Business Strategy and the Management of Firms

Mu-Jeung Yang, Lorenz Kueng and Bryan Hong

No 20846, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Business strategy can be defined as a firm's plan to generate economic profits based on lower cost, better quality, or new products. The analysis of business strategy is thus at the intersection of market competition and a firm's efforts to secure persistently superior performance via investments in better management and organization. We empirically analyze the interaction of firms' business strategies and their managerial practices using a unique, detailed dataset on business strategy, internal firm organization, performance and innovation, which is representative of the entire Canadian economy. Our empirical results show that measures of business strategy are strongly correlated with firm performance, both in the cross-section and over time, and even after controlling for unobserved profit shocks exploiting intermediates utilization. Results are particularly striking for innovation, as firms with some priority in business strategies are significantly more likely to innovate than firms without any strategic priority. Furthermore, our analysis highlights that the relationship between strategy and management is driven by two key organizational trade-offs: employee initiative vs. coordination as well as exploration of novel business opportunities vs. exploitation of existing profit sources.

JEL-codes: D22 D23 D24 D92 M21 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-bec and nep-cse
Note: IO PR
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Citations: View citations in EconPapers (8)

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