Position, Leverage and Opportunity: A Typology of Strategic Logics Linking Resources With Competitive Advantage

MANAGERIAL AND DECISION ECONOMICS
Manage. Decis. Econ. 29: 241–256 (2008)

Published online 26 November 2007 in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/mde.1386
Position, Leverage and Opportunity: A

Typology of Strategic Logics Linking
Resources with Competitive Advantagey
Christopher B. Binghama,* and Kathleen M. Eisenhardtb
a
University of Maryland, MD, USA
b
Stanford University, CA, USA
The resource-based view’s (RBVs) contribution toward understanding competitive advantage

remains unfulfilled. A reason is the confounding of the concept of resources with RBVs
strategic logic. We disentangle these by developing a typology of strategic logics (i.e.,
leverage, position, and opportunity) that specify alternative theoretical pathways linking
resources with competitive advantage. We clarify their market assumptions, relevant
performance objectives, and managerial challenges. Besides introducing the logic of
opportunity, we indicate the central insight that competitive advantage stems from the
linkages among resources, not just their attributes. Thus, while VRIN resources may be useful
for creating advantage, they may be neither necessary nor sufficient for competitive advantage
to ensue. Copyright # 2007 John Wiley & Sons, Ltd.
INTRODUCTION others in their industry. For example, firms create

competitive advantage when managers develop
The resource-based view (RBV) is a major resources that are valuable, rare, inimitable, and
theoretical framework that addresses the source non-substitutable (VRIN) in a given market
of interfirm performance differences (Penrose, (Barney, 1991; Peteraf, 1993) and exploit them in
1959; Wernerfelt, 1984; Barney, 1991; Peteraf, additional markets (Wernerfelt, 1984; Barney,
1993; Makadok, 2001; Hoopes et al., 2003). 1986; Amit and Schoemaker, 1993). RBV also
Indeed, RBV has become one of the primary suggests that competitive heterogeneity and advan-
theories for understanding the origins of competi- tage are sustainable to the extent that competitors
tive advantage and superior firm performance are unable to duplicate the benefits that firms
(Hoopes et al., 2003). However, despite its position derived from these VRIN resources (Barney, 1991).
as a dominant conceptual frame, its contribution to On the other hand, others suggest that RBV
the strategy field remains controversial. On the one may provide little theoretical insight regarding
hand, some argue that RBV clarifies understanding intraindustry performance differences. For exam-
about why some firms continue to outperform ple, some scholars assert that RBV lacks empirical
support (Hoopes et al., 2003) and boundary
*Correspondence to: Department of Management and Organi- conditions (Williamson, 1999), and that it cannot
zation, Robert H. Smith School of Business, University of explain competitive advantage in high-velocity
Maryland, 4519 Van Munching Hall, College Park, MA 20742,
USA. E-mail: cbingham@rhsmith.umd.edu
markets (Eisenhardt and Martin, 2000). Some also
y
We appreciate the support of the National Science Founda- argue that the theory is inherently tautological
tion, Grant #0323176. (Williamson, 1999; Priem and Butler, 2001a,b;
Copyright # 2007 John Wiley & Sons, Ltd.

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242 C.B. BINGHAM AND K.M. EISENHARDT
Hansen et al., 2004). That is, competitive advan- Second, we contribute by fleshing out the strategic
tage is defined in terms of value and rarity, and the logic of opportunity by noting the centrality of
resource characteristics leading to competitive organizational processes and ‘simple rules’ heuristics
advantage are also described in terms of value for capturing opportunities for strategy, and its
and rarity. This tautology makes disconfirming particular relevance in highly dynamic markets and
RBV improbable, and therefore, limits its expla- entrepreneurial firms. Specifically, we argue that,
natory power. Taken together, these arguments while the leverage strategic logic that underlies RBV
suggest that while RBV is influential, its contribu- is appropriate for moderately dynamic markets, it is
tion is not fully realized. inherently mismatched in both more stable and high-
In our view, some of the confusion surrounding velocity markets. Rather, the appropriate strategic
RBVs contribution to strategy centers on the logic and the related nature of competitive advantage
concept of resources. The perspective has an (e.g., its duration and the predictability of its
insufficiently precise theoretical account of how duration) depend upon specific assumptions about
firms use resources to create and maintain market dynamism. Such clarity regarding assump-
competitive advantage. Specifically, we argue that tions provides theoretical boundary conditions, a
the concept of resources is confounded with the contribution particularly valuable for RBV (Priem
strategic logic of RBV.1 This confounding ob- and Butler, 2001a).
