Introduction Managers in firms have to deal with a variety of strategic issues. Economists have conceptualized firms in a variety of ways to enhance the understanding of its functioning. It is also hoped that managerial decision-making would improve with better insights into the organization called the firm. It can be argued that a theory of the firm that is strategically useful needs to capture essence of the modern firm and address the key strategic issues. Broadly, the literature has identified four sets of questions that need to be resolved to satisfy the economist as well as the manager: Questions Why do firms exist in a market economy? What explains the boundaries of the firm? Why certain activities (transactions) are performed in-house, while others are governed through market relations? Why does one observe different types of organizational structures across firms? Why incentive structures, job ladders, hierarchies etc. are different for firms? What factors account for superior performance of firms or their competitive advantage? Response Obviously, these issues are inter-dependent. For example, a firm's internal organization may be a source of competitive advantage. A given structure of incentives may enhance productivity to make the firm more competitive. Similarly, how a firm defines its boundaries may affect its competitive advantage and its sustainability, as the source of advantage may be an asset or a resource that a firm needs to internalize. This note hopes to provide a broad overview of how new developments in the theory of the firm have resolved these questions. Conventional (neo-classical) economics viewed firms as "black boxes" which maximized profits by optimally utilizing inputs to produce outputs. Economists typically did not look "inside" this optimizing entity called the firm. As the field of Industrial Organization developed, such caricaturing of firms constrained the understanding of how productive activities are brought into harmony with market demand through organizational mechanisms. Consequently, scholars started to peep into the firm to understand why such entities exist and what type of conceptualizations can capture their essence. Over the years, interesting conceptualizations have emerged with significant implications for firm strategy. Given the four questions listed above, strategic implications can be broadly characterized as external and internal organization issues. While the former deals with efficient boundary issues concentrating on the degree of integration, the latter focuses on internal organization of structure and incentives. Recent developments in the theories of the firm are reviewed here to unravel how the conceptualization of a firm has changed over the years. In the process, an attempt is also made to identify key strategic issues that emerge from these conceptualizations for the external and internal organization of the firm. Broadly, theories of the firm have evolved around two streams. One has embellished the conventional neo-classical paradigm with issues relating to bounded rationality, transaction costs, principal-agent problems, incomplete contracts and property rights to better understand the organization, boundaries and functioning of a firm. The other stream has developed around the resource-based theory of the firm with ideas of evolutionary and knowledge generating (learning) processes brought in. In what follows we summarize the salient developments in both these streams in separate sections. Using an eclectic approach, the concluding section pulls together some strategic insights derived from these two approaches of analyzing firms. It is argued that the two approaches are complementary and provide important clues about the key strategic issues relating to internal and external organization of the firm. Developments in the Neo-Classical Stream As mentioned, traditional neo-classical economics theory of the firm is built upon a set of assumptions about the behaviour and decision-making processes of economic agents.2 These agents are perfectly rational and are able to respond optimally (and instantaneously) to changing environmental conditions. In simple terms, these assumptions about economic agents can be summarized as follows (Boerner, Macher and Teece, 2001): they have stable well-defined preferences and rationally maximize utility (e.g. profits) against those preferences; they operate in a completely transparent market in which prices reveal all relevant information; market conditions are known to all, economic agents are perfectly rational and their behavioural adjustments are instantaneous. In this kind of a world, an economic agent like a firm is a homogeneous entity not bound by any rigidities. It chooses rationally from a given set of feasible production plans, buys and sells inputs and outputs to maximize profits. It neither makes a wrong decision nor incurs any internal costs of making a decision. In such a situation, t