Strategic Management, Organizational Context and Firm Performance: A Critical Review of the Literature

Abstract

Does strategic management have an effect on firm performance and is this affected by the organization’s context. This paper seeks to establish the current results of empirical studies on the relationship between strategic management, organizational context and firm performance. The anchoring theories for this review are Contingency Theory, Resource Based View, Dynamic Capabilities Theory and Industrial Organization Theory. From review of the Literature, a conceptual framework emerged, with strategic management as an independent variable, firm performance as a dependent variable, and organizational context as a moderating variable. The components of strategic management include objective setting, defining vision and mission, strategic analysis, strategy formulation and implementation and monitoring and evaluation. Firm performance factors are financial and non-financial indicators. Organizational context factors are public, private and others e.g. environmental factors. From the empirical review of the Literature it was noted that the unresolved issues include divergent views on the link between strategic planning, strategic management and firm performance as results of studies done have not had agreement on the nature of the relationship. It was further noted that there is need to empirically investigate the role of moderating variables e.g. organizational context in the relationship between strategic management and firm performance. The emerging propositions point to the need to ensure a close linkage between strategic management and on-going performance management. There is also a need for leaders to effectively implement strategy and manage performance.