Latent trajectories of competitive heterogeneity: Bridging the gap in theories between persistent performance and value creation

Abstract

The paper aims to connect the theories of persistent performance and value creation for identifying long-term superior performers. The performance trajectories of firms are quantified using binary, annual series of seven financial indicators representing different capabilities of resource employment. We applied Latent Class Growth Analysis to the US computer-based services industry from 2000-2012, and identify two or three heterogeneous performance groups for each financial indicator. The results support the notion that outsiders can identify winners by their performance trajectories even if they are not privy to within-firm strategies or their sources. We also find that winners identified by this method are likely to continue to effectively manage resources and enhance value creation over the long term.