– Patrick Edward O’Toole –

Deephouse acknowledged the institutional reality- championed by Stinchcomb, Reuf, DiMaggio and Powell- of similarity as unavoidable (isomorphism) and necessary for organizational survival (legitimacy). He is equally aware of the perspective of strategists like Porter (strategic positioning) and Barney (imperfect imitability) for whom similarity is negatively correlated with competitive advantage. Deephouse recognized that organizational performance is how a firm negotiates unavoidable institutional pressures and unavoidable competitive environments- that there is value for organizations to be both the same and to be different. Compared to the partisan “sociologist vs. strategist” dynamic we have observed with writers like Barney, Porter, and Reuf, Deephouse is aware that competition and legitimacy are equally important and valid organizational concerns (“the need for a firm to be different and the need for a firm to be the same”) that are strategic in the appropriate context, creating a tension firms must negotiate to develop strategy. “This paper addresses this tension by developing an integrative theory of strategic balance.” Deephouse recognized a trade-off between differentiation and conformity: strategic differentiation reduces competition which increases performance; but strategic conformity increase legitimacy which increases performance as well.

Deephouse referred to this as “Strategic Balance Theory”, which explains why he recommends that “firms seeking competitive advantage should be as different as legitimately possible”, a brilliant play on words that exactly combines the whole point of his theory: being different lowers competition and increases competitive advantage, but being too different creates legitimacy issues which have a negative impact. The Strategic Balance will combine the positive effects of difference (while avoiding the negative ROA of “too different)” and the positive effects of similarity (while avoiding the negative ROA of “too similar”).

Deephouse assessed the benefits of similarity (conformity) compared to the benefits of diversity (differentiation), and determined that the optimal strategic model was one that balances similarity with differentiation. This balance becomes the firms strategic advantage; the ability to be as different as possible without losing the benefits of legitimacy.