scures the fact that the strategic logic of RBV is Most significant, we contribute the insight that
only one of several strategic logics for how linkages among resources are fundamental to the
heterogeneous firm resources lead to intraindustry creation of competitive advantage. Specifically, we
performance differences. More crucial, the con- argue that, while the nature of specific resources
founding of the concept of resources with the may enable the creation of competitive advantage,
strategic logic of RBV obscures the fact that the specific characteristics of resources per se are
theoretical tie between resources and competitive neither necessary nor sufficient conditions for
advantage is affected not only by the nature of the competitive advantage. Rather, competitive ad-
resources per se as in RBV, but also by the linkages vantage stems from both the characteristics of
among resources. This elaborated view of re- individual resources and the linkages among
sources leads to a typology of strategic logics. resources. Further, we spotlight inimitability as
The central implication of this typology is that, the most important resource attribute for compe-
while specific VRIN resources may lead to titive advantage by elaborating how different types
competitive advantage as argued within RBV, of resources and linkages among resources have
these resources are neither necessary nor sufficient distinct sources of inimitability. Overall, we
conditions for that advantage to ensue. suggest an elaborated conception of resources
The purpose of this paper is to disentangle and their relationship to competitive advantage
the concept of resources from the strategic logic that extends beyond the traditional view of RBV.
of RBV and so extend our theoretical under- We begin by discussing the concept of resources.
standing of resources and their tie to competitive We then set forth a typology of strategic logics
advantage. In so doing, we attempt to make that distinctively ties resources and linkages
several contributions to the literature. First, we among resources to competitive advantage. We
develop a typology of strategic logics and compe- also describe the strategy, nature of resources and
titive advantage. In particular, we outline how linkages among resources, sources of inimitability,
the concept of resources can be disentangled from and performance associated with the three strate-
the strategic logic of RBV and usefully applied in gic logics. We also include their underlying
multiple strategic logics, which we term leverage, assumptions regarding market dynamism and the
position, and opportunity. Further, we provide the challenges of each logic.
related insight that these strategic logics are
associated with distinct performance objectives
(e.g, profit and growth). Thus, by delineating RESOURCES, INIMITABILITY, AND
alternative strategic logics that lead to competitive COMPETITIVE ADVANTAGE
advantage, we shed light on how distinct strategic
logics are associated with different performance There are two primary perspectives on strategy.
objectives. One relies on the external exercise of power
Copyright # 2007 John Wiley & Sons, Ltd. Manage. Decis. Econ. 29: 241–256 (2008)
DOI: 10.1002/mde
POSITION, LEVERAGE AND OPPORTUNITY 243
(Porter, 1980; Santos and Eisenhardt, 2005) and But if resources are valuable, rare, and inimitable,
the other on the internal resources of the firm then firms have the potential to achieve long-term
(Barney, 1991; Peteraf and Barney, 2003). Our competitive advantage. Assuming substitutability,
focus is on the latter. From the internal perspec- then advantage depends upon the relative costs
tive, resources lie at the heart of corporate and and benefits of the two resources. Overall, these
business strategy (Peteraf and Barney, 2003). arguments suggest that, while value, rarity, and
Resources are fundamental to strategy because non-substitutability are important, inimitability of
they shape many of the possible strategies that resources is at the heart of competitive advantage
executives can undertake. They are the ‘raw because it limits the effects of competition over
material’ of strategy, and thus provide the basis some time horizon.2
upon which firms can distinguish themselves from As is well known, inimitability (a resource
one another and from which they can develop attribute that is independent of both the market
unique, inimitable, and value-creating strategies and competition) can arise from one or several
(Miller, 2003). sources. First, it can stem from property rights. An
Several definitions of resources exist. Some organization may have a specific ownership right
scholars define resources as organizational to a well-defined asset such as a patent or a
strengths and weaknesses that are tied to firms location that cannot be legally obtained by rivals,
(Wernerfelt, 1984). Others define them as all and therefore is inimitable. Second, inimitability
assets, attributes, and knowledge controlled by a can arise if there are path dependencies and time
firm that help improve efficiency and effectiveness compression diseconomies in resource accumula-
(Barney, 1991). Consistent with these definitions, tion. That is, if building resources takes place
we define resources as the tangible assets (e.g., slowly over time and according to a sequence, then
location, plant, equipment), intangible assets (e.g., inimitability ensues. A new entrant in the soft-
patents, brands, technical knowledge), and orga- drink industry may, for instance, spend the same
nizational processes (e.g., product development, amount of advertising dollars as Coca Cola, but is
