Modern Firm Chapter 1-2

What determines firm performance?

Firm performance depends on four interacting elements: Environment, Strategy, Organisation, and Management. Performance is not determined by strategy alone; a successful firm aligns all four components. Remember: Performance = Environment + Strategy + Organisation + Management.

What is corporate strategy?

According to Andrews (1971), corporate strategy is the pattern of decisions that determines a firm's objectives, goals, policies, business scope, organisational structure, and contributions to stakeholders. Rather than isolated decisions, strategy provides a consistent long-term direction for the company.

What are the four elements of strategy according to Saloner et al. (2001)?

The four elements are: Goal (what the firm wants to achieve), Scope (which markets, products, and customers the firm serves), Sustainable Competitive Advantage (why competitors cannot easily copy the firm), and Logic or Coherence (why all strategic decisions fit together).

What is the difference between a mission statement and a strategy?

A mission statement is broad, motivational, vague, and inspirational. A strategy is concrete, precise, actionable, and competitive. A mission inspires employees, while a strategy tells them what to do.

What is the difference between Competitive Strategy and Capability-Based Strategy?

Competitive Strategy focuses on the external market and asks how the firm can outperform competitors. It is associated with Porter (1980). Capability-Based Strategy, or the Resource-Based View (RBV), focuses on internal resources and capabilities and asks what unique strengths the firm possesses. It is associated with Rumelt, Wernerfelt, and Barney. Memory trick: Porter = Outside; RBV = Inside.

What are the two functions of strategy?

Strategy has two main functions: Coordination and Motivation. Coordination aligns employees' decisions by providing clear priorities, objectives, and acceptable actions. Motivation encourages effort because employees believe investments matter, rewards will follow, and the firm's long-term direction is stable.

Why is strategy like a manual?

When employees face uncertainty, strategy serves as a decision guide by helping them ask, "What would our strategy recommend?" It provides guidance for consistent decision-making.

Why is strategy especially important under uncertainty?

Firms operate with incomplete information, conflicts of interest, and ambiguity. Strategy provides coordination, consistency, and common expectations, helping employees make better decisions under uncertainty.

How does strategy emerge and evolve?

Strategy may emerge through top-down decision-making (common in startups), bottom-up processes (common in large corporations), or both (through professional middle managers). Strategy usually evolves slowly like a compass but may change because of environmental shocks, regime changes, or major disruptions.

What are the four elements of organisation according to Roberts (2004)?

The four elements of organisation are People, Organisational Architecture, Routines and Procedures, and Culture.

What are the key organisational trade-offs?

The main organisational trade-offs are Initiative versus Cooperation and Exploration versus Exploitation. Firms must balance individual initiative with teamwork and innovation with efficient use of existing knowledge.

What are the two views on the relationship between strategy and organisation?

According to Chandler (1962), structure follows strategy: firms choose a strategy first and then design the organisation to support it. The alternative view argues that organisation constrains strategy because resources and organisational capabilities are difficult to change. This view suggests that "our organisation is our strategy."

What is organisational fit?

Organisational fit exists when strategy, people, culture, processes, and organisational architecture complement one another. Good fit improves firm performance, while poor fit reduces performance.

What are the main trends in firm organisation?

Modern firms increasingly have flatter hierarchies, outsourcing, downsizing, delayering, and broader spans of control. These trends are driven by information and communication technology (ICT), global competition, and import competition.