Final answer:
A well-devised strategy helps a firm outline actions for success, avoid missteps, and learn from historical performance. As firms establish themselves, detailed personal knowledge of managers becomes less crucial, and information transparency attracts investors. The theory of the firm indicates the need for a balance between competition and large-scale production efficiency.
Step-by-step explanation:
A well-devised strategy helps a firm understand what to do, what not to do, and potentially past successes or failures. While market trends in unrelated industries can sometimes provide insight, they are not directly affected by a firm's strategy. Having a clear strategy allows a company to navigate and thrive within its market by recognizing its strengths, weaknesses, and the competition it faces. Detailed analysis of the firm's strategy aids in identifying any possible mistakes and prompts a closer examination of business plans and objectives.
As firms grow, the need to know the individual managers and their personal business plans lessens because information becomes more widely available about the company's products, revenues, costs, and profits. Consequently, this availability of information makes it easier for outside investors such as bondholders and shareholders to provide financial capital, even without personal knowledge of the managers.
The lessons from the theory of the firm highlight the importance of competition, the benefits of large-scale production, and the reality of market imperfections. Policymakers must therefore balance the need for intervention between promoting competition and allowing for the efficiency gains from large firms, especially in the event of mergers.