Trading in Strategic Resources: Necessary Conditions, Transaction Cost Problems, and Choice of Exchange Structure Chi, Tailan (1994), Strategic Management.

Slides:



Advertisements
Similar presentations
The Nature and Sources of Competitive Advantage
Advertisements

Chapter 5 Strategic Human Resource Management Within a Resource-capability View of the Firm Ken Kamoche.
Towards an Economic Theory of the Multiproduct Firm by David J. Teece. Journal of Economic Behavior and Organization (1982) pg Cited 1585 Education.
Chapter #7 Strategic Alliances. Opening Case HBO.
Knowledge, Strategy, and the Theory of the Firm Julia P. Liebeskind Knowledge, Strategy, and the Theory of the Firm Julia P. Liebeskind Strategic Management.
Resources and Transaction Costs: How Property Rights Economics Furthers the Resource-Based View Authors: Kirsten Foss and Nicolai J. Foss Strategic Management.
Managerial Economics and Organizational Architecture, 5e Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Managerial Economics.
The Cornerstones of Competitive Advantage: A Resource-Based View
Real Options: Taking Stock and Looking Ahead Yong Li; Barclay E. James; Ravi Madhavan; Joseph T. Mahoney Advances in Strategic Management, 2007 BADM545,
PowerPoint Presentation by Charlie Cook Gordon Walker McGraw-Hill/Irwin Copyright © 2004 McGraw Hill Companies, Inc. All rights reserved. Chapter 6 Vertical.
TRADING IN STRATEGIC RESOURCES: NECESSARY CONDITIONS, TRANSACTION COST PROBLEMS, AND CHOICE OF EXCHANGE STRUCTURE TAILAN CHI School of Business Administration,
The Cornerstones of Competitive Advantage: a RBV Presented by: Sandra Corredor Margaret Peteraf Kellogg – Tuck at Dartmouth Strategic Management Journal.
Firm Resources and Sustained Competitive Advantage
Competing For Advantage Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies.
Chapter 3 Examining the Internal Environment: Resources, Capabilities and Activities.
Towards an Economic Theory of the Multiproduct Firm Author: David J. Teece Journal of Economic Behavior and Organization (1982) page Presented by.
Entrepreneurship Strategy: Planning for Competitive Advantage 10.
10 Entrepreneurship Strategy: Planning for Competitive Advantage.
Rents and efficiency M/R chapter 8 The primary aim Provide an analysis of efficiency in organisations when the Coase Theorem (‘no wealth effect’) cannot.
Strategic Alliances 9-1 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Chapter 9.
CGEY Resource Base Theory of the Firm Presented by Olayele Adelakun, PhD DePaul University.
Resource-Based View.
Chapter 4 Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability.
International Strategy and Organization Part IIb: Market Entry Decision: An Integrative Model Josef Windsperger Professor of Organization and Management.
Chapter 9.
Assessing the Internal Environment of the Firm
Competing for Advantage
OM 석사 2 학기 이연주 Markets for technology and their implications for corporate strategy Arora et al. (2001)
© Cumming & Johan (2013)Agency Problems Cumming & Johan (2013, Chapter 2) 1.
BA 5201 Organization and Management Organizational governance and control Instructor: Ça ğ rı Topal 1.
Organizational Economics.  Focuses on economic reasons for the existence of firms  Some parts of OE focus on equilibrium-based models of economics (not.
The Cornerstones of Competitive Advantage: A Resource-Based View (Margaret Peteraf, 1993) Group 1 Meredith, Barclay, Woo-je, and Kumar.
Economics of Strategy The Economics of Vertical Integration.
Paper Discussion Market Frictions as Building Blocks of an Organizational Economics Approach to Strategic Management Authors Joseph T. Mahoney and Lihong.
Resource-Based and Property Rights Perspectives on Value Creation: The Case of Oil Field Unitization Jongwook Kim and Joseph T. Mahoney Managerial and.
Firm Resources and Sustained Competitive Advantage
Trading in Strategic Resources: Necessary Conditions, Transaction Cost Problems, and Choice of Exchange Structure Tailan Chi Strategic Management Journal.
STRATEGIC CAPABILITY By: Vedika Saraf Swagata Giri Yukti Agarwal Vikram Pesswani Vivek Sood Srishti Seth Sumalya.
Competing For Advantage Part II – Strategic Analysis Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies.
Margaret Peteraf THE CORNERSTONES OF COMPETITIVE ADVANTAGE: A RESOURCE-BASED VIEW.
Resource-Based View of the Firm
Slides by Minjae Lee, BADM 545 Fall 2013
Firm Resources and Sustained Competitive Advantage
Presented by Jiyoon Chung
Competing For Advantage Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies.
Prepared by: Enrique, Lihong, John, Jongkuk
How do adopters obtain benefits from IOS? Xu Yun 22-Sep-2004 Seminar in IS Research.
1 The Choice of Organizational Form: Vertical Financial Ownership versus Other Methods of Vertical Integration (Joe Mahoney, SMJ 1992 ) Prepared by: Enrique,
Supplier Switching Costs and Vertical Integration in the Automobile Industry Kirk Monteverde and David J. Teece Bell Journal of Economics BADM 546, Group.
The Cornerstones of Competitive Advantage: A Resource-Based View Peteraf, Margaret A. (1993) Strategic Management Journal, Vol.14, Prepared By.
Strategic Alliances 9-1 Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & Hesterly Chapter.
IT and Sustainable Competitive Advantage Dr. T. Ravichandran Lally School of Management RPI.
Strategic Alliances 9-1 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. Chapter 9.
Chapter 8 Learning thorugh alliances
Chapter 9 Strategic Alliances.
MKT 310 Entrepreneurship Mishari Alnahedh
Presented by: Hyeonsuh Lee
The Cornerstones of Competitive Advantage: A Resource-Based View
Trading in Strategic Resources:
Slides by Minjae Lee, BADM 545 Fall 2013
Real Options: Taking Stock and Looking Ahead
The Choice of Organizational Form: Vertical Financial Ownership versus Other Methods of Vertical Integration (Joe Mahoney, SMJ 1992) I-Chen Wang.
FROM TRANSACTION COST TO TRANSACTIONAL VALUE ANALYSIS: IMPLICATIONS FOR THE STUDY OF INTERORGANIZATIONAL STRATEGIES Edward J. Zajac & Cyrus P. Olsen Journal.
Strategy Research: Governance and Competence Perspectives
Chapter 9.
Creating Sustainable Competitive Advantages: Resources and Capabilites
Entrepreneurship and Negotiation
The costs of organization
The Choice of Organizational Form: Vertical Financial Ownership V. S
Trading in Strategic Resources: Necessary Conditions, Transaction Cost Problems, and Choice of Exchange.
Presentation transcript:

