Journal of Management Research
Volume 4, Number 2 ( August 2004)
ISSN: 0972-5814 Online ISSN: 0974-455X
Strategy, Execution and Idle Rationality
Thomas C Powell
| Abstract |
Despite having the capability to act, firms sometimes lapse, blunder, or squander opportunities. Modern theories of the firm acknowledge the effects of uncertainty, transaction costs and agency problems on firm conduct, but they do not recognize the consequences of “execution holes” – the primitive failure to act. If execution holes exist, rationality is not bounded but “idle,” and strategic heterogeneity emerges even in the absence of market imperfections such as mobility or resource imitation barriers. This paper contrasts the “barrier logic” of conventional strategy theory with an “execution logic” derived from the existence of execution holes. In a simulation model, the paper compares efficiency losses produced by market imperfections with those produced by execution holes. By analogy to x-inefficiency, the paper discusses “x-factors” – solvable unsolved problems – and identifies the opportunity costs of pursuing barrier-driven, market-sheltering strategies when fundamental strategic problems remain unsolved.
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