Strategic transition

Abstract

AbstractThere are few theories explaining how firms can persist through large‐scale changes. Extending Penrose's maxim that the firm can continue to grow or exist by exiting unprofitable markets and entering higher‐growth areas, we explicate a theory of how firm resources affect the success of this transformational phenomenon, which we call strategic transition. We propose that resource redeployability, relatedness of industries, and slack resources enable firms to transform themselves such that they operate in an entirely new domain. Furthermore, we point to the equifinality of strategic transition and produce a typology of the paths firms may take to achieve it.Key Points We extend Penrose's maxim that the firm can continue to grow or exist by exiting unprofitable markets and entering higher‐growth areas. We explicate a theory of how firm resources affect this transformational phenomenon, which we call strategic transition. We propose that resource redeployability, the relatedness between the old and new industry, and slack resources affect the ability of firms to transform themselves such that they operate in an entirely new domain. We also illustrate to the equifinality of strategic transition and produce a typology of the paths firms may take to achieve it.