country entry, partnering) from which managers unlikely to be able to duplicate the brand-name
can develop value-creating strategies. Given this recognition that Coke has developed over the
definition, resources include tangible resources years (Collis and Montgomery, 2005). Finally,
such as the fabrication facilities of Intel and the inimitability can arise from causal ambiguity
store locations of Starbucks, and intangible (Lippman and Rumelt, 1982; Barney, 1991). For
resources such as the Virgin brand, Lilly’s example, resources that are based on complicated
pharmaceutical patents, Pixar’s animation skills, organizational processes are more likely to be
and Honda’s understanding of engine technolo- causally ambiguous because they are difficult for
gies. They also include organizational processes competitors to observe from outside the firm,
by which firms create, reconfigure or exit resources making their link to performance unclear. Simi-
(often termed ‘dynamic capabilities’) such as larly, resources that are tightly linked are also
Cisco’s acquisition process, Yahoo’s alliance likely to be causally ambiguous because both their
process, and Google’s product development precise interrelationships and their synergistic
process. effects are difficult to observe, making their link
From the internal resources perspective, compe- to performance unclear. Moreover, the barriers to
titive advantage depends upon the deployment of imitation arising from causal ambiguity are
resources or combinations of resources that are primarily knowledge based, not legal or temporal
valuable (i.e., raise revenues or lower costs) in the (Miller and Shamsie, 1996). Thus, while competi-
context of a given market, rare (i.e., unique among tors might be able to understand some of the
firms in that market), inimitable (i.e., cannot be resources of a high performing firm, they are likely
readily copied), and non-substitutable (i.e., other to be unclear about which resources lead to
resources do not provide the same functionality) advantage and why when causal ambiguity is
(Barney, 1991). Assuming non-substitutability, if present.3 In the absence of this knowledge,
resources are only valuable, then firms are likely to competitors cannot effectively imitate.
achieve only parity with competitors. If resources We add to this argument in two ways. First, we
are only valuable and rare, then firms are likely to suggest an additional source of causal ambiguity,
achieve only temporary competitive advantage. the simplicity of organizational processes that rely
DOI: 10.1002/mde
on improvisation. That is, processes that consist of this is likely to result in competitive advantage and
simple heuristics or rules are causally ambiguous superior performance.
when their intertwining with idiosyncratic and Under leverage logic, strategy consists of
real-time improvisation makes them particularly identifying, building, and exploiting a portfolio
difficult to observe directly and difficult to infer of core resources that is valuable and rare in
from outcomes (Eisenhardt and Tabrizi, current markets and deploying these core resources
1995; Miner et al., 2001). Second and more into additional markets (e.g., segments and in-
significant, we suggest that different types of dustries) where they are also valuable and rare. In
resources and linkages among those resources the case of current markets, strategy centers on
have distinct sources of inimitability, and so updating the portfolio of core resources as market
lead to three distinct strategic logics that link shifts occur (e.g., technological innovation occurs,
resources to competitive advantage. Specifically, government regulation is removed). This updating
competitive advantage may come from tightly enables the firm to maintain coevolutionary
linking often mundane resources to form defen- matching of its portfolio of core resources to the
sible strategic positions, moderately linking core market, and so maintain its competitive advantage
and complementary resources to maintain strength and superior performance. For example, Thomke
in existing markets and to leverage these same and Kuemmerle (2002) describe how Lilly execu-
core resources with often different complementary tives quickly attempted to develop two new
resources in related markets, or loosely linking process technologies (i.e., combi-chem and high
resources in the form of semi-structured organiza- throughput screening) into core resources. These
tional processes composed of simple rules to seize novel technologies held the promise of improving
fleeting market opportunities. The critical point is drug discovery, especially when used in conjunc-
that different types of resources and linkages tion with existing complementary resources in
among resources constitute distinct strategies. traditional drug discovery. Most important, the
These strategies tie to competitive advantage time, expense, and effort associated with this
and ultimately firm performance through different development and their process-oriented character
sources of inimitability, with different market enhanced the inimitability of these potentially
assumptions, and therefore, through distinct core resources. Lilly’s resource portfolio adjust-
strategic logics. ment was particularly timely because several
patent-related core resources were about to go
off patent. Similarly, in her study on technological
innovation in the type-setting industry, Tripsas
LEVERAGE LOGIC (1997a) described how executives in several
corporations repeatedly updated their technical
A key strategic logic by which executives use firm core resources to keep pace with successive
resources to create superior performance is lever- typesetting innovations.
