Resources, Technology and Strategy

Nicolai J. Foss, Paul L. Robertson, Nicolai J. Foss, Paul L. Robertson

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134607495
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Resources, Technology and Strategy brings together contributors from Europe, North America and Asia to consider the strategic relationship between technology and other resources, such as production capabilities, marketing prowess, finance and organisational culture.
Throughout the book, these experts take a critical approach to RBP (Resource-Based Perspective) in order to assess both its strengths and weaknesses. Case studies also highlight the importance of both having and not having strong technological capabilities in settings as diverse as the US semiconductor industry, small family manufacturing firms in Hong Kong and state-owned enterprises in China.

1
Introduction
Resources, technology and strategy

Nicolai J.Foss and Paul L.Robertson

Since the end of the 1980s there has been a notable change in the way that many academics in strategy research conceptualise the strategy process and how they think about strategic content. The strategy process is increasingly seen as beginning in a modest and ‘introverted’ way, by analysing the firm’s portfolio of resources, rather than with such broad questions as, ‘What is our corporate mission?’ or ‘What businesses are we in?’ The content side of strategising is also increasingly cast in terms of resources. Thus, ‘Our strategy is to get maximum market share in markets x, y and z’ has given way to variants along the lines of ‘Our strategies in markets x, y and z aim at more fully sharing resources a, b and c’, or ‘Our strategy is to stretch existing resources and create new ones so that we are not trapped by blurring industry boundaries.’ There is clear, if unsystematic, evidence that this change is also taking place in managerial practice.

Much of this reorientation is due to the breakthrough in academic as well as practical strategy thinking of what is often referred to as ‘the resource-based perspective’ (henceforth, ‘the RBP’), which reaches back to the classic work of Edith Penrose (1959) and Philip Selznick (1957), but has only emerged as a strong contender on the strategic management scene in the mid-1980s with the work of Birger Wernerfelt (1984), Richard Rumelt (1984), Jay Barney (1986) and others.¹ The key ideas in the RBP are that successful firms possess heterogeneous collections of resources, that these varied collections of resources allow firms to implement different strategies, that different strategies yield different returns (which may be interpreted as rents accruing to the underlying resources), and that successful strategies and their associated return streams are sustainable to the extent that they are prohibitively costly to imitate. This is the perspective that all of the contributors to the present book begin from, before moving on to extend or criticise it in various ways.

In little more than a decade, the RBP has emerged as arguably the dominant contemporary approach to strategy (content) research—as perhaps the new orthodoxy in strategy research. The perspective’s appeal to academics would seem to be a matter of combining relative analytical rigour with apparent managerial relevance. Thus, there are good reasons for the success of the RBP; however, there are certainly also reasons to hold one’s breath and curb enthusiasm, primarily because there are many unresolved problems and issues in need of clarification.

Most conspicuously, perhaps, there is a considerable amount of terminological ambiguity, with various resource-based theorists using concepts such as ‘resources’, ‘competencies’, ‘capabilities’, etc. to refer to what are seen as strategic assets. This problem may be overcome as certain terminological standards gradually become dominant in the community of resource-based theorists; it is essentially a minor problem.

However, there are also deeper issues in need of clarification and there are potentially conflicting insights. A conspectus of some existing problems with the RBP would include:

• The isolated resource problem. There is a tendency in the RBP to analyse some resources in isolation from others, so that systems effects and complementarities may be lost from the view of the analyst. Moreover, although no single resource may be central to a firm’s strategy, the interplay between several resources may very well yield rents (Porter 1996; Robertson 1996).
• The environment problem. The RBP is overly ‘introspective’ (Porter 1994) and has a tendency to neglect the environment or only incorporate it implicitly under the rubric of such broad competitive forces as ‘the threat of imitation’. Whereas the structure-conduct-performance (SCP) approach that dominated industrial economics for several decades assumed that the resources available to firms were homogeneous and that all important influences on performance could be traced to external factors such as market structure, the resource-based perspective tends to downplay the importance of external variables. In common with the SCP, however, the RBP takes demand as given rather than as a dynamic factor that firms can manipulate strategically.
• The resource application problem. Given that resources are central in the RBP, the actual application of resources in production has received scant analytical attention.
• The resource organisation problem. The RBP tells us very little about how resources are best organised (Williamson 1994). For example, if the resources in question are human resources, the services those resources yield are dependent on a host of determinants such as incentives, monitoring and culture that have been investigated in organisational economics and organisational behaviour studies. To date, the RBP has shown little interest in these matters.
• The resource creation problem. The RBP has concentrated overwhelmingly on the analysis of existing resources, and has given remarkably little attention to the creation of new resources. As a result, there is a distinctly retrospective character to the RBP, which may threaten its managerial relevance (Foss et al. 1995). Some authors, such as Kay (1993) who criticises ‘wish-driven strategies’, contend that firms cannot easily adapt or augment their existing resources to embrace new strategic opportunities and are thus trapped by their histories. Pralahad and Hamel (1990), on the other hand, are more optimistic about the ability of firms to gather new resources in response to changes in their ‘strategic intent’, but are vague on how this can be accomplished.

There are other problems with the perspective, such as the lack of solid empirical work, but the problems above are major ones, and arguably the major ones. All the contributions to this book explicitly or implicitly grapple with these problems and suggest various remedies. For example, a number of contributors point out and discuss the fact that there is a lack of a clear and coherent treatment of dynamics in the RBP. Thus, the RBP does not in its present version(s) theorise in any convincing way about the mechanisms underlying the creation of new resources—what we have called ‘the resource creation problem’. This problem is perhaps particularly troublesome for the future evolution of the RBP, since dynamics (broadly conceived) is all the rage in the strategy and organisational behaviour fields these days, as witness the recent enthusiasm about ‘hyper-competition’, ‘organisational learning’, ‘the knowledge-creating company’, etc.

It is true that some RBP theorists have tried to grapple with these issues, typically under the banner of ‘the core competence approach’, but this has only been done—it is fair to say—by substantially sacrificing rigour. On the other hand, many of the more economics-orientated contributions to the RBP exhibit a certain degree of rigour, but do not treat dynamics in any detail. The divide may be seen as largely a matter of whether one seeks to address and include dynamic—or better, evolutionary—factors, or instead relies on standard economic theory.

It is a choice, in short, between equilibrium and evolution, with ‘evolution’ and ‘evolutionary’ referring here to whether such concepts as irreversibility (e.g., in the form of path-dependence and learning) and novelty (e.g., in the form of unanticipated innovations) are included in the analysis at some level. In practice, dynamism and evolution are at the heart of strategic behaviour. Few managers are content with equilibrium; instead, they deliberately attempt to upset existing market positions. The goal of strategy research should therefore be to find an approach that treats evolutionary developments with something approaching the rigour that neoclassical economists bring to equilibrium situations. Although this is a tall order, it is the only way to generate a strategy literature that is both usable and analytically respectable.

As the title implies, our primary focus in this volume is on technological change. In particular, we are concerned with the ways in which a firm’s resources are related to the product and process technologies that it adopts, and with the changes in other resources that may be needed to deal with changes in the firm’s internal and external technological environments. In contrast to Solow (1956) and most other neoclassical economists, we treat technological change as being endogenous to firms, but unlike the ‘New Growth Theorists’ (e.g., Romer 1986, 1990, 1993, 1994), we are searching for a fine-grained analysis of the motivation that underpins strategic behaviour at the firm level. The implied argument in most of the contributions is that, in order to account for the emergence and maintenance of the systematic heterogeneity among firms that is a basic premise of the RBP, and to derive managerial lessons with respect to issues such as resource building and corporate renewal, it is necessary to develop insights into the endogenous creation of resources. In the present state of analysis, heterogeneity is simply asserted, and dynamic and normative issues relating to endogenous heterogeneity are largely neglected. What the RBP needs, we suggest, is more agreement that these dynamic issues are crucial but should be approached in a more precise and analytical way than at present. If this does not happen, there is a real danger that the RBP may split even more deeply, first, into a formal, stark, abstract branch strongly inspired by economics and gradually losing contact with managerial reality, and, second, into an increasingly loose and free-wheeling branch where almost anything goes on the analytical level.

Technological resources and capabilities² can be viewed from several angles, many of which demonstrate the validity of the ‘problems’ that we have cited. The resources of any given firm can be broken down into a number of classes, both current and potential, with differing strategies calling upon different classes or combinations of classes for their success. As Edith Penrose (1959) emphasised, for example, administrative or managerial talent is one of the most important resources that a firm may have. She believed that the greatest factor behind the growth of firms is the presence of ‘slack’ administrative skills that results from managers learning to master recurrent problems. As learning occurs, managerial time is freed up to address new challenges. Among the other areas in which resources are important are production, marketing, research and development, raw material procurement, organisational culture and finance. Slack may arise from resources actually held at the moment (for example, excess manufacturing capacity) or from resources that can be tapped if needed (an ability to borrow funds to build and equip a new factory). In some cases, strategies may take advantage of resources that a firm has or can tap, but in other cases strategy may be formulated around a need to sidestep a relative weakness that a firm faces: a company that cannot afford the manufacturing and marketing investment required to become a full-line producer may decide instead to target a niche market.

The value of each type of resource depends on the nature of the technology strategy being pursued. Both ‘the isolated resource problem’ and the ‘environment problem’ are important in the application of the RBP to technological questions. Although Bill Gates’s (1999) recent book gives the impression that Microsoft attempts to find ‘digital’ solutions to all problems, it is generally misleading to think that a firm whose operations are at all complex can follow a single technology strategy. Despite the emphasis in many publications on high-technology operations, mostly involving microchips, such strategies are not appropriate for the core operations of many businesses, which remain resolutely low-to-middle tech. Historically, systemic technological change has always progressed slowly and unevenly, with backward and forward linkages taking many years to develop, giving rise to the ‘reverse salients’ described by Hughes (1992). Lateral linkages have, if anything, frequently been slower. Although improvements may have been ‘in the air’ (Marshall 1961) and the common currency of thought in particular industrial districts, the spread of technological analogies across space and industries has often taken decades.³ In some cases, this has been a result of the economic logic of the situation. It would have made no more sense to build the entire European or American railway networks in a single push in the 1840s than equipping every house in Europe or the United States with a fibre optic connection would make today. Frequently, however, this slow diffusion of technologies also reflects inadequacies of knowledge and perception. Managers are generally not well acquainted with developments in other industries, and even when they have some knowledge they may not appreciate parallels between their own operations and those elsewhere.

As a consequence, technological unevenness is to be expected across industries, but unevenness is also the rule across resources and capabilities within the same industry and within the same firm. Instead of industries or firms following high-tech or low-tech strategies, they use a combination of technologies that change at uneven rates, and the overall effects of change cannot be accurately gauged if attention is focused on the technological trajectory of only one or two resources. In areas such as furniture manufacturing or food processing, for example, in which both product and process technologies remain comparatively unsophisticated, state of the art resources in sales and inventory management may be employed to great competitive advantage. Concentration of analysis on a single, isolated resource can obscure the significance in many situations of a mix of technologies, each of which is appropriate to a different important resource.

Furthermore, as industry structure and firm performance may interact as a result of technological change from outside the industry, an introspective approach to technology strategy can overlook vital interconnections between internal and external resources. Low-and medium-technology industries are embedded in networks of resources owned by others. For example, a change in the costs and speed of transport available to firms in a manufacturing industry can make it feasible for each firm...