientific generalizations
based on study of broader sets of firms. Additionally, strategy researchers
increasingly employed multivariate statistical tools (e.g., multiple regression
and cluster analysis), with large data samples primarily collected from secondary resources to test theory. The development of strategic management
into a more “respected” scholarly field of study was at least partially a result
of the adoption of “scientific” methods from IO economics. The development
of the RBV, nevertheless, poses a major methodological problem to strategic
researchers (Hitt, Gimeno, & Hoskisson, 1998). In many respects, the study of
the RBV requires a multiplicity of methods to identify, measure and understand firm resources, purported to reside within the boundary of a firm. More
importantly, RBV proponents suggest that each firm may have distinctive
resources that contribute to sustained competitive advantages. The “received”
method of research using large data samples, secondary data sources, and
econometric analyses appear to be inadequate, particularly when used to
examine intangible firm resources, such as corporate culture (Barney, 1986b)
or tacit knowledge (Kogut & Zander, 1992). Because of the focus on a firm’s
idiosyncratic resources, generalizability of firm knowledge may be questionable. Although strategic management has advanced theoretically through the
RBV, the methods that complement this theoretical view are less certain and
need further development. Figure 1 illustrates the various historical emphases
in the field using the metaphor of swings of a pendulum. In the following
sections, we review the past and the current developments of strategic management regarding theories and methodologies, and also examine how the
field is likely to develop in the future.
Early Development
During the period of early development, a number of scholars made significant contributions to the later development of the field of strategic management,
known, at that time, as business policy. Among the most important works are
Chandler’s (1962) Strategy and Structure, Ansoff’s (1965) Corporate Strategy,
and Learned et al.’s (1965/1969) Business Policy: Text and Cases.
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
R.E. HOSKISSON, M.A. HITT, W.P. WAN AND D. YIU
Figure 1.
421
Swings of a Pendulum: Theoretical and Methodological Evolution in
Strategic Management
Although not explicitly mentioned on most occasions, the footprints of the
earlier classics in management can be found during this early period of work on
the forerunner of strategic management. For example, Barnard’s (1938) detailed
exposition of the cooperation and organization in business firms, as well as the
managerial functions and processes therein, provided a solid foundation upon
which subsequent works in strategic management were built. The crucial importance of “distinctive competence” and leadership emphasized in Selznick’s (1957)
study in administrative organizations coincided well with early strategy scholars’
focus on firms’ internal strengths and managerial capabilities. Penrose (1959)
related firm growth and diversification to the “inherited” resources, especially
managerial capacities, a firm possesses. Her proposition complemented Chandler’s (1962) findings on the growth of the firm.2 From a behavioral perspective,
Herbert Simon’s (1945) Administrative Behaviors, and Cyert and March’s (1963)
A Behavioral Theory of the Firm also provided input into the early development
of strategic management (Ansoff’s, 1965, Corporate Strategy is a good example).
They emphasized organizations’ internal processes and characteristics, such as
decision-making processes, information-processing limitations, power and coalitions, and hierarchical structures. In many respects, it is likely that the early
development of strategic management thinking has been influenced, at least to a
certain extent, by these early classics’ detailed expositions of organizations’
internal processes and focus on the important roles of managers.
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
422
THEORY AND RESEARCH IN STRATEGIC MANAGEMENT
Early Theories
An important year for the field of strategic management was 1962 when
Chandler’s seminal work, Strategy and Structure, was published (Rumelt, Schendel, & Teece, 1994). Chandler’s work focused primarily on how large enterprises
develop new administrative structures to accommodate growth, and how strategic
change leads to structural change. According to Chandler, strategy is “the determination of the basic long-term goals and objectives of an enterprise, and the
adoption of courses of action and the allocation of resources necessary for
carrying out the goals,” while structure is “the design of organization through
which the enterprise is administered” (1962: 13–14). Changes in strategy are
mainly responses to opportunities or needs created by changes in the external
environment, such as technological innovation. As a consequence of change in
strategy, complementary new structures are also devised. Moreover, the book also
illuminates vividly the active role of managers in pursuing strategic changes and
exploring new administrative structures.
