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 examine sev- eral important assertions derived from the theory, including: (a) that firm effects should be more important than industry effects in deter- mining firm performance, (b) that valuable, rare, and costly to imitate resources should have a more positive impact on firm performance than other kinds of resources, (c ) that corporate strategies (including mergers, acquisitions, and diversification) that exploit valuable, rare, and costly to imitate resources should generate greater returns than corporate strategies that exploit other kinds of resources, (d) that international strategies that exploit valuable, rare, and costly to imitate resources will outperform inter- national strategies that exploit other kinds of resources, (e) that strategic alliances that exploit valuable, rare, and costly to imitate resources will outperform other kinds of alliances, and ( f ) that there cannot be a ‘rule for riches’ derived from strategic management theory.
Industry versus firm effects on firm performance
Resource-based theory suggests that firm effects should have a larger impact on firm performance than industry effects. The following research examines the relative impact of industry attributes and firm attributes on performance.
Initial work done by Schmalensee (1985) and Wernerfelt and Mont- gomery (1988) on industry versus firm effects in explaining variance in firm performance was inconsistent with resource-based expectations. In particular, this work suggested that industry effects were more important than firm effects. However, in 1991, Rumelt published an article that con- tradicted these earlier findings. Rumelt (1991) argued that previous work had applied the wrong methods or had used inadequate data to evaluate the relative impact of industry and firm effects on firm performance. After solving these problems, Rumelt’s results were consistent with resource- based expectations. Several authors have replicated Rumelt’s results (e.g. Brush and Bromiley 1997; McGahan and Porter 1997; Mauri and Michaels 1998). Some of these are critical of Rumelt’s findings, but primarily in terms of the small corporate effect that Rumelt (1991) identified (Brush and Bromiley 1997). However, all these replications continue to document that firm effects are a more important determinant of firm performance than industry effects, although the relative size of these effects can vary by industry.
Hansen and Wernerfelt (1989) found that firm factors explained about twice as much variance in profit rates as economic factors. While Collis and Montgomery (1995) reported that where a company chooses to play will determine its profitability as much as its resources. According to Karago- zoglu and Lindell (1998), motives behind internationalization of small and medium-sized technology based firms can be explained more with firm- specific characteristics rather than uniform patterns.
Other specific research on firm versus industry effects includes the influ- ence of environmental conditions at founding on mortality rates (Swami- nathan 1996), the impact of operating and competitive industry experi- ence (Ingram and Baum 1997), and societal impacts on the acquisition and creation of competencies (Marcus and Geffen 1998). Nickerson and Silverman (1998) studied the buffering effect of high profitability in the for hire trucking industry. Makadok (1998) examined sustainability of first-mover and early-mover advantages in an industry with low barriers to entry and imitation. In addition, proactive environmental strategy and the development of competitively valuable organizational capabilities were considered by Sharma and Vredenburg (1998), and the strategic impor- tance of focusing on being different was studied by Deephouse (1999).
Resources and firm performance
Resource-based theory suggests that valuable, rare, and costly to imitate resources can be sources of competitive advantage. This research examines a variety of different resources that have these attributes to varying degrees and examines their impact on performance.
The bulk of empirical resource-based work in the field of strategic man- agement has focused on identifying resources that have the attributes that resource-based theory predicts will be important for firm performance and then examining whether the predicted performance effects exist. The per- formance effects of a wide variety of different types of firm resources have been examined, including a firm’s history (e.g. Collis 1991; Barnett, Greve, and Park 1994; Rao 1994), employee know-how (e.g. Hall 1992, 1993; Glunk and Wilderom 1998), its integrative capability (e.g. Henderson and Cockburn 1994), its innovativeness (e.g. Bates and Flynn 1995; McGrath et al. 1996), its culture (e.g. Moingeon et al. 1998), and its network position (e.g. Baum and Berta 1999; McEvily and Zaheer 1999), to name just a few. A wide variety of different methods have been used to examine the performance effects of firm resources including large sample surveys, small sample surveys, case studies, and simulations. Overall, results are consis- tent with resource-based expectations.
