strategic assets and organizational rent amit, r., & schoemaker, p. j. h., smj , 1993
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STRATEGIC ASSETS AND ORGANIZATIONAL RENT Amit, R., & Schoemaker, P. J. H., SMJ , 1993. Youngsoo Kim, BADM 545 Fall 2013. Overview. Why is our firm successful? Firm-specific resources and capabilities It was answered by… Industrial Organization theory (IO) Key Success Factors analysis - PowerPoint PPT PresentationTRANSCRIPT
STRATEGIC ASSETS AND ORGANIZATIONAL RENT
Amit, R., & Schoemaker, P. J. H., SMJ, 1993
Youngsoo Kim, BADM 545 Fall 2013
Overview Why is our firm successful?
Firm-specific resources and capabilities
It was answered by… Industrial Organization theory (IO) Key Success Factors analysis
New perspectives Resource Based View of the Firm (RBV) Behavioral Decision Theory (BDT) Link these two with traditional industry analysis
framework
Literature Review Vasconcellos and Hambrick (1989)
Empirically corroborate the effects of Key Success Factors (KSF) on an organization’s success
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 Combining IO, RBV, and BDT to explain a firm’s profitability
Resources and Capabilities (R&C) Resources
Available factors that are owned or controlled by the firm
Knowhow to be traded (e.g. patents and licenses), financial / physical / human assets (e.g. property, plant, and equipment)
Capabilities A firm’s capacity to deploy resources using
organizational processes to effect a desired end ‘Intermediate goods’ to enhance productivity of its
resources Information-based (e.g. brand names) Functional areas (e.g. brand management in
marketing)
Strategic Assets andStrategic Industry Factors Strategic Assets (SA)
Set of difficult to trade and imitate, scarce, appropriable, and specialized resources and capabilities that present competitive advantages
Strategic Industry Factors (SIF) Market-level resources and capabilities that are subject to
market failures and prime determinants of economic rents Relevant set of SIF changes and cannot be predicted ex
ante
Managers’ problem: Identify SA for Organizational Rents Via identifying current and possible sets of SIF and
developing the corresponding existing and new SA
SA and SIF: Diagram
RBV and Organizational Rents 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
Trade-off: specialization and robustness Two kinds of specialization: limited use or unique use Limited use reduces robustness, but unique use
doesn’t Firms develop specialized assets to enhance profits at
the price of reduced flexibility in the face of Schumpeterian shocks
Challenges in SA decisions (1) 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 analyze
Complexity To keep SA decisions within cognitive bounds,
managers must often and extensively simplify and it leads to additional biases
Challenges in SA decisions (2) 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
Challenges and economic rents This lack of solvability is a necessary condition for
their strategic importance and positive rent potential
SA Development: Multidimensional View (1) Difficulties in SA decisions underscores the
need for a multidimensional approach
Industry Analysis Focus on external competitive forces and market
structure
Resource View Factor market imperfections, leading to firm
differences Economic rents derive from firms’ unique R&C
SA Development: Multidimensional View (2) 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
Conflict and organization inertia in SA decisions Principal-agent theory gives only rational treatment TCE focuses on bounded rationality and complexity Organizational theory has been more descriptive
and process oriented to understand how firms control and coordinate
Contributions and Conclusions SIF and SA as an alternative to KSF Characterization of rent producing SA
Under which SA could produce organizational rents
Three challenges of SA decisions Uncertainty, Complexity, Conflict
Multidimensional approach to SA decisions IO, RBV, BDT
Uniqueness and low mobility of R&C stem from imperfect and hard to predict decisions by boundedly rational managers facing high uncertainty
Questions & Answers