The dynamic interplay of capability strengths and weaknesses: investigating, страница 8

To the degree that managers are able to identify weaknesses and strengths, the first alternative they would likely consider is eliminating weaknesses while enhancing strengths. However, it should be noted that pairing high strengths with high weaknesses can provide some efficiencies to the firm. Specifically, selective allocation allows a firm to maximize the impact of its limited investment resources. Managers can carefully choose which capabilities to emphasize and focus their investments in those selected capabilities. By focusing their investments, they are more likely to realize capability strengths. This selective investment process forces trade-offs. The emphasis on certain capabilities requires a deemphasis of investments in others, likely those the managers deem less important for the strategies they have formulated. Thus, by maximizing

investments in capabilities that support a selective set of strategic actions (e.g., process innovation, internationalization, or M&As), managers can better ensure these capabilities are superior to rivals and simultaneously acknowledge their weaknesses. Additionally, explicitly considering both strengths and weaknesses can stimulate positive outcomes by increasing the breadth of the managers’ field of vision (Hambrick and Mason, 1984), enhancing the comprehensiveness of their decision making (Simons, Pelled, and Smith, 1999), reducing strategic myopia and complacency (Levinthal and March, 1993), and leading to strategic consensus (Knight et al., 1999).

Firms pursuing this selective investment pattern will not possess a robust advantage, but instead may be thought to have a precarious advantage. While efficient in terms of investment costs, a precarious advantage requires managers to contend with both high strengths and weaknesses. Specifically, a precarious advantage requires managers to optimize a set of constrained competitive actions to leverage the firm’s strengths and avoid or buffer against its weaknesses. For example, Costco has developed a focused set of important capabilities (e.g., supplier relations, human resources, and procurement) to offer superior value to a selected segment of customers with a limited set of merchandise relative to competitors that target a broader range of customers using a vast array of merchandise (Bell and Leamon, 1998). Research shows that competitive simplicity can produce highly variable performance outcomes (e.g., Ferrier and Lyon, 2004; Miller and Chen, 1996). Thus, high levels of strength allow for effective, yet limited, competitive actions, while high levels of weakness make the firm susceptible to attack. As such, the performance effects of a precarious advantage are likely to be vulnerable; such an advantage can lead to positive performance, yet with increased levels of variation in the realized positive outcomes as opposed to firms possessing a robust advantage.

Formally, we list the following hypotheses for firms represented by Cells II, III, and IV.^[3]

Hypothesis 3a (H3a). The integration of a high strength set with a low weakness set has a positive effect on relative performance.

Hypothesis 3b (H3b). The integration of a low strength set with a high weakness set has a negative effect on relative performance.

Hypothesis 3c (H3c). The integration of a high strength set with a high weakness set has a positive effect on relative performance.

Hypothesis 3d (H3d). Precarious advantage produces greater variation in performance outcomes than does a robust advantage.

Because we expect both strength and weakness sets to affect relative performance, understanding factors that influence change in these drivers informs the durability of any advantage.

Change in strength and weakness sets over time

The drive for profits increases dynamism in the competitive landscape (Bettis and Hitt, 1995; Ferrier, 2001). With such dynamic rivalry, scholars argue that competitive advantage is fleeting (D’Aveni, 1994) and empirical results exist that support this contention (Wiggins and Ruefli, 2005). Beyond a general indictment of high levels of rivalry, our understanding of the dynamics related to the durability of competitive advantage is limited. Indeed, if firms’ strength and weakness sets change significantly over time, these changes could undermine the durability of a firm’s competitive advantage (or, in some cases, help build a new competitive advantage).