The global pharmaceutical industry Essay
Over the last years the resource-based view (RBV) of strategic management has attracted wide academic and managerial attention. Drawing on RBV literature, this paper analyses the interrelationships between RBV and organizational innovation. We examine those aspects of RBV that critically determine the firm’s capacity to innovate by integrating the relevant theoretical and empirical evidence. A number of contributions setting the ground for future empirical research are provided.
1. Introduction The importance of the resource-based view (RBV) of strategic management is manifest in its rapid diffusion throughout the strategy literature (e.g., Wernerfelt, 1984; Rumelt, 1984; Barney, 1986, 1991; Dierickx & Cool, 1989; Mahoney & Pandian, 1992; Amit & Schoemaker, 1993; Peteraf, 1993; Maijoor & Witteloostuijn, 1996). Drawing on previous research in RBV, this study aims at illustrating the interrelationships between RBV and organizational innovation. Specifically, we focus on those aspects of RBV that critically determine the firm’s capacity to innovate.
We integrate the relevant theoretical and empirical evidence and we highlight a number of useful research contributions. The remaining of this paper unfolds as follows: Section 2 briefly reviews the resourcebased view and comments on RBV as a developmental process. The subsequent section presents those resources and capabilities that are critical for the firm’s capacity to innovate. The paper concludes with the contributions that RBV brings to innovation research.
2. RBV: Theoretical background The popularity of the resource-based view (RBV) of the firm has turned our focus on the black box of the firm. Theoretically, the central premise of RBV addresses the fundamental question of why firms are different and how firms achieve and sustain competitive advantage by deploying their resources. Clearly, these ideas are not new. During the last 50 years, many management academics have contributed to the development of this topic. For example, Selznick’s (1957) idea of an organization’s ‘distinctive competence’ is directed related to the RBV. Also, Chandler’s (1962) notion of ‘structure follows strategy’, as well as Andrews’ (1971) proposal of an internal appraisal of strengths and weaknesses, led to the identification of distinctive competencies.
However, the founding idea of viewing a firm as a bundle of resources was pioneered by Penrose in 1959. Penrose argued that it is the heterogeneity, not the homogeneity, of the productive services available from its resources that give each firm its unique character. The notion of firm’s resources heterogeneity is the basis of the RBV. The significance of the resource perspective as a new direction in the field of strategic management was broadly recognized with the path-breaking article by Wernerfelt (1984). Wernerfelt (1984) suggested that evaluating firms in terms of their resources could lead to insights that differ form traditional perspectives.
In 1991, Barney presented a more concrete and comprehensive framework to identify the needed characteristics of firm resources in order to generate sustainable competitive advantage. These characteristics include whether resources are: valuable (in the sense that they exploit opportunities and/or neutralize threats in a firm’s environment), rare among a firm’s current and potential competitors, inimitable, and non-substitutable (Barney, 1991). In this respect, many authors (Amit & Schoemaker, 1993; Mahoney & Pandian, 1992; Peteraf, 1993; Rumelt, 1984; Dierickx & Cool, 1989) have adopted and even expanded Barney’s view to include: resource durability, non-tradeability, and idiosyncratic nature of resources.
Over the last decade, much of the strategy literature has emphasized resources internal to the firm as the principal driver of firm profitability and strategic advantage. This transition in academic and managerial attention from an Industrial Organization (IO) economic view towards a resource-based view of strategy has occurred for several reasons.
First, the rate of change in terms of new products, new technology, and shifts in customer preferences has increased dramatically. Obviously, a static snapshot of a moving industry was not an adequate means for formulating strategy in an increasingly dynamic environment (Bettis & Hitt, 1995). Secondly, traditional industry boundaries are blurring as many industries converge or overlap, especially in information technology-related industries (Bettis & Hitt, 1995; Hamel & Prahalad, 1994).
Yet, traditional IO strategic thinking is based on stable industry, as are many strategic analysis tools, including competitor analysis, strategic groups, and diversification typologies. Finally, the increasing rate of change has put increasing pressure on firms to react more quickly, as time is often seen as source of competitive advantage (Stalk & Hout, 1990). All these reasons suggest that firms may look inwardly for strategic opportunities, while, at the same time, must reconceptualize how they think of industries and define competitors.
Resources and Capabilities
The central proposition of the resource-based research is that firms are heterogeneous in terms of the strategic resources they own and control. It is generally suggested that this heterogeneity is an outcome of resource-market imperfections (Barney, 1991), resource immobility (Barney, 1991), and firms’ inability to alter their accumulated stock of resources over time (Carroll, 1993). In this vein, each firm can be conceptualized as a unique bundle of tangible and intangible resources and capabilities (Wernerfelt, 1984).
Resources, which are the basic unit of analysis for RBV, can be defined as those assets that are tied semi-permanently to the firm (Maijoor & Witteloostuijn, 1996; Wernerfelt, 1984). It includes financial, physical, human, commercial, technological, and organizational assets used by firms to develop, manufacture, and deliver products and services to its customers (Barney, 1991). We can classify resources as tangible (financial or physical) or intangible (i.e., employee’s knowledge, experiences and skills, firm’s reputation, brand name, organizational procedures).
Capabilities, in contrast, refer to a firm’s capacity to deploy and coordinate different resources, usually in combination, using organizational processes, to affect a desired end (Amit & Shoemaker, 1993; Grant, 1996; Prahalad & Hamel, 1990). They are information-based, intrinsically intangible processes that are firm specific and are developed over time through complex interactions among the firm’s resources (Amit & Shoemaker, 1993; Conner & Prahalad, 1996; Itami & Rohel, 1987; Kogut & Zander, 1992; Leodard-Barton, 1992; Winter, 1987). They can abstractly be though of as ‘intermediate goods’ generated by the firm to provide enhanced productivity of its resources, as well as strategic flexibility and protection for its final product or service.
In this definition, which primary relies on Amit and Shoemaker (1993), there are two key features that distinguish a capability from a resource. First, a capability is firm specific since it is embedded in the organization and its processes, while an ordinary resource is not (Makadok, 2001). This firm-specific character of capabilities implies that if an organization is completely dissolved, then its capabilities would also disappear, while in contrast, its resources could survive in the hands of a new owner.
For example, if the Intel Corporation is completely dissolved, then its microprocessor patents (a resource) could continue to exist in the hands of a new owner, but its skill at designing new generations of microprocessors (a capability) would probably vanish. The second feature that distinguishes a capability from a resource is that the primary purpose of a capability is to enhance the effectiveness and productivity of resources that a firm possesses in order to accomplish its targets, acting as ‘intermediate goods’ (Amit & Shoemaker, 1993).
Asset accumulation as a developmental process
In a changing environment, firms must continually acquire, develop and upgrade their resources and capabilities if they are to maintain competitiveness and growth (Argyris, 1996a; Robins & Wiersema, 1995; Wernerfelt & Montgomery, 1988). A key challenge facing a firm is to identify the origin of resources and capabilities that establish and enhance the firm’s sustainable competitive advantage. Within both the theoretical and empirical work to date, there has been limited discussion of how resources and capabilities are actually created (Schulze, 1994; Zajac, 1992). Some researchers ascribe capabilities to luck (Barney, 1986), whereas others analysts trace them to experiential learning by organizations (Nelson & Winter, 1982; Singh & Chang, 1993), and the more managerially inclined emphasize the role played by leaders of organizations (Prahalad & Hamel, 1991).