Which of the following is an assumption of the industrial organization I O model?

Pratik Poudel

Pratik Poudel

Currently studying Phd at the Asian Institute of Technology(AIT), Bangkok, Thailand

Published Mar 1, 2016

A strategy is the combination of actions to exploit core competencies through
which a company creates its own competitive edge. Every firm has or must make
a strategy. A strategy is the only way that gives a clear cut path for a company
or firm to excel. Similarly a person should also have a strategy, isn’t it? How can
somebody excel without strategy? But for strategy you need to have your core
competencies first. What are your core competencies? For this you need to keep
exploring yourself. Don’t be afraid from exploring yourself.
Well, let’s focus on two particular theories to make strategies. The first theory is
called the I/O Model or Industrial organization model. This model explains it is the external environment which you should take care of before you make your
strategy. This model explains that the industry in which a firm chooses to
compete has a stronger influence on the firm’s performance than do the choices
managers make inside the organization. The I/O model has four assumptions.
The first assumption is that it is the external environment that creates pressures
and constraints for a firm to make its strategy. The second assumption is that
the firms competing within a particular industry has similar resources under their control. Therefore the firms under these industries are more or less equal. The third assumption is that the resources that are under their control are highly
mobile. And the fourth assumption is that the organizational people are rational
human beings.
The resource based model on the other hand gives us a different aspect than the
I/O model. The resource based model assumes that each organization is a
collection of unique resource and capabilities that provides the basis for its
strategy and that is the primary source of their return. According to this model,
differences in firms’ performances across time are due primarily to their unique
resources and capabilities rather than the industry’s structural characteristics.
So, this model focuses on unique resources and capabilities. If you have those
unique resources, then you can develop the capabilities to gain competitive
advantage.
So, which is the model that you should follow to make personal strategy? I think
you need to have the amalgamation of both models to make strategies. First, as I
have already stated earlier, don’t hesitate to explore various things. As an
entrepreneur you should not stick your own personal tastes and preferences. You should try to explore the market (external environment) to determine your
resources (develop unique resources) to gain competitive advantage. Every firm
has its own uniqueness. But the uniqueness does not have any value unless that
uniqueness leads you to competitive advantage. Therefore, explore your core
competencies (Resource based model) and keep it updated with the external
environment (I/O Model).