In many empirical projects, strategies of one function (purchasing, manufacturing, etc.) are regressed against firm performance. This supposedly suggests if a particular strategy contributes to firm performance. In doing this we are ignoring the contributions of all other functions. It could be that the marketing strategy is what creates great performance for a firm and the poor purchasing actually brings down the performance by a bit. However empirical results would show that the poor purchasing to cause high performance.
Can such methodologies be held valid? Are there other ways to link functional strategy to firm performance?
Well, like you said, there are a lot of things that contribute to firm performance, and SC strategy is only one of them. That means the effect size is low and you need a larger sample to have enough power. For the confounding effects, you would need to control for them (e.g. MKTG strategy), as many as you can think of. On top of that, you can add some mediation factors. For example, SC strategy is more likely to affect firm's operational performance (e.g., cost and quality) than MKTG strategy. So if you find SC strategy leads to better operational performance, which leads to better firm performance (financial performance), the conclusion is stronger. Hope that helps.
It seems from the above question that an inside out view of a firm is taken/or a function. A lot of factors from outside also affects a firms ability to exercise effective decisions. What is the kind of industry and what strategic group or position it belongs to also affects firm performance (Porters argument, IO Literature). In linking functional strategies also there is an issue, For e.g. Production may suffer if R&D has a delayed release of design and if marketing wants a particular product to be launched at a specific time the Production Department will have to expedite tool buildup to assembly procedures, creating friction between departments. So it would be wrong to correlate R&D or Mfg. or Marketing with Firm Performance. Rather, it would be wise to consider all the the functions and their interaction in addition to controlling/checking for industry effects in addition to controlling for institutional contexts for endogenous reasons or finding out causality precisely.
Yes, last time financial ratios used to be only indicator to firm's performance but the group led by Dr. Kaplan etc suggested Balance Scorecard to attribute success or failure of the firm depending on other variables too.
There are many strategies to ensure success in organizational firm performance.
The success/failure of an organizational performance depends upon many factors including the strategies chosen. The following paper outlines how to balance those strategies for ensuring best performance and/or success.
Take a look...
Article Towards Balancing Multiple Competitiveness Measures for impr...
Big samples are definitely needed. One thing you shoul have in consideration when working with firm performance is endogeneity problems. This may come from the fact that better performance may improve functional strategies, etc.
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