What Is Strategic Management?

The three of us are PhD candidates in Strategic Management. That raises the obvious question: what is Strategic Management?

Strategic Management is a branch of the social sciences that tries to explain variability in organizational performance. In other words, we try to give systematic, causal, "law-like" explanations for why some firms out-perform other firms. Because we're "social," we think that the key is people and their interactions. Because we're "science," we try to find generalizable explanations based on empirical evidence.

The tools that we use to study these questions come from economics, psychology and sociology, which are generally accepted as being Strategy's parent disciplines. Although we use their tools, we are not economists, psychologists or sociologists. We like to think that Strategic Management has its own unique domain. Unlike economists, we think that markets can be inefficient in and thus a particular firm can have a monopoly on know-how or resources that give it a competitive advantage over some period of time. We're not quite psychology because we think that organizations are more than just groups of people and, in fact, that at least part of the reason people organize is to overcome the psychological limitations of the individual. We're not sociology because, um, I'm not quite sure. I think it's because we judge organizational structures based on objective measures of performance rather than the well-being of members of the organization.

So, why do some organizations outperform other organizations? If we really knew, we'd have to stop, but here's what we think we know: A lot has to do with the environment in which the firm finds itself. What nation the organization is operating in makes a difference. The single most important factor is what industry the firm is competing in. Some Strategy scholars would stop there. They don't think that firm strategy makes much difference, or that firms don't really have a choice in strategy. Those of us who think that firms do have a choice, and that it does matter, think that, next to industry, how well the firm's strategy fits its environment is the most important factor in determining performance; firms with better fit outperform firms with worse fit. Finally, we believe that, because markets are inefficient, firms can have unique capabilities or resources (they must be rare, valuable, inimitable and non-substitutable) that allow for sustained above-average risk-adjusted returns. At the moment, the hot area for Strategy scholarship is knowledge: firms perform well if they are better than the competition at gathering, sorting, distributing and exploiting knowledge.