age. This strategic logic is most closely associated In the case of new markets, strategy consists of
with RBV, particularly the strands suggested by deploying core resources into markets where they
Collis and Montgomery (1995) and Prahalad and are also likely to be valuable and rare. Thus, under
Hamel (1990). Leverage logic argues that compe- the leverage logic, the value and rarity of core
titive advantage derives from the ownership of resources in the new market, not the structural
specific core resources}i.e., particular resources characteristics of the market per se, guide the
that are rare, inherently difficult to imitate, non- direction of diversification. For example, Honda’s
substitutable and highly valuable in one or several strategy consists of leveraging its core engine
markets (VRIN). These resources can reside at the technology resources into a wide variety of
business unit level such as P&G’s Oral Care, or at markets such as automobiles, motorcycles, lawn
the corporate level such as Samsung’s expertise in mowers, and four-wheel off-road vehicles where
fiber optics. When core resources are combined these resources are both valuable and rare
with complementary resources, firms can produce (Pralahad and Hamel, 1990). Likewise, the strat-
products faster, better, and/or more cheaply than egy of some petroleum firms involved deploying
the competition (Collis and Montgomery, 1995, core R&D processing technology resources that
2005). Given the inimitability of core resources, were developed in the oil refining market into the
DOI: 10.1002/mde
synthetic fuels market where they were also market at different times. In contrast, physical
valuable and rare (Helfat, 1994, 1997). resources often have specific and limited use. Thus,
A related point is that the complementary knowledge-based resources are likely to be valu-
resources that enable value creation from core able in multiple markets. This fungibility adds to
resources may vary across markets. Thus, lever- the performance associated with deploying core
aging core resources into a new market or adding resources in a single market by creating economies
core resources to an existing market may also of scope across multiple markets. This leads, in
require leveraging existing complementary re- turn, to greater profitability in current markets
sources or building new complementary ones. An and greater profitability and growth via expansion
example is Canon. While Canon has core resources into new markets. For example, a technology firm
in optics technology, the firm deploys these that had core resources in the form of software for
resources in conjunction with a variety of com- creating customizable reporting for a specific
plementary (but not necessarily core) resources market was able to raise profitability via lower
based upon the particular market. In the camera costs in that market, and create additional profit
market, for example, Canon couples optics tech- and growth by leveraging some of the same
nology with retail channel skills and precision software into a different market for which the
manufacturing resources. In contrast, Canon software was also valuable (Danneels, 2002).
couples complementary resources related to the Similarly, executives at Denmark’s International
OEM channel and laser technology with their core Service System (ISS), a major industrial services
optics resources in the print engine market (Brown firm, profitably grew by expanding from cleaning
and Eisenhardt, 1998). Similarly, Gilbert’s (2005) slaughter houses to providing hospital services.
