Group 3: Jason Franken Prasanna Karhade Hsiao-Ching Lee Marko Madunic Jennifer Shen

1. “The Resource-Based View Within the Conversation of Strategic Management,” Strategic Management Journal 13(5): 363-380. J.T. Mahoney & J.R. Pandian. (1993). Group 3: Jason Franken Prasanna Karhade Hsiao-Ching Lee Marko Madunic Jennifer Shen

2. “RVBwithintheConversationofStrategicManagement” Motivation: • TheRBVconversationw/nstrategicmanagement: • Insighton firms’heterogeneouscompetencies&capabilities; propositions testable in diversification strategy literature. • Fits w/n organizational economics paradigm. • Complementary to industrial organization research. *RBV increases discussion b/w these 3 perspectives. Purpose: • To coalesce and sustain this conversation.

3. “RVBwithintheConversationofStrategicManagement” Strategy–continuingsearchforrents(abovenormalreturns): • Ricardian rents – from owning valuable, scarce resources. • Monopoly rents – from collusion & competition barriers. • Entrepreneurial rents – from risk-taking & entrepreneurial insight in uncertain/complex environment … these rents are inherently self-destructive due to diffusion of knowledge. • Quasi-rent – difference b/w 1st- & 2nd-best uses firm-specific resources (physical & human capital and dedicated assets).

4. “RVBwithintheConversationofStrategicManagement” RBV ExplainsSources of Rent: • Services ofdurable resources that are: • Relativelyimportanttocustomers&simultaneouslysuperior,imperfectlyinimitable,&imperfectlysubstitutable. But rents are not appropriated if resources are non-tradeable or traded in imperfect factor markets. • Heterogeneityintermsofinformation,luck,&capabilities. • Distinctivecompetence&superiororg.routines may generate rents from a resource advantage. SWOT clarified by identifying firm’s strengths & capabilities for strategic advantage.

5. “RVBwithintheConversationofStrategicManagement” DistinctiveCompetence = f (resourcest) • Rents may result not (just) from better resources, but from a firm’sdistinctivecompetenceineffectivelyemployingresources. • Heterogeneityinproductiveservicesfirm’suniquecharacter. • Interaction b/w resources, distinctive competence, & managerial logic drives diversification process. • Currentresourcesmanagerialperceptions&thus,directionof growth.Alsoresourceprofiledirectionofdiversification. Diversification Strategy: • RBV contributes to diversification strategy research in 4 ways: (1) Considers limitations of diversified growth. (2) Considers motivations for diversification. (3) Provides theory for predicting direction of diversification. (4) Provides theory for predicting superior performance (for certain categories of related diversification).

6. “RVBwithintheConversationofStrategicManagement” Firm growth limited by: • Resource constraints(Wernerfelt, 1989) 1)Shortage of labor or physical inputs. 2) Shortage of finance. 3) Lack of suitable investment opportunities 4) lack of sufficient managerial capacity. • Penrose effect(Penrose, 1959) • Only limited by internal management in the long-run. • Competing claims on managerial services: • Managerial services devoted to training new managers. • Managerial services available for expansion. • Cyclical growth (fast in period t slower in period t +1). • Highly interdependent resources slow growth. *Management is the accelerator & brake on firm growth!

7. “RVBwithintheConversationofStrategicManagement” Motives for firm growth: Unusedproductiveservices+Changingknowledgeofmanagement  unique productive opportunities for each firm. • Excess capacity(Chandler, 1962) • Due to indivisibilities & cyclical demand  drives diversification. • Unused productive services present a jig-saw puzzle for balancing processes (Penrose, 1959). • Balance b/w exploiting existing resources & developing new ones  Optimal Growth (Penrose, 1959)! *Dynamic Programming Models (Rubin, 1973) illustrate the last point! • Virtuous circle (Penrose, 1959) • Growth requires specialization • Specialization requires growth & diversification (to utilize unused productive services). • Thus, specialization induces diversification.

8. “RVBwithintheConversationofStrategicManagement” Direction of growth: The direction of a firm’s diversification is due to the nature of its resources & the market opportunities. • Resource Profile: determines direction of growth. • The productive services of these resources are a selective force in determining the direction of diversification. • Firms diversify by transferring idiosyncratic organizational and intangible capital among related activities. *Firm-specific resources & relatedness of activities influence the direction of diversification, but important firm capabilities change over time! Diversification & Performance: • Relateddiversificationhigherrents(thanunrelated) • Rents not appropriated by bidding firm if perfect competition. • Appropriated if luck, private information, or private synergy. • Contestable synergy vs. idiosyncratic bilateral synergy.

9. “RVBwithintheConversationofStrategicManagement” RBV complements Industrial Org. • ΔEnvironmentΔ resources’ importance. • Dualityofmax.production,givenresourceconstraints, &min.resourcecosts,givendesiredproductionlevel. • Sustainabilityofrentsisfunctionof: • Isolatingmechanisms – firm level barriers to imitation; analogous to: • Entry barriers (industry level). • Mobility barriers (strategic group level). • Absent govt. intervention, isolatingmechanisms exist b.c. • Asset specificity & bounded rationality ( uniqueness & causal ambiguity ). • Chicago School questions RBV & Harvard School’s view of scale economies, advertising, and R&D as isolating mech.

10. “RVBwithintheConversationofStrategicManagement” Integration of RBV with … • Organizational economicsprovide insights on the implementation of diversification strategies. Endogenous theory of heterogeneity: • RBV +Organizational economics + Dynamic capabilities heterogeneity results from: Path dependencies, irreversible commitments, complementary/co-specialized assets, 1st-mover advantages, disequilibrium process of Schumpeterian competition. • RBV +Industrial Organization  heterogeneity results from: • Isolating mechanisms & uncertain imitability. • Unique managerialservicesfromunderlyingdistributionofabilities.* Time & attention - scarce resources (1-period eq. analyses neglect).

11. “RVBwithintheConversationofStrategicManagement” Integration of RBV with … • Strategic group analysis: • Can rare, inimitable resources be a source of sustained strategic group advantages? • Industry analysis: • Can rare, inimitable resources be a source of sustained strategic group advantages?