Strategic Management Review > Vol 3 > Issue 2

A Dynamic Theory of the Strategic Firm

David Hoopes, College of Business Administration and Public Policy, California State University, USA, , Tammy L. Madsen, Leavey School of Business, Santa Clara University, USA,
Suggested Citation
David Hoopes and Tammy L. Madsen (2022), "A Dynamic Theory of the Strategic Firm", Strategic Management Review: Vol. 3: No. 2, pp 235-264.

Publication Date: 21 Jul 2022
© 2022 now Publishers, Inc.
Strategy process and practice,  Strategic decision-making
Richard Rumeltfirm heterogeneitybusiness strategyisolating mechanismsbounded rationalityuncertain imitabilitycausal ambiguitycompetitive heterogeneity


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In this article:
Strategic Theory of the Firm 
Strategic Problems, Uncertainty, and Perfect Markets 
Isolating Mechanisms 
Isolating Mechanisms: Subsequent Work 
Boundary Conditions and Unexplored Themes 


What makes a robust strategic theory of the firm? Rumelt's (1984) "Towards a Strategic Theory of the Firm" explains how variance in performance occurs and endures when decision-makers are boundedly rational and isolating mechanisms slow or prevent equilibration. How and why firms differ is a fundamental issue in strategic management. Ex ante uncertainty leads to heterogeneity. Causal ambiguity and other isolating mechanisms allow heterogeneity to endure. A central prescription is that firms often need to react quickly in spite of the uncertainty. Successful first movers can enjoy a durable advantage. This article expands on the contributions of Rumelt's 1984 article. Since strategy is situational, we begin by setting the ideas in context and illustrating how they challenged the received view. Next, we move onto the crux of the matter — how these ideas created an agenda for strategy scholarship. We then cover work on isolating mechanisms and identify unexplored opportunities.



Strategic Management Review, Volume 3, Issue 2 Special Issue in Honor of Richard Rumelt
See the other articles that are part of this special issue.