Academic journal article Academy of Strategic Management Journal

Economics of Resource Based and Dynamic Capabilities View: A Contemporary Framework

Academic journal article Academy of Strategic Management Journal

Economics of Resource Based and Dynamic Capabilities View: A Contemporary Framework

Article excerpt

ABSTRACT

In strategic management literature, both Resource Based View (RBV) and Dynamic Capabilities Approach (DCA) have gained currency during the last decade. Despite the incredible popularity of these approaches, to date there has been a great deal of confusion about the economic basis of RBV and DCA. Viewing from the prism of unadulterated versions of Ricardo (1817) and Schumpeter (1934), this paper is a modest attempt to (i) provide a conceptual clarity about the rent generation process (ii) integrate RBV and DCA using the contemporary framework. The implications of the framework from strategic management literature are discussed.

INTRODUCTION

One of the burning questions in strategic management is how firms attain sustained competitive advantage. Taking cue from Andrews (197 1) that firms appraise the internal resources and competencies while formulating strategies, researchers focused on resources and capabilities as primary drivers for a firm's sustained competitive advantage. Following Penrose (1959), a research stream that dominated the strategic management literature consisted of contributions from several scholars in terms of resource based view (RBV) and dynamic capabilities approach (DCA). The intellectual currency for these approaches is coming from Barney (1986,1991), Lippman and Rumelt (1982), Wernerfelt (1984), Dierickx and Cool (1989), Castanias and Helfat (1991), Conner (1991), Mahoney and Pandian (1992), Teece (1980, 1982), Teece, Pisano & Shuen (1997), to name a few.

A literature review of these approaches reveals that each scholar has made an unique contribution to the field, though sometimes there is overlap of the concepts and terminological conflicts. Despite some disagreements about terminology (for review please refer to Teece et al (1997) for DCA and Priem & Butler (2001), Barney (2001) for RBV), strategy researchers are attempting to combine these two approaches viz. RBV and DCA. It is interesting to note that at both the approaches have used the classical economic concepts of rent generation process in their explanation of sustained competitive advantage. To be precise these are Ricardian rents and Schumpeterian rents. The underling economics of the RBV and the origins of heterogeneity have been emphasized by Barney (1991) while the DCA has incorporated Schumpeterian rents in the explanation of sustainable competitive advantage (Teece et al, 1997).

Let us consider some examples. In their classic paper on dynamic capabilities, Teece et al ( 1 997) have emphatically stated in table 1 that the nature of rents are 'Ricardian" for Resource-based perspectives and 'Schumpeterian' for Dynamic capabilities perspectives (p. 527). While synthesizing the resource based and dynamic capabilities views, in a recent paper, Makadok (200 1 ) mentioned:

"For those who take the Ricardian perspective (Ricardo, 1817) that has been codified into 'resource-based view' (e.g., Barney, 1986, 1997: 138-141: Conner, 1991; Montgomery and Wernerfelt, 1988; Peteraf, 1993; Wernerfelt, 1984), resourcepicking is the main mechanism for the creation of economic rent ...... However, as Mahoney and Pandian (1992) pint out, this Ricardian perspective has been challenged by Schumpeterian perspective (Schumpeter, 1 950) that has been codified into a 'dynamic -capability view' (e.g., Amit and Schoemaker, 1993; Dierickx and Cool, 1989; Mahoney, 1995; Nelson and winter, 1982; Teece, Pisano, and Schuen, 1997). This Schumpeterian dynamic-capability view highlights the importance of an alternative rent-creation mechanism - namely, capability building - which is rather different from resource-picking" (p 388).

The purpose of this paper is to bring to the attention to the strategic management scholars that the work at the conceptual level, particularly with regard to rent generation process, requires re-consideration lest it might misdirect the future researchers. Before going further, it is imperative to revisit the Ricardian and Schumpeterian concepts of rents and properly apply these to the sustained competitive advantage. …

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