Strategic Responses to Companies' Own Past Performance: Why Do Some Firms Fare Better than Others?

20 Pages Posted: 27 Oct 2009

See all articles by Jill Johnes

Jill Johnes

University of Huddersfield

Geraint Johnes

Lancaster University - Management School; Lancaster University

Date Written: October 27, 2009


Recent work on business strategy considers the evaluation of company performance using frontier methods (Devinney et al., forthcoming). The present paper builds on that work to examine the extent to which company performance in one period impacts on business practices and hence performance in subsequent periods. We investigate this using a panel of annual data on some 4280 firms over the period 1983-2003, drawn from the Osiris data set of Bureau van Dijk. A data envelopment analysis is conducted to evaluate the efficiency of firms in converting inputs – in the form of shareholders’ funds, liabilities and costs - into sales. The efficiency scores are then modelled in a random parameter framework where one of the determinants of current period efficiency is the firm’s own lagged efficiency. In a parsimonious model, we find that the extent to which lagged efficiency affects current efficiency varies considerably from firm to firm. Some firms maintain a relatively constant level of efficiency period after period, while the efficiency of other firms is much more variable over time. Companies with extreme values of the random parameter (either low or high) are less likely than others to have high efficiency scores. These results are used to inform a number of qualitiative case studies of companies. Our evidence suggests that firms for which the random parameter is high tend to be long established enterprises operating in narrowly and clearly defined markets, and enjoying sustained periods of market stability; firms for which the random parameter is low tend to have had a turbulent recent past involving either rapid growth (including merger activity) or decline. Meanwhile efficiency is determined in part by the industry and country with which a firm is associated, and also by the opportunities to exploit scale economies.

Keywords: frontier methods, business strategy

JEL Classification: C14, L10, M21

Suggested Citation

Johnes, Jill and Johnes, Geraint, Strategic Responses to Companies' Own Past Performance: Why Do Some Firms Fare Better than Others? (October 27, 2009). Available at SSRN: or

Jill Johnes

University of Huddersfield ( email )

Huddersfield HD1 3DH
United Kingdom

Geraint Johnes (Contact Author)

Lancaster University - Management School ( email )

Lancaster, LA1 4YX
United Kingdom
+44 1524 594215 (Phone)
+44 1524 594244 (Fax)

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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