How common are these exchange conditions?

At this point, a careful reader is probably asking: so what? All this discus- sion of the value of gaining access to a capability, the cost of creating a capability, and the cost of acquiring a firm to gain access to a capability is only relevant if the conditions described above actually exist in

Resources, market failures, and corporate diversification

In their very influential article, Prahalad and Hamel (1990) define a firm’s core competence as ‘the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.’ Such core competencies have many of the attributes of resources and capabilities described in Chapter 3 of this book: They

Diversification and the creation of core competencies

Much of this corporate diversification literature takes the existence of core competencies as given and asks, ‘What is the most efficient way to exploit the value of these core competencies?’ Diversification is one of the answers that is provided to this question. However, a logically prior question is also possible. That question is: ‘Where

A financial definition of relatedness

From a financial point of view, two firms are related when the net present value (NPV) of the cash flow of the combination of these firms is greater than the sum of the NPVs of the cash flows of these firms acting indepen- dently (Copeland and Weston 1983): NPV (A + B) > NPV

Competitive parity for bidding firms from acquiring related targets

Strategic relatedness between bidding and target firms, as defined in equa- tion (10.1), is not a sufficient condition for the shareholders of bidding firms to earn competitive advantages from mergers or acquisitions (Jensen and Ruback 1983; Lubatkin 1983). If the value of the combined cash flow of target and bidding firms is publicly known,

Superior returns to bidding firms from acquiring related targets

Thus the existence of bidder and target relatedness, per se, is not a source of superior returns to the shareholders of bidding firms. However, if a market for corporate control is imperfectly competitive, then bidding firms may be able to obtain a superior return for shareholders from imple- menting merger and acquisition strategies. Three

Implications of Resource-based theory for research on mergers and acquisitions

1. Implications for research on mergers and acquisitions This discussion has several important implications for research on merg- ers and acquisitions. First, the analysis suggests that much of the work on mergers and acquisitions has been conducted at too aggregate a level to inform managers of bidding firms when these strategies will generate superior

Testing resource-based theory

Resource-based theory makes a few central assumptions about the nature of resources and capabilities, their impact on a firm’s performance, and the sustainability of these performance differences. These assumptions help define the kinds of empirical work that is required to test resource-based theory. 1. THE QUESTION OF VALUE It is now widely understood that

Examples of resource-based empirical research

These principles about testing resource-based research have been applied in a wide variety of disciplines, not just strategic management. The remain- der of this chapter describes some of these tests. 1. RESOURCE-BASED RESEARCH IN STRATEGIC MANAGEMENT Not surprisingly, to date, strategic management scholars have conducted the most empirical tests of resource-based logic. These tests

Exemplars of resource-based research

Three of the articles cited above can be seen as exemplars of how resource- based research can be done. Consider, for example, Henderson and Cock- burn’s examination (1994) of the impact of ‘component competence’ and architectural competence on the research productivity of pharmaceutical firms. Henderson and Cockburn measure the value of these competencies by

The future of resource-based theory: Issues that are no longer important

In the development of resource-based theory, a variety of issues have been raised and addressed. While many of these questions have been important in the refinement of this theory, and, in fact, are reflected in the summary of resource-based theory presented in this book, in our view, some of these questions are very unlikely

Extending resource-based theory

While resource-based theory has been developed and extended broadly, there may still be further opportunities to extend the theory in some mean- ingful and important ways. Several of these possible extensions are noted here. However, how resource-based theory can be extended ultimately depends on scholarly creativity and innovativeness. What turns out to be the

Expanding resource-based theory

Additional empirical work and reformulating resource-based theory in mathematical terms are almost inevitable extensions of resource-based theory over the next several years. Possible expansions of resource-based theory, that is, efforts to take the theory where it has yet to go, are more speculative in nature. However, in this speculative vein, several possi- ble expansions

Introduction to (Sustainable) Enterprise Performance

Recent scholarship stresses that business enterprises consist of port- folios of idiosyncratic and difficult-to-trade assets and competencies (“resources”).1 Within this framework, competitive advantage can flow at a point in time from the ownership of scarce but relevant and difficult-to-imitate assets, especially know-how. However, in fast- moving business environments open to global competition, and characterized

Sensing (and Shaping) Opportunities and Threats

1. Nature of the Capability  In fast-paced, globally competitive environments, consumer needs, technological opportunities, and competitor activity are constantly in a state of flux. Opportunities open up for both newcomers and incumbents, putting the profit streams of incumbent enterprises at risk. As discussed in Teece et al. (1997), some emerging marketplace trajectories are easily

Seizing Opportunities

Nature of the Capability Once a  new  (technological  or  market)  opportunity  is  sensed, it must be addressed through new products,  processes,  or  ser- vices. This almost always  requires  investments  in  development and commercialization activity. Multiple (competing) investment paths are possible, at least early on. The quintessential example is the automobile industry, where in the

Microfoundations

1. Selecting Product Architectures and Business Models  The design and performance specification of products, and the business model employed, all help define the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. They reflect management’s hypothesis about what customers  want and how

Managing Threats and Reconfiguration

1. Nature  The successful identification and calibration of technological and market opportunities, the judicious selection of technologies and product attributes, the design of business models, and the com- mitment of (financial) resources to investment opportunities can lead to enterprise growth and profitability. Profitable growth will lead to the augmentation of enterprise-level resources and assets.

Microfoundations

1. Achieving Decentralization and Near Decomposability  Every system comprises subsystems (elements) that are to some extent interdependent and independent. However, as discussed earlier, enterprises are unlikely  to  be  continuously  responsive to customers and new technologies absent a high degree of decentralization. With decentralized decision making, different managers observe different information and control different deci-

Dynamic Capabilities, “Orchestration” Skills, and Competitive Advantage

The general framework advanced here sees dynamic capabilities as the foundation of enterprise-level competitive advantage in regimes of rapid (technological) change. The framework indicates that the extent to which an enterprise develops and employs superior (nonimitable) dynamic capabilities will determine the nature and amount of intangible assets it will create and/or assemble and the