Causal Ambiguity, Operating Complexity and Strong Capability-Based Advantages

Abstract

The presumed connection between causal ambiguity and sustained, capabilities-based performance advantages is well-known to strategy researchers. This paper presents the first formal examination of this connection. I provide a precise distinction between the intrinsic, or potential, level of causal ambiguity associated with a particular strategy and the actual level that obtains in equilibrium. I find that intrinsic ambiguity is a necessary but, contrary to the speculation of some, insufficient condition for a sustained capability-based advantage. Most importantly, I also find that the complexity of the network of causal relations induced by a firm's strategy is not positively correlated with its intrinsic level of ambiguity. This contradicts earlier conjectures that have found their way into mainstream thinking.

Keywords: Causal, ambiguity, complexity, strategy, firm, performance

JEL Classification: D21, D43, D81, L10, L13, L23