The Resource-Based View Within The Conversation Of Strategic Management Joseph T. Mahoney J. Rajendran Pandian A Paper Summary By Amit Darekar Strategic Management Journal

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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 2

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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 3

RBT within the conversation of Strategy-II Diversification 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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 4

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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 5

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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 6

7 Resource-based view/strategy literature

8 Organizational Economics Literature

9 Industrial Organization Literature

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 THE RESOURCE-BASED VIEW WITHIN THE CONVERSATION OF STRATEGIC MANAGMENT 10