The dynamic interplay of capability strengths and weaknesses: investigating, страница 6

In total, increases in a firm’s strength set differentiate it from rivals, allowing it to satisfy more end-users. The complementarities among the strengths multiply the value that can be created for the customer as each increase. In addition, the unique actions and responses possible with increasing strengths also enhance the value the firm can provide to customers above and beyond that provided by rivals. Based on these arguments, a firm’s strength set is likely to have an increasingly positive effect on relative performance.

Hypothesis 1 (H1). There is positive curvilinear relationship between a firm’s strength set and relative performance. The relationship grows increasingly positive as the firm’s strength set increases.

Next, we consider how the firm’s weakness set affects relative performance.

Firm’s weakness set and relative performance

Similar to strengths, complementarities can exist among the firm’s set of capability weaknesses, where the marginal value of a weakness decreases with increases in other capability weaknesses. Thus, akin to grouping several strengths, groups of weaknesses together are likely to produce increasingly negative performance outcomes. Research in competitive dynamics suggests that at least three factors contribute to a negative curvilinear relationship between the firm’s weakness set and relative performance: (1) likelihood of being attacked, (2) inefficiencies, and (3) inability to exploit opportunities.

A traditional war strategy is to attack rivals in areas of weakness; the same logic is applicable in the current competitive landscape (Bettis and Hitt, 1995; Grimm and Smith, 1997). Thus, turning the awareness-motivation-capability perspective around suggests that executives should expect rivals to attack in areas where their firm is weak (Hitt, Ireland, and Hoskisson, 2009). West and DeCastro argue this is true because weaknesses ‘lay open the organization to critical strategic vulnerabilities’ (2001: 418). As a result, when a firm has weaknesses, the number and intensity of competitor attacks are likely to be higher and stronger. As the number and intensity of attacks increase, sales are likely to suffer and the possibility of repeat sales dissipates. This leads to increasingly negative relative performance.

Additionally, the weakness set can increase a firm’s cost structure, which, in turn, impedes the firm’s ability to profitably satisfy end-users. For example, costs increase from assigning employees to perform tasks for which they are inadequately trained. As a result, they perform the task poorly, requiring additional service to correct problems and/or to mollify dissatisfied customers. Furthermore, these weaknesses can be self-reinforcing (e.g., loss of repeat customers), thereby impairing future performance. For instance, LeonardBarton (1992) argues that the most skilled people in a functional domain seek employment where their skills and abilities are highly respected and rewarded. Thus, as the best-trained people migrate to the top firms in their functional domain, the firms with less effective functional skills will

become increasingly inefficient relative to their rivals, thus increasing their weakness sets.