1. Weihao Li (Originally created by Youngsoo Kim)
STRATEGIC ASSETS AND ORGANIZATIONAL RENT Amit, R., & Schoemaker, P. J. H., SMJ, 1993
Weihao Li (Originally created by Youngsoo Kim)

2. Overview
Firm-specific resources and capabilities are crucial to firms’ profit
Challenge for managers
To identify, develop, protect, and deploy resources and capabilities in a way that provides the firm with a sustainable competitive advantages, an organizational rent.
In a setting that is featured by
Uncertainty
Complexity
Intra-organizational conflicts
Introducing a multidimensional view
Including internal and external elements
Static and dynamic aspects
Rational and behavioral considerations
Hybrid of industry analysis, the resource view and BDT
This research paper is, like other papers today, originated from the question “when vertical integration takes place”.
The approach to this problem used to be based on simply company size, or focused on manufacturing, which leads to an emphasis on the valuation of physical assets such as raw materials or facilities.
However, these two authors try to put a more focus on human assets, that is, people. In addition, they want to empirically demonstrate the effects of transaction costs on vertical integration of the companies.
To achieve this, the authors look at a specific problem, whether a manufacturers’ representative or a direct salesperson to sell a product line.

3. Literature Review Vasconcellos and Hambrick (1989) Ghemawat (1991)
Empirically corroborate organization’s success depends on the match between its strengths and the Key Success Factors (KSF) in its environment.
Limitations: (1) the industry as the unit of analysis, (2) empirical analysis is ex post, (3) well-known KSF is not KSF anymore
Ghemawat (1991)
KSF lacks identification, concreteness, generality, necessity
Limitations: uncertainty, complexity, conflict should be considered to account for discretionary managerial decisions
Alternative approaches:
Integrating industry analysis, RBV, and BDT to explain a firm’s profitability
For some background knowledge on this problem, let me briefly give you background information.
As of 1977, in 15 major industry in the U.S., Rep accounts for only 10% of the total volume, so the market mode is less often used than the integrated mode.

4. Key Definitions & Constructs
Resources
Stocks of available factors that are owned or controlled by the firm
Knowhow to be traded, financial / physical / human assets
Capabilities
A firm’s capacity to deploy resources using organizational processes to effect a desired end
Information-based (e.g. ,brand names)
‘Intermediate goods’ to enhance productivity of its resources
Functional areas (e.g., brand management in marketing)
Fungible: if Alice lends Bob a $10 bill, she does not care if she is repaid with the same $10 bill, two $5 bills, a $5 bill and five $1 bills or a bunch of coins that total $10 because currency is fungible (noting that, in practice, some denominations might incur additional operational or processing costs). However, if Bob borrows Alice's car she will most likely be upset if Bob returns a different vehicle--even a vehicle that is the same make and model--as automobiles are not fungible with respect to ownership.
Resources
Capabilities
Strategic Assets
Strategic Industry Factors

5. Key Definitions & Constructs
Strategic Assets (SA)
Set of difficult to trade and imitate, scarce, appropriable, and specialized R&C that bestow the firm’s competitive advantages
Strategic Industry Factors (SIF)
Market-level R&C that are subject to market failures and become the prime determinants of economic rents
Managers’ problem: Identify SA for Organizational Rents
Organizational Rents efers to economic rents that stem from the organization's R&C, and that can be appropriated by the organization
Via identifying current and possible sets of SIF and developing the corresponding existing and new SA
The environmental change that can not be observed in advance makes the contract difficult to be complete.
Resources
Capabilities
Strategic Assets
Strategic Industry Factors

6. SA and SIF: Diagram
There is a tradeoff between two modes of institutions. A drawback from doing the internal mode is setup and maintenance costs and a disadvantage from doing the market mode is opportunism and inflexibility. Hence, transaction frequency is a key factor which drawback is bigger than the other.

7. Resource View of Strategic Assets
Resourced-Based View
Organizing a set of complementary and specialized resources and capabilities which are scarce, durable, not easily traded, and difficult to imitate may enable the firm to earn economic rents
Desired characteristics of the firm’s SA
Difficult to buy, sell, imitate or substitute
The Applicability of the firm's bundle of R&C to a particular industry setting
Complementarity of strategic assets
Firm-specific, durable & scarce

8. Strategic Assets decisions
Uncertainty
Uncertainty and ambiguity make it probable that managers will hold diverse expectations about key market variables
Judgments and choices are likely to exhibit idiosyncratic risk aversions and ambiguity
Strategic assets choices under uncertainty may entail opposing biases whose net effects are hard to assess
Bounded rationality leads to more biases
Complexity
To keep SA decisions within cognitive bounds, managers must often and extensively simplify and it leads to additional biases
Intra-organizational Conflict
Any change in the existing bundle of SA may benefit some employees and hurt others
Organizations are complex social entities with their own inertia and constraints
Under rational expectations, the SA challenge will largely vanish as managers will hold the same expectations about the set of SIF that will prevail in the future

9. A Multidimensional View
Difficulties in SA decisions underscores the need for a multidimensional approach
Industry Analysis
Focuses on external competitive forces and market structure
It is essential in deriving a set of Strategic Industry Factors
Resource View
Focuses on internal and institutional factors
Highlights market imperfections, leading to firm differences
Limited transferability of Resources, scarcity, complementarity and appropriability give rise to rent opportunities.
Behavioral Decision Theory
Acknowledging bounded rationality under uncertainty and complexity
In psychology, various models and techniques exist to depict how people represent complex problem situations
Under rational expectations, the SA challenge will largely vanish as managers will hold the same expectations about the set of SIF that will prevail in the future

10. Conclusions Organizational rent stems from
Analyzing Strategic Industry Factors (SIF) and
Building strategic Assets (SA) accordingly , which consists of
Resources and capabilities of the firm,
by boundedly rational managers
in the context of uncertainty, complexity, and intraorganizational conflicts.
Multidimensional approach to SA decisions
Industry Analysis, RBV, BDT
Under rational expectations, the SA challenge will largely vanish as managers will hold the same expectations about the set of SIF that will prevail in the future

11. Discussion Questions
How do we empirically test this multi-dimensional/ level model?
A general question: To explain a social or an economic phenomenon, what criteria should we consider when selecting theory to utilize (BDT, TCE, PRT, RBV, or RO)?
Under rational expectations, the SA challenge will largely vanish as managers will hold the same expectations about the set of SIF that will prevail in the future