STRATEGIC REFERENCE POINT THEORY

How can executives achieve a match between expected external environme ntal conditions and internal organizational capabilities that facilita tes improved performance? This paper argues that a firm's choice of 'r eference points' can help achieve strategic alignment capable of yield ing improved performance and potentially even a sustainable competitiv e advantage. Building upon prospect theory and other relevant theoreti cal perspectives, the strategic reference point (SRP) matrix is develo ped A firm's SRP consists of three dimensions: internal capability, ex ternal conditions, and time. A theory is developed which posits an opt imal SRP structure, and propositions are offered which articulate the expected relationships between the SRP, strategic choice behavior, and firm performance. The paper closes with some suggestions for using st rategic reference points in both research and practice.