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Core contributions to strategic management

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In this article the core contributions to strategic management are outlined to come to an overview of the dominant explanations of competitive advantage realization.

The most influential concept for strategic management in the 1980s came from the field of industrial organization (Porter 1980, 1981, 1985).

This is still influential in the field today, although not standing alone but partly integrated into other concepts that take firm internal factors more into account.

The dominant recent approaches in the field of strategic management are the resource-based view and the dynamic capabilities view that is based on the resource-based view.

Both approaches evolved because of the recognized lack of convincing alternatives to the industrial organization stream in the field of strategic management that predominantly focused on structural conditions and competitor positioning and lacked an internal firm-related focus.

Contributions to the explanation of competitive advantage realization by influential economic concepts in the field of strategic management theory

Concept: Evolutionary economics
Explanation with regard to realization of competitive advantage
• The strategic direction of this perspective lies in the recognition of the importance of innovation in processes, products, markets and technology

• Firm differences are seen as discretionary and the role importance and limitations of organizational routines and individual skills are investigated. Competition and selection is seen as instrumental in performance

• The centrality of individual competencies and organizational competencies is acknowledged and dynamic capabilities are noted. From this perspective it is necessary to find ways to develop and maintain capabilities

• Linking tacit knowledge, routines and dynamic competition leads to a situation where firms are not simply able to copy best practice, even though they can observe it

• Representative authors are Schumpeter (1934, 1942), Nelson and Winter (1982, 2002) and Teece (1980, 1986)

Concept: Transaction cost theory
Explanation with regard to realization of competitive advantage
• It is acknowledged that strategy does not only involve knowledge and manipulation of market power forces (characteristic of firms operating in final goods markets) but also the need to be efficient (characteristic of firms in primary and intermediate goods markets)

• “the best strategy is to organize and operate efficiently”(Williamson, 1991: 75)

• In transaction cost research the appropriateness of different organizational forms and modes of governance is analyzed and efficiency explanations for hierarchy as well as vertical and horizontal integration are given.

The role importance and difficulty of contracting and the importance and implications of the uniqueness of assets is shown. Outcomes also lie in efficiency explanations for the formation of alliances, outsourcing and contracting.

Further economic efficiency explanations are given for internal labor markets and then substitutes. In addition, costs and benefits of hierarchy are identified.

Representative authors are Coase (1937, 198 1, 1992) and Williamson (1975, 1985, 1991)

Concept: Agency theory
Explanation with regard to realization of competitive advantage
• Firms are conceived as a nexus of contracts confronted with different individual interest, moral hazard, hold up and asymmetrical information and the statement that cooperation produces agency problems.

• Awareness is created that if markets are efficient the market reality cannot be denied and reactions against market discipline impose costs on firms.

• From this perspective it is necessary to monitor the behavior of managers, directors as well as other organization members.

This approach demands to design optimal incentive packages on the presumption that effort and performance are related to the reward.

Jensen’s (1986) “free cash flow” theory of leverage and takeover provides a “valuable framework for strategic management research” (Rumelt et al., 1991: 15)

• Representative authors are Jensen (1983, 1989) and Jensen and Meckling (1976)

Concept: Game theory
Explanation with regard to realization of competitive advantage

• The relevance of signaling is acknowledged. This stream of economic theory states that competitive strategy involves not only determining likely action of rivals but also signaling intentions (true or false) to rivals

• The relevance of commitment is stressed by regarding competitive strategy as involving the acknowledgment of the value of commitment

• Reputation in this stream is recognized as a possible source of competitive advantages, e.g. in the form of ‘a first-mover advantage

• The outcome of research from this perspective is the finding that multiple equilibria exist that support concepts of strategy as unique and particular

• More insights into the inventiveness of human behavior are provided by models that integrate concepts of economic action and reaction taking into account interdependencies between past and future behavior of the actors
Representative authors are Spence (1974, 19H1), Kreps et al. (1982) and Milgrom and Roberts (1990)

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