There are, however, a few studies that generate results that are inconsis- tent with resource-based expectations. For example, Poppo and Zenger’s analysis (1995) of vertical integration is more consistent with TCE than resource-based theory. Also, Sherer, Rogovsky, and Wright (1998) do sug- gest that compensation policy can have an effect on cooperation among a firm’s employees, but that environmental conditions are a more important determinant of this cooperation. These and similar results suggest that the conditions under which different resources are and are not valuable requires further development in resource-based theory (Priem and Butler 2001).
Further specific research on the impact of resources and capabilities on firm performance includes the importance of the firm-specific knowledge environment on process development (Pisano 1994), comprehension and deftness within competence developing processes (McGrath, MacMillan, and Venkataraman 1995), codifying and communicating manufacturing capabilities (Zander and Kogut 1995), and contingent combinations of firm-specific resources (Brush and Artz 1999). Miller and Shamsie (1996), in their award-winning Strategic Management Journal paper, examined the impacts of property-based and knowledge-based resources on perfor- mance in the US film industry. Other knowledge-based research includes studies of stocks and flows of organizational knowledge (De Carolis and Deeds 1999), the negative impacts of nonlocal learning (Greve 1999), integration of knowledge in product development (Hoopes and Postrel 1999), the transfer of intellectual property from universities to business (Stevens and Bagby 1999), and team-based tacit knowledge in the National Basketball Association (Berman, Down, and Hill 2002).
The role of firm resources and organizational attributes in determin- ing entry timing was examined by Schoenecker and Cooper (1998). Ruiz-Navarro (1998) focused on identification and acquisition of com- plementary capabilities for a turnaround, and Maskell (1998) consid- ered agglomeration of resources in low-tech manufacturing firms. Other researchers evaluated the performance impacts of TQM programs (Reed, Lemark, and Montgomery 1996), appropriating and sustaining rents from human capital (Maijoor and Wittrloostuijin 1996), top management and organizational capital (Glunk and Wilderom 1998), organizational imped- iments to innovation (Dougherty and Hardy 1996), and modes of interor- ganizational imitation (Haunschild and Miner 1997). The integration of environmental management concerns in strategic planning processes was studied by Judge and Douglas (1998). Further resources and capabilities that have been investigated include relational capabilities (Lorenzoni and Lipparini 1999), corporate governance (McGuire 2000), localized learn- ing (Maskell and Malmberg 1999), age dependence (Henderson 1999), isolating mechanisms (Oktemgil, Greenley, and Broderick 2000), loca- tion of airlines in their rival’s hub markets (Gimeno 1999), technological competence and imitability (De Carolis 2003), and managerial foresight associated with patenting breakthrough innovations (Ahuja, Coff, and Lee 2005). While Yeoh and Roth (1999) investigated potential sources of sustained competitive advantage in the pharmaceutical industry, Pettus (2001) identified resource development paths in the deregulated trucking industry. Douglas and Ryman (2003) found that service-related strategic competencies were positively related to financial performance in the hos- pital industry. Hansen, Perry, and Reese (2004) used a Bayesian hierarchical methodology to examine the relationship between administrative decisions and economic performance over time.
Resources and corporate strategies
Resource-based logic suggests that both tangible and intangible resources can be important in corporate strategies, but only valuable, rare, costly to imitate, and nonsubstitutable resources can be a source of sustained competitive advantage for firms implementing merger, acquisition, and diversification corporate strategies (as discussed in Chapters 9 and 10).
The impact of resources on corporate strategies and competitive advan- tage has also been examined empirically. One of the most important findings in this area is that SIC-code based measures of strategic relatedness must be augmented by resource-based measures to capture the full perfor- mance effects of diversification strategies (e.g. Robins and Wiersema 1995; Farjoun 1998). Moreover, only when the basis of a diversification strategy is valuable, rare, and costly to imitate can firms expect such a strategy to generate superior firm performance (Markides and Williamson 1996). Moreover, while finance scholars have identified an important discount in the value of firms when they begin to diversify (Lang and Stulz 1994), resource-based theorists have shown that this discount either does not exist or is consistent with shareholder’s interests when the characteristics of the resources on which a firm’s diversification strategies are based are accounted for (Miller 2000, 2004). Similar results have been found in studies on the return to mergers and acquisitions (e.g. Coff 1999).
