ABSTRACT

This study examines firm growth in a deregulated environment. Specifically, the study demonstrates that if firms are to experience growth in a deregulated environment, managerial resources from related industries must be acquired. These managerial resources permit firms to "creatively construct" environmental change.

INTRODUCTION

The single-most important factor in the growth and sustainability of the firm is the senior management team (Penrose, 1959; Barney, 1991; Mahoney, 1995). Managers within firms have different perceptions of the environment, the customer base, the nature of competition, and differential speeds of learning. Managerial resources drive the development of firm specific capabilities which in turn determine what productive services the firm is capable of offering. Managerial resources have important roles and may provide the basis upon which firms differentiate themselves and grow.

MANAGERIAL RESOURCES

How managers respond to environmental change will determine the direction a firm develops its resource base. As such, resources are modified over time as (1) the environment, the customer base, and the competitive profile change externally and (2) learning is accumulated internally. Managerial resources have the unique ability to develop firm-specific resources to meet the changing needs of the marketplace.

The modification of resources and capabilities in response to a dynamic environment is important because scholarly research into the sources of competitive advantage has begun to point to dynamic capabilities, rather than product market positions, as the enduring source of advantage (Rumelt, Schendel, and Teece, 1991; Teece, Pisano and Shuen, 1997). Product market positions are somewhat static and are dependent upon the relative position of the firm with respect to its competitors over a short time horizon. In addition, these positions are specific to a particular setting. What is important is the development of sustainable competitive advantage and long term growth.

The competitive advantage of firms is based upon the development of distinctive capabilities shaped by the firm's managerial resources. (Teece, Pisano, and Shuen, 1997). This issue may be especially important for firms which are transitioning from a state of regulation to a state of deregulation because deregulation acts as a Schumpeterian shock (Silverman, Nickerson, and Freeman, 1997). Managers have much greater freedom to enact decisions in a deregulated environment as opposed to a regulated environment.

Growth Restrictions In A Regulated Environment

Regulation has a tendency to maintain inefficient practices (Viscusi, Vernon, and Harrington 1992). The most important negative effects of regulation are the inefficiencies that it forces by the detailed and intensive restrictions it places on firms and their operations (Kahn 1971). To a certain extent, many of the inefficiencies created by regulation are eliminated when an industry is deregulated. Table 1 depicts the fundamental changes which occur when an industry moves from a state of regulation to a state of deregulation.

TABLE 1
Fundamental Differences Between
Regulated And Deregulated Industries(*)

                                               Existence Of Condition

  Condition                                   Regulated    Deregulated

: Control on number of firms                    Yes           No
: Market share is controlled                    Yes           No
: Market entry is limited                       Yes           No
: Price and profitability are controlled        Yes           No
: Competition is limited                        Yes           No
: Scale operating authority is                  Yes           No
  constrained

(*) Mahon and Murray 1981; Smith and Grimm 1987; Vietor 1989; Reger,
Duhaime, and Stimpert 1992; Hambrick and Finkelstein 1987.

On balance, the decision to regulate is a decision which imposes constraints on firms in regulated industries (Kahn, 1971). …