How the Resource-based and the Dynamic Capability Views of
the Firm Inform Corporate-level Strategy – Bowman, Ambrosini
Corporate strategy => the ways in which a corporation manages a set of business together (e.g. overseeing and supporting
the primary activities of the SBUs, decisions about in which businesses to compete).
The Resource-Based view of the firm and competitive strategy
RBV examines the link between the internal characteristics of a firm and firm performance. The core principles are that an
organization can be regarded as a bundle of resources and that resources that are simultaneously valuable, rare,
imperfectly imitable and non-substitutable (VRIN) are a firm’s main source of sustainable competitive advantage. This
means that RBV locates the source of superior profitability inside the firm.
- A resource is valuable to the firm if it generates rents that can be captured by the firm and when resources meet
market demand.
o E.g. enable firm to be lower cost than rival firms, or enable the firm to differentiate its products or services.
o Through shifts in demand, resources can become redundant and through management, they can be destroyed.
They can also cease to be valuable by imitation or substitution.
- A firm that possesses rare resources (relative scarcity) can generate either superior margins or superior sales volumes
from an equivalent cost base to competitors. It is not commonly found among rivals and leads to superior rents.
o The V and R are about the identification of resources at a point in time. The next two address the sustainability of
the rent streams flowing from these resources and the rent generating potential over time (ex-post limits).
- The more difficult it is for competing firms to replicate the resource, the longer-lived will the rent stream accruing to
the resource be. Inimitability results from the presence of isolating mechanisms such as causal ambiguity, information
asymmetries, or social complexity. Imitating requires understanding of nature and history.
- A resource is non-substitutable if it cannot be easily replaced by another resource that delivers the same effect. This is
about the use-value of the product.
=> Resources that pass the VRIN test are involved in delivering product advantages perceived by customer or they confer
process advantages that result in lower unit costs. As such, they generate rents and contribute to the firm’s super normal
profit (resources are mostly at SBU level). Corporations add to rent generating potential through control, coordination and
organization; they act as a (dynamic) capability, and drive resource creation (focus on second two).
The Dynamic Capability Approach and Corporate Strategy
The dynamic capabilities view (DCV) focuses on the capacity an organization facing a rapidly changing environment has to
create new resources, to renew or alter its resource mix.
- If corporate-level activity is to be valuable, it must in some way impact positively on the
profitability of the organization. One way is through dynamic capabilities.
- Dynamic capabilities => the firm’s ability to alter the resource base by creating, integrating,
recombining and releasing resources in line with changes in its environment. May involve
processes of coordination, replication, learning, and reconfiguration. They are built rather than
bought in the market, and they are embedded in the organization.
o These capabilities are likely to be path dependent routines and as such they may resist
imitation by rival corporations.
- Activities that should create assets for the corporations, and that may result in new resources
being created (resources that generate rents), grouped in: reconfiguration, leverage, learning
and integration. May also produce assets (not valuable resources) rather than resources.
(1) Reconfiguration processes transform and recombine assets and resources. Through design let
multiple businesses create economies of scale. There are two forms:
- (1) Consolidation of support activities, where the result is research creation at the centre (often
happens after an acquisition or merger).
o For the consolidation to be successful, the activities that are combined must be performed
in similar ways across the units, and the activity must be capable of being decoupled from
, operational processes at SBU level. So although the resource is normally controlled and
managed at the centre, it confers advantage of the SBUs.
o Decoupled activities might include, for instance, finance functions or public relations. The
more operationally integrated the consolidated activity is, the more blurred will be the
distinction between corporate and SBU levels.
- (2) Reconfiguration to achieve scale and scope economies in core processes of SBUs, which other
SBUs can benefit from.
(2) Leveraging existing resources, which may be done by extending the scope of the resource into
other SBUs or market domains, replication (e.g. strong brand extending across products which costs
less than building a brand from scratch for the individual SBU).
- The role of the centre is to identify the nature of the resource, to recognize new opportunities
where the resource may confer advantage, and to implement the necessary organization
changes, or create the conditions whereby the resource can be transferred.
- An existing resource may be leveraged in two ways:
o (1) The application or scope of the resource is extended into other domains of the
corporation (e.g. culture leveraged due to socialization).
o (2) The resource is replicated (in order to happen, the resource must be capable of being
understood, thus it cannot be causally ambiguous to managers inside the corporation).
(3) Learning is a process by which repetition and experimentation enable tasks to be performed
better and quicker. This allows Bus to devote resources to innovation and to explore new designs.
- Learning is a dynamic capability that occurs at all level in the structure, but the centre can
indirectly influence the learning processes in SBUs by:
o Encouraging SBUs to devote resources to innovation.
o Allowing SBUs time to explore new ideas.
o Introducing into SBUs new perspectives and knowledge.
o Encouraging experiments and tolerating failures.
o Establishing dialogue across SBUs.
o Funding R&D at SBU level.
- It is possible that a quite different governance regime may provoke learning within SBUs, rather
than support or encourage learning. Two learning strategies, both driven from the centre, which
may result in the creation of new resources:
o (1) One that operates through a supportive culture;
o (2) One that provokes resource creation through tough controls.
(4) Integration is a type of dynamic capability that concerns the firm’s ability to coordinate and
integrate its resources, assets and knowledge (e.g. new product development by multi-functional
teams or integrating resources from external sources like suppliers or customers). They involve
combining resources in new ways to alter the firm’s resource base.
- The centre can drive resource creation by recognizing where the congruencies and
complementarities exist across the corporation and across the corporation and its clients, by
encouraging SBUs to pool their skills and resources with those of other SBUs teams, or by
encouraging cross-divisional linkages or interactions with clients to settle existing problems or
enhance innovation throughout the corporation.
