Industrial Organization views the firm as a free-standing entity, whereby Industrial organizations has implicitly viewed the firm as a free-standing entity competing in a single business and literature on diversification as largely distinct from the literature on competitive outcomes in oligopolistic markets.

Industrial Organization had a static perspective, whereby policy practitioners are used to having to cope with changes in structure.

Determinism was an element of Industrial Organization theory, whereby policy practitioners have long observed that firms can fundamentally change the structure of their industries through their actions.

Industrial Organization was too limited, whereby policy practitioners could easily think of examples of other unmentioned variables that were crucial to strategy in individual industries.

Industrial Organization and Business Policy had different loss function, whereby policy practitioners have always been vitally concerned with each firm’s unique situation.

Oligopoly theories were abstract and needed to be translated, whereby according to Scherer (1970) Testing of oligopoly and game concepts was undertaken almost entirely in abstract experimental situation and not actual industries.

The New Promise of Industrial Organization

The limitations of Industrial organization for strategy formulation that Porter (1981) has discussed are inherent in the classic industrial organization paradigm as personified by Bain/Mason. Porter (1981) has been research for past decade to describe the promising of industrial organization from work going on at Harvard such as: Translation, Unit of analysis, Free-standing entity, static tradition and Determinism as an updated version of the industrial organization paradigm by offers rich insights into strategy formulation of Completeness, Loss Function and Oligopoly theory.

The Methodological Promise

Porter (1981) arguing that the promise of industrial organization for strategy analysis (and vice versa) in substantive terms. It’s also important to consider its possible methodological contribution by research on the strategy as methods to supplement the in-depth case studies that have been the bread and buffer of policy research, and according to Porter (1981) the biggest problem to further methodological diversity in strategy research is the availability of data.

Conclusion

Porter (1981) identified the limitation of industrial organization theory still remains as frontier for industrial organization research. Porter (1981) also confident that the research frontiers of industrial organization will be pushed back because of the share research motivation in Industrial organization and business policy with the fact both economists and business scholars are participating in the future research.

Reference:

Porter, M. E. (1981), The Contributions of Industrial Organization to Strategic Management, The Academy of Management Review, Vol. 6. No. 4., pp. 609-620.