The Social Welfare Implications of Strategic Management Theory

Strategic management scholars have historically overlooked social welfare concerns, focusing instead on how incomplete or imperfectly competitive markets enable firms to generate economic profits. This chapter critiques this focus, arguing that ignoring the social welfare implications of profit generation strategies is increasingly unsustainable due to greater public and governmental scrutiny. It examines two influential profit-generation theories: positioning theory and resource-based theory. Positioning theory, which emphasizes monopolistic industry structures, often leads to reduced social welfare through diminished competition and higher consumer costs. In contrast, resource-based theory, centered on leveraging unique and inimitable resources, can align with social welfare by satisfying diverse consumer preferences in competitive markets. Analyzing the experiences of firms like Apple, Facebook, and Google highlights the growing consequences of strategies inconsistent with social welfare. The chapter concludes by urging strategic management to integrate social welfare considerations into profit-generation models, emphasizing the necessity of reconciling economic and ethical outcomes.