Firm Performance

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Strategic management involves the determination of the ways and means of how the firm can perform well. Those who pursue the field are interested in being able to understand what makes a firm succeed in the market. One theory that seeks to address the issue is that of Path Dependency which states that 'history matters'.


Arguments for and against are presented to make the reader aware of the issues surrounding the topic. In the end, a synthesis shall be made of the ideas presented and a conclusion on whether firm performance is indeed path dependent or not is made.
Firm performance is at the very heart of business management because it is the time test of any business strategy and theories. Nonetheless, there is little consensus on how to best measure the construct. Researchers and experts with strong finance or economic background use the term to refer to how efficient the firm utilizes its assets in generating profits. While this is certainly an appealing definition, it can be considered to be too narrow the reason being that it disregards the social performance of the firm. This definition only focuses on the financial part whereas firm performance can also be related to how happy its employees, suppliers and customers with its services. In this paper, I will be holding a stakeholder's perspective and consider firm performance as a combination of financial and social performance. To illustrate this construct further, I will be using the model developed by North (1990) as shown in Figure 1:
The reason for our choice of defining firm performance as a function of financial and social constructs is that both have an effect on the other. ...
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