Outsourcing of IT Resources: Basic Principles

Capabilities And Knowledge As Strategic Resources

The resource-based theory prescribes that firm resources are the main driver of firm performance. The resources to conceive choose, and implement strategies are likely to be heterogeneously distributed across firms, which in turn are posited to account for the differences in firm performance. This theory posits that firm resources are rent yielding, when they are Valuable, Rare, Inimitable, and Non-substitutable (VRIN). Moreover, resources tend to survive competitive imitation because of isolating mechanisms such as causal ambiguity, time-compression diseconomies, embeddedness, and path dependencies (Ravichandran & Lertwongsatien, 2005).

Firms develop firm-specific resources and then renew these to respond to shifts in the business environment. As discussed in Chapters 2 and 3, firms develop dynamic capabilities to adapt to changing environments. According to Pettus (2001), the term dynamic refers to the capacity to renew resource positions to achieve congruence with changing environmental conditions. A capability refers to the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional capabilities to match the requirements of a changing environment.

If firms are to develop dynamic capabilities, learning is crucial. Change is costly; therefore, the ability of firms to make necessary adjustments depends upon their ability to scan the environment to evaluate markets and competitors and to quickly accomplish reconfiguration and transformation ahead of competition. However, history matters. Thus, opportunities for growth will involve dynamic capabilities closely related to existing capabilities. As such, opportunities will be most effective when they are close to previous resource use (Pettus, 2001). Firm renews or reconfigures its resources or operational capabilities, through its higher-level dynamic capabilities, in order exploit the new opportunities (Helfat & Peteraf, 2003; Teece, 2007).