A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter presents the resource-based theory of the firm, the knowledge-based theory of the firm, and the activity-based theory of the firm. With the widespread adoption of Internet technologies by firms, e-business models have emerged as a significant mechanism for service business. Both business and e-business models represent the commercial implementations of the business strategies chosen by the firms. This chapter, therefore, reviews the firm with a service orientation in terms of its value configuration, business model, and e-business model.
TopResource-Based Theory Of The Firm
The resource-based theory of the firm grew out of efforts to explain the growth of firms. Although its origins lay primarily in economics, researchers in strategy have developed the resource-based theory. The main attraction of the resource-based theory is that it focuses on explaining why firms are different and its effect on profitability. The main tenets of the resource-based theory are that firms differ in their resource endowments that these differences are persistent, and that firm-level performance differentials can be explained by analyzing a firm's resource position. Differences in resources are seen to lead to non-replicable efficiency rents.
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 et al. (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 IS/IT assets in the firm (Wade & Hulland, 2004).
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).