Further specific research on the impact of resources on corporate diver- sification strategies includes differences in resource allocations between target and acquiring firms (Harrison et al. 1991), consistency in resource allocations (Harrison, Hall, and Nargundkar 1993), firm-specific factors in multinational performance (Tallman 1991), firm-specific and product- specific characteristics of service firms (Ingham and Thompson 1995), and creating firm-specific advantage in a multinational subsidiary (Birkinshaw, Hood, and Jonsson 1998). Resource deployment was examined in acqui- sitions in declining industries (Anand and Singh 1997), following hori- zontal acquisitions (Capron, Dussauge, and Mitchell 1998), in relation to asset divestiture (Capron 1999), and market entry mode (Chatterjee and Singh 1999). In addition, Silverman studied technological resources and diversification decisions (Silverman 1999), and Gupta and Govindarajan (2000) examined subsidiary knowledge stocks and transmission channels. Miller (2004) found that the diversification discount observed ex post can be explained in part by firms having lower levels of technological resources ex ante. Carow, Heron, and Saxton (2004) examined early-mover advan- tages in acquisitions and found that strategic pioneers experience posi- tive acquisition announcement returns and outperform other acquirers in acquisition waves in terms of long-term stock price as well. Shamsie, Phelps, and Kuperman (2004) looked at performance differences among late entrants in fifteen different new product categories of household elec- trical equipment. They found that the ability of a late mover to penetrate the market is strongly linked to its own resources (size and relevance) and its own strategy.
International strategies
Resource-based work on international strategies is a logical extension of the work on diversification strategies cited earlier. However, some attributes of resource-based arguments are highlighted in an international context. For example, this work shows that a firm’s resources reflect its country of origin and that these country differences are long lasting (e.g. Karnoe 1995; Jarvenpaa and Leidner 1999). This work also examines the role of different forms of governance in realizing cross-border economies of scope and suggests that the tacitness of the resources used to realize these economies is an important determinant of governance choices (e.g. Zou and Ozsomer 1999).
Further specific research on the role of resources in an interna- tional context includes transferring idiosyncratic technologies (Kogut and Zander 1992), international diversification (Hitt, Hoskisson, and Kim 1997; Geringer, Tallman, and Olsen 2000), top management team interna- tional business advice network density (Athanassiou and Nigh 1999), the intensity and diversity of host country experience (Luo and Peng 1999), and expatriate staffing of subsidiaries (Gong 2003). Research on Japanese firms examined product-specific competencies and market size (Arora and Gambardella 1997), knowledge diffusion (Appleyard 1996), proprietary assets (Delios and Beamish 1999), and firm strategies and the environment (Kotha and Nair 1995). In addition, Mutinelli and Piscitello (1998) studied skills and entry mode of Italian multinationals, Baldauf, Cravens, and Wagner (2000) examined export performance in Austria, and Nachum and Rolle (1999) considered firm-specific characteristics of advertising agencies in the UK, France, and the United States. The impact of the international experience of CEOs on the degree of internationalization and on financial performance was also investigated by Daily, Certo, and Dalton (2000). Financial implications of specificity and opacity of strategic resources were studied using Spanish manufacturing firms (Vicente-Lorente 2001), and RBV-driven variables were found to explain share values for Czech firms in the privatization period when the capitalistic economy was emerging (Makhija 2003).
Resources and strategic alliances
Closely related to resource-based international research is work that focuses on the impact of resources of strategic alliances. In particular, this work focuses on how firms can use alliances to either exploit their preexisting resources or develop new resources. This latter work integrates insights from research on learning and absorptive capacity with resource- based logic (e.g. Lane and Lubatkin 1998; Shenkar and Li 1999; Dussauge, Garrette, and Mitchell 2000).
