Strategic Assets and Organizational Rent

1. Strategic Assets and Organizational Rent Raphael Amit & Paul Schoemaker – 1993, SMJ

2. Article overview • Conditions that lead to sustainable economic rents • Asymmetry between firm knowledge / resources • Examine links between… • Industry analysis framework • Resource-based view • Behavioral decision biases • Organizational implementation issues • “…Connect the concept of Strategic Industry Factors at the market level with the notion of Strategic Assets at the firm level.”

3. Explaining Decision Making 1.0 • Firm-specific resources and capabilities are used to explain a firm’s performance (uniqueness, customer-base, profits, etc.) • Ex ante decisions characterized by • Uncertainty • Environment • Competitor’s behavior • Customer preferences • Complexity • Environments & perceptions • Intra-organizational conflicts • Amongst managers / departments or divisions Difficult to model / articulate But clearly more than just firm-side resources & capabilities

4. Resource based View FIRM INDUSTRY Resources: - externally available & transferable - owned / controlled by firm - convertible Capabilities: - information based - firm specific - tangible or intangible - intermediate goods ? Strategic Assets

5. Industry View • Key Success Factors (Vasconcellos and Hambrick, 1989) - • By product of empirical, ex post test of an organization’s success as it depends on matching strengths with its environment • Firms with the highest KSF outperform their rivals • KSF Limitations • Considers industry as primary unit of analysis, where decisions are made my managers from a firm perspective • Looks at everything ex post, whereas decisions are made ex ante • KSF are relative between firms (i.e. they all can’t score well)

6. Industry View • Strategic Industry Factors – • Resources and capabilities which are dependant on market failures • Characterized by their proneness to market failures and asymmetric distributions across firms • Determined at the market level through interactions between competitors, customers, regulators, innovators, etc. • Allows for ex ante explanations for decision making

7. Firm and Industry Constructs FIRM INDUSTRY Resources: - externally available & transferable - owned / controlled by firm - convertible Capabilities: - information based - firm specific - tangible or intangible - intermediate goods Substitutes Customers Strategic Industry Factors: - industry specific - affect industry profitability - change & subject to ex ante uncertainty Rivals Entrants Strategic Assets Environmental Factors Suppliers

8. Explaining decision Making 2.0 • Managers must identify ‘strategic assets’ (resources and capabilities) in order to generate sustainable advantage and organizational rents • This involves identifying ‘strategic industry factors’ for the present and future • But what about Behavioral Decision Theory?

9. Behavioral Decision Theory • Managers must (subjectively / with bias)… • Anticipate possible futures • Assess competitive interactions • Overcome organizational inertia • BDT builds on the resource based view by acknowledging bounded rationality and differences in problem framing (or ‘variable rationality’) when dealing with • Uncertainty • Complexity • Conflict

10. Explaining Decision Making 3.0 • Standard ‘Strategic Assets’ theory fails to systematically lead to the creation of sustainable rents due to industry pressures • Strategic Industry Factors allow for a ‘multidimensional view’ to making decisions • Industry analysis • Resource perspective • Behavioral decision theory • This, in turn, allows for the development of resources and capabilities into sustainable organizational rents by taking market & knowledge imperfections and management subjectivity into account