Abstract
It is well understood that the firm’s resources inherit a competitive advantage. Management Competence leverages it and makes it sustainable.
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References
For a historical development of IOE see Conner 1991.
In fact, even the RBV is said to show important similarities to the different IOE theories.
These include mainly four types, namely the barriers of entry, the number and relative size of firms, product differentiation and demand elasticity (Porter 1980). In Bain-type IOE, “persistent abnormal returns are based upon long-lasting though limited types of heterogeneity between firms: in Mann’s statement (1966), the central heterogeneity is firm size (“dominance”). In other studies, the central heterogeneity examined is, for example, which side of an entry barrier the firm is on (e.g., degree of product differentiation, as examined by Shepherd [1972]), or differing market shares (e.g. Gale 1972)” (Conner 1991, p. 125).
Note: Mobility barriers are already related to barriers to imitation in the RBV, even though Porter’s view offers an important difference as mobility barriers only exist between strategic groups. Within the strategic groups firms are rather homogeneous and resources are mobile. “Caves and Porter (1977) define a mobility barrier as a structural attribute of a strategic group that makes it difficult (i.e. very costly) for firms not already in the group to move in” (Barney and Hoskisson 1990, p. 191). To focus on a firm’s strengths and weaknesses however requires some degree of firm heterogeneity. As a result, strategic group theory is in agreement with IOE by emphasizing the homogeneity within strategic groups and renewing through heterogeneity between strategic groups (Barney and Hoskisson 1990). Mobility barriers were needed to explain inter-strategic group heterogeneity. This is however only changing the unit of interest from industry to strategic groups and not going far enough according to the RBV. Nevertheless, Bogner et al. (1998) see similarities between the RBV and strategic group literature. The idea of mobility barriers therefore goes at least back to Caves and Porter (1977), even though the authors do not provide a configuration of these barriers.
“The strategic group perspective turned the S-C-P paradigm on its head, and argued that the strategic behaviours influence both the structure of the industry (the formation of strategic groups) and the performance of the industr” (Thomas and Pollock 1999, p. 130). 6 This enriches the picture of IOE which failed in explaining how a sustainable competitive advantage can be achieved.
The reasoning behind immobility is that it strengthens heterogeneity and sustainability of a superior resource position. Resources have to be heterogeneous in order to be of strategic interest to the firm (Barney 1991).
We will later try to give a clear definition of capabilities. So far we refer to them as skills. The confusion can be shown by a definition of Birchall and Tovstiga (1999), for example, who classify capabilities into: integrity related, market-access, and functionality related capabilities. In our analysis, we will only concentrate on the last, functionality-related capabilities that come closest to our discussion.
Barney (1986a) emphasized that organizational culture can be a very strong source of competitive advantage. (Barney 1986a; Barney 1986c; Fiol 1991). “Recent attempts (…) have focused on managerial values and believes embodied in these firms’ organizational culture. (…) Firms with strong cultures are pointed out as examples of excellent management (Peters and Waterman 1982)” (Barney 1986a, p. 656). This moves the “good management” aspect to the center of interest. The cause of success clearly lays in efficient management. As Porter himself pointed out (1991: 98–99), product-market analysis can explain a firm’s successful performance by way of its cost leadership, but the firm’s low-cost position is an outcome, not a cause, ofthat success” (Noda and Collis 2001, p. 898). Organizational culture in that already inherits management aspects.
There are other classifications (as for example Greene et al. 1999) which mostly use similar sets, but shall not be discussed here.
Rumelt (1984, p. 559) provides us with a list of reasons for factor market imperfections. 12 In consequence, dynamic markets also strengthen firm differences (Nelson and Winter 1974).
Firms rather focus on unique skills and resources than on the competitive environment (Dierickx and Cool 1989). As a result, critical resources are accumulated (Dierickx and Cool 1989). Competition starts (and ends) with available resources. In order to enlarge the resource base, companies are acquired (Barney 1986b). The price of acquiring new resources is normally determined by the value they render to firms and by the expected benefits. The benefits from acquiring a resource are equal to the price of the resource on the factor markets — an issue which we have discussed before. Whether there are excess returns from the acquired resources, depends on the ability to combine new resources with existing ones and on their rareness (Barney, 1988). A unique factor position is the base for profitability.
