Working Paper: NBER ID: w20846
Authors: Mujeung Yang; Lorenz Kueng; Bryan Hong
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.
Keywords: No keywords provided
JEL Codes: D22; D23; D24; D92; M21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| business strategy priorities in novelty (L21) | firm performance metrics (market share, profitability) (L25) |
| business strategy priorities in quality (L15) | firm performance metrics (market share, profitability) (L25) |
| business strategy priorities in cost (L21) | firm performance metrics (market share, profitability) (L25) |
| strategic focus on novelty (O36) | innovation outcomes (O36) |
| emphasis on quality (L15) | improved financial performance (higher markups, profitability) (L11) |