GETTING TO KNOW YOU: A THEORY OF STRATEGIC GROUP IDENTITY

This paper develops a theory of strategic group identity that explains how strategic groups emerge in an industry and how they can affect firm behaviors and outcomes. In so doing, it provides a theoretical basis for the existence of strategic groups. We argue that managers cognitively partition their industry environment to reduce uncertainty and to cope with bounded rationality. Social learning theory and social identification theory are used to describe how cognitive groups coalesce into meaningful substructures and how a group‐level identity emerges. We describe the ways in which macro level factors condition the development of groups and their identities. We introduce the notion of a strong identity, which characterizes any group sufficiently recognized and attended to by members to affect individual action. Groups with ‘weak identities’ are no more than transient agglomerations of firms and do not exist in any meaningful sense. These ideas are developed into propositions that describe the conditions under which groups with strong identities are likely to emerge. A second set of propositions describes their transformation over time. Identity strength is linked to both positive and negative outcomes in a final set of propositions. We show how strategic groups with strong identities can affect firm performance, resolving a longstanding problem which has plagued strategic groups research and conclude by suggesting some approaches for measurement and future research. © 1997 by John Wiley & Sons, Ltd.