The Resource-Based View Within The Conversation Of Strategic Management

Joseph T. Mahoney J. Rajendran Pandian

A Paper SummaryByAmit Darekar

Strategic Management Journal

THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT

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Introduction 3 major research programs are interwined in Resource Based Theory

(RBT) framework

◦ It incorporates concepts from mainstream Strategy Research

◦ Fits comfortably within the conversation of Organizational Economics

◦ It is complementary to Industrial Organizational Analysis

The paper maintains that the resource-based approach presents an opportunity for dialogue and debate between scholars from different research perspectives

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RBT within the conversation of Strategy-I

Types of Rent◦ Strategy can be viewed as a 'continuing search for rent' (Bowman, 1974: 47),

where rent is defined as return in excess of a resource owner's opportunity costs (Tollison, 1982).◦ Rents may be achieved by owning a valuable resource that is scarce (Ricardian rent)◦ Monopoly rents may be achieved by government protection or by collusive arrangements when

barriers to potential competitors are high◦ Entrepreneurial rent may be achieved by risk-taking and entrepreneurial insight in an uncertain/

complex environment

Sources of Rents◦ The existence and maintenance of rents depend upon a lack of competition

in either acquiring or developing complementary resources◦ Distinctive competence and superior organizational routines in one or more

of the firm's value-chain functions may enable the firm to generate rents from a resource advantage

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RBT within the conversation of Strategy-IIDiversification strategy and resources: The RBT approach-

1. Considers the limitations of diversified growth

2. Considers important motivations for diversification

3. Provides theoretical perspective

4. Provides theoretical rationale for predicting superior performance for certain categories of related diversification

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RBT within the conversation of Organizational Economics

RBT doesn’t gel with neoclassical theory of the firm, because◦ Industrial Organization analysis tries to characterize the behavior of a ‘representative firm’ Vs

RBT approach focuses on key success factors of individual firms ◦ The neo-classical theory assumes “Static Equilibrium” Vs Schumpeterian competition translated

into RBT considers the firm’s “new combination of resources” to achieve sustained competitive advantage

The organizational economics paradigm includes ◦ Evolutionary economics: as manager’s past decisions and decision rules define path for

sustained advantage◦ Agency theory: since resource deployment of firm is influenced by agency costs◦ Property rights theory: since delineated property rights make resources valuable◦ Transaction cost economics: as resource combinations are influenced by transaction cost

economizing

The RBT framework views diversification as a response to indivisibilities and market failure (Teece, 1982).

RBT view considers heterogeneous firms as outcome of certain types of market failure

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RBT within the conversation of Industrial Organization

The sustainability of rents is a function of “barriers to imitation” which have been a major focus of the industrial organization paradigm

The resource-based view suggests that focusing on firm effects is important in developing and combining resources to achieve competitive advantage

The isolating mechanisms (barriers to imitation) explain a stable stream of rent and provide a rationale for intra-industry differences among firms

These isolating mechanisms are derived from RBT, mainstream strategy research, organizational economics and the industrial organization literature

In a nutshell, the paper argues that RBT appears to be generating new intellectual combinations of thought

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Resource-based view/strategy literature

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Organizational Economics Literature

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Industrial Organization Literature

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Discussion and Conclusions

1. Integrating the diversification literature with the organizational economics literature

2. The development of an endogenous theory of heterogeneity

3. Integration of the resource-based view with strategic group analysis

4. Integration of the resource-based view with industry analysis