Raphael Amit & Paul Schoemaker – 1993, SMJ STRATEGIC ASSETS AND ORGANIZATIONAL RENT

 Conditions that lead to sustainable economic rents  Asymmetry between firm knowledge / resources  Examine links between…  Industry analysis framework  Resource-based view  Behavioral decision biases  Organizational implementation issues  “…Connect the concept of Strategic Industry Factors at the market level with the notion of Strategic Assets at the firm level.” ARTICLE OVERVIEW

 Firm-specific resources and capabilities are used to explain a firm’s performance (uniqueness, customer-base, profits, etc.)  Ex ante decisions characterized by  Uncertainty  Environment  Competitor’s behavior  Customer preferences  Complexity  Environments & perceptions  Intra-organizational conflicts  Amongst managers / departments or divisions EXPLAINING DECISION MAKING 1.0 Difficult to model / articulate But clearly more than just firm- side resources & capabilities

RESOURCE BASED VIEW FIRM Resources: - externally available & transferable - owned / controlled by firm - convertible Capabilities: - information based - firm specific - tangible or intangible - intermediate goods Strategic Assets INDUSTRY ?

 Key Success Factors (Vasconcellos and Hambrick, 1989) -  By product of empirical, ex post test of an organization’s success as it depends on matching strengths with its environment  Firms with the highest KSF outperform their rivals  KSF Limitations  Considers industry as primary unit of analysis, where decisions are made my managers from a firm perspective  Looks at everything ex post, whereas decisions are made ex ante  KSF are relative between firms (i.e. they all can’t score well) INDUSTRY VIEW

 Strategic Industry Factors –  Resources and capabilities which are dependant on market failures  Characterized by their proneness to market failures and asymmetric distributions across firms  Determined at the market level through interactions between competitors, customers, regulators, innovators, etc.  Allows for ex ante explanations for decision making INDUSTRY VIEW

FIRM AND INDUSTRY CONSTRUCTS FIRM Resources: - externally available & transferable - owned / controlled by firm - convertible Capabilities: - information based - firm specific - tangible or intangible - intermediate goods Strategic Assets INDUSTRY Strategic Industry Factors: - industry specific - affect industry profitability - change & subject to ex ante uncertainty Rivals CustomersSubstitutes Environmental Factors Suppliers Entrants

 Managers must identify ‘strategic assets’ (resources and capabilities) in order to generate sustainable advantage and organizational rents  This involves identifying ‘strategic industry factors’ for the present and future  But what about Behavioral Decision Theory? EXPLAINING DECISION MAKING 2.0

 Managers must (subjectively / with bias)…  Anticipate possible futures  Assess competitive interactions  Overcome organizational inertia  BDT builds on the resource based view by acknowledging bounded rationality and differences in problem framing (or ‘variable rationality’) when dealing with  Uncertainty  Complexity  Conflict BEHAVIORAL DECISION THEORY

 Standard ‘Strategic Assets’ theory fails to systematically lead to the creation of sustainable rents due to industry pressures  Strategic Industry Factors allow for a ‘multidimensional view’ to making decisions  Industry analysis  Resource perspective  Behavioral decision theory  This, in turn, allows for the development of resources and capabilities into sustainable organizational rents by taking market & knowledge imperfections and management subjectivity into account EXPLAINING DECISION MAKING 3.0