Slides by Minjae Lee, BADM 545 Fall 2013 Firm Resources and Sustained Competitive Advantage Barney, 1991 Journal of Management Slides by Minjae Lee, BADM 545 Fall 2013

Overview Since 1960’s, a single organizing framework has been used to structure much of strategic management research. Isolating a firm’s opportunities and threats(Porter 1980, 1985) Describing firm’s strengths and weaknesses(Penrose 1959, and so on) Analyzing how theses are matched to choose strategies

Overview Recent work has tended to focus primarily on analyzing a firm’s opportunities and threats in its competitive environment Environmental model of competitive advantage put little emphasis on the impact of idiosyncratic firm attributes on a firm’s competitive position. Assumption 1. firms within an industry(or a strategic group) are identical in terms of strategically relevant resources and strategies Assumption 2. If resource heterogeneity develop in an industry or group, this heterogeneity will be very short lived since resources are highly mobile (i.e. competitive factor market) Resource-based view Assumption 1. Firms within an industry (or group) may be heterogeneous with respect to the strategic resources Assumption 2..These resources may not be perfectly mobile across firms

Defining key concept Firm resources All assets, capabilities, organizational processes, firm attributes, information knowledge, etc. controlled by a firm that enable firm to conceive of or implement strategies that improve its efficiency and effectiveness. Physical capital asset: technology, plant & equipment, geographic location, access to raw material Human capital resources: training, experience, judgment, intelligence, relationships, insight of individual manager and workers Organizational capital resources: formal reporting structure, formal and informal planning, controlling, coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment

Defining key concept Competitive advantage Implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. Sustained competitive advantage (SCA) In addition to above, when these other firms are unable to duplicate the benefits of this strategy. ‘Sustained’ does not refer to the period of calendar time, but what depends on the possibility of competitive duplication. Theoretically, equilibrium definition (but empirically, long period of time) ‘Sustained” does not imply that it will “last forever.” “Schumpeterian shocks”, or structural revolutions in an industry redefine which of a firm’s attribute are resources and which are not.

Competition with Homogeneous and Perfectly Mobile Resources Firms cannot expect to obtain SCAs when strategic resources are evenly distributed across all competing firms (homogeneous) and highly mobile. It is not possible for any one firm to obtain a competitive advantage from first moving(first-mover advantage) by definition The existence of first-mover means heterogeneous resources It is not possible for any one firm to obtain a competitive advantage from Entry/Mobility barriers by definition The existence of entry/mobile barriers means heterogeneous and immobile resources => Thus, in order to understand sources of SCA, it is necessary assumption that firms resources may be heterogeneous and immobile.

Firm Resources and Sustained Competitive Advantage In order for firm resources to hold the potential of SCAs, a firm resource must have four attributes: Valuable: Enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness Rare: Even if it is valuable, if it is possessed by many firms, then each of these firms exploit that resource in the same way, implementing same strategy. However, valuable but common resources help ensure a firm’s survival Imperfectly Imitable: makes ‘sustained’ competitive resources Unique historical conditions Causal ambiguity Social complexity: interpersonal relations among managers in a firm, a firm’s culture, a firm’s reputation among suppliers and customers Substitutability: makes ‘sustained’ competitive resources Two forms: Similar or Very different

Applying the Framework Formal strategic planning is not likely to be a source of SCAs by itself (since valuable but not rare and not imitable) Informal strategy making process could be a source of SCAs (valuable, rare, socially complex so imperfectly imitable) if formal planning is not substitute for informal strategy making. Information Processing Systems may hold the potential of SCAs (Relatively few firms creating close manager-computer interface and Socially complex system) In spite of close substitute (a close knit, highly experienced top management team) if that substitute is rare and socially complex. Positive Reputations may hold the potential of SCAs (rare, depends on historical event, informal social relations) If guarantee and long-term contract is not a substitute for them

Conclusion In environmental model of competitive advantages, Social Welfare concerns were abandoned in favor of the creation of imperfectly competitive industries. RBV suggest that strategic management research is consistent with traditional social welfare concerns since a firm with resource advantages is behaving in an efficient and effective manner. Efficiency rents VS monopoly rents Unlike economic models of organizational phenomena, RBV suggest that Organization Theory and Behavior may be a rich source of findings and theories concerning SCAs RBV emphasizes the importance of Firm Resource Endowments in creating SCAs. Since implicit assumption in RBV is that managers are limited in their ability to manipulate all the attributes and characteristics of their firms