September 30, 2016

Resourcing - Resource Management Related Issues

Obtaining the resource and Protecting the resource.

Step 1: Obtaining the resource

Traded  resources

Mathews (2003) identifies three steps in the process of strategic resource acquisition: search, acquisition and absorption. Mathews (2003)  principally discusses the external acquisition of technology and know-how and  absorption is the most demanding phase of the whole process and requires the firm to possess the capabilities to integrate the resource (new technology) with the firm’s existing resource base. Cohen and Levinthal (1990) suggest that the firm’s absorptive capacity is largely a function of the firm’s level of prior related knowledge. In consequence, even when markets for resources exist, incumbents are somehow protected from competition by firms that do not use the same resources (in particular technologies) because these firms will find it difficult to absorb the resources they might acquire on the markets.

To be source of competitive advantage for its buyer a resource traded on a market must generate rents that the firm is able to appropriate. This will be the case when the firm purchases the resource for less than its marginal productivity when used in combination with the firm’s stock of other resources (i.e. resource cospecialization, synergies and complementarities increases the resource marginal productivity). When the resource price is above the firm’s reservation price, the firm may turn to internal resource creation. The firm will be able to purchase the resource for less than its marginal productivity when it possesses superior information, has bargaining power on the resource supplier or is lucky.

The firm may choose to build the resource internally when no market for the resource exists
or when external resource acquisition is more costly than resource building. Mathews (2003),
who sees external resource acquisition as an important strategic option, compares the
potential competitive advantages and disadvantages of external sourcing with those of internal
resource building. He shows how the features of the resource accumulation process (time
compression diseconomies, asset mass efficiencies, asset stock interconnectedness, prevention
of asset erosion and causal ambiguity) may favor the internal development of resources. According to Dierickx and Cool (1989), some factors may favor the internal development of resources, but it may turn to be competitive disadvantages in some circumstances.

Competition to be first may be an important competition process when the firm that develops
first the resource can get it protected by property rights or when first-mover advantages are
significant (e.g.. learning and network effects).

Step 2: Protecting the resource

Once a firm has acquired or built a new resource, it deploys the resource in order to make it contribute to the firm’s competitive advantage. Sooner or later competitors in the product market perceive the change in the firm’s competitive advantage and wonder about its source. When competitors have been able to identify which new resource the firm has acquired or built they may consider imitating  the resource or the resource functionality through acquisition or internal building.

However, the firm’s resource or the bundle of resources in which it is integrated may be
protected by barriers to imitation. A barrier to imitation, also called isolating mechanism,
barrier to resource mobility and resource protection barrier, is a phenomenon that restrains or
obstructs imitation by competitors (Reed and Defillippi, 1990). The isolating mechanisms were discussed by Rumelt, 1984; Ghemawat, 1986; Dierickx and Cool, 1989. Some of these mechanisms are discussed here.  Causal ambiguity regarding the source(s) of competitive advantage prevents competitors from knowing exactly what to imitate and how to do it. Even if competitors have been able to identify the source(s) of the firm’s competitive advantage, imitation may be costly to carry on or to carry on rapidly. Isolating mechanisms which make imitation costly for competitors are superior
access to resources or customers (e.g. reputation and buyer switching costs), minimum efficient scale large relative to market demand, intangible barriers to imitation (causal ambiguity, dependence on historical circumstances and social complexity), and strategic fit. Imitation in the short-term may be costly because of barriers to imitation such as legal restrictions  (patents, copyrights, trademarks, and government control over enry into markets) and diseconomies of time compression. In addition to protecting the firm’s resources early-mover advantages are isolating mechanisms that increase the economic power of the first-mover’s competitive advantage over time. Besanko, Dranove and Shanley (2000) present four isolating mechanisms that fall under this category: learning curve, network externalities, reputation for quality in the sale of experience goods, and buyer switching costs. Imitation is a competition process. Barriers to imitation will have different height for
different competitors because of factors such as the competitors’ competitive aggressiveness

 All isolating mechanisms erode over time, the firm must invest to maintain the barriers that protect its resources.

Besanko, David, Dranove, David and Shanley, Mark, Economics of Strategy, 2000, USA,
John Wiley & Sons, Inc.

Cohen, Wesley and Levinthal, Daniel, “Absorptive Capacity: A New Perspective On
Learning And Innovation”, Administrative Science Quarterly, March 1990, Vol. 35, No. 1,

Dierickx, Ingemar and Cool, Karel, “Asset Stock Accumulation and Sustainability of
Competitive Advantage”, Management Science, 1989, Vol. 35, No. 12, 1504-1513.

Mathews, John, “Strategizing by firms in the presence of markets for resources”, Industrial
and Corporate Change, 2003, Vol. 12, No. 6, 1157-1193.

Reed, Richard and Defillippi, Robert, “Causal Ambiguity, Barriers to Imitation, and
Sustainable Competitive Advantage”, The Academy of Management Review, 1990, Vol.
15, No. 1, 88-102.

Rumelt, Richard, “Towards a strategic theory of the firm”, in Lamb, R., (Ed.), Competitive
Strategic Management, Prentice-Hall, 1984, Englewood Cliffs (NJ).

Rewrite once again.

No comments:

Post a Comment