Within positioning school in strategic management, the resource-based view (RBV) of the firm has started to attract wide attention especially in 1980s and 1990s. Its roots dates back to the so-called heterogeneity argument introduced by Hatten and Schendel (1977). This perspective mainly claims that the competitive advantage and superior performance of an organisation depend heavily on the distinctiveness of its capabilities (Barney, 1991). It mainly assumes that economic rent can be derived from superior organizational resources (Barney, Wright, & Ketchen, 2001). It further argues that not only tangible resources and intangible resources but also organisation capabilities play crucial role in gaining sustainable competitive advantage (Barney, 1991). Therefore, differentiation towards uniqueness is the key element of RBV (Johnson, Scholes, & Whittington, 2008).
Since its inception, RBV has long been recognised as an effective theoretical lens in strategic management. For instance, Mahoney and Pendian (1992) discuss RBV and its related conversations with the fields of traditional strategy, organisational economics, and industrial organisation. The main argument of this study is that RBV provides an opportunity for a dialogue among scholars from these different research perspectives. Drawing on these different perspectives, the authors assert that RBV is a generalizable theory of the growth of the firm. RBV mainly deals with a firm's bundle of tangible and intangible resources and how these resources can be a source of sustained competitive advantage. This aspect has to do with traditional strategy approach. How a company appropriates its rents and what are the sources of these rents is discussed in this regard. Moreover, a company reaches the rent thanks to its distinctive competencies. This perspective emphasizes that firm specific resources can be seen as important ingredients in diversification process.
The preponderance of the existing studies indicates a positive relationship between differentiation and firm performance. For instance, Yamin, Gunesakaran, and Mavondo (1999) investigated the relationship among generic strategy, competitive advantage, and organizational performance in Australian manufacturing companies. They found compelling evidence that companies utilising both cost leadership and differentiation strategies effectively have better financial performance than any other group. In addition, in his empirical research on the relationship between value, rareness, competitive advantage, and performance among companies across different industries, Newbert (2008) found that value and rareness are positively associated with competitive advantage, that competitive advantage has in turn positive relationship with overall performance.
However, some studies point out that too much differentiation can be detrimental to company’s overall performance. For example, Deephouse (1999) explored the relationship between differentiation and financial performance in the American banking industry. Consequently, he found a strong evidence for a curvilinear relationship between differentiation and performance. In other word, as differentiation increases, so does performance, but only up to a certain point, after which, as differentiation continues to increase, performance decreases. Likewise, Natterman (2000) conducted a research on the relationship between differentiation and profitability in mobile phone and personal computer industries. Although he found a strong association between differentiation and profitability, he pointed out that best practices could eventually be too generic. Thus, companies might easily loose their positions for competitive advantage. Obviously, these two studies provide counterintuitive insights into understanding the relationship between differentiation and performance.
Over the last several decades, there has been a rapidly growing body of literature on institutional theory within organisation theory. Although its roots date back to Selznick’s seminal work (1948), which is widely accepted as old institutionalism or historical institutionalism, it has started to attract wide attention among management scholars in the early 1980s. Introduced by Meyer and Rowan (1977) and further developed by DiMaggio and Powell (1983), new institutionalism (also referred to as neo-institutionalism) has started to become a fundamental theoretical perspective in social sciences. Scott (2008, p. 48) defines institutions as “regulative, normative and cultural-cognitive elements that, together with associated activities and resources, provide stability and meaning to social life.”
In line with this definition, this perspective provides significant insights and implications as to how institutions compel agents (i.e., people, organisations) to behave in a similar way (Dacin, Goodstein, & Scott, 2002; Davis, 1991; DiMaggio & Powell, 1983). It further argues that organisations can gain their legitimacy, the acceptance by external environment, thanks to such an institutional isomorphism (Meyer & Rowan, 1977; Meyer & Scott, 1983). Such legitimacy is not only necessary for economic success but also necessary for managing conflicting logics arising from the existence of multiple institutional logics (Friedland & Alford, 1991; Thornton & Ocasio, 2008). In a nutshell, this perspective supports the idea that actors within an institutional field should express legitimate behaviour in order to survive.
It has been widely acknowledged that institutions might reduce uncertainty for actors by providing “the rules of the game” (North, 1990; Peng et al., 2009). Therefore, the conformity effect of this perspective can be more commonly seen in certain industries. For instance, in knowledge-based industries, where the uncertainty about the pillars of performance is high, companies tend to behave in a similar way. In his empirical study on the the American commercial banks, Deephouse (1996) found that organisational isomorphism increases organisational legitimacy. Accordingly, he found that the commercial banks that utilise similar strategies with other banks were conceived by regulators and people as being more legitimate than those that use different strategies.
In addition, McNamara, Haleblian and Dykes (2008) have investigated acquisition waves and their results in the U.S. Their analysis revealed consistent results with the research on bandwagon effects. They found that companies maintain their acts as to what others do although bandwagon strategy may lead to poor economic performance. As another example, several studies on adopting different management strategies such as outsourcing, re-engineering, technology adoption might be results of managerial fads and fashions. In their about TQM adoption among 2,700 U.S. hospitals, Westphal, Gulati, and Shortell (1997) found strong support for the influence of institutional factors on administrative innovations. The results showed that early adopters consider efficiency and economic gains, while later adopters focus more on gaining legitimacy from adopting the normative form of TQM practices. These examples are consistent with the prominent institutional isomorphism argument supported by institutional theory.
In sum, when taken separately, both RBV and IBV provide narrow explanation of the relationship between differentiation and performance. In order to achieve a fuller picture, this paper promotes the idea that these theoretical views should be taken together. In this regard, the next section discusses the integration of these two perspectives.
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