Further specific research on the role of resources in determining the performance of strategic alliances includes functional expertise of man- agement teams in high-tech ventures (McGee, Dowling, and Megginson 1995), R&D skill sharing (Sakakibara 1997), firm-specific technological capabilities (Mowery, Oxley, and Silverman 1998), technical education and experience of executives (Tyler and Steensma 1998), and intellectual prop- erty rights (McGaughey, Liesch, and Poulson 2000). Combs and Ketchen (1999) contrasted resource-based and organizational economics factors on interfirm cooperation, while Gulati (1999) examined the impact of prior alliances on decisions to enter new alliances. In addition, research on international strategic alliances focused on multinational alliances in China (Luo 1999), and international strategic partner selection (Hitt et al. 2000). Park, Mezias, and Song (2004) found that alliances of e-commerce firms have a positive effect on firm value in an emerging business sector.
Rules for riches
Finally, resource-based logic suggests that it is not possible to deduce rules for riches from strategic management theories, as persistent superior per- formance depends on valuable, rare, and costly to imitate resources. Rules for riches are rules that any firm can apply to gain sustained competitive advantages and economic rents. In this empirical work, the impossibility of deriving rules from riches from strategic management theory is exam- ined in the context of the difficulty of sustaining competitive advantages through the application of well-known, widely understood, managerial practices. These include the use of reengineering (Walston, Burns, and Kimberly 2000), learning curve logic (Lieberman 1982, 1987), the structure of training programs (Segev, Raveh, and Farjoun 1999), formal long-range planning (Brews and Hunt 1999), and patenting procedures (Mansfield, Schwartz, and Wagner 1981; Mansfield 1985; Schankerman 1998). Difficul- ties of focusing on a few competencies were investigated by Tripsas (1997) and Miller and Toulouse (1998). In addition, Makadok (1999) found that money-market mutual fund families with larger marginal returns to increasing their scale subsequently do gain market share at the expense of their competitors, but this effect diminishes over time, possibly due to imitation.
2. RESOURCE-BASED RESEARCH IN OTHER MANAGEMENT DISCIPLINES
While the bulk of empirical research on resource-based theory focuses on strategic management implications of the theory, this theory has had implications in related fields as well. Among the most important of these is HRM (as discussed in Chapter 6). Several other disciplines have begun to explore the empirical implications of resource-based logic. These include marketing, entrepreneurship, management information systems (MIS), operations management, and technology and innovation manage- ment. While research approaches vary by discipline, in all these differ- ent settings, research examines how various kinds of functional resources affect firm performance in ways that are consistent with resource-based logic.
Human resource management
Resource-based logic suggests that socially complex resources and capabili- ties should be among the most important sources of sustained competitive advantages for firms. Human resources are examples of socially complex resources and thus it is not surprising that HR theorists have drawn heavily on resource-based logic to examine the impact of human resources and HR policies on firm performance (Wright and MacMahan 1992; Wright, MacMahan, and McWilliams 1994; Barney and Wright 1998).
Some of the earliest work in this area focused on the impact of human resources on cost and quality in manufacturing (Womack, Jones, and Roos 1990; MacDuffie 1995). More recently, this work has focused on various bundles of HR practices that can have the effect of creating significant firm- specific human capital investments (e.g. Huselid and Becker 1997; Harel and Tzafrir 1999) and improving firm performance (Delaney and Huselid 1996). While some of this work has been criticized (Becker and Gerhart 1996), there is little doubt that resource-based logic has had an important impact on human resources research.
Further specific research on human resources includes aligning HRM practices to formulated strategy (Schuler and MacMillan 1984), aligning human capital enhancing HR systems and manufacturing strategies (Youndt et al. 1996), and integrating the HR function with strategic decision-making (Bennet, Ketchen, and Schultz 1998). Interestingly, Gupta and Govindarajan (1984) found no consistent managerial characteristics that would guarantee effective strategy implementation in multinationals. Yet Richard (2000) found that cultural diversity adds value and contributes to competitive advantage in the right context.
Huselid (1995) observed that investment in high performance work practices reflected in lower employee turnover and greater productivity and financial performance. Other studies examined HR management effective- ness (Huselid, Jackson, and Schuler 1997), HR involvement in strategy and perception of HR effectiveness (Wright et al. 1998), and the links between strong employee commitment and generic strategies (Lee and Miller 1999). Koch and McGrath (1996) examined labor productivity in capital intensive firms, while Delery and Doty (1996) considered universal, contingency, and configurational HR performance expectations. Both hard and soft versions of HRM based on theories X and Y were investigated by Truss et al. (1997).
Welbourne and Andrews (1996) examined the impact of HR value and organization-based rewards on IPO performance; Klaas, McClendon, and Gainey (1999) considered idiosyncratic HR practices moderating the degree of outsourcing and perceived benefits; and Gainey and Klaas (2003) looked at the impact of outsourcing of training and development on client satisfaction. In addition, the effects of human capital and social capital on firm dissolution were studied by Pennings, Lee, and van Witteloostuijn (1998). The effects of human capital on the performance of large US law firms were demonstrated by Hitt et al. (2001). Hatch and Dyer (2004) examined human capital as a source of sustainable competitive advantage in semiconductor manufacturing firms. Kor and Leblebici (2005) tested the impacts of interdependencies between human capital deployment, development, and diversification strategies on performance in professional service firms. Employers’ participation in school-to-work programs was shown to enable the development of firm-specific human capital capabili- ties by Linnehan and De Carolis (2005).
Internationally focused research includes HR practices, HR outcomes, and firm performance in Russia (Fey, Bjorkman, and Pavlovskaya 2000), HR practices influencing high mobility of managers in Hong Kong (Field, Chan, and Akhtar 2000), and strategy–HRM interaction impacts on per- formance in Singapore firms (Khatri 2000).
Marketing
The role of marketing resources as sources of competitive advan- tage and their impacts on firm performance has been investigated by many researchers. Specific marketing resources studied include market- ing resources and capabilities from foreign direct investments (Hooley et al. 1996), market based and marketing support resources (Hooley et al. 2003), technical knowledge assets enabling bundled products (Ghingold and Johnson 1997), marketing mix reactions to a new entrant (Gatignon, Robertson, and Fein 1997), market knowledge competence (Li and Calantone 1998), industrial distribution channels (Johnson 1999), mar- keting strategy-making process (Menon et al. 1999), corporate citizenship in internal and external marketing (Maignan, Ferrell, and Hult 1999), redeployment of marketing assets after acquisitions (Capron and Hulland 1999), media reputation (Deephouse 2000), and market orientation (Hult and Ketchen 2001). In addition, Hult, Ketchen, and Slater (2004) exam- ined market orientation using both cultural and information processing elements and found that both approaches contribute to explaining per- formance, but their effects are mediated by organizational responsiveness. In a study of market dominance, Shamsie (2003) found that advantages from reputation are tied to specific industry characteristics, for example industries with consumer products that are purchased frequently and have lower prices.
Entrepreneurship
Resource-based logic has also been applied empirically in the field of entrepreneurship. Chrisman (1999) examined the resources and capabil- ities influencing start-ups and regional differences in start-up propensities, while Dean, Turner, and Bamford (1997) considered the factors assisting the postentry phase for new firms. Other studies of small and entrepre- neurial firms have focused on basic capabilities (Rangone 1999), as well as firm-specific resources (Borch, Huse, and Senneseth 1999). The impact of resources on performance of small service and retail firms was examined by Brush and Chaganti (1999), and Michael and Robbins (1998) focused on retrenchment among small manufacturing firms during recession. In addition, dynamic capabilities and new product development in high tech- nology ventures were studied by Deeds, De Carolis, and Coombs (2000) in their empirical analysis of biotechnology firms. Consistent with resource- based theory, Choi and Shepherd (2004) found that entrepreneurs were more likely to exploit opportunities when they perceived more knowl- edge of customer demand for the product, more fully developed enabling technologies, greater managerial capability, and greater stakeholder support.