study of the newspaper industry indicates that Underlying this expansion was leverage of deep
different complementary resources were necessary knowledge in chemicals, bacteria, sterilization, and
in the online and traditional newspaper markets. other cleaning techniques that was fungible across
Finally, given that core resources may often be markets, and valuable and rare within them
usefully leveraged into multiple and changing (Miller, 2003). Overall, these examples are con-
markets with different complementary resources, sistent with the argument that, while products may
resources (both core and complementary) should rely on particular core resources, these same
be only moderately linked with one another under resources are not product specific. Indeed, they
leverage logic in order to retain recombinative may be valuable across multiple products and
flexibility. markets. Therefore, the contribution of core
The gradual refreshing of the core resource resources to firm performance ultimately lies
portfolio in coevolution with markets also suggests ‘upstream from the end product in a generalizable
that strategy may sometimes involve de-emphasiz- capability which might well find a variety of final
ing or even leaving markets when the firm’s core product applications’ (Teece, 1982, p. 45).
resources can be used to create higher performance Underlying the strategic logic of leverage is the
elsewhere. For example, Apple’s design skills were assumption of a moderately dynamic market. In
once best applied to the now maturing computer these settings, major disruptive shifts are rare.
industry. But now, these skills may be better While change is a regular occurrence, it occurs in
applied to the rapidly growing online music relatively predictable ways, in incremental shifts,
industry. Likewise, NEC’s core expertise in elec- and along roughly linear paths (Eisenhardt and
tromagnetic waves was once best applied in the Martin, 2000). This means that the value and
development of vacuum tubes, broadcasting rarity of resources in any given market may change
equipment, and transistors, but more recently is over time, but that they do so in an incremental,
now better utilized in other electronics related predictable fashion that gives managers time to
industries such as microwave communication adjust their portfolio of core resources. Mechan-
technology and satellite communication systems ical engineering skills, for example, are becoming
(Helfat and Raubitschek, 2000). less valuable in the automotive industry, while
Leverage logic is particularly effective when core computer science skills are becoming more valu-
resources are knowledge based. The reason is that able. Given that this change is foreseeable, the
knowledge-based resources are typically fungible strategy of many automotive firms involves build-
across different markets and within the same ing new core resources by hiring computer science
DOI: 10.1002/mde
talent and developing effective software processes. (Tripsas, 1997b). Executives may also prefer short-
As markets become more dynamic, changes within term performance through exploitation of existing
the resource portfolio occur more frequently. In resources that is more certain and less remote in
this situation, organizational processes by which time and space rather than exploration of new
managers acquire, alter, and release resources (i.e., resources (March, 1991). Alternatively, they may
dynamic capabilities) are likely to become core have difficulty recognizing the complementary
resources (Eisenhardt and Martin, 2000). resources that are necessary in new markets
Under leverage logic, inimitability arises from (Gilbert, 2005) or may be emotionally attached
the property rights that are associated with the to existing resources (Sull, 1999). Overall, these
ownership of particular resources (e.g., patents, arguments suggest that individual and organiza-
locations) and from the time diseconomies and tional ability to build new core resources or
path dependencies of building core resources. In abandon old ones may be low.
the case of the former, legal barriers surrounding Tripsas (1997a, b), for example, described how
core resources block imitation. In the case of the several firms experienced difficulties in developing
latter, organically building core resources is a new core resource after a major market shift.
usually slow, challenging, and costly (Teece Intertype and Monotype, two of the largest and
et al., 1997). Although acquisition may accelerate most dominant typesetter firms in the early 1900s,
building core resources, acquisition may also be possessed strong competencies in hot metal type-
costly, pose difficult integration challenges, and setter technology. However, when the market
may be irrelevant if the resources do not exist or changed to phototypesetting technology, hot metal
their owners do not wish to sell them (Graebner, typesetter technology became obsolete. Executives
2004; Graebner and Eisenhardt, 2004). To the at Intertype and Monotype tried to develop core
extent that core resources involve complicated resources in phototypesetting, but their new
organizational processes, inimitability may also products continued to build on the obsolete hot
arise from causal ambiguity. Indeed, the difficulty metal typesetting technology. Thus, they failed to
of imitating core resources suggests that would-be develop a new core resource (i.e., phototypesetting
imitators might be more effective by developing technology) that became increasingly valuable.
their own core resources rather than trying to
imitate those of others (Miller, 2003).
Competitive advantage stems from the owner-
ship and deployment of specific core (i.e., VRIN) POSITