Business Strategy and the Management of Firms

42 Pages Posted: 20 Jan 2015

See all articles by Mu-Jeung Yang

Mu-Jeung Yang

University of Washington - Department of Economics

Lorenz Kueng

Northwestern University - Kellogg School of Management; University of Lugano - Faculty of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Bryan Hong

New York University (NYU) - Leonard N. Stern School of Business

Date Written: January 2015

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.

Suggested Citation

Yang, Mu-Jeung and Kueng, Lorenz and Hong, Bryan, Business Strategy and the Management of Firms (January 2015). NBER Working Paper No. w20846. Available at SSRN: https://ssrn.com/abstract=2551654

Mu-Jeung Yang (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Lorenz Kueng

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
+1 (847) 491-7843 (Phone)
+1 (847) 491-5719 (Fax)

HOME PAGE: http://www.lorenzkueng.com

University of Lugano - Faculty of Economics ( email )

Via Giuseppe Buffi 13
CH-6900 Lugano, CH-6904
Switzerland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bryan Hong

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States

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