Firm performance and the axis of errors

Firms sometimes fail to capture opportunities, fail to imitate perfectly-imitable resources, and do not solve their solvable problems. The persistence of errors creates intra-industry performance variation that is usually attributed to the competitive advantages of successful firms. However, firms compete on two axes: the axis of competitive advantage, where performance is driven by the inimitable resources and capabilities of high-performing firms; and the axis of errors, where performance is driven by failures to attend to the activities, resources and opportunities that are equally available to all firms. This paper investigates the latter, showing how errors produce performance variation not attributable to competitive advantages, and discussing their consequences for strategy theory, empirical research and management practice.

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