How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints
Introduction
Merely emphasizing the resources possessed by a firm can lead to our incomplete understanding of firm performance; thus, resource-based theory (RBT) literature has increased its attention to integrating resource-related processes that convert firm resources to firm capabilities (e.g., Barney et al., 2011; Kraaijenbrink et al., 2010; Ray et al., 2004; Sirmon et al., 2011). In line with this burgeoning interest in the resource-related processes, Sirmon et al. (2011) suggested the theoretical framework of resource orchestration (RO) that addresses resource-related processes, which have been overlooked in the RBT (Sirmon et al., 2007, 2011). Based on the legacy of the RO theory, subsequent research has investigated how resources/capabilities1 can be effectively orchestrated to lead to better firm outcomes (Amit and Han, 2017; Bridoux et al., 2013; Li and Jia, 2018; Liu et al., 2016; Ndofor et al., 2015; Zeng and Khan, 2019).
These theoretical and empirical advances provide valuable insights into “how a firm directs the use of its resources as opposed to which resources a firm possesses” (Hansen et al., 2004: p. 1281) and how RO affects firm performance. However, although “the resource management process is at least partially sequential in nature,” (Sirmon et al., 2007: p. 275) the prior RO literature has mainly paid attention to a firm's architectural design for enhancing firm value through optimal resource configuration from a static perspective or structural RO (e.g., Chadwick et al., 2015; Hughes et al., 2018; Liu et al., 2016). Therefore, our understanding of how firms dynamically orchestrate resources to enhance their capabilities over time and how such RO affects firm performance is still incomplete.
Our study, in this respect, attempts to shed new light on dynamic RO, which indicates how firms sequentially and rhythmically orchestrate resources over time to achieve sustainable competitive advantages. This dynamic RO process can be more unambiguously identified under resource constraints because firms facing these constraints have difficulty in simultaneously allocating resources between two fundamental corporate activities (Ebben and Johnson, 2005; Voss and Voss, 2013): value creation from technology (enacted by R&D) and value appropriation from the market (enacted by advertising) (Drucker, 1954; Lin et al., 2006; Mizik and Jacobson, 2003; Sung et al., 2019). Specifically, sequentially pursuing the two goals over time is more feasible and effective for firms with a limited set of resources.2 Thus, this study explores how firms with resource constraints strategically orchestrate resources between technology and market over time and how such dynamic RO modes affect firm performance.
We postulate that the relative dominance of RO between technology and market varies over time—shaping firms’ particular behavior patterns. Specifically, building on the sequential separation literature, which provides useful insights into how to pursue two competing goals sequentially (Cyert and March 1963; Duncan, 1976; Gibson and Birkinshaw, 2004), we suggest that firms can pay more attention to technology at a certain period, but they can also focus on market at the other period, and vice versa. We also suggest that firms can intensify their existing focus on either technology or market. In this paper, to specify the dynamic RO modes, we coin the terms focus alternation, which refers to the change in RO to switch the previously dominated activity (either technology or market), and focus escalation, which refers to the change in RO to reinforce the previously dominated activity (either technology or market).3
With the dynamic RO modes of technology and market, we argue that under resource constraints, a firm's focus escalation for either technology or market will positively influence firm performance. We also contend that focus alternation toward technology or market will contribute to positive firm performance. To test our ideas regarding the relationship between dynamic RO modes and firm performance, we sample 4078 small and medium-sized enterprises (SMEs) in manufacturing industries between 1984 and 2018 from S&P's Compustat database and specified dynamic patterns in terms of the orchestration of research and development (R&D) and advertising investments. Then, we explore which patterns can enhance firm performance, considered as Tobin's q. We found that the dynamic RO modes, other than market focus escalation, positively contribute to SMEs' performance.
