The co-evolution of organizational value capture, value creation and sustainable advantage

Pitelis, Christos (2009): The co-evolution of organizational value capture, value creation and sustainable advantage. Published in: Organization Studies , Vol. 10, No. 30

Abstract

Despite recent emphasis on intra-organizational issues, scholarship on organizations, management and strategy remains unduly reliant on economic models, such as the industrial organization (IO) market structure-based analysis. The focus of such models is on price-output determination by firms and the economy-wide efficient allocation of scarce resources under conditions of full knowledge and certainty. This limits their usefulness for students of organizations who have concerns that are simultaneously wider and also focused on organizations, as opposed to just markets. In this paper, we aim to provide an answer and framework for analysing the most fundamental, indeed existential, issue of organization studies and strategic management scholarship. This is whether and how the pursuit of value capture from economic agents who perceive that they possess appropriable value creating advantages, capabilities and action potential, can motivate the emergence of organizations and their strategies and actions intended to capture socially co-created value in conditions of real life . To do so, we explore (the co-evolution of) value capture and creation and (their relationship to) organizational sustainable advantage (SA). In particular, we delve into the nature, determinants and relationship between organizational value capture and creation and explore causal pathways, trade-offs and their co-evolution, as well as vehicles through which SA can be effected in an evolving and uncertain environment. We also discuss implications for managerial practice, limitations and future research opportunities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Value Creation, Value Capture, Sustainable Advantage, Co-evolution
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M0 - General > M00 - General; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; B - History of Economic Thought, Methodology, and Heterodox Approaches > B0 - General > B00 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M20 - General

References

Adner, R., and Zemsky, P. 2006 ‘A demand-based perspective on sustainable competitive advantage’. Strategic Management Journal 27: 215-239.

Aghion, P., and Durlaf, S. editors 2005 Handbook of economic growth. Amsterdam & London: Elsevier.

Alvarez, S.A., and Barney, J.B. 2007 ‘Discovery and creation: alternative theories of entrepreneurial action’. Strategic Entrepreneurship Journal 1/1-2: 11-26.

Amit, R,. and Schoemaker, P. J.H. 1993 ‘Strategic assets and organizational rent’. Strategic Management Journal 14: 33-46.

Amit, R., and Zott, C. 2001 ‘Value creation in e-business’. Strategic Management Journal 22: 493-520.

Ando, A., and Modigliani, F. 1963 ‘The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests’. The American Economic Review 53: 55–84.

Arrow, K. J. 1962 ‘The economic implications of learning by doing’. Review of Economic Studies 29: 155-73.

Augier, M., and Teece, D. 2008 ‘Strategy as evolution with design: Dynamic capabilities and the design and evolution of the business enterprise’. Organization Studies: 29: 1187-1208.

Bain, J. S. 1956. Barriers to new competition: their character and consequences for manufacturing industries. Boston, MA: Harvard University Press.

Barney, J. B. 1986 ‘Strategic factor markets: Expectations, lucks and business strategy’. Management Science 32: 1231-1241.

Barney, J. B. 1991 ‘Firm resources and sustained competitive advantage’, Journal of Management 17/1: 99-120.

Baumol, W. J. 1982 ‘Contestable markets: an uprising in the theory of industry structure’. American Economic Review 72/1: 1-15.

Baumol, W. J. 1991 Perfect markets and easy virtue: Business ethics and the invisible hand, Oxford: Basil Blackwell.

Baumol, W. J. 2002 The free-market innovation machine: Analyzing the growth miracle of capitalism. Princeton: Princeton University Press.

Best, M. H. 1990 The New Competition: Institutions for Industrial Restructuring, Cambridge and Oxford: Polity Press

Birkinshaw, J., and Hood, N., eds 1998 Multinational corporate evolution and subsidiary development. Basingstoke: Macmillan.

Bowman, C., and Ambrosini, V. 2000 ‘Value creation versus value capture: Towards a coherent definition of value in strategy’. British Journal of Management 11/1; 1-15.

Bowman, C., and Swart, J. 2007 ‘Whose human capital? The challenge of value capture when capital is embedded’. Journal of Management Studies 44/4: 488-505.

Brandenburger A., and Nalebuff B. 1995 ‘The right game: Use game theory to shape strategy’. Harvard Business Review 73/4: 57-71.

