Theoretical Developments in Strategic Management: Research Opportunities

1. Theoretical Developments in Strategic Management:  Opportunities for Research ContributionsMichael A. HittTexas A&M UniversityFebruary 26, 2009Sponsored by theAgribusiness Economics and Management Section of theAgricultural & Applied Economics Association Starting at 12:00 p.m. EST Today*Technical and promotional assistance for this event provided by the Center for Food and Agricultural Business, Purdue University.

2. Michael A. Hitt • Distinguished Professor of Management, Joe B. Foster Chair in Business Leadership, Mays Business School of Texas A&M University • His research actively incorporates and tests dimensions of the Resource Based View (RBV) of the firm, institutional theory and organizational learning theory • He is the author or co-author of over 200 journal articles and 26 books • Former editor of the Academy of Management Journal. He is currently the co-editor of the Strategic Entrepreneurship Journal • In 2001, he received the Irwin Outstanding Educator Award and the Distinguished Service Award from the Academy of Management

3. Format for the Webinar • If you have any questions during the presentation, please type them into the chat window. • The presentation will be divided into two parts; after each part there will be a 10-15 minute Q&A section • In case of technical problems, this webinar is being archived. Information will be provided via email after the webinar with details on how to access the webinar archive.

4. New Theoretical Developments in Strategic Management: Opportunities for Research Contributions Michael A. Hitt Texas A&M University Webinar Agribusiness Economics & Management AAEA

5. Introduction: Premises and Assumptions Strategic Management Focuses on Firm-level Behavior The Primary Research Question Is: “Why Do Some Firms Perform Better than Others?” Thus, Strategic Management Assumes Heterogeneity among Firms Yet, there Are Forces for Homogeneity • Industry • Institutions The Goal Is to Create a Competitive Advantage—Providing Superior Value to Customers

6. The Resource Based View of the Firm Historical Bases of the RBV • Distinctive Competencies (Hrebiniak & Snow, 1982; Hitt & Ireland, 1985, 1986) • Ricardian Economics (Ricardo, 1817) • Penrosian Economics (Penrose, 1959) Penrose: Understand the Firm as: • Administrative Framework Coordinating Activities of Individuals and Groups • Bundle of Productive Resources Growth Opportunities Are a Function of the Administrative Framework and Use of the Resources Firms Are Heterogeneous within Industries

7. Integration of RBV in Strategic Management Wernerfelt (1984) Competitive Advantage based on Resources that a Firm Develops or Acquires to Implement its Product Market Strategy Rumelt (1984) Strategic Theory of the Firm Barney (1986) Strategic Factor Markets Resources a Firm Controls Are more likely Sources of Economic Rents than the Resources it Acquires

8. Seminal Base of the RBV Barney (1991, 2001) “Resources Are the Tangible and Intangible Assets that Firms Use to Conceive and Implement their Strategies” “Strategy is a Firm’s Theory of How it Can Gain Superior Performance in the Markets in which it Operates” (Barney & Arikan, 2001) Resources Are Immobile Resources Can Vary in Scarcity, Substitutability, Value and Imitability

9. Barney (1991) Resources: Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment Rare Capabilities that are possessed by few, if any, current or potential competitors Difficult to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Non-Substitutable Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

10. Resources: Tangible Intangible Capabilities:Bundles of Resources to Accomplish Tasks (e.g., R&D) (Hitt, Ireland & Hoskisson, 1995) Core Competencies:Capabilities that Firms Perform Especially Well (e.g., Creating Innovation—Apple) (Prahalad & Hamel, 1990) Temporary Advantage & Sustainability Socially Complex Causal Ambiguity Inimitable Dynamic Capabilities (Teece, Pisano & Shuen, 1997)

11. Managing Resources Human Capital as a Source of Firm Strategy and Value Creation (Hitt, Bierman, Shimizu & Kochhar, 2001; Hitt, Bierman, Uhlenbruck & Shimizu, 2006) Barney and Arikan (2001) Suggest that Earlier Work Took a “Remarkably Naïve View” of Implementation Issues For the Value to be Realized, Resources Have to be Managed Effectively (Bundled and Leveraged) (Sirmon, Hitt & Ireland, 2007) Sirmon, Gove and Hitt (2008) Isolated Managerial Effects on the Outcomes of Dyadic Competitive Contests • Some Resources Are More Flexible • Resource Acquisition Is Critical for Inflexible Resources • Managerial Bundling Actions with Flexible Resources Are Critical to Competitive Success

12. Managing Resources (cont’d) Adner & Helfat (2003) Dynamic Managerial Resources Asset Orchestration Sirmon & Hitt (2009) Asset Orchestration: Integrating Resource Investments with Resource Deployments (Strategy) Firm Performance Suffers when Managers Resource Investment Decisions Vary from the Norms of Rivals However, When the Resource Investments Support the Strategy Chosen, Deviation from Rivals Enhance Firm Performance

13. Institutional Theory Three Bases of Formal and Informal Institutions (Scott, 1995; 2005) Rules (Regulative) Norms (Normative) Culture (Cognitive) Meyer and Rowan (1977) Suggest that Institutions Establish the “Rules of the Game” for Organizations (Firms) North (1990) Suggests that Institutions Influence Economic Exchange. Laws and Regulations Direct Economic Transactions Others Argue that Physical Infrastructure, Human Capital and Economic Development Influence Firm Actions (Dunning, 1988; Porter, 1990; Ghemawat, 2001) So, When Firms Enter New Markets, They Search for and Try to Achieve Legitimacy (Dowling & Pfeffer, 1975; Tolbert & Zucker, 1983)

14. Institutional Environments Institutions Are Structures of Formal Rules and Informal Constraints that Govern Exchanges; They Create Order and Reduce Uncertainty in the Exchanges (North, 1991, 1994) Institutions Generally Reduce Transaction and Information Costs by Decreasing Uncertainty and Providing a Structure for Interactions (Hoskisson, Eden, Lau & Wright, 2000; Berrone & Gomez-Mejia, 2009; Heugens & Lander, 2009) The Varied Nature of Firm Strategies around the World Arise in Part from the Many Influences Acting on them. Among the Important Ones Are Institutional Forces (Hitt, Ahlstrom, Dacin, Levitas & Svobodina, 2004; Ahlstrom, Levitas, Hitt, Dacin & Zhu, 2009)

15. Institutional Environments Regulatory Institutions—Laws and Policies to Govern Behavior of Social Actors (Boddewyn, 1988; Dunning, 1994) Economic Institutions—Affect Supply and Demand for Capital Resources thereby Influencing Firm Behavior and Performance (Burdekin & Weidenmier, 2001; Orphanides, 2002; Lucas, 2003) Political Institutions—Discretion and Power a Government Maintains over Citizens (Matten & Crane, 2005) Institutional Infrastructure—Level and Quality of Physical Support Systems to Facilitate Business Communications and Movement of Goods and Services in the Economy (Khanna & Palepu, 1997, 1999)

16. Effects of Institutional Environments One of the Most Profound Business Phenomena of the 20th Century Was the International Expansion of Business Activities (Sapienza, Autio, George & Zahra, 2006) Arregle, Miller, Hitt and Beamish (2009)Found that Country and Region’s Institutional Environments Affect the Amount and Type of Foreign Direct Investments Made by Firms Zhu, Hitt, Eden and Tihanyi (2009)Found that a Country’s Formal Institutions Affect the Performance of Cross-Border Acquisitions Miller, Hitt, Webb, Batjargal and Tsui (2009)Found that a Country’s Formal Institutions Influence the Type of Social Networks Developed by Entrepreneurial Firms and the Extent to which they Achieve Growth

17. Other Theories Transaction Costs Hennart (2008): Transaction Costs Perspectives on Inter-Organizational Relations Brouthers and Hennart (2007): Boundaries of the Firm and Insights from International Entry Mode Research Organizational Learning Knowledge Is a Source of Competitive Advantage March (1991): Exploratory and Exploitative Learning M&As as a Source of Learning New Capabilities (Barkema & Schijven, 2008) Internationalization as a Source of Organizational Learning (Hitt, Hoskisson & Kim, 1997; Zahra, Ireland & Hitt, 2000) Internationalization, Exploratory Learning and Innovation (Miller & Hitt, 2009) Strategic Entrepreneurship Ireland, Hitt & Sirmon (2003); Strategic Entrepreneurship Journal

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