Trading in Strategic Resources: Necessary Conditions, Transaction Cost Problems, and Choice of Exchange Structure Chi, Tailan (1994), Strategic Management Journal, 15 (4): BADM 546, Group #1 (Meredith Blumthal, Wooje Cho, Barclay James, and Kumar Sarangee)

2 Chi ’ s Questions/Motivations Under what conditions can strategic resources be traded across firms? What are the difficulties? What mechanisms can mitigate these difficulties? Four Main Sections: Conditions for inter-firm trade Difficulties in trading Remedies for trading difficulties Implications (mode of transaction: Acq vs CV)

3 What is a Resource? Firm resources – ‘ all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness ’ (Barney, 1991)

4 What is a ‘ Strategic Resource ’ ? Imperfectly imitable resource – other firms face uncertainty in replicating the resource (Lippman & Rumelt, 1982) Imperfectly mobile resource – other firms face difficulty in acquiring it from its present employer (Peteraf, 1993) Strategic Resource – A resource with these features AND that has no substitutes with these features

5 Conditions for Inter-firm Trade Three ways of trading: Acquisition of all or part of firm Purchase of the resource ’ s service Transfer of skills and routines (IBM creates new unit to develop OS and has employees trained by Microsoft)

6 Antecedents of Imperfect Imitability and Mobility Imperfect imitability can be ascribed to causal ambiguity (uncertainty about why something happens the way it does) Imperfect mobility can be ascribed to specificity (resource specialized to firm- specific needs)

7 Conditions for Inter-firm Trade Gain in trade stems from complementarity (Rumelt, 1974) Complementarity – joint use can yield a higher total return than sum of individual use returns Necessary conditions for gain from trade in assets or resources: 2 firms with complementary strategic resources will have an incentive to trade when neither expects to be able to exploit the complementarity by trying to replicate the other ’ s resources or acquiring imperfect substitutes in the market 2 firms with complementary resources (1 strategic, other normal): A) “ Strategic resource firm ” – no expectation of being able to exploit by acquiring normal resource in the market B) “ Normal resource firm ” – no expectation of being able to replicate strategic resource or acquire imperfect substitutes in market

8 Difficulties in Trading Sources of Imperfect Imitability: Tacitness of resource – skills and routines rely on learning by doing (Penrose, 1959; Polanyi, 1967) Complexitity of resource – existence of many different and interrelated skills and routines (Nelson & Winter, 1982) Specificity of resource - resource specialized to specific transaction (Williamson, 1985)

9 Difficulties in Trading Four Primary Transaction Cost Problems: Adverse Selection – “ bad ” products are more likely to be available ( “ market for lemons ” George Akerlof) Moral Hazard (Shirking) – supplier of a service (highly tacit) may shirk because it is difficult for the acquirer (buyer) to measure supplier ’ s performance Cheating – breach of a precisely specified obligation (ex ante contractible aspects of coordination) Holdup – any opportunistic behavior that reduces efficiency of joint decision-making (ex ante NON- contractible aspects of coordination)

10 Relationships tacitness complexityspecificity causal ambiguity adverse selection Sources of Imitability: Shirking cheatingholdup Transaction Cost Problems (Trading Difficulties): information asymmetry Value creationAppropriation of value

11 Remedies for Trading Difficulties Adverse Selection & Shirking (Value Creation) Apportionment of Residual Claimancy (input contributor’s payoff contingent on output measurement) Cheating & Holdup (Appropriation) Eliminate interdependency Deterrence- Assignment of Residual Control Transaction ProblemRemedy

12 Implications: Mode of Transaction (Acquisition vs. Collaborative Venturing) Acquisition Removes cheating and holdup Does not eliminate adverse selection and shirking Collaborative Venturing – each firm bears some residual claimancy and holds some residual control

13 Implications: Mode of Transaction (Acquisition vs. Collaborative Venturing) Necessary conditions for a CV to be the optimal choice of transaction mode 1) Each firm has some resources that give rise to adverse selection or moral hazard in trading 2) Each firm supplies some resources that are either specialized to the rest of that firm or give rise to significant measurement difficulties

14 Contributions Chi takes the underlying characteristics of resources and examines how these characteristics cause transaction difficulties Chi incorporates resource-based and transaction costs perspectives Other thoughts: What about the influence of uncertainty on the choice of transaction mode (Acquistions vs. Collaborative Venturing)?