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STRATEGIC ASSETS AND ORGANIZATIONAL RENT Amit, R., & Schoemaker, P. J. H., SMJ, 1993 Youngsoo Kim, BADM 545 Fall 2013.

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Presentation on theme: "STRATEGIC ASSETS AND ORGANIZATIONAL RENT Amit, R., & Schoemaker, P. J. H., SMJ, 1993 Youngsoo Kim, BADM 545 Fall 2013."— Presentation transcript:

1 STRATEGIC ASSETS AND ORGANIZATIONAL RENT Amit, R., & Schoemaker, P. J. H., SMJ, 1993 Youngsoo Kim, BADM 545 Fall 2013

2 Overview  Why is our firm successful?  Firm-specific resources and capabilities  It was answered by…  Industrial Organization theory (IO)  Key Success Factors analysis  New perspectives  Resource Based View of the Firm (RBV)  Behavioral Decision Theory (BDT)  Link these two with traditional industry analysis framework

3 Literature Review  Vasconcellos and Hambrick (1989)  Empirically corroborate the effects of Key Success Factors (KSF) on an organization’s success  Limitations: (1) the industry as the unit of analysis, (2) empirical analysis is ex post, (3) well-known KSF is not KSF anymore  Ghemawat (1991)  KSF lacks identification, concreteness, generality, necessity  Limitations: uncertainty, complexity, conflict should be considered to account for discretionary managerial decisions  Alternative approaches  Combining IO, RBV, and BDT to explain a firm’s profitability

4 Resources and Capabilities (R&C)  Resources  Available factors that are owned or controlled by the firm  Knowhow to be traded (e.g. patents and licenses), financial / physical / human assets (e.g. property, plant, and equipment)  Capabilities  A firm’s capacity to deploy resources using organizational processes to effect a desired end  ‘Intermediate goods’ to enhance productivity of its resources  Information-based (e.g. brand names)  Functional areas (e.g. brand management in marketing)

5 Strategic Assets and Strategic Industry Factors  Strategic Assets (SA)  Set of difficult to trade and imitate, scarce, appropriable, and specialized resources and capabilities that present competitive advantages  Strategic Industry Factors (SIF)  Market-level resources and capabilities that are subject to market failures and prime determinants of economic rents  Relevant set of SIF changes and cannot be predicted ex ante  Managers’ problem: Identify SA for Organizational Rents  Via identifying current and possible sets of SIF and developing the corresponding existing and new SA

6 SA and SIF: Diagram

7 RBV and Organizational Rents  Resourced-Based View  Organizing a set of complementary and specialized resources and capabilities which are scarce, durable, not easily traded, and difficult to imitate may enable the firm to earn economic rents  Desired characteristics of the firm’s SA  Trade-off: specialization and robustness  Two kinds of specialization: limited use or unique use  Limited use reduces robustness, but unique use doesn’t  Firms develop specialized assets to enhance profits at the price of reduced flexibility in the face of Schumpeterian shocks

8 Challenges in SA decisions (1)  Uncertainty  Uncertainty and ambiguity make it probable that managers will hold diverse expectations about key market variables  Judgments and choices are likely to exhibit idiosyncratic risk aversions and ambiguity  Strategic assets choices under uncertainty may entail opposing biases whose net effects are hard to analyze  Complexity  To keep SA decisions within cognitive bounds, managers must often and extensively simplify and it leads to additional biases

9 Challenges in SA decisions (2)  Conflict  Any change in the existing bundle of SA may benefit some employees and hurt others  Organizations are complex social entities with their own inertia and constraints  Challenges and economic rents  This lack of solvability is a necessary condition for their strategic importance and positive rent potential

10 SA Development: Multidimensional View (1)  Difficulties in SA decisions underscores the need for a multidimensional approach  Industry Analysis  Focus on external competitive forces and market structure  Resource View  Factor market imperfections, leading to firm differences  Economic rents derive from firms’ unique R&C

11 SA Development: Multidimensional View (2)  Behavioral Decision Theory  Acknowledging bounded rationality under uncertainty and complexity  In psychology, various models and techniques exist to depict how people represent complex problem situations  Conflict and organization inertia in SA decisions  Principal-agent theory gives only rational treatment  TCE focuses on bounded rationality and complexity  Organizational theory has been more descriptive and process oriented to understand how firms control and coordinate

12 Contributions and Conclusions  SIF and SA as an alternative to KSF  Characterization of rent producing SA  Under which SA could produce organizational rents  Three challenges of SA decisions  Uncertainty, Complexity, Conflict  Multidimensional approach to SA decisions  IO, RBV, BDT  Uniqueness and low mobility of R&C stem from imperfect and hard to predict decisions by boundedly rational managers facing high uncertainty

13 Questions & Answers

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