Brandenburger A., and Stuart, H. 1996 ‘Value-based business strategy’. Journal of Economics & Management Strategy 5/1:5-24.

Brandenburger A., and Stuart, H. 2007 ‘Biform Games’. Management Science 53/4:537-549.

Brown, A. 2008 ‘A materialist development of some recent contributions to the labour theory of value’. Cambridge Journal of Economics 32: 125–146.

Cantwell, J. A. 1989 Technological innovation and multinational corporations. Oxford: Basil, Blackwell.

Casson, M., Yeung, B., Basu, A. and Wadeson, N. 2006 The Oxford handbook of entrepreneurship. New York: Oxford University Press.

Chandler, A. D. 1962 Strategy and structure: Chapters in the history of the industrial enterprise. Cambridge, MA: MIT Press.

Chesbourgh, W. H. 2003 ‘The era of open innovation’. Sloan Management Review 44: 35-41.

Chesbourgh, W. H., and Rosenbloom, S. R. 2002 ‘The role of the business model in capturing value from innovation: Evidence from Xerox corporation’s technology spin-off companies’. Industrial and Corporate Change 11/3: 529-555.

Coase, R. H. 1937 ‘The nature of the firm’. Economica 4: 386-405.

Coff, R.W. 1997 ‘Human assets and management dilemmas: Coping with hazards on the road to resource-based theory’. Academy of Management Review 22/2:374-402.

Coff, R.W. 1999 ‘When competitive advantage doesn’t lead to performance: The resource-based view and stakeholder bargaining power’. Organization Science 10/2: 119-131.

Collis, D. J., and Montgomery, C.A. 1995. ‘Competing on resources’. Harvard Business Review July-August: 118-128

Collins, D. J., and Montgomery, C.A. 1998 ‘Creating corporate advantage’ Harvard Business Review 76/3: 70-83.

Cyert, R. M., and March, J. G., eds 1963/1992 A behavioral theory of the firm, 2nd edition. Englewood Cliffs, NJ: Prentice Hall.

Debreu, G. 1959 Theory of value. New York: Wiley.

Demsetz, H. 1973 ‘Industry structure, market rivalry, and public policy’. Journal of Law and Economics 16: 1-9.

Dobb, M. 1973 Theories of value and distribution since Adam Smith: ideology and economic theory. Cambridge: Cambridge University Press.

Fagerberg, J., Mowery, D., and Nelson, R. R., editors 2005 The Oxford handbook of innovation. Oxford: Oxford University Press.

Felin, T., and Hesterly, W.S. 2007 ‘The knowledge-based view, nested heterogeneity, and new value creation: Philosophical considerations on the locus of knowledge’. Academy of Management Review 32/1: 195-218.

Foss N.J. 1993 ‘Theories of the firm: contractual and competence perspectives”. Journal of Evolutionary Economics 3/2: 127-144

Foss, N. J. 1999 ‘Edith Penrose, economics and strategic management’. Contributions to Political Economy 18: 87–104.

Foss, K., and Foss, N.J. 2005 ‘Resources and transaction costs: How property rights economics furthers the resource-based view’. Strategic Management Journal 26:541-553.

Foss, N.J., Klein, P.G., Kor, Y.Y. and Mahoney, J.T. 2008 ‘Entrepreneurship, subjectivism, and the resource-based view: toward a new synthesis’. Strategic Entrepreneurship Journal 2/1: 73-94.

Foss, N. J., and Loasby, B. J., editors 1998 Economic organization, capabilities and co-ordination essays in honour of G.B. Richardson. London & New York: Routledge.

Galbraith J. K. 1967/1972 The new industrial state, 2nd edition, Harmondsworth: Penguin.

Ghoshal, S., Hahn, M and Moran, P. 2002 ‘Management Competence, Firm Growth and Economic Progress’ in Pitelis, C. The Growth of the Firm: The Legacy of Edith Penrose, Oxford & New York: Oxford University Press.

Harcourt, G. C., and Cohen, A. J. 2003 ‘Retrospectives: Whatever happened to the Cambridge capital theory controversies?’ Journal of Economic Perspectives 17/4: 179-196.

Hedlund, G. 1986 ‘The hypermodern MNC: A heterarchy?’, Human Resource Management, 25: 9–36.

