Journal of Management Research
Year : 2004, Volume : 4, Issue : 2
First page : ( 77) Last page : ( 98)
Print ISSN : 0972-5814.

Strategy, Execution and Idle Rationality

Powell Thomas C

Australian Graduate School of Management Gate 11 Botany Street Sydney New South Wales 2052 Australia

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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Keywords

Idle Rationality, Bounded Rationality, Perfect Rationality, Strategic Capital Share, Strategic Heterogeneity.

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