“Imagine an industry where firms possess exactly the same resources. This condition suggests that firms all have the same amount and kinds of strategically relevant physical, human, and organizational capital. Is there a strategy that could be conceived of and implemented by any of these firms that could not also be conceived of and implemented by all other firms in this industry? The answer to the question must be no. (…) Thus, in this kind of industry (with homogeneous resources), it is not possible for firms to enjoy a sustained competitive advantage” (Barney 1991, p. 103).
The leverage of firm resources and the stretch between existing resources and firm targets. 16 Another attempt comes via a case study (and that is probably the best methodology to analyze firm heterogeneity) from Moingeon et al. (1998), who analyze resource management in the case of Salomon, a French manufacturer of sports equipment. Klein and Hiscocks (1994) provide a number of techniques to identify and analyze the value of core competences.
In a later work, Hall (1993) also included culture, databases and networks as important resources.
The author’s opinion on ex ante limits to competition is opposed in the literature. Ex ante limits to competition imply that otherwise (if they did not exist) the cost of getting a resource would equal out its benefits, but that has the implicit assumption that the resource renders equal benefits to all interested companies. This implicit assumption can however not be supported due to company differences and network effects. The fact that resources might be of different value to different firms has been expressed earlier, “the firm is viewed as a collection of particular resources, that is, resources worth more to the firm than their market value because of specialised experience within the firm” (Rubin 1973, p. 936). As a result, network effects matter and management is required to manage these interrelations. “From a resource-based perspective, firms exist (instead of markets) because of the opportunity to benefit from efficiencies created by asset interdependencies within the firm” (Fahy 2000, p. 101). Network effects, however, do not only provide a higher value of new firm resources to the company, they also increase barriers to imitability of integrated resources (Rasche 1994).
The author’s opinion on ex ante limits to competition is opposed in the literature. Ex ante limits to competition imply that otherwise (if they did not exist) the cost of getting a resource would equal out its benefits, but that has the implicit assumption that the resource renders equal benefits to all interested companies. This implicit assumption can however not be supported due to company differences and network effects. The fact that resources might be of different value to different firms has been expressed earlier, “the firm is viewed as a collection of particular resources, that is, resources worth more to the firm than their market value because of specialized experience within the firm” (Rubin 1973, p. 936). As a result, network effects matter and management is required to manage these interrelations. “From a resource-based perspective, firms exist (instead of markets) because of the opportunity to benefit from efficiencies created by asset interdependencies within the firm” (Fahy 2000, p. 101). Network effects, however, do not only provide a higher value of new firm resources to the company, they also increase barriers to imitability of integrated resources (Rasche 1994).
For a quite extensive list of articles on barriers to entry and isolating mechanisms please see Mahoney and Pandian (1992). In this section, we will only sketch and structure the most important concepts. For a short overview of classifications of barriers to resource duplication please see Fahy (2000, p. 98).
More generally stickiness also depends on the credibility of the source and the ability of the recipient to understand (Arrow 1971).
Note: The author is somehow mixing isolating mechanism with what is later referred to as intangible assets.
The implementation of a strategic focus is guided by four steps: (1) The identification of relevant skills and assets. This also involves customer value and needs as well as other industry specific questions. (2) The selection of the optimal set out of the relevant assets and skills. Assets and skills shall inherit a competitive advantage, be relevant to the market, cost effective, sustainable, and appropriate to the future. (3) The creation of assets and skills. (4) The neutralization of competitors’ skills and assets (Aaker 1989).
A similar view from a marketing oriented perspective is described by Hooley et al. (1998), who regard competitive positioning as the integration of internal and external approaches.
Also see Teece et al. (1997), who concludes that both perspectives are in many ways competitive.
For a short comparison of the two approaches, please see Krüger and Homp (1997, p. 63).
In fact, the RBV is even seen as complementary to IOE, “the resource-based approach is complementary to industrial organization analysis (Caves 1982; Porter 1980)” (Mahoney and Pandian 1992, p. 363).
Katz (1974), for example, classifies management skills into technical, human, and conceptual skills. According to Castanias and Helfat (1991) categories of skills include: generic skills (that can be transferred across industries), business or industry related skills, and firm-specific skills.