Helfat, C., Finkelstein, S., Mitchell, W., Peteraf, M. A., Singh, H., Teece, D. J., and Winter, S. G. 2007 Dynamic capabilities: Understanding strategic change in organizations. Oxford, U.K.: Blackwell.

Henderson, J. V. 2005 New economic geography. Northampton, MA: Elgar.

Hicks, J. R. 1939 Value and capital. Oxford: Oxford University Press.

Hunt, S.D. 2000 A General Theory of Competition: Resources, Competences, Productivity, Economic Growth (Marketing for a New Century). Sage Publications, Inc.

Ireland, R.D. 2007 ‘Strategy vs. entrepreneurship’. Strategic Entrepreneurship Journal 1/1-2: 7-10.

Kaldor, N. 1970 ‘The case for regional policies’. Scottish Journal of Political Economy 17/3: 337-348.

Kaldor, N. 1972 ‘The irrelevance of equilibrium economics’. Economic Journal 82: 1237-1255.

Kang, S-C., Morris, S.S., and Snell, S.A. 2007 ‘Relational Archetypes, Organizational Learning, and Value Creation: Extending the Human Resource Architecture.’ Academy of Management Review 32(1):236-256

Kay, J. 1995 Foundations of corporate success: How business strategies add value. Oxford: Oxford University Press.

Kay N. M. 1998 ‘Clusters of collaboration: the firms, joint ventures, alliances and clubs.’ Economic Organization, Capabilities, and Co-ordination: Essays in honour of G. B Richardson. N. J. Foss and B. J. Loasby (eds). London: Routledge.

Kim, J., and Mahoney, J. 2002. “Resource-Based and Property Rights Perspectives on Value Creation: The Case of Oil Field Unilization.” Managerial and Decision Economics, 23(4): 225-245.

Knight, F. H. 1921 Risk, uncertainty and profit. Boston, MA: Houghton Mifflin.

Krueger, A. 1974 ‘The political economy of the rent-seeking society’. American Economic Review 64: 291-303.

Krugman, P. R. 1991 Geography and trade. Cambridge, MA: MIT Press.

Krugman, P. 1996 ‘Making sense of the competitiveness debate’. Oxford Review of Economic Policy 12/3: 17-25.

Lepak, D. P., Smith, K. G., and Taylor, M. S. 2007 ‘Value creation and value capture: a multilevel perspective’. Academy of Management Review 32/1: 180-94.

Lippman, S.A. and Rumelt, R.P. 2003a ‘The payments perspective: Micro-foundations of resource analysis’. Strategic Management Journal 24:903-927.

Lippman, S. A. and Rumelt, R. P 2003b “A Bargaining Perspective on Resource Advantage”. Strategic Management Journal, 24: 1069-86.

Loasby, B. J. 1996 Choice, complexity and ignorance. Oxford: Oxford University Press.

Loasby, B.J. 1998 ‘The concept of capabilities’. In N. J. Foss, N. J. and B.J. Loasby, B. J. (eds) Economic organization, capabilities and co-ordination: Essays in honour of G. B. Richardson. London & New York: Routledge.

Lucas, R. E. 1988 ‘On the mechanics of economic development’. Journal of Monetary Economics 22/1:3-42.

MacDonald, G. and Ryall, M.D. 2004 ‘How do value creation and competition determine whether a firm appropriates value?’. Management Science 50/10:1319-1333

Mahoney, J.T. 2005. Economic foundations of strategy. Thousand Oaks, CA: SAGE Publications Inc

Mahoney, J.T., McGahan, A., and Pitelis, C. 2009 ‘The Interdependence of Private and Public Interests’, Organization Science, forthcoming.

Makadok, R. 2001 ‘Toward a synthesis of the resource-based and dynamic-capability views of rent creation’. Strategic Management Journal 22: 387-401.

Makadok, R. and Coff, R. 2002 ‘The theory of value and the value of theory: Breaking new ground versus reinventing the wheel’. Academy of Management Review 27/1: 10-13.

Makowski, L., and Ostroy, J.M. 1995 “Appropriation and efficiency: A revision of the first theorem of welfare economics” The American Economic Review, 85(4): 808-827

March, J.G. 1991 ‘Exploration and exploitation in organizational learning’. Organization Science 2: 71-87.

Marris, R. 2002 ‘Edith Penrose and economics’ in C. Pitelis (Ed) The growth of the firm: The legacy of Edith Penrose: 61-80. New York:Oxford University Press.

Marshall, A. 1920/1961 Principles of economics, 9th edition. Guillebaud edition London: Macmillan.

Marx, K. 1959 Capital. London: Lawrence and Wishart.

Modigliani, F. 1958 ‘New developments on the oligopoly front’. Journal of Political Economy 66/3: 215-232.

Mueller, D.C. 1989 Public Choice II, Cambridge, England: Cambridge University Press.

Nelson, R. R., and Winter, S. G., editors 1982 An evolutionary theory of economic change. Cambridge, MA: Belknap/Harvard University Press.

Nelson, R. R. and Winter, S. G. 2002 ‘Evolutionary theorizing in economics’, Journal of Economic Perspectives 16/2: 23-46.

Penrose, E. T. 1959/1995 The theory of the growth of the firm, 3rd edition Oxford: Oxford University Press.

Peteraf, M. 1993 ‘The cornerstone of competitive advantage’. Strategic Management Journal 14: 179-191.

Peteraf, M.A. 2006 ‘New domains and directions for research in organizational identity’. Presentation at the IIB Organizational Identity Workshop, Stockholm.

Peteraf, M.A., and Barney, J.B. 2003 ‘Unraveling the resource-based tangle’. Managerial and Decision Economics 24: 309-324.

Peteraf, M.A., and Shanley, M. 1997 ‘Getting to know you: A theory of strategic group identity’. Strategic Management Journal 18(summer special issue): 165-186.

Pfeffer, J. 1998 The human equation: building profits by putting people first. Watertown, MA: Harvard Business School Press.

Pitelis, C. N. 1991 Market and non-market hierarchies: theory of institutional failure. Oxford: Basil Blackwell.

Pitelis, C. N., editor 2002 The growth of the firm - The legacy of Edith Penrose. Oxford: Oxford University Press.

Pitelis, C. N. 2004a ‘Edith Penrose and the resource-based view of (international) business strategy.’ International Business Review 13(4): 523-532.

Pitelis, C. N. 2004b ‘(Corporate) governance, (shareholder) value and (sustainable) economic performance.’ Corporate Governance: An International Review, 12(2): 210-223

Pitelis, C. N. 2005 ‘Edith Penrose, organisational economics and business strategy: an assessment and extension’. Managerial and Decision Economics 26(2): 67-82.

Pitelis, C. N. 2007 ‘A behavioral resource-based view of the firm – The synergy of Cyert and March (1963) and Penrose (1959)’. Organization Science 18/3: 478-490.

Pitelis, C. N. and Wahl, M. W. 1998 ‘Edith Penrose: pioneer of stakeholder theory.’ Long Range Planning, 31(2): 252-261

Pitelis, C. N, and Teece, D. J. 2009 ‘The Nature and Essence of the Firm’. European Management Review, (6): 5-15.

Porter, M. E. 1980 Competitive strategy. New York, NY: The Free Press.

Porter, M. E. 1985 Competitive advantage: creating and sustaining superior performance. New York, NY: The Free Press.

Priem, R. L. 2001 ‘The” business-level RBV: Great Wall or Berlin Wall?’. Academy of Management Review 26: 499– 501.

Priem, R. L. 2007 ‘A consumer perspective on value creation’. Academy of Management Review 32/1: 219-235.

Priem, R.L., and Butler, J. E. 2001a ‘Is the resource-based “view” a useful perspective for strategic management research?’. Academy of Management Review 26/1: 22-40.

Priem, R. L., and Butler, J. E. 2001b ‘Tautology in the resource-based view and the implications of externally determined resource value: Further comments’. Academy of Management Review 26/1: 57-66.

Ramirez, R. 1999 ‘Value co-production: Intellectual origins and implications for practice and research’. Strategic Management Journal 20:49-65.

Research Policy. 2006 ‘Special issue commemorating the 20th Anniversary of David Teece's article: ‘Profiting from innovation’’. Chesbourgh H., Birkinshaw, H. J., and Teubal, M. (eds) Research Policy 35/8.

Richardson, G. B. 1972 ‘The organization of industry’. Economic Journal 82/327: 883-896.

