I/O Model Four Assumptions

• Grounded in economics, the I/O model has four underlying assumptions.
• First Assumption

  the external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns.
• Second Assumption

  most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources
• Third Assumption

  resources used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived.
• Fourth Assumption

  organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors.
• The I/O model challenges firms to find the most attractive industry in which to compete.
• Because most firms are assumed to have similar valuable resources that are mobile across companies, their performance generally can be increased only when they operate in the industry with the highest profit potential and learn how to use their resources to implement the strategy required by the industry’s structural characteristics. To do so, they must imitate each other.