How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints
Prof. Sang-Joon Kim’s recent research published in Long Range Planning, entitled “How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints,” attempts to explain how small- and medium sized enterprises (SMEs) can overcome their resource constraints. Such resource-related hardships of SMEs have been understood with the resource-based view, which argues that firms which possess unique resources can gain competitive advantages. While the resource-based view is valid in understanding how firm can enhance their performances, this thesis only focuses on resource possession in a certain time. Taking a view that firms should effectively convert their resources (what they own) to their capabilities (what they can do with the resources), resource orchestration (RO) emphasizes how firms integrate resource-related processes that lead to better firm outcomes.
Building on this idea of resource orchestration, Prof. Kim’s study (co-worked with Juil Lee, University of Ulsan), considers a dynamic aspect of resource orchestration, called dynamic RO. Given that the notion of RO mainly takes a structural aspect indicating how firms design an optimal resource configuration for enhancing firm performances value, the dynamic RO pays attention to how firms sequentially and rhythmically orchestrate resources over time to achieve sustainable competitive advantages. In particular, this study postulates that the dynamic RO process can be more unambiguously identified under resource constraints because firms facing these constraints have difficulty in simultaneously allocating resources between multiple fundamental corporate activities (or goals). That is, by sequentially pursuing these goals over time, firms can mitigate their resource strains to achieve these goals eventually. In this sense, the context of SMEs is fitted to the empirical setting for the dynamic RO.
Given the context of SMEs, this study takes two goals as the firms pursue by orchestrating their resources: technology and market. The technology goal indicates that firms develop more advanced technologies which are utilized to gain competitive advantages; the market goal indicates that firms expand their customer bases which can bring economic gains. In pursuing these goals in a dynamic sense, there are two patterns of dynamic RO: focus escalation and focus alternation.
Focus escalation refers to a firm action that the utilization of a certain resource gets intensified over time for a goal. Given that there are two goals (i.e. technology and market), there are two specified patterns for focus escalation: technology focus escalation and market focus escalation. Technology focus escalation indicates that firms, focusing more on technology rather than on market during a certain period, reinforce their commitment to technology for the next period. And market focus escalation implies that the firm, which is relatively focused on market rather than on technology during a certain period, intensifies its commitment to market for the next period.
In contrast, focus alternation indicates that a firm sequentially converts its focus from technology to market over time, and vice versa. Specifically, focus alternation toward technology (market) indicates that the firm, which is relatively focused on market (technology) rather than on technology (market) during a certain period, deviates the attention it pays to market (technology) to the other during a different period. That is, with focus alternation, the relative dominance between focusing on technology or market will be overturned.
With these two main patterns (i.e. focus escalation and focus alternation) and four specified patterns (technology focus escalation, market focus escalation, focus alternation toward technology, and focus alternation toward market), this study argues that under resource constraints, an SME’s focus escalation for either technology or market will positively influence its performance. This study also contends that focus alternation toward technology or market will contribute to positive firm performance. To test these ideas regarding the relationship between dynamic RO modes and firm performance, the authors sampled 4,078 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, the authors explored which pattern can enhance firm performance, considered as Tobin’s q. From the empirical analyses with abundant robustness checks, the study concluded that under resource constraints, firms’ dynamic RO modes (other than market focus escalation) help the firms improve firm performance. Also, firm performance can be enhanced when the focus alternation changes the relative dominance between technology and market focus or when the focus escalation reinforces a commitment to technology.
This study provides several theoretical contributions and practical implications. First, the 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, this 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, the value of such resources can be materialized through the dynamic RO. Finally, the findings of this study 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.
While the editor of Long Range Planning, who had managed the whole review process of this paper, noted that this study will contribute to the management science, Prof. Kim says that this study seems a small piece on resource orchestration and its performance implications in a dynamic sense. This study conducted more than ten additional tests to validate the main ideas as well as to present more comprehensively and empirically-sound results, with various statistical techniques. However, this study focused on only SMEs as a research setting and simplified the resources to be orchestrated into technology and market. There are a lot of research opportunities to elaborate the arguments around the dynamic RO. This might be what we expect from Prof Kim’s future research.
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Lee, J., & Kim, S. J. (2021). How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints. Long Range Planning, 54(4), 102090.