This work (re)focuses attention on efficiency-based perspectives in strategy through expanding resource-based theory, via X-efficiency theory, to include a firm's pool of discretionary effort. X-efficiency theory asserts that non-maximizing behavior within the firm exists, determined in part by the level of environmental pressure, which results in nonallocative inefficiencies. The empirical results testify to the importance of nonallocative efficiency's role in increasing firm performance under pressure. The incorporation of first-order economizing—effective adaptation and the elimination of waste—offers a natural extension of X-efficiency's non-maximizing behavior to include strategically relevant allocative consequences as well. By adopting an evolutionary model and a resource-mix conceptualization of firm structure, evidence was found to support the conclusion that firms do indeed alter their structure in a deliberate and timely fashion in response to their environment. Nonallocative efficiency improvements, however, demonstrate a more direct role in performance increases than do structural adaptations in response to rising market pressure. Finally, an argument is made that offers an explanation as to why the structure of large firms appears static, apart from inertia, that strengthens the position of the strategic choice model and demonstrates the importance of the role of managerial decision-making for firm performance.
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