The dynamic interplay of capability strengths and weaknesses: investigating, страница 2

Despite these foundational positions, the dozens of empirical papers adopting a RBV framework have addressed only the effects of strengths on competitive outcomes. In contrast, only one piece, Arend (2008), has attempted to empirically demonstrate that strategic liabilities matter as well. Despite Arend’s important work demonstrating that weaknesses influence firm turnarounds, much remains unknown about the influence of capability weaknesses on a firm’s competitive advantage. In fact, the omission of weaknesses has been identified as a major shortcoming of the RBV (West and DeCastro, 2001), one that has led to the theoretical and empirical misspecification of competitive advantage. This suggests that our current understanding of the bases of competitive advantage is likely incomplete and its complex nature underappreciated. Indeed, this omission has ignited a theoretical debate (see Arend, 2003, 2004; Durand, 2002; Powell, 2001, 2002, 2003), along with calls to empirically examine the influence of capability weaknesses. For example, Arend states that ‘the RBV only tells half of the story; the RBV considers only factors that positively contribute to sustained performance’ (2004: 1003), while Montgomery implores researchers to examine ‘the dark side of the resource spectrum’ and the performance effects of firms having ‘liabilities in their resource inventory’ (1995: 261). Moreover, Armstrong and Shimizu (2007: 980) argue that ‘demonstrating negative effects within the RBV framework will cross-validate the theoretical value of the RBV.’

This study heeds these calls to more fully explore the bases of competitive advantage as well as investigating factors that affect change in them. First, in light of the highly competitive markets in which firms must operate to gain any competitive advantage, we direct attention to the dynamic interdependence among multiple rivals and specifically their sets of capabilities. Importantly, in such rivalrous markets, we suggest that it is the relative (to competitors) instead of an absolute quality of capabilities that matters most for competitive advantage. Using this as a frame, we develop theory that guides our empirical investigation of the direct and integrated effects of both capability strengths and weaknesses on competitive advantage and its empirical correlate—relative performance (Arend, 2003). More specifically, by extending Arend’s concept of strategic liabilities to incorporate a comparative lens (Jacobides and Winter, 2005), we identify in a more fine-grained manner a firm’s individual capabilities as either a strength or a weakness (two distinct concepts) in relation to rivals. Moreover, because firms are conceptualized as bundles of capabilities, we examine multiple capabilities simultaneously, allowing us to study the direct and integrative effects of strength and weakness sets on relative performance. Second, we explore how environmental and firm-specific factors affect change in a firm’s strength and weakness sets, which allows us to better understand the dynamics related to the durability of competitive

advantage. This is especially important when firms in highly dynamic and rivalrous landscapes attempt to concatenate a series of temporary advantages.

Our theoretical and empirical examination offers several contributions to the literature. First, our extension of the strategic liabilities concept adds a richer understanding of how a comparative approach to value and rarity helps distinguish between capability strengths and weaknesses (e.g., Priem and Butler, 2001). Moreover, this effort complements investigations of rivals’ dyadic action sequences (Ferrier et al., 1999), by reflecting more generally how relative strengths and weaknesses create a dynamic interdependence between multiple rivals competing in the same market space.

Second, focusing on capability sets, as opposed to one or two individual capabilities, demonstrates a more complete and, perhaps, accurate view of the relationship between capabilities and competitive outcomes. While prior research supports a positive relationship between capability strengths and performance (e.g., Carmeli and Tishler, 2004), we show that groups of strengths jointly produce a strong synergistic effect on relative performance. Additionally, we find that sets of weaknesses negatively affect relative performance. Most importantly, however, the integrative effects of strength and weakness sets suggest that the bases for even temporary competitive advantage are more complex than previously thought. For example, our results suggest that weaknesses can undermine the potential competitive advantage of firms possessing strengths; however, combining high levels of strengths with high levels of weaknesses can actually produce high relative performance, albeit with significant variation in realized performance (i.e., risky combination). Together, these contributions advance our understanding of the bases for competitive advantage from largely a single channel focus (i.e., identifying at least one valuable and rare capability) to a multi-channel understanding in which both strengths and weaknesses (and sets thereof) are considered simultaneously.