Richard P. Rumelt Quotes

I consider myself a mainstream researcher in the field of business policy, and the ideas I want to describe in this paper concern the foundations of a theory of business strategy that is rooted in economics. But is such a paper, whatever its merits, really appropriate at a conference entitled 'Non-traditional Approaches to Policy Research'? Surprisingly, it is. The use of economic theory to model and explicate business strategy, as it is understood within the field of business policy, is distinctly non-traditional.

This study partitions the total variance in rate of return among FTC Line of Business reporting units into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business-specific factors. Whereas Schmalensee (1985) reported that industry factors were the strongest, corporate and market share effects being extremely weak, this study distinguishes between stable and fluctuating effects and reaches markedly different conclusions. The data reveal negligible corporate effects, small stable industry effects, and very large stable business-unit effects. These results imply that the most important sources of economic rents are business-specific; industry membership is a much less important source and corporate parentage is quite unimportant.

In summary, uncertain imitability obtains shen creation of new production functions is inherently uncertain and when either causal ambiguity or property rights in unique resources impede imitation and factor mobility.

Ambiguity as to what factors are responsible for superior (or inferior) performance acts as a powerful block on both imitation and factor mobility.

Prior work has shown an association between diversification strategy and profitability. This paper replicates that association using more recent and complete data and goes on to investigate the sources of the association. Theoretical arguments are advanced which predict the association which will remain once the effects of varying industry profitability are removed. Empirical tests verify this prediction and permit the discrimination between the effects of industry and diversification strategy on profitability.

It is commonly accepted that successful performance of a firm hinges on restricting activities to cultivating a related and familiar range rather than 'bold moves into uncharted'.

The enhanced ability to obtain external funding and ... capacity to deploy capital internally to the most promising of a wide range of divisional ventures.

[In related businesses] common skill, market or resource applies to each.

[ Diversification strategy is] a firm’s commitment to diversity per se, together with the strengths, skills or purposes that span this diversity, shown by the way in which business activities are related one to another.

Changes don't come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual.