1. Joseph T. Mahoney & J Rajendran Pandian
The Resource-based View within the Conversation of Strategic Management
Joseph T. Mahoney & J Rajendran Pandian
Strategic Management Journal

2. The concept of market frictions is critical for developing a resource-based theory of the firm

3. RBV Conversation
Economic rents
Distinctive competence is a function of the resources that a firm possesses at any point in time
Diversification strategy and resources
Resource-based theory within the conversation of strategy
Resource-based theory within organizational economics
RBV conversation
Limits to growth
Motivation for growth
Direction of growth
Diversification and growth
Resource-based theory within the conversation of industrial organization

4. RBV Conversation
Positive agency theory
Property rights theory
Transaction cost theory
Evolutionary Economics
Resource-based theory within the conversation of strategy
Origin, function, evolution, and sustainability of the “institutions of capitalism”
Resource-based theory within the organizational economics
RBV conversation
RBV is concerned with a specific institution the rent-generating, heterogeneous firm and its origin, function, evolution, and sustainability
Resource-based theory within the conversation of industrial organization

5. RBV Conversation
Resource-based theory within the conversation of strategy
Resource-based theory within the organizational economics
RBV conversation
Resource-based theory within the conversation of industrial organization
Sustainability of rents
Isolating mechanisms

6. RBV Conversation
Rent
Source
Ricardian rents
Ownership of valuable and scarce resources (Ricardo, 1817)
Monopoly rents
Government protection or by collusive arrangement when barriers to potential competitors are high (Bain, 1968)
Entrepreneurial/Schumpeterian rents
Risk-taking and entrepreneurial insight in an uncertain/complex environment (Cooper, Gimeno-Gascon, and Woo, 1991; Rumelt, 1987; Schumpeter, 1934) – creative destruction due to diffusion of knowledge (Schumpeter, 1950)
Quasi-rents
The difference between the first-best and the second-best use value of a resource (Klein, Crawford, and Alchian, 1978)
Differences among firms in terms of information, luck, and/or capabilities enable the firm to generate economic rents.

7. RBV Conversation
Distinctive competence is a function of the resource that a firm possesses at any point in time
Dominant logic  economic rents and services yielded
Flows  Stocks (Dierickx and Cool, 1989)
Bathtub metaphor: e.g., advertising
Path dependencies (Teece, Pisano, and Shuen, 1997)  history matters

8. The Bathtub Metaphor Exhibit 4.7
SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive advantage,” Management Science 35: 1504–1513.

9. RBV Conversation Diversification strategy and resources
Limits to growth
Managerial constraint, “Penrose effect”(Marris, 1963): fast-growing firms in one period tend to experience slower growth in the next period (Penrose, 1959)
A higher interdependence among resources will lower the firm’s growth rate (Robinson, 1932)
A resource-based motivation for growth
The direction of growth
The firm’s direction of diversification is due to the nature of its available resources and the market opportunities in the environment
Path dependencies (Teece, Pisano and Shuen, 1997): Where a firm can go is a function of its current position(available resource) and the path ahead (market opportunities)
Diversification and performance

10. Growth & Diversification
RBV Conversation
A resource-based motivation for growth
Penrose’s “Virtuous Circle” (Penrose, 1959)  specialization induces diversification
Growth & Diversification
Unused productive services (Penrose, 1959)
Excess capacity (Caves, 1980; Chandler, 1962)
Unused human expertise (Farjoun, 1991)
Fully utilize resources
Specialization

11. Diversification and performance
Whether any strategy that the firm utilizes makes a difference?
Empirical evidence (e.g. Cubbin and Geroski, 1987; Duhaime and Stimpert, 1991)
What is the nature of these firm effects?
Two important empirical studies (Montgomery and Wernerfelt, 1988; Wernerfelt and Montgomery, 1988) suggest that the resource-based theory of the firm provides a theoretical underpinning for explaining and predicting significant firm effects.
Related diversification results in higher rents to the acquiring firm relative to unrelated diversification because of the greater likelihood of synergy (efficiency or market power) (Chatterjee, 1990a)
Contestable synergy  involves a combination of resources that create value but are competitively available, and corresponds to Barney’s (1986c) perfectly competitive factor markets.
Idiosyncratic bilateral synergy  defined as the enhanced value that is idiosyncratic to the combined resources of the acquiring and the target firm.
Financial synergy to be achieved with unrelated diversification is more likely to be contestable synergy while related diversification offers greater potential for idiosyncratic bilateral synergy.

12. RBV within the Conversation of Organizational Economics
The resource deployment of the firm is influenced by agency costs (Castanias and Helfat, 1991)
Agency Theory
Delineated property rights make resources valuable and as resources become more valuable, property rights become more precise (Libecap, 1989)
Property Rights Theory
Resource-based theory is linked to
Resource combinations are influenced by transaction cost economizing (Teece, 1982; Williamson, 1991b)
Transaction Cost Theory
Sustainable advantage is a history (path) dependent process (Arthur, 1988; Barney, 1991; Nelson and Winer, 1982)
Evolutionary Economics

13. RBV within the Conversation of Industrial Organization
The essential theoretical concept for explaining the sustainability of rents in the resource-based framework is “isolating mechanisms”(Rumelt, 1984)
Sustainability
entry barriers (industry level) / isolating mechanisms (firm level)/mobility barriers (strategy group level) (Caves and Porter, 1977; McGee and Thomas, 1986)
RBV uses a central concept of the Structure-Strategy-Performance paradigm

17. RBV Conversation The generalizable insight:
Absent government intervention, isolating mechanisms exist because of asset specificity and bounded rationality (Williamson, 1979)
Put differently, isolating mechanisms are the result of the rich connections between uniqueness and causal ambiguity (Lippman and Rumelt, 1982)

18. Conclusion Some value-added areas are suggested:
Integrating the diversification literature with the organizational economics literature
The deployment of endogenous theory of heterogeneity
Integration of RBV with strategic group analysis
Integration of RBV with industry analysis

19. Discussion
According to RBV, inimitability is an important criterion as a strategic resource, which resides in the causal ambiguity. But firms want resources that can be replicated by themselves and at the same time not imitated by competitors. If firms understand the link between resources and competitive advantage, then casual ambiguity will disappear, and inimitability will not last long. If the link is always unknown to the firms themselves, how can they replicate the resources? How can they identify what makes them better than others?
As suggested by this paper, differences among firms in terms of information, luck, and capability enable the firm to generate economic rents. “Rents” come from resources, but all types of rents are associated with resource utilization, which is closely tied with capabilities, so how can we explain luck as a condition for generating rents in the theory?