These two categories of firm organization are consistent with and extend the view of the firm as a pool of resources embedded in an administrative framework (Penrose, 1959; Chandler, 1962). They reflect the respective emphases of behavioral and economic models, and include their common aspects, such as technology and information, as well as their distinctive—technological/economic vs. social—contributions. The categories chosen may have some conceptual overlap, yet they broadly represent the richness and complexity of organizations with their formal and informal (i.e., sociopolitical), human, technological, economic, informational, and relational aspects.
Firm environment(s). Although at times the physical environment can be an important consideration for the firm, it is useful to view the environment as consisting primarily of other actual and potential actors and their actions (Bain, 1956; Pfeffer and Salancik, 1978; Porter, 1980; Brandenburger and Nalebuff, 1996). Actors can represent different levels of analysis. They can include individuals, groups, organizations, or a set of individuals and organizations (i.e., ecology) such as a strategic group (Caves and Porter, 1977), an industry (Porter, 1980), a field (Scott, 1992), a distribution channel (Stern and El-Ansary, 1988), a network (Thorelli, 1986), an ecosystem (Moore, 1993), or a value net (Brandenburger and Nalebuff, 1996). The environment includes political, economic, social, institutional, informational, technological, and demographic aspects, conditions, and developments. The firm’s environment particularly includes actors’ resources, technologies, strategies, relationships and interactions, and performances, and external developments, forces, events, and discontinuities that may affect them and the focal firm. Finally, environment includes past and current environments, and future environments in which the firm may potentially operate either as a result of its own initiatives or the result of the initiatives of other actors.
As with the other constructs, the environment is viewed both as a state and a path. This reflects, for example, the complementary notions of industry structure and industry evolution, the current composition of actors and their exit and entry patterns, the current postures of different actors, and the ways these postures have been formed. Additionally, the environment is viewed as influencing its own path. This view of environment includes dynamic features, integrates various behavioral and economic conceptions of its composition and character, and attends to multiple levels of analysis.
Firm performance. Firm performance indicates the quality of the firm’s continuous co-alignment with the environment (Chakravarthy, 1986). This parameter can be represented by growth, profitability, survival, and other standard indicators, and by nonfinancial indicators. Depending on the context, firm performance may include indicators in multiple levels of analysis (e.g., business unit). Although it is often described in reference to a particular point in time (Dosi et al., 1997), it also needs to capture development and change over time and reflect different time scales. Particularly, static efficiency can lead to maladjustment in the long run (Ghemawat and Ricart i Costa, 1993; Miller, 1990), and short-term misfit may be needed to attain long-term dynamic fit (Itami and Roehl, 1987). Therefore, firm performance may particularly need to attend to conflicting shortterm and long-term alignments. It needs to reflect both the quality of the firm’s exploitation of current resources and its capacity to generate new ones (Levitt and March, 1988; Sanchez and Heene,
1997).
In the OESP model, which is described in the upper part of Figure 1, firm organization, firm environment, firm strategy, and firm performance are causally related one to another. In the transition from prior work to the current model, constructs such as goals and strategy have been consolidated into four broader, higher-level, logical counterparts (e.g., strategy), and their dynamic and unfolding nature has been highlighted. In addition, relationships between key constructs were consolidated into more coarse-grained linkages, and defined so as to emphasize temporal linkages and process themes and questions. Each of the constructs is also described by its state (e.g., initial conditions) and evolutionary path. It also influences itself over time: being influenced by its previous history, and influencing its future path and state (Monge, 1990). Furthermore, to provide compatibility of its parts and be consistent with underlying research programs, the model deliberately remains at a general level of abstraction. Yet, reciprocal influences also operate within each of the main constructs.[10]
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