Strategic Factor Markets: Expectations, Luck, and Business Strategy

Abstract

Develops a framework for identifying competitiveimperfections in strategic factor markets (i.e., those markets for theresources needed to implement a strategy). The goal of this framework is to aidfirms in implementing high return product market strategies. In a perfectmarket setting, a firm seeking to acquire resources and a firm that owns theresources being sought would have the same expectations as to the future valueof the strategy before it is implemented. In reality, this is not usually thecase, as firms can both overestimate and underestimate the strategy. Firms thatare able to gain a more accurate expectation of the return for potentialstrategies they are considering implementing will enjoy higher returns over thelong run. Differing firm expectations create a strategic market factor competitiveimperfection. Some researchers have contended that other firm characteristicscan also lead to competitive imperfections. In reality, these firm differencesare actually just a manifestation of differences in firm expectations. Includedare lack of separation, uniqueness, lack of entry, profit maximizing, financialstrength, and lack of understanding. In order for firms to identify strategies that present higher returns, theymust consider two sources of information. The first consideration is the firm'scompetitive environment. The second is the firm's organizational skills andcapabilities. While many firms rely on luck, careful analysis can be utilizedto aid firms in implementing profitable strategies. (SRD)

Keywords: Resource acquisition, Market strategies, Market competition, Environmental scanning, Firm strategies, Strategic planning, Cost accounting, Information sources