Research worth your attention

A recent paper by Chad Syverson (2011, JEL) has created a bit of a buzz in strategy research circles. Entitled, “What determines productivity?” this paper surveys work in economics over the past decade or so on persistent differences in levels of firm productivity. As I have pointed out elsewhere, one of the traditional differences between economics and strategy is the focus on efficiency versus distributional issues. Economists tend to be motivated by the former – loosely, how much aggregate value is created in an industry or economy? – and strategy scholars by the latter – loosely, how and why is that value divvied up? Going by the title of this paper, my strategy colleagues might easily pass it up as yet another example of work in economics that doesn’t quite match up with our specific interests.

That would be a mistake. Indeed, I urge all strategy scholars (and those working to become strategy scholars) to take a very careful read of this paper and the papers it cites. Firm “productivity” is, of course, theoretically defined as output per unit of input. In practice, however, empirical measures are often constructed using revenues in the numerator and costs in the denominator. Simply subtract the denominator from the numerator and you have … profit . Thus, many of the citations here are about persistent differences in profit performance among firms … which is exactly the object of interest in strategy.

What surprised me about this paper is just how much work has been done on these issues in the last ten years. Among the sources of systematic and persistent performance heterogeneity examined in recent work are: competition, sunk costs, technology spillovers, organizational structure, human capital, incentive systems, information, learning-by-doing, and managerial talent & practices. I believe that list includes pretty much all the sources of competitive advantage contemplated in the strategy literature. By the way, the paper focuses only on empirical contributions, no theory. One of the striking things about this is the sophistication of the methods used to identify causal effects. Among a raft of others, work by Bloom and Van Reenen (2010) and Forbes and Lederman (2011) stand out as exemplary. Over 100 papers published in the past decade are cited and, again, that’s not counting any theoretical contributions.

On the one hand, it is great to see so much interesting research activity on a topic near and dear to strategy. On the other hand, it seems that strategy has lost interest in the foundational questions that animated it early-on. In the 1990s our field felt alive with big-think empirical work by people like McGahan, Porter, Rumelt, and Henderson. Are we ceding our core issues to economics? Or, does the increasing popularity of these issues in economics just mean more outlets for our work? Either way, my guess is that the indirect competition is good and, to the extent journal editors are paying attention, will tend to raise the research quality bar.