The I/O or Industrial Company model adopts an external perspective. It starts with an assumption that forces external to the company represent the dominant influences on a company's strategic actions. In other words, this model presumes that the characteristics of and conditions present in the external environment determine the appropriateness of strategies that are formulated and implemented in order for a company to earn above-average returns. In short, the I/O model specifies that the choice of industries in which to compete has more influence on company performance than the decisions made by managers inside their firm.
The I/O model is based on the following assumptions:
The external environment-the general, industry and competitive environments imposes pressures and constraints on companies and determines strategies that will result in superior returns.
In other words, the external environment pressures the company to adopt strategies to meet that pressure while simultaneously constraining or limiting the scope of strategies that might be appropriate and eventually successful.
Most companies competing in an industry or in an industry segment control similar sets of strategically relevant resources and thus pursue similar strategies.
This assumption presumes that, given a similar availability of resources, the majority of companies competing in a specific industry-or in a segment of the industry-have similar capabilities and thus follow strategies that are similar. In other words, there are few significant differences among companies in an industry.
Resources used to implement strategies are highly mobile across firms. Significant differences in strategically relevant resources among companies in an industry tend to disappear because of resource mobility. Thus, any resource differences soon disappear as they are observed and acquired or learned by other companies in the industry.
The I/O model was a dominant paradigm from the...