Richardson, G. B. 1998 The economics of imperfect knowledge. Northampton: Edward Elgar.

Richardson, G. B. 2002 The organization of industry re-visited. Paper presented at the DRUID Summer Conference 2003 on Creating, Sharing and Transferring Knowledge: The Role of Geography, Institutions and Organizations. Copenhagen: June 12-14, 2003

Ricketts, M. 2002 The economics of business enterprise: An introduction to economic organisation and the theory of the firm, 3rd edition New York: Harvester Wheatsheaf.

Robbins, L. 1935 An essay on the nature and significance of economic science, 2nd edition London: Macmillan.

Robinson, J. 1964 Economic philosophy, 2nd edition Harmondsworth: Penguin.

Romer, P. M. 1986 ‘Increasing returns and long-run growth’. Journal of Political Economy 94/5: 1002- 1037.

Romer, P. M. 1990 ‘Endogenous technological change’. Journal of Political Economy 98: 71-101.

Saloner, G., Shephard, A., and Podolny, J. 2001 Strategic Management. New York: John Wiley and Sons.

Scherer, F. M., and Ross, D., editors 1990 Industrial market structure and economic performance, 3rd edition Boston, MA: Houghton Mufflin.

Schumpeter, J. 1942/1987 Capitalism, socialism and democracy, 5th edition London: Unwin Hyman.

Simon, H. A. 1995 ‘Organisations and markets’. Journal of Public Administration, Research & Theory (Transaction) 5/3: 273-295.

Sirmon, D.G., Hitt, M.A., and Ireland, R.D. 2007 ‘Managing firm resources in dynamic environments to create value: Looking inside the black box’. Academy of Management Review 32/1: 273-292.

Smith, A. 1776/1937 An inquiry into the nature and causes of the wealth of nations. New York, NY: Random House.

Smith, W.K., and Tushman, M.L. 2005 ‘Managing strategic contradictions: A top management model for managing innovation streams’. Organization Science 16/5: 522-536.

Solow, M. R. 1956 ‘A contribution to the theory of economic growth’. Quarterly Journal of Economics 70: 65-94.

Solow, M. R. 1997 Learning from "learning by doing": Lessons for economic growth. The Kenneth J. Arrow Lectures. Palo Alto, CA: Stanford University Press.

Spence, M. 1977 ‘Entry, capacity, investment and oligopolistic pricing’. Bell Journal of Economics 8: 534-544.

Teece, D. J. 1982 ‘Towards an economic theory of the multiproduct firm’. Journal of Economic Behavior and Organization 3: 39-63.

Teece, D. J. 1986 ‘Profiting from technological innovation: implications for integration, collaboration, licensing and public policy’. Research Policy 15/6: 285-305.

Teece, D. J. 2007 ‘Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance’. Strategic Management Journal 28/13: 1319-1350.

Teece, D. J. 2008 ‘Human capital and the firm of the future: Literati, numerati, and entrepreneurs in the 21st century business enterprise’. University of California, Berkeley, Mimeo.

Teece, D. J., Pisano, G., and Shuen, A. 1997 ‘Dynamic capabilities and strategic management’. Strategic Management Journal 18/7: 509-533. The Academy of Management Review. January 2007 ‘Special topic forum on value creation’. 32/1.

Tirole, J. 1988 The theory of industrial organization. Cambridge, MA: MIT Press.

Wernerfelt, B. 1984 ‘The resource-based view of the firm’. Strategic Management Journal 5: 171-180. 45

Williamson, O. E. 1968 ‘Economics as an anti-trust defense: The welfare trade-offs’. American Economic Review 58/1: 18-36.

Williamson, O. E. 1975 Markets and hierarchies: Analysis and antitrust implications. A study in the economics of internal organization. New York, NY: The Free Press.

Williamson, O. E. 1981 ‘The modern corporation: origins, evolution, attributes’. Journal of Economic Literature 19/4: 1537-1569.

Williamson, O. E. 1985 The economic institutions of capitalism. New York: Free Press.

Williamson, O. E. 1991 ‘Strategizing, economizing, and economic organization’. Strategic Management Journal 12: 75-94.

Williamson, O. E. 2005 ‘The economics of governance’. American Economic Review 95/2: 1-18.

Young, A. 1928 ‘Increasing returns and economic progress’. Economic Journal 38/152: 527-542.