Comparing Resource-Based and Knowledge-Based Perspectives of Firms, Assignments of Logic

Download Comparing Resource-Based and Knowledge-Based Perspectives of Firms and more Assignments Logic in PDF only on Docsity! European Research Studies, Volume XII, Issue (3), 2009 A Theoretical Framework Contrasting the Resource-Based Perspective and the Knowledge-Based View Nikolaos G. Theriou1 a Vassilis Aggelidis2 Georgios N. Theriou2 1Department of Business Administration, Kavala Institute of Technology, Kavala, Greece 2 Department of Production & Management Engineering, Democritus University of Thrace, Xanthi, Greece Abstract The purpose of this paper is to explore the relationship between the two most important perspectives of the firm, the RBV and the KBV, by examining the relative impact of firm- specific assets and knowledge capabilities on the firm’s competitive advantage. A composite model is proposed which elaborates upon both perspectives causal logic with respect to the conditions relevant for the firm success. Key words: resource-based view, knowledge-based view, knowledge management. Introduction The dominant paradigms in the field of strategic management during the 1980s and 1990s were the competitive forces approach (Porter 1980) and the resource-based perspective (Penrose, 1959; Rumelt, 1984; Teece, 1984; Wernerfelt, 1984; Barney, 1991). The former emphasizes the actions a firm can take to earn economic rents by creating privileged market or industry positions against competitive forces. The latter emphasizes building competitive advantage through capturing economic rents stemming from fundamental firm-level efficiency advantages. Although there are apparent conflicting ideas between these two paradigms, in reality both can co-exist and shape actual firm behaviour (Spanos and Loukas, 2001). In fact, according to Wernerfelt (1984), Porter’s framework and the resource- based approach constitute the two sides of the same coin. This view about the complementarity-compatibility of these two approaches in explaining a firm’s performance was theoretically recognized (Barney and Zajac, 1994; Amit and Schoemaker, 1993; Peteraf, 1993, Barney, 1992; Barney and Griffin, 1992; Mahoney and Pandian, 1992; Conner, 1991) and empirically tested (Schmalensee, 1985; Hansen and Wernerfelt, 1989; Rumelt, 1991; McGahan and Porter, 1997; Mauri and Michaels, 1998; Spanos and Loukas, 2001) by many researchers. a Correspondence to: N. G. Theriou, Kavala Institute of Technology, Agios Loukas, Kavala 65404, Greece, email: ntheriou@teikav.edu.gr. European Research Studies, Volume XII, Issue (3), 2009 178 In recent years many studies on the status, evolution, and/or trends of the resource-based view (RBV) have been published (Barney, 2001a, 2001b; Mahoney, 2001; Makadok, 2001; Priem and Butler, 2001; Phelan and Lewin, 2000; Hoskisson et al., 1999; Williamson, 1999). One of the most recent studies (Acedo, Barroso and Galan, 2006), adopting the bibliometric methodology (Zitt and Bassecoulard, 1996; Ahlgren, Jarneving, and Rousseau, 2003), analyzes the so called resource-based theory (RBT)’s heterogeneity and identifies three main trends coexisting within it: the resource-based view (RBV) (e.g., Barney, 1991 and Wernerfelt, 1984), including some representative works of the dynamic capability perspective (Teece, Pisano, and Shuen, 1997), the knowledge-based view (KBV) (e.g., Kogut and Zander, 1992 and Grant, 1996a) and the relational view (RV) (e.g., Dyer, 1996). However, none of these studies has empirically tested the degree of compatibility or complementarity between those different approaches. The present study attempts to construct a composite theoretical framework consisting of the two most common and influential perspectives, the RBV and the KBV, that will easy the empirical testing of these two approaches in the future with real data. The following section presents the theoretical background of the two perspectives with respect to sustainable competitive advantage as well as the rationale for the development of a composite model. Finally, section three describes and presents the model development and hypotheses and section four conclude the paper. Theoretical background RBV perspective The resource-based view comprises a rising and dominant area of the strategy literature which addresses the question of an organization’s identity and it is principally concerned with the source and nature of strategic capabilities. The resource-based perspective has an intra-organisational focus and argues that performance is a result of firm-specific resources and capabilities (Barney, 1991; Wernerfelt, 1984). The basis of the resource-based view is that successful firms will find their future competitiveness on the development of distinctive and unique capabilities, which may often be implicit or intangible in nature (see Teece et al. 1991). Thus, the essence of strategy is or should be defined by the firm’s unique resources and capabilities (Rumelt, 1984). Furthermore, the value creating potential of strategy, that is the firm’s ability to establish and sustain a profitable market position, critically depends on the rent generating capacity of its underlying resources and capabilities (Conner, 1991). For Barney (1991) if all the firms were equal in terms of resources there would be no profitability differences among them because any strategy could be implemented by any firm in the same industry. The underlying logic holds that the sustainability of effects of a competitive position rests primarily on the cost of resources and capabilities utilized for implementing the strategy pursued. This cost 181 A Theoretical Framework Contrasting the Resource-Based Perspective and the Knowledge-Based View as an institution for knowledge application devising mechanisms for integrating individuals’ specialized knowledge (Grant, 1996a). Albeit there are different approaches of the KBV, the most accepted way of building distinctive capabilities and core competences within firms is through experience accumulation, knowledge articulation and codification (Macher and Mowery, 2006; Zollo and Winter, 2002; Nonaka, 1994; Zander and Kogut, 1995) or through the so called knowledge management (KM) processes of creating, acquiring, storing, sharing and deploying knowledge (Pemberton and Stonehouse, 2000). The extent to which a capability is ‘distinctive’ depends upon the firm and its employees in creating, acquiring, storing, sharing and deploying all necessary generic and specific knowledge that will give them a competitive advantage. Longevity of competitive advantage depends upon the inimitability of the capabilities which underlie that advantage (Barney, 1991). Although there is recognition that knowledge is a key business asset, organisations are still in the early stages of understanding the implications of KM. KM is slowly becoming an integral business function to them (Metaxiotis et al., 2005). Previous research (Davenport and Prusak, 1998; Liebowitz, 2000) has shown that a knowledge-based company possesses knowledge that allows it to manoeuvre with intelligence and creativity giving it a special advantage. For Davenport and Prusak (1998) knowledge is the only source of a sustainable competitive advantage. However, since knowledge is not directly observable or measurable, then, it becomes a construct whose existence and properties can only be inferred through firm capabilities that are manifested in observable action (Stehr, 1992). This differentiates knowledge from resources, which can be identified without observable action. Different actions can be ascribed to different capabilities. Thus, a specific ‘constellation of actions’ represents a specific set of capabilities inside the firm and implies the existence of specific knowledge that is required to exercise these capabilities (Kaplan et al. 2001). Under this reasoning we could consider any function of the KM process (formal or informal), leading to the building of successful distinct capabilities or core competencies, as a ‘prerequisite or first-order KM capability’. Consequently, for a firm to have a sustainable competitive advantage ‘KM capabilities’ should be built first in order to be able to create all other necessary distinct capabilities and/or core competencies in time. Similarly, Kale and Singh (1999) believe that knowledge management processes represent a vital core competence that can be leveraged to build other strategic capabilities or “second order” dynamic capabilities (Zollo and Winter, 2002) as, for example, the capability to manage phenomena such as acquisitions, corporate restructuring, etc. Sher and Lee (2004) argue that KM includes three main functions: Knowledge creation, accumulation and sharing. Knowledge creation includes innovation, knowledge accumulation includes collecting new knowledge, codifying it and combining new and old knowledge, and knowledge sharing allows for diffusion of skills, experience and knowledge throughout the organisation. European Research Studies, Volume XII, Issue (3), 2009 182 Lee et al. (2005) add two more functions: knowledge utilization and knowledge internalization. Knowledge utilization can occur at all levels of management activities in firms: one of the popular forms of knowledge utilization is to adopt the best practice from other leading organizations, uncover relevant knowledge, and apply it. Knowledge internalization may occur when individual workers discover relevant knowledge, obtain it and then apply it. Therefore, internalization may give rise to new knowledge. In this way, it provides a basis for active knowledge creation. Other researchers (Alavi and Leidner, 2001; Nielsen, 2006) suggest the following eight basic functions of KM, which are quite similar to those five mentioned above: knowledge creation, knowledge acquisition, capturing and articulating knowledge, knowledge assembly, knowledge sharing, knowledge integration