In the preface to his book, Ansoff describes that its main focus is on strategic
decisions, defined as “decisions on what kind of business the firm should seek to
be in” (1965: viii). He views strategy as the “common thread” among a firm’s
activities and product-markets and is comprised of four components: productmarket scope, growth vector (or the changes that a firm makes in its productmarket scope), competitive advantage, and synergy.
Andrews and his colleagues considered business policy as “the study of the
functions and responsibilities of general management and the problems which
affect the character and success of the total enterprise” from the viewpoint “of the
chief executive or general manager, whose primary responsibility is the enterprise
as a whole” (Learned et al., 1965/1969: 3). More importantly, they define strategy
as “the pattern of objectives, purposes, or goals and major policies and plans for
achieving these goals, stated in such a way as to define what business the company
is in, or is to be in and the kind of company it is or is to be” (1969: 15). They also
suggest that corporate strategy is composed of two interrelated, but practically
separated, aspects: formulation and implementation. The challenge in formulation
is to identify and reconcile four essential components of strategy: (1) market
opportunity; (2) firm competence and resources; (3) managers’ personal values
and aspirations; and (4) obligations to segments of society other than the stockholders. This broad definition of strategy is in accord with that of Chandler, but
incorporates Selznick’s (1957) “distinctive competence” and the notion of an
uncertain environment (Rumelt et al., 1992). After the strategy is formulated,
implementation is concerned with how resources are mobilized to accomplish the
strategy and requires appropriate organization structure, systems of incentives and
controls, and leadership. To Andrews and colleagues, implementation is “comprised of a series of subactivities which are primarily administrative” (1969: 19).
The three seminal works by Chandler, Ansoff, and Andrews and his colleagues, respectively, provide the foundation for the field of strategic management
(e.g., Rumelt et al., 1992). Collectively, they help define a number of critical
concepts and propositions in strategy, including how strategy affects performance,
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
R.E. HOSKISSON, M.A. HITT, W.P. WAN AND D. YIU
423
the importance of both external opportunities and internal capabilities, the notion
that structure follows strategy, the practical distinction between formulation and
implementation, and the active role of managers in strategic management. While
there existed disagreements regarding these concepts that remained to be further
specified and developed (Hofer & Schendel, 1978), together these three works
advanced the domain of strategy beyond the traditional focus of merely a capstone
course about functional integration. Rumelt et al. provides an apt description:
“Nearly all of the ideas and issues that concern us today can be found in at least
embryonic form in these key writings of the 1960s” (1994: 18). However, Rumelt
et al. (1994) overlook the contributions of Thompson (1967). He first introduced
the notion of cooperative and competitive strategies and coalition formation, a
forerunner of network and strategic alliance strategies. Also, his work contributed
to the understanding of implementation of corporate strategy through his notion of
interdependence between business units. Pooled, reciprocal, and serial interdependence are associated with the corporate strategies of unrelated diversification,
related diversification and vertical integration, respectively. Although these writings form a foundation for strategic management, they were mostly processoriented to facilitate case examination, the main methodological tool of study at
the time.
Early Methodologies
Works by Ansoff and Andrews, among others during the period, emphasized
the normative aspect of business knowledge and are chiefly interested in identifying and developing the “best practices” that were useful for managers. The
target audience of their work was managers and students aspiring to be managers.
