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MT1 tutorial essay question: "A clever strategy is essential for achieving high performance." Do you believe that this hypothesis provides a good explanation of the data on firm performance?
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"A clever strategy is essential for achieving high performance." Do you believe that thishypothesis provides a good explanation of the data on firm performance?
Based on a survey of scholars, the field of strategic management, and by extension, strategy
itself, refers to the major intended and emergent initiatives taken by managers involving
utilisation of resources to enhance the performance of firms in their external environments
(Nag et al, 2007). Strategy as practiced exists on a deliberate-emergent continuum (Mintzberg
& Waters, 1985), and may be pursued for the purpose of goals including but not limited to
profit maximisation (Whittington, 1993). Therefore, this essay considers high performance as
abnormal success in a variety of operating metrics that extend beyond earnings or profit,
including initial survival, returns, and market share. Moreover, the persistence of this high
performance is important to consider. After all, a key distinction between strategy and
operational effectiveness through best practice adoption is the ability to sustain superior
performance over a long period of time (Porter, 1996).
This essay argues that clever competitive and corporate strategy is essential for achieving high
performance. However, we qualify this position by noting that its efficacy may only be
constrained to some industries, and that high performance can be achieved for a respectable
period of time, but never indefinitely. We conclude by briefly explaining the difficulty of
knowing what clever strategy is in the first place.
Standing against our essay's argument is an empirical study by Chan et al. (2003) that showed
that no persistence in long-term earnings growth exists beyond chance, and that there was a
low predictability of earnings growth rates given various predictor variables. This suggests that
high performance is a game of chance, and clever strategies are futile. However, this fails to
consider other metrics of performance beyond earnings growth, and the predictor variables
tested are unlikely to have been exhaustive in isolating elements of clever strategy. Alternative
papers and studies provide us with a different conclusion.
Firstly, clever competitive strategy through market positioning or the use of valuable, rare,
imperfectly imitable, and non-substitutable internal resources (Barney, 1991) enables high
performance. Empirically, Rumelt (1991) found that intraindustry profit variances are more
than interindustry ones, suggesting that competitive strategy within an industry could allow
firms to have superior performance compared to their peers. A firm's strategy matters more
than the industry it is in for success (Baden-Fuller & Stopford, 1992). To increase the odds of
survival, human capital theory suggests that founder characteristics such as industry experience
could be a key resource in competitive strategy. Moreover, positioning a firm to operate at a
national level and reach a large size rather than pursuing a local and niche strategy could
improve the chances of survival (Bruderl et al, 1992). In terms of market share, the empirical
existence of discrete stable market share levels represented by a power law pattern across
product categories suggests that plans for slow incremental investment to gain market share
may be less effective than large investments to reach the next stable market share level (Kohli
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