An evolutionary theory of demand-side determinants of strategy dynamics

CITATION

Manral, L. (2018). An evolutionary theory of demand-side determinants of strategy dynamics. Management Research Review, 41(3), 314–344.

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ABSTRACT
Purpose – This paper aims to explain how the dynamic demand environment influences strategic firm
behavior along an industry’s evolutionary path. A conceptual gap concerning the influence of demand-side
environmental factors (vis-à-vis changes in technology and policy) on firms’ strategic choices motivates the
theory developed herein. The paper’s contribution to the literature on “evolutionary perspective in strategy”
also addresses an important gap in the emerging literature on “strategy dynamics”.
Design/methodology/approach – The conceptual framework in this paper features a dynamic demand
environment that provides the structural context for firms’ strategic choices. It conceptualizes demand-side
competence as a mediating firm-specific construct to explain the endogenous relationship between the
characteristics of the demand environment and firms’ path dependent demand-side investments.
Findings – A review of the literature on evolutionary perspective in strategy reveals an important
conceptual gap concerning the structural determinants of dynamic firm behavior. There is no explanation of
the endogenous relationship between dynamic demand structure, firms’ dynamic demand-side competence,
and temporally heterogeneous strategic choices.
Originality/value – The demand-side explanation of how idiosyncratic firm behavior is endogenously
determined, with both structural characteristics (demand structure) and firm competences (demand-side
competence), addresses an important conceptual gap. The novelty of the theory developed herein lies in its
explication of the effect of dynamic demand environment on the evolution of idiosyncratic strategic firm
behavior – entry, investment and exit – along the evolutionary path of an industry. The theory developed
herein not only explains the effect of both determinants of idiosyncratic strategic firm behavior – the external
industry environment (dynamic market structure) and internal firm environment (dynamic firm competences) –
but also explains how the determinants evolve along the industry’s lifecycle.


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