Resource Position, Fitness, Firm Vulnerability, and Performance Heterogeneity

• Author: Ajay K. Singal,Arun K. Jain
• Date: 01 July 2016
• DOI: http://doi.org/10.1002/jsc.2070
• Published date: 01 July 2016

RESEARCH ARTICLE

Strat. Change 25: 383–399 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2070

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2070

Resource Position, Fitness, Firm Vulnerability, and

Performance Heterogeneity1

Ajay K. Singal

Institute of Management Technology, Dubai, United Arab Emirates

Arun K. Jain

Indian Institute of Management, Lucknow, India

Vulnerability, dened as an interplay of resource position and tness, is one of the

determinants of rm performance heterogeneity.

In the current economic environment characterized by rapid and disruptive tech-

nological changes, eeting opportunities, incomplete information, uncertainty,

and loose organizational and coordination mechanisms (Barnes and Oloruntoba,

2005), rms face challenges to performance, sustenance, and long-term survival.

Questions on rm performance continue to bae strategy scholars, in spite of

decades of research. Our research looks at the question of performance heterogene-

ity through the lens of vulnerability and attempts to answer why and how rms

respond dierently to similar challenges of environmental complexity and vari-

ability (Miller and Lin, 2015; Wholey and Brittain, 1989). Studying the relation-

ship between vulnerability and performance has potential to shed light on

strategy–environment linkages.

e study of vulnerability assumes importance as rms enter into a web of

relationships such as just-in-time manufacturing, single-vendor sourcing, inte-

grated supply chains, integrated production complexes, and outsourcing. Such

strategic actions make organization complex, reduce the choice set of managers,

and increase the susceptibility of the whole system (Svensson, 2004). Any envi-

ronmental shock or disruption in supply chains, organizational upheavals, product

failures, or nancial scandals can negatively inuence the performance of such

interdependent structures. ere is a wide literature on the antecedents of vulner-

ability, but researchers have not studied it at the level of rms. How is it dened

at the level of rm? What are its attributes?

1 JEL classication codes: C23, L21, L22, L25, O25. e authors gratefully

acknowledge seed money nancial research assistance for this article from the Indian

Institute of Management – Lucknow.

Organizational tness indicates a

rm’s evolutionary success in

developing and exploiting new

rules of the game.

Resource position captures the

ecological strength of the rm in

a given context.

Vulnerability is an under-explored

concept in the rm-performance

literature.

384 Ajay K. Singal and Arun K. Jain

Copyright © 2016 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc

Some scholars applied the concept in the context of

business relationships, such as supply-chain management

(Wagner and Bode, 2006), buyer–seller relationships

(Nielson, 1996), corporate value net (Bu and Gao, 2010),

and outsourcing (Reid et al., 2005). ese studies are of

limited use when we approach the topic at the level of

rms, because they apply the concept in the narrow

context of business transactions – dependency, trust, and

supportiveness. Our interest in this study is to look into

organizations’ internal context and nd factors that are

related to vulnerability. Literature on rm vulnerability is

scant, there are not many papers available. We borrow the

concept from social sciences and natural-disaster manage-

ment, which have a signicant body of work on vulner-

ability and its assessment.

Our research combines two evolving perspectives –

resource position and organizational tness – within the

overall theme of vulnerability, as a means for achieving

sustainable growth. e resource-position perspective

emerges from the strategy literature (Barney, 1991; Brush

et al., 1999; Teece et al., 1997) that looked at external and

internal causes for sustaining competitive advantage and

stressed that the resource position – resources possessed

internally and the position acquired externally – is a prime

driver of competitive advantage. e resource position is

the result of past competitive actions, historical success,

and an accumulation of organizational skills and knowl-

edge (Le Mens et al., 2011).

e tness perspective has underpinnings from evolu-

tionary learning and the ecological aspect of organiza-

tions, which emphasizes how organizations learn and

build capabilities for variation when confronted with dif-

ferent contexts during their lifetime. Helfat et al. (2007)

proposed the concept of organizational tness by consider-

ing routines as organizational genes and linking them to

capabilities. Fitness as a set of collective skills (Nelson and

Winter, 2002) helps organizations accomplish their stated

goals (Hannan and Freeman, 1977). It is observed as

superiority in processes, products, and services rendered

by resource bundles and gets reected in the product

markets by superior sales, product quality, price, after-

sales service, marketing networks (Dosi and Nelson,

1994), long-term growth, and survival performance

(Young, 2009).

We predict that weakness in either resource position or

tness or both enhances the vulnerability of rms to threats

in the environment. A reduction in the vulnerability

confers long-term growth and survival advantages, often

considered key metrics by multiple stakeholders in busi-

ness (Bercovitz and Mitchell, 2007). To our knowledge,

little research has been done on linking vulnerability to

performance at the level of business rms.

is research anticipates three contributions to the

strategic management literature. First, it draws attention

to the operationalization of rm vulnerability – an unex-

plored construct in the strategy. Second, it reconrms

known academic knowledge about the ‘resource-based

view’ through a longitudinal study, and its applicability in

the context of emerging countries. ird, it presents an

exciting eld of research on vulnerability that draws

heavily from other social sciences, and provides a new lens

to look at issues pertaining to rm-performance hetero-

geneity. e vulnerability lens brings into focus the

importance of rm resilience – the ability to bounce back

after the context has changed.

Theory and hypotheses

Concept of rm vulnerability

e notion of rm vulnerability can be illustrated by how

business cycles impact inter-rm relationships in extremely

volatile industries. Cycles in business – their duration,

depth, and peak – are of concern to managers. Firms are

exposed to income-stream variability through cycles inde-

pendent of any future cycles. e nature of their response

may vary during the cycles. Alajoutsijärvi et al. (2012), in

an empirical study, reported that business relationships

change from cooperation to competition and from seller

dominance to buyer dominance and back again as the