The I/O (Industrial Organization) Model adopts an external perspective to explain that forces outside of the organization represent the dominate influences on a firm's strategic actions and is based on the following four assumptions:
The external Environment The general, industry, and competitive environments impose pressures and constraints on firms and determines strategies that will result in superior returns. (External Environment à Organization) Most firms competing in an industry or an industry segment control similar sets of strategically-relevant resources and thus pursue similar strategies. Resources used to implement strategies are highly mobile across firms. Organizational decision-makers are assumed to be rational and committed to acting only in the best interests of the firm.
Study the external environment; locate an industry with high potential for above average returns; identify the strategy appropriate for the industry which brings the returns sought; develop or quire assets and skills needed to implement the strategy; use the firm's developed strengths to implement the strategy. (Can describe one or more weaknesses of this model?) The Resource-Based Model
This model adopts an internal perspective to explain how a firm's unique internal resources and capabilities serves as a basis for earning above average returns. The model is based on three assumptions:
Each firm is a collection of unique resources and capabilities that provides the basis for its strategy and is the primary source of firm returns (i.e. characteristics of the firm itself constrains or limits the scope of strategies that might be appropriate). Over time, firms acquire different resources and develop different or unique capabilities. Firms therefore are likely to adopt and implement different strategies in their attempts to achieve strategic competitiveness. Resources may not be highly mobile across firms. (Once example of an...
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