Management information systems
Strategic roles for resource and capabilities that are based on IT and MIS have been considered by many IT–MIS scholars (as discussed in Chapter 7). Among this research, there have been some empirical studies which have applied resource-based logic. Dent-Micallef and Powell (1998) found that IT investment per se had no effect on performance in the retail service industry. However, when combined with intangible, difficult-to-imitate complementary resources, such as a flexible culture, strategic planning, IT- integration, and supplier relationships, retail firms gained a competitive advantage. Similarly, Ray (2000), in his study of customer service processes in North American insurance firms, found that firm-specific managerial IT knowledge can be a source of sustainable competitive advantage (fur- ther explained in Ray, Barney, and Muhanna 2004; Ray, Muhanna, and Barney 2005). Bharadwaj (2000) found that firms with high IT capabil- ity outperformed others in a matched sample group in his project that focused on firm-specific IT resources including IT infrastructure, human IT resources, and IT-enabled intangibles (such as customer orientation, knowledge assets, and synergy). Li and Ye (1999) found that IT investments linked to managerial, strategic, and environmental factors had a stronger positive effect on financial performance. In addition, Broadbent, Weill, and Neo (1999) examined IT infrastructure capabilities of firms linked to their strategic context. Tippens and Sohi (2003) found that organizational learning plays a significant role in mediating the effects of IT competency (comprising IT knowledge, IT operations, and IT objects) on firm perfor- mance.
Operations management
Resource-based logic has also been applied empirically within the field of operations management, with the same pattern of results as discussed above with IT/MIS research. Powell (1995) found that TQM tools and tech- niques do not generally produce competitive advantage, but certain tacit, behavioral, imperfectly imitable features such as an open culture, employee empowerment, and executive commitment can be a source of competitive advantage. Knights and McNabe (1997) also examined quality focusing on measurement issues. The alignment between best practices, processes, and manufacturing strategy was investigated by Morita and Flynn (1997). In addition, Klassen and Whybark (1999) studied the pattern of investments in environmental technologies, manufacturing strategy, and performance in the furniture industry. They found that significantly better performance was achieved where management invested in the environmental technology portfolio and allocated resources toward pollution prevention technolo- gies. Hult, Ketchen, and Nichols (2002) examined the effects of supply chain cultural competitiveness as a strategic resource which can improve supply chain outcomes such as on order fulfillment cycle time. Finally, in their study of manufacturing performance, Schroeder, Bates, and Junt- tila (2002) focused on three manufacturing capabilities (internal learning, external learning, and proprietary processes and equipment) and their findings were consistent with resource-based theory.
Technology and innovation management
Resource-based logic has also been applied empirically within technol- ogy and innovation management. Key findings here are consistent with resource-based theory and research. In their study of the acquisition of medical technological innovation and hospital performance, Irwin, Hoffman, and Lamont (1998) found that the relationship is strongest when these technological innovations are valuable, rare, and imperfectly imitable. Similarly, Stuart and Podolny (1996) found that the evolution of technological positions is derived from firm-specific ability to innovate in particular technological subfields that partly shapes their competitive success. Intangible resources and capabilities were the main determinants of profitability for Spanish firms engaged in internal R&D (Del Canto and Gonzales, 1999). Further, Helfat (1997) found that dynamic capabilities enabled firms to stay competitive through changing market conditions in her study of knowledge and asset complementarity in R&D processes.
Other specific research within technology and innovation management included projects on optimal patent policy and innovation (Chang 1995), environmental pollution and competitive advantage in industrial goods manufacturing firms (Morris 1997), and knowledge transfer between cus- tomers and suppliers in industrial districts (Albino, Garavelli, and Schiuma 1999). Dutta, Narasimhan, and Rajiv (2005) used stochastic frontier esti- mation to demonstrate heterogeneity in R&D capabilities in the semicon- ductor industry.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.