This study provides several theoretical contributions and practical implications. First, our study advances the RO-performance link by suggesting theoretical and empirical underpinnings of dynamic RO. This approach provides useful insights into how a firm can enhance its performance through dynamic RO between technology and market under resource constraints. Second, our research sheds new light on the value of essential resources in the dynamic RO process. Specifically, given that technology (enacted by R&D) and market (enacted by advertising), by nature, show carry-over economies of synergy or scope (Hirschey, 1982; Villalonga, 2004; Levinthal and Wu, 2010; Nason and Wiklund, 2018; Teece, 1980), the value of such resources can be materialized through the dynamic RO. Finally, our findings imply that dynamic RO between technology and market will be helpful for firms facing resource constraints. Specifically, dynamic RO modes, other than market focus escalation, are positively related to firm performance. One thing to note is that, given that the sample population of this research is SMEs in manufacturing industries, market focus escalation that causes SMEs to be more obsessed with value appropriation in the market will be fruitless in improving firm performance without the value creation from technology.
Section snippets
Orchestration of fundamental resources
“Because its purpose is to create a customer, the business enterprise has two – and only these two – basic functions: innovation and marketing” (Drucker, 1954: pp. 37–38). These two fundamental activities of firms represent value creation and value appropriation, which are, in practice, translated into firm investment in technology (enacted by R&D) and market (enacted by advertising), respectively (e.g., Chauvin and Hirschey, 1993; Ho et al., 2005; Lin et al., 2006; Mizik and Jacobson, 2003;
Sample and data
The hypotheses regarding how firms' dynamic RO modes influence firm performance under resource constraints are tested in the context of small and medium-sized enterprises (SMEs) in manufacturing industries. In this study, we have paid attention to SMEs as resource-constrained environments for the following reasons. First, compared to large, established firms, SMEs are obviously meagerly endowed with resources. Second, SMEs face structural problems of access to financing (Freel, 2007).
Hypothesis tests
Table 4 presents the estimations of Tobin's q with respect to control variables and the variables related to dynamic RO modes, based on the social reference level. Model 1 included only control variables. In Model 2, the hypothesized variable technology focus and market focus were added into Model 1 to estimate Tobin's q.
The estimation results of Model 2 reveal that, although technology focus is not significantly related to Tobin's q, market focus has a positive effect on Tobin's q. In Models
Discussion and conclusion
This study investigates how firms facing resource constraints can attain competitive advantages through dynamic RO. With the dynamic approach to enhancing firm value, we identify firms' four RO modes—(1) technology focus escalation, (2) market focus escalation, (3) focus alternation toward technology, and (4) focus alternation toward market under resource constraints—and examine how the dynamic RO modes affect their performance. From the empirical analysis, we found that, under resource
Author statement
Juil Lee: Conceptualization, Methodology, Software, Validation, Formal Analysis, Investigation, Writing (Original Draft and Review & Editing), Visualization
Sang-Joon Kim: Conceptualization, Methodology, Software, Validation, Formal Analysis, Investigation, Writing (Original Draft and Review & Editing), Visualization
Funding
The first author acknowledged that this work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2019S1A5B5A01047033).
Juil Lee is an assistant professor at University of Ulsan, South Korea. He received his PhD degree in Strategy from Yonsei University, South Korea. His research interests lie in the area of organizational learning and change, entrepreneurship and innovation, and small and medium enterprises. His research has been published in Journal of Management & Organization, Asia Pacific Journal of Small Business, Korean Journal of Management, etc.
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Cited by (1)
Juil Lee is an assistant professor at University of Ulsan, South Korea. He received his PhD degree in Strategy from Yonsei University, South Korea. His research interests lie in the area of organizational learning and change, entrepreneurship and innovation, and small and medium enterprises. His research has been published in Journal of Management & Organization, Asia Pacific Journal of Small Business, Korean Journal of Management, etc.
Sang-Joon Kim is an assistant professor at Ewha School of Business, Ewha Womans University, South Korea. He holds a Ph.D. in Management from the Paul Merage School of Business, University of California, Irvine. His research interests center on the evolutionary dynamics of technology-based firms, including innovation and ambidexterity, and understanding social construction aspects of organizational ecology. He has published his works in the Academy of Management Journal, Strategic Management Journal, Journal of Business Ethics, and other management-related journals.