First, Alchian (1950) introduced the idea that evolution constrains the properties of populations
of business firms. He argued that firms can survive only by earning positive profits and that firms
that behave more optimally have higher probabilities of survival; thus, an economist “can state
what types of firms or behavior relative to other possible types will be more viable, even though
the firms themselves may not know the conditions or even try to achieve them” (p. 216). A
decade later, stimulated by Alchian’s ideas,Winter (1964) looked at evolutionary processes more
systematically and found many reasons why unprofitable firms might survive indefinitely despite
evolutionary selection. After another two decades, Nelson andWinter (1982) redirected attention
from the evolution of firms to the evolution of standardized behavioral routines. They asserted that
some behavioral routines survive for long periods whereas others do not, that a specific routine may
occur in many firms, and that firms often imitate each other’s routines. Thus, strategic evolution
gains impetus from changes in the routines used to implement strategies. The ensuing decades
have brought numerous empirical studies of evolving populations of firms, and more recently,
studies of evolving strategic behaviors.
Second, Penrose (1959) argued that a firm’s profitability depends upon its resources and
that profits might come from short-run changes rather than from long-run results. In contrast
to Ricardo, who had emphasized the advantages of having more productive physical resources,
Penrose suggested that differences in profitability could arise from differences in skills and abilities.
This implied that related diversification could offer advantages as a growth strategy. In
this case, too, decades passed before these insights received much attention. Eventually this idea
gained followers:Wernerfelt (1984) applied Penrose’s ideas to strategic management, and Barney
(1991) pointed out properties that resources would need to possess in order for them to generate
competitive advantages. Barney’s specification that firms need resources that are VRIN (valuable,
rare, inimitable, and nonsubstitutable) appears in every course of strategic management.
These notions have attracted attention because they suggest how individual firms may be able to
exceed industry-wide norms. Penrose’s ideas have also influenced contemporary thought about
the value of learning and knowledge and about the advantages of and limitations on first-mover
advantages.
Third, Cyert and March launched “a behavioral theory of the firm.” They wanted to create a
theory that would describe “the actual process of organizational decision making” (p. 19) and
to use this theory to predict a firm’s behaviors. Their book offered several generalizations about
firms’ development over long periods.