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Resource–Based Theory and Alliances

The firm, under the resource–based view, is a seeker of valuable, unique, and costly–to–copy inputs which account for resource differences that are rare, non–substitutable and inimitable, permitting a firm to be more efficient and competitive (Conner, 1991, 1996; Rumelt, 1984, 1987; Barney, 1991). A firm’s ability to compete in its chosen product market is attributable to qualities of the resources a firm employs to support its competitive position.

Thus the resource–based approach to strategic management focuses on attributes of the firm as the drivers of performance and competitive advantage (Conner, 1991; Barney, 1986, 1991, Rumelt, 1984, 1987; Wernerfelt, 1982). Conner and Prahalad (1996) suggest that a resource–based theory of the firm entails a knowledge–based perspective. The authors of the present paper maintain that the nature of these resources and the need for specialized knowledge combinations are prerequisites for the success of organizational alliances. Further, we argue that through alliances, the costly to copy attributes of the firm are exchanged in a more cost efficient manner than if each firm acquires these resources independently.

The prevailing conceptualization of industry competition has been relatively static within the field of strategy, often rooted in the preoccupation of IO economics. Much of the dominant research has addressed the ways that powerful incumbent firms maintain their dominant positions by limiting entry through oligopolistic practices (Porter, 1980; Jacobson, 1992). A number of researchers have urged the strategy field to adopt a more dynamic perspective founded on resource–based theory (Penrose, 1959; Barney, 1986, 1991; Conner, 1991, 1996; Wernerfelt, 1984; Rumelt, 1995). Resource–based theory both differentiates from and encompasses other economic–based models of strategic conduct (Mahoney & Pandian, 1992). Resource–based theory focuses upon the relationship between the assets and capabilities of the firm, while other economic theories focus on agency (Eisenhardt, 1989), property rights (Alchian, 1984; Coase, 1937), transaction cost economics (Williamson, 1985), and evolutionary economics (Nelson & Winter, 1982). However, resource–based theory also encompasses several aspects from its predecessor theories in IO economics (Conner, 1991), and encourages conversations between scholars from a variety of perspectives (Mahoney & Pandian, 1992). Table Two shows the interrelations between the resource–based view and other perspectives.

Examining structure, Conner and Prahalad suggest that “firms have already ‘beat[en] the market’ in the sense that the employees of a firm deem firm organization to be superior to the alternative of market contracts,” and propose that performance differences between firms are, “the degree to which each implements the productivity benefits arising from firm organization itself” (1996: 7). We agree that firms offer many superior benefits as organizational forms. However, we also contend that firms have a duality of nature, and that by achieving excellence in certain areas they leave other areas undeveloped.

We extend Conner and Prahalad’s work by exploring the benefits of governing long–term, firm specific, costly to copy assets through alliances. The resources of small and large firms may include privately held knowledge which alone is incomplete. The missing knowledge in each of these complementary resource sets provides the motivation to consider an alliance (Harrigan, 1985, 1988). The existing knowledge resources of a firm can be used to attract potential alliance partners as well as negotiate and maintain successful alliances. This is an extremely important point for entrepreneurial firms, since often in their early stages of development they lack the bargaining power to commercialize their private knowledge.

Table Three illustrates what happens in a situation where one firm has a specific set of knowledge and the other firm has a complementary set of knowledge, but neither firm has the same knowledge. In contrast to Table One, the firms in Table Three may realize negative outcomes if they do not cooperate. In the case of firms behaving opportunistically toward each other in this hypothetical alliance, both firms accrue negative outcomes.

In both Tables One and Three, firms benefit from forming cooperative alliances. The source of differential performance between the firms in Table One versus Table Three is the additional productivity benefits arising from the complementary resources contributed to the alliance. The combined knowledge of these firms has supplemented the individual weaknesses which each firm had prior to forming the alliance. Thus Table Three illustrates the third hypothesis of this paper:

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