and re-combination, knowledge leverage, and, finally, knowledge application and exploitation. If we think knowledge and knowledge management processes as ‘prerequisite or first-order KM capabilities’, then the implication of this argument is that efficiency rents stemming from such KM capabilities could be categorized into three, interrelated dimensions: (a) ‘pure’ rents (Collis, 1994) stemming directly from the efficient implementation of the given strategy currently pursued; it indicates that the more unique combination of KM capabilities the organization possesses in relation to rivals the higher is its performance (in this case firm effects are independent of strategy), (b) ‘indirectly’ from enabling the firm to conceive and develop its strategy configuration; the more KM capabilities the better the ability of the firm for a strategy that fits better market demand and results in higher customers’ utility, and (c) ‘indirectly’ through the improvement of existing or the creation of new organizational, marketing and technical capabilities; these capabilities, in turn, affect and determine the degree and quality of KM capabilities. These latter indirect effects result from KM capabilities that resemble Teece et al.’s (1997) notion of dynamic capabilities defined as those that reflect the firm’s ability to achieve new and innovative form of competitive advantage. All the above result in a fundamental complementarity between these two theoretical approaches, RBV and KBV, which lead to the construction of a composite framework trying to compare and contrast the two perspectives’ causal logic of rent generation. This framework is justified on the basis of three reasons: (a) the two perspectives are complementary in explaining the sources of competitive advantage through their effects (direct and indirect) on performance; (b) both perspectives seek to explain the same phenomenon of sustained competitive advantage, and (c) the unit of analysis (i.e., the firm) is the same in both cases. Model development and hypotheses In this paper RBV and KBV constitute the two perspectives the impact of which on firm performance will be examined. The proposed composite model is 183 A Theoretical Framework Contrasting the Resource-Based Perspective and the Knowledge-Based View presented schematically in figure 1. The proposed model includes three effects: (i) strategy or “utility” direct effects that sustain the necessary condition for achievement of higher performance, (ii) firm-specific assets’ direct and indirect effects and (iii) KM capabilities’ direct and indirect effects, that constitute the sufficient conditions for the achievement of sustainable competitive advantage or else sustainable performance. (i) Strategy effects Since customer and market needs are the primary keys for the maximization of profitability, managers have to develop and apply such strategies that maximize customers’ utility. This occurs by differentiated products or by lower cost production. Market demand, besides, reflects customer needs and demonstrates firm’s profitability. This is the reason that strategy effects that take into consideration market demand and consequently customers utility, are named otherwise “utility effects”. However, although utility effects provide the necessary condition for high performance, above industry’s average effects, coming from specific unique resources and capabilities, are needed for its sustainability (Spanos and Lioukas, 2001). Strategy or “utility” (direct) effects are shown by ξ1 in the model. (ii) Firm assets effects As it has been already discussed, according to the RBV, the existence of unique resources leads to sustainable competitive advantage. Schematically, two efficiency effects are appeared (Spanos and Lioukas, 2001). One of them, ξ2, is directly related to firm performance. It indicates that the more unique combination of resources the organization possesses in relation to rivals the higher is its performance. In this case firm effects are independent of strategy. In parallel with direct firm assets effects, there are indirect effects, too. Path ξ3 explains the perception that the more resources/capabilities the better the ability of the firm for a strategy that fits better market demand and results in higher customers’ utility. These indirect firm assets effects could be estimated as ξ1*ξ3. (iii) KM capabilities effects In accordance with KBV, KM capabilities are the primary responsible factors for the achievement of sustainable competitive advantage. These include all knowledge acquisition, creation, capture, storage, diffusion and transfer capabilities, which transform individual to group and, finally, to organizational knowledge. KM capabilities affect performance with two effects, direct and indirect, which affect the firm performance in a similar way with the firm-specific assets (i.e., the unique resources and capabilities). 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