The Pragmatic Theory of the Firm

The pragmatic theory begins with clarity about the firm's purpose; asserts that knowledge-building proficiency is the primary determinant of a firm's long-term performance; stresses systems thinking; and connects firm performance to market valuation and shareholder returns via long-term, life-cycle track records. Firm risk is defined as obstacles to achieving the firm's purpose. Research on excess shareholder returns and intangible assets is reviewed including the benefit from focusing on a firm's knowledge-building proficiency. An historical analysis of John Deere illustrates the advantages of the pragmatic theory in understanding the connection between key strategic decisions, competitive advantage, firm's long-term financial performance, and shareholder returns