“Over the last decade the mass of publications on the resource-based perspective on strategy has caused some terminological confusion. Competence, core competence, (invisible) assets, strategic assets, strategic stocks, resources, skills, etc. are used to refer to strategic components of one type or another” (Bogaert et al. 1994, p. 57). The authors provide a chronological overview of some literature published on the RBV and other familiar concepts on page 58, which is worth to be looked at.
Organizational capability, a term first used by Ansoff (1965).
This contributes to Dierickx and Cools (1989) perspective.
The RBV in literature can to a great extent be found in literature on specific assets, as for example human resource management or knowledge management (Mcleod 1995). Here the focus clearly is on the management capability of these assets and less on resource itself. Popular examples include Teece et al. (1997). “Competitive advantage can be attributed not only to ownership of knowledge assets and other assets complementary to them, but also to the ability to combine knowledge assets with other assets needed to create value” (Teece 1998, p. 76). The RBV is mainly concerned with knowledge creation, whereas management capability is also concerned with its efficient use (Teece 1998). Needless to provide similar examples for other resources at this point.
According to Zollo and Winter dynamic capabilities primarily derive from tacit knowledge accumulation, knowledge articulation, and knowledge codification (Zollo and Winter 1999).
The author’s opinion does surprisingly not stay in contrast to our view — it is rather the result of a completely different definition of dynamic capabilities, which are seen as specific identifiable processes and not as management capability. Having this in mind it is clear that Eisenhardt ‘dynamic capabilities’ render a competitive advantage, while its sustainability is found in resource configuration.
35 We can see that Miller and Roth (1994) introduce a different understanding of capabilities. The authors are rather referring to manufacturing and not to organizational capabilities that we have identified before. In order to avoid inconsistencies in our terminology, we will refer to these ‘manufacturing capabilities’ as competitive priorities. 36 According to the importance given to these competitive priorities, Miller and Roth (1994) identify three types of manufacturers of which marketeers and innovators clearly outperform caretakers. Frohlich and Dixon (2001) partly support Miller and Roth’s types of manufacturers, but derive at them using different dimensions. Sweeney and Szwejczewski (1996) support Miller and Roth’s view and enlarge it by a fourth group of manufacturers ‘reorganizes’.
According to Tunä lv the competitive priorities (quality, dependability, cost and flexibility) can be transferred in performance criteria, namely “consistent quality, low prices, dependable deliveries, and rapid design changes/ rapid product introduction” (Tunä lv 1992, p. 11).
Johnson (1990, p. 69) relate competitive priorities (as regarded from an external perspective) to internal indicators.
Even though manufacturing strategy or competitive priorities can be narrowed down to four primary issues, there existed and still exists confusion about a clear definition (Schroeder et al. 1986; Swamidass and Newell 1986), even though the four dimension find broad acceptance.
The study refers to observations on Japanese manufactures made by Nakane (1986). The author found out that Japanese manufacturers implemented different capabilities (= competitive priorities) sequentially.
The authors provide a literature overview of the use of the QDCF framework until 1989 and classify manufacturing strategy content according to its frequency of use. 42 Hayes and Wheelwright (1979) strongly support Skinner’s view by stating: “However, at some point, such companies often discover that their operations have become so complex with increased volume and increased stages of in-house production that they defy centralized coordination and management must revert to a more product-oriented organization within a divisionalized structure” (Hayes and Wheelwright 1979, p. 140).
The positive (even though sometimes paradoxical seeming) relationship is also addressed by Fine (1986), who shows that ‘quality-based learning’ might actually reduce manufacturing cost.
The author regards innovation as being the highest achievable level of the sandcone of competitive priorities.
The authors actually promote the idea of a synthesis between the RB V and MOT from a manufacturing perspective.
Swamidass and Newell (1987) have attempted to test a similar relationship including environmental uncertainty affecting manufacturing flexibility and the role of managers in strategic decision making.
The authors compare different measurement approaches in a conceptual study. 48 Das and Narasimhan (2001) transfer the concept of fit to the process level, also concluding that AMT should be looking for a fit with the process environment of the firm. We refer to Ittner and Larcker (1997) for an analysis of process management techniques and a classification of these according to their effect on performance.
Competitive strategy is regarded as what Porter described as cost and differentiation strategy. A later paper of Ward et al. (1996) furthermore divides these two competitive strategies in four, namely, niche and broad differentiator, cost leader and lean competitor.
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Enders, A. (2004). Literature Overview. In: Management Competence. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2690-6_2
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