Their principal goal was to impart knowledge to practitioners, rather than to
pursue knowledge for scientific advancement. In Business Policy: Text and Cases,
Andrews and his colleagues described this viewpoint clearly. To them, it is
impossible to “make useful generalizations about the nature of these variables or
to classify their possible combinations in all situations” because there are a large
number of variables unique to a certain organization or situation that guide the
choice of objectives and formulation of policy (1969: 5). The study of business
policy provides a familiarity with an approach to the problems, and together with
the skills and attitudes, one can “combine these variables into a pattern valid for
one [italics added] organization” (1969: 5). The most appropriate method for
accomplishing this objective is inductive in character: in-depth case studies of
single firms or industries. Generalization is practically infeasible or desirable, as
each case is assumed to be too complex and unique. In addition, these authors
were skeptical about the purposes of other academic disciplines, such as engineering, economics, psychology, sociology, or mathematics. These disciplines
may not be appropriate for strategy studies because “Knowledge generated for
one set of ends is not readily applicable to another” (Learned et al., 1965/1969: 6).
Therefore, they concluded that the most valid methodology to achieve their
purpose was case studies, inasmuch as the (then) strategy research had not yet
advanced enough to capture significant attention. The cases used were very
detailed; in the 1969 edition of Learned et al.’s Business Policy, there is a set of
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
424
THEORY AND RESEARCH IN STRATEGIC MANAGEMENT
twelve cases on Olivetti plus a note on the Office Machine Industry, totaling about
180 pages.
In comparison, Chandler’s Strategy and Structure is less normative or
prescriptive in nature, although the research methods employed are still inductive
(Rumelt et al., 1994). Chandler mainly used a historical approach to produce a
detailed account of four large firms (Du Pont, General Motors, Standard Oil of
New Jersey (later known as Exxon), and Sears Roebuck), considered to be
representative to derive his thesis and propositions. Most of the information on the
firms was gathered from publicly available sources, internal company records, and
interviews. Interestingly, prior to the in-depth case studies of the four firms, an
extensive survey of a larger number of firms had been conducted to provide initial
knowledge of the business patterns of large U.S. enterprises. Subsequent to the
case studies, Chandler extended the scope of the case study to conduct a comparative analysis among four firms to investigate what and why enterprises
adopted or rejected the multidivisional structure. Therefore, unlike Andrews and
Ansoff, Chandler attempted to seek generalizations regarding his thesis across a
wider population of firms.
Overall, the approaches used by prominent strategy scholars during this
foundation period were mainly normative or prescriptive in purpose, with in-depth
case analysis as the primary research tool. To the extent that generalization is one
of the goals, it is primarily achieved through induction (Rumelt, Schendel, &
Teece, 1991), perhaps facilitated by comparative studies of multiple cases similar
to Chandler’s approach. However, in many circumstances, generalization was not
a goal nor was it deemed feasible, as maintained by Andrews and his colleagues.
Unfortunately, the heavy emphasis on the case approach and lack of generalization did not provide the base necessary for continued advancement of the
field. As such, the work in this area was not well accepted by other academic
fields. The need for a stronger theoretical base and for empirical tests of the theory
to allow generalization produced a swing of the pendulum. Furthermore, much of
the early work examined firms largely as closed systems. However, businesses, as
all organizations, are open systems (Thompson, 1967). Thus, an open systems
approach to understanding strategy was necessary. Because of its appropriate fit
and advanced development, the swing moved toward use of economic theory to
examine strategic management phenomena. Schendel and Hatten (1972) argued
for a broader view of strategic management that emphasized the development of
new theory from which hypotheses could be derived and empirically tested. An
early example of this work was Rumelt’s (1974) study. Rumelt’s (1974) large
sample study examined the relationship between the type of strategy and structure
adopted and firm performance. His research paved the way for many subsequent
studies in this area using quantitative methods.
The Swing towards Industrial Organization (IO) Economics
During the next developmental period, strategic management departed significantly theoretically and methodologically from the early period. Although
Jemison (1981a) advocated that strategic management could be an amalgam of
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
R.E. HOSKISSON, M.A. HITT, W.P. WAN AND D. YIU
425
marketing (Biggadike, 1981), administrative behavior (Jemison, 1981b), and
economics (Porter, 1981), the field moved primarily towards economics in theory
and method. During this swing, the influence of economics, particularly industrial
organizational (IO) economics, on strategy research was substantial, and in terms
of methodology, strategy research also became much more “scientific.” This
swing changed strategy research from inductive, case-studies largely on a single
firm or industry, to deductive, large-scale statistical analyses seeking to validate
scientific hypotheses, based on models abstracted from the structure-conductperformance (S-C-P) paradigm (also known as the Bain/Mason (Bain 1956, 1968;
Mason, 1939) paradigm. The most widely adopted IO framework in strategic
management gave rise to the rich body of research on “strategic groups.”
In the preface to the first edition of Industrial Organization, Bain stated that
the book (or IO economics in general) was concerned with “the economywide
complex of business enterprises . . . in their function as suppliers, sellers, or
buyers, of goods and services of every sort produced by enterprises” and “the
environmental settings within which enterprises operate and in how they behave
in these settings as producers, sellers, and buyers.” He also suggested that his
approach was basically “external,” and “the primary unit of analysis was the
industry or competing groups of firms, rather than either the individual firm or the
economywide aggregate of enterprises (1968: vii). The central tenet of this
paradigm, as summarized by Porter (1981), is that a firm’s performance is
primarily a function of the industry environment in which it competes; and
because structure determines conduct (or conduct is simply a reflection of the
industry environment), which in turn determines performance, conduct can be
ignored and performance can, therefore, be explained by structure. Recent research, in fact, supports this argument, but also suggests that the industry environment has differential effects on large and small firms (Dean, Brown, &
Bamford, 1998). We explore these differences in a later section. Hence, the
adoption of the S-C-P paradigm in strategic management naturally shifted the
research focus from the firm to market structure.
Competitive dynamics (multipoint competition and competitive action-reaction), an increasingly popular research area in the current field of strategic
management, also evolved partly from IO economics. This stream of research
often draws heavily on works by IO economists, such as Edwards (1955) and
Berheim and Whinston (1990) who introduced important concepts such as “mutual forbearance” and “spheres of influence,” as well as game theoretical arguments (e.g., Camerer & Weigelt, 1988; see Grimm & Smith, 1997 for a review of
these arguments).
In summary, this swing of the pendulum from early development of the field
to IO economics had a major effect on the field in terms of both theory and
method.
Early Intermediate Theories
Structure-conduct-performance framework. Porter (1980, 1985) made the
most influential contribution to the field employing IO economics logic. Using a
structural analysis approach, Porter (1980) outlines an analytical framework that
JOURNAL OF MANAGEMENT, VOL. 25, NO. 3, 1999
426
THEORY AND RESEARCH IN STRATEGIC MANAGEMENT
can be used in understanding the structure of an industry. Structural analysis
focuses on competition beyond a firm’s immediate and existing rivals. Whereas
the concept of industry structure remains relatively unclear in the field of IO
economics, Porter’s (1980) Five Forces Model, by more clearly specifying the
various aspects of an industry structure, provides a useful analytic tool to assess
an industry’s attractiveness and facilitates competitor analysis. The ability for a
firm to gain competitive advantage, according to Porter (1980, 1985, 1996), rests
mainly on how well it positions and differentiates itself in an industry. The
collective effects of the five forces determine the ability of firms in an industry to
make profits. To Porter (1980, 1985), the five forces embody the rules of
competition that determine industry attractiveness, and help determine a competitive strategy to “cope with and, ideally, to change those rules in the firm’s favor”
(1985: 4). Therefore, as a refinement of the traditional S-C-P paradigm, and also
a significant contribution to the field of strategic management, Porter’s framework
specifies the competitive structure of an industry in a more tangible manner, as
well as recognizes (albeit limitedly) the role of firms in formulating appropriate
competitive strategy to achieve superior performance. Porter (1980, 1985) suggested generic strategies (low cost leadership, differentiation, and focus) that can
be used to match particular industry foci and, thereby
