Firm Strategy, Business Environment and the Relationship Between Firm Level Factors and Performance

Abstract

Contingency theory contends that there is no universal or one best way to manage or design an organization and its subsystems must 'fit' with the environment. Effective organizations need not only have a proper 'fit' with the environment but also among its subsystems. Organization operates in a turbulent environment and they depend on the environment for resources input and produce goods or service for the consumption by the environment. Strategy is the link to the environment and to achieve its objectives the organization adopt strategies that align them with environment which is aimed at avoiding any mismatch between the organization and the environment. Firm performance is contingent to both firm and industry factors. There have been conflicting views on which factors are more important in influencing strategy and performance. Resource based view of strategy has dominated in theoretical and empirical literature and the variation in firm level factors explains the difference in strategy chosen which influences the organization performance. This paper reviews the influence of different contingent variables on firm performance but emphasizes that there is need to study the joint effect of different firm factors apart from the independent effect.