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Theories and Models of Business Firms

Copyright © 2009. 30 pages.
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DOI: 10.4018/978-1-59904-802-4.ch001|
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MLA

Chew, Eng K. and Petter Gottschalk. "Theories and Models of Business Firms." Information Technology Strategy and Management: Best Practices. IGI Global, 2009. 1-30. Web. 23 Nov. 2014. doi:10.4018/978-1-59904-802-4.ch001

APA

Chew, E. K., & Gottschalk, P. (2009). Theories and Models of Business Firms. In E. Chew, & P. Gottschalk (Eds.) Information Technology Strategy and Management: Best Practices (pp. 1-30). Hershey, PA: Information Science Reference. doi:10.4018/978-1-59904-802-4.ch001

Chicago

Chew, Eng K. and Petter Gottschalk. "Theories and Models of Business Firms." In Information Technology Strategy and Management: Best Practices, ed. Eng K. Chew and Petter Gottschalk, 1-30 (2009), accessed November 23, 2014. doi:10.4018/978-1-59904-802-4.ch001

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Abstract

A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter will present the resource-based theory of the firm, the activity-based theory of the firm, and the firm in terms of its value configuration, business model, and e-business models. These theories and models describe conceptually how the firm is constructed and resourced in delivering uniquely differentiated customer value in sustainable ways. It highlights the ways in which IT is used in the process of value and revenue creation for the firm using the chosen value configuration. It also classifies the ways in which Internet-based business strategy, known as e-strategy, may be represented as ebusiness models. The purpose of IT strategy, which is the core subject of this book, is about analyzing the business vision, mission, and strategy and defining the value configuration (business process or business model) and the attendant IT architectural model from which the requisite IT infrastructure to support or enable the firm’s business operating model is designed and implemented. It is hoped that by illustrating to the readers the varying contexts in which IT can add value to the business in each of the value configurations or e-business models, the integral nature of the ways that IT has embedded in our business today can be better appreciated. An understanding of firm theories and value configurations is important to later discussions of the topics in the book. The resource-based theory is applied to understand resources needed for e-business, sourcing, and governance. An important resource is knowledge in terms of know-what, know-how, and know-why. Knowledge management theory andprinciples and their relevance to business innovation will be discussed in Chapter XI of the book.
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Resource-Based Theory Of The Firm

According to the resource-based theory of the firm, performance differences across firms can be attributed to the variance in the firms’ resources and capabilities. Resources that are valuable, unique, and difficult to imitate can provide the basis for firms’ competitive advantages. In turn, these competitive advantages produce positive returns. According to Hitt, Bierman, Shimizu, and Kochhar (2001), most of the few empirical tests of the resource-based theory that have been conducted have supported positive, direct effects of resources. An important and often critical resource is information systems/information technology (IS/IT) applications in the firm.

The essence of the resource-based theory of the firm lies in its emphasis on the internal resources available to the firm, rather than on the external opportunities and threats dictated by industry conditions. Firms are considered to be highly heterogeneous, and the bundles of resources available to each firm are different. This is both because firms have different initial resource endowments and because managerial decisions affect resource accumulation and the direction of firm growth as well as resource utilization (Loewendahl, 2000).

The resource-based theory of the firm holds that, in order to generate sustainable competitive advantage, a resource must provide economic value and must be presently scarce, difficult to imitate, nonsubstitutable, and not readily obtainable in factor markets. This theory rests on two key points: first, that resources are the determinants of firm performance and, second, that resources must be rare, valuable, difficult to imitate, and nonsubstitutable by other rare resources. When the latter occurs, a competitive advantage has been created (Priem & Butler, 2001).

Resources can simultaneously be characterized as valuable, rare, nonsubstitutable, and inimitable. To the extent that an organization’s physical assets, infrastructure, and workforce satisfy these criteria, they qualify as resources. A firm’s performance depends fundamentally on its ability to have a distinctive, sustainable competitive advantage, which derives from the possession of firm-specific resources (Priem & Butler, 2001).

The resource-based theory is a useful perspective in strategic management. Research on the competitive implications of such firm resources as knowledge, learning, culture, teamwork, and human capital, was given a significant boost by resource-based theory. This theory indicates it is these kinds of resources that are most likely to be sources of sustainable competitive advantage for firms (Barney, 2001). We will return to discussion of knowledge management and business innovation in Chapter XI.

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Complete Chapter List

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Table of Contents
Foreword
Michael K. M. Leung
Chapter 1
Eng K. Chew, Petter Gottschalk
A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter will present the... Sample PDF
Theories and Models of Business Firms
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Chapter 2
Eng K. Chew, Petter Gottschalk
Building on the understanding of the theories and models of firms, this chapter reviews the basic principles of strategic management of business... Sample PDF
Strategic Management Principles
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Chapter 3
Eng K. Chew, Petter Gottschalk
Over the last several decades, strategy researchers have devoted attention to the question of how corporate elites (i.e., corporate executives and... Sample PDF
Strategic Alignment, IT Value, and Organizational Analysis
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Chapter 4
Eng K. Chew, Petter Gottschalk
As discussed in Chapter III, a successful IT strategy must align with the business, fully at every stage of the end-to-end strategic management... Sample PDF
Critical Success Factors of IT Strategy
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Chapter 5
Eng K. Chew, Petter Gottschalk
Chapter IV defines the macromodel for achieving business/IT alignment. This chapter defines the detailed methodology for each step of the IT... Sample PDF
Strategic Alignment for Business Value Creation
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Chapter 6
Eng K. Chew, Petter Gottschalk
The role of integrated enterprise architecture in IT strategy and strategic alignment is explained in Chapter V. This chapter describes in detail... Sample PDF
Enterprise and Technology Architectures
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Chapter 7
Eng K. Chew, Petter Gottschalk
The previous chapters describe how IT strategy and enterprise architecture can be defined in line with business strategy. The success of business... Sample PDF
Strategic Programs: Planning and Execution
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Chapter 8
Eng K. Chew, Petter Gottschalk
As introduced in Chapter II and Chapter V, performance differences across firms can be attributed to the variance in firms’ resources and... Sample PDF
Strategic IT Resources and Sourcing Strategy
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Chapter 9
Eng K. Chew, Petter Gottschalk
In many organizations, information technology has become crucial in the support, sustainability, and growth of the business. This pervasive use of... Sample PDF
The CIO Enabling IT Governance
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Chapter 10
Eng K. Chew, Petter Gottschalk
The Global CEO Survey by IBM (2006) shows that two thirds of the CEOs anticipate significant change to their companies over the next two years. The... Sample PDF
Business Innovation and Information Management
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Chapter 11
Eng K. Chew, Petter Gottschalk
As described in Chapter X, fundamental to the company’s innovation capabilities is the level of collaboration and knowledge management capabilities... Sample PDF
Innovation and Driven Knowledge Management
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Chapter 12
Eng K. Chew, Petter Gottschalk
This chapter is about the “know-how” part of IT strategy and management best practices. This case example aims to illustrate a successful practical... Sample PDF
Business-Aligned IT Strategy Case Example: CLP Group, Hong Kong
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