Can Firms’ Market Performance Be Explained Better? Role of Strategy, Sustainability Levers

Abstract

Practitioners of strategy such as C-suite executives as well as academicians have always expressed a keen interest in understanding the motivations for firm growth. Though they look at it from different dimensions, both confidently observe the impact of several strategy levers such as organic growth focus, the soft power focus exemplified by Michael Porter’s ‘bargaining power of the buyer’, and the tangible resource focus that stems from investment in competence generating assets on the market performance of firms. Michael Porter also provided critical insights using an industry based perspective wherein he studied the levers of competitive advantage. Research studies have also incorporated the relevance of the industry environment and the role of different stakeholders in the overall progress of a firm. Theories such as the Resource Based View (RBV) as well as frameworks such as VRIO (Valuable, Rare, difficult to Imitate, Organized to capture value) have found acceptance among the practitioners since they have observed its power to explain the rationale behind firm growth and market performance. However, the sustainability and environmental focus has shot into prominence in the recent two decades on account of scholars such as John Wilkington. Hence, we find that strategy papers have now attempted to include an understanding of practices in this domain of sustainability and its corresponding impact (if any) on firm performance. At the same time, we also observe that research that delves into the cross linkages between the RBV and the triple bottom line exemplified by the 3Ps (People, Planet and Profits) are relatively lesser in number. Hence, our paper aims to understand the linkages between the sustainability dimension as espoused by corporates as well as other strategy dimensions and firm performance. Using the database PROWESS, managed by the Centre for Monitoring the Indian Economy, (CMIE), the study uses a sample of more than 500 companies and key findings indicate that there is a significant explanatory power of some strategy levers and the sustainability dimensions in unravelling the deeper reasons behind firm performance. We use specific multivariate analysis techniques to support our findings. We observe that our paper contributes significantly to advancing a new framework to explain the firm performance; this has critical ramifications for academicians as well as practitioners of strategy - it has the potential to chart out newer growth trajectory for firms in an ultra-competitive business environment.