,Design Parameters
Using the concept of design parameters, we examine the required states that each mode would
require of the following parameters:
- SBU strategic autonomy – the scope and discretion the SBU executives enjoy in determining
aspects of SBU strategy. This can be viewed as a continuum of autonomy.
- SBU similarity – the effectiveness of each mode of resource creation will be moderated by the
extent to which the collection of SBUs is similar. For each of the dynamic capabilities, different
forms of similarity would be expected.
- Coordination across levels – the degree of coordination that is necessary for the corporate
strategy to be delivered. Can be seen as a continuum.
- Coordination between SBUs – the requirement for inter-SBU coordination is determined by the
dynamic capability mode adopted.
- Performance measures and SBU orientation – each mode of resource creation is likely to be
associated with a particular relationship between the centre and the SBUs. Central to this
relationship are the performance measures the SBU would be judged on.
Resource creation configurations
Six configurations, feasible structures that could deliver one mode of resource creation. Each
configuration is coherent in that the required states of the design parameters are mutually consistent
and supportive. Corporations have to choose between these modes of resource creation. As for their
management styles, each configuration will require different organizational processes, divisions of
responsibilities, SBU and centre competences etc. and therefore in many cases corporations are
unlikely to be able to adopt more than one configuration. E.g. where provoked learning is the prevailing mode
it would be very difficult to encourage almost any corporately orientated behaviour among SBU executives, focused as they
must be on short-term SBU performance.
In the Provoked learning configuration the centre causes SBU resources to be developed through
the setting and administering of tough financial controls. The SBUs are provoked into creating
resources in order to meet the imposed performance targets.
- Reduced levels of organizational slack compared to rivals. Hence, they will have lower relative costs, and will generate
more profits.
- Strategic autonomy: High. The centre is relatively small. There is a task, but how
they achieve it will be left to them.
- SBU similarity: Not necessarily similar. As long as they are similar insofar they do
not require substantial investments in order to secure future performance.
- Coordination across levels: Low. The centre would engage in target setting, and
in altering the portfolio of SBUs through acquisitions and divestments.
Relationships between the centre and SBUs will be ‘arm’s length’ based on
financial performance targets.
- Coordination between SBUs: Low.
- Performance measures and SBU orientation: tough profit target and emphasis on
short-term profit performance.
- Likely to be applied by both multinational and global corporations, as these are
about control and setting profit targets.
In the encouraged learning configuration the centre would be
sensitive to the need for SBUs to invest in the creation of future
assets and resources, and the performance measures and targets
set would reflect these concerns.
- SBU strategic autonomy: High. There is a task but how they will achieve it
will be left to them.
, - SBU similarity: We would expect SBUs to be similar in their requirements for investments in R&D and other
developmental activities so the centre could take a common approach across all SBUs. The quality of dialogue with
center would be enhanced where the centre had expertise specific to the context of the SBUs. This would indicate that
the SBUs in the portfolio would be related in some ways e.g. similar products, technologies, markets etc.
- Coordination across levels: Low.
- Coordination between SBUs: Low.
- Performance measures and SBU orientation: Performance measures would need to reflect more than just short-term
profitability (range of measures), and we would expect far more dialogue between the centre and the SBUs compared
to the provoked learning configuration.
In reconfiguring support activities the centre reconfigures loosely coupled support activities, and
conducts these activities on behalf of the SBUs (e.g. legal, finance, estates, PR).
- SBU strategic autonomy: still permit SBUs to determine most aspects of SBU
strategy, but they would be obliged to use, and to follow the policies set by
the centralized support functions.
- SBU similarity: SBUs need to be able to benefit from common support
functions like legal, HR, estates etc.
- Coordination across levels: Support activities will need some coordination
between the centralized activities and the SBUs, especially where scale
resources have been developed within one SBU for the shared benefit of
other SBUs. Centre might need to manage compromises when local SBU
requirements are not met by centralized functions.
- Coordination between SBUs: Some level of communication, but the primary
interactions are likely to be between the SBU and centralized activities.
- Performance measures and SBU orientation: only partial profit accountability
can be expected from SBUs as their autonomy is constrained by the
requirement to utilize centralised activities or to, for example, sell and service the products supplied by the centralized
core.
In reconfiguring core processes the centre delivers resources by
reconfiguring core processes to exploit economies of scale. The SBUs are
highly dependent on these centrally controlled resources.
- SBU strategic autonomy: Very low. It may be that SBUs are restricted to
sales/service/local marketing activities.
- SBU similarity: Need to be able to benefit from the core resources delivered.
- Coordination across levels: Even more necessary where core activities are
centralized.
- Coordination between SBUs: Relatively Low.
- Performance measures and SBU orientation: only partial profit accountability can
be expected from SBUs as their autonomy is constrained by the requirement to
utilize centralised activities or to, for example, sell and service the products
supplied by the centralized core.
In the leverage configuration, the centre creates new SBU resources
through either replication or by extending the scope of a resource.
Here there are no resources as such at the centre, only the dynamic
capability to leverage resources from one SBU into others.
- SBU strategic autonomy: Would be obliged to open to introduction of systems
and processes developed elsewhere in the corporation.
- SBU similarity: Need to be similar in their ability to benefit from the resources
concerned (e.g. strategies and processes when resources are cloned).
- Coordination across levels: requires interlevel coordination and a good degree of cooperation, so some sense of shared
mission would be helpful here (more episodic).
- Coordination between SBUs: requires inter-SBU coordination of a more episodic nature, focused at the points where
resource leverage is being considered and when it is affected.
- Performance measures and SBU orientation: encourage the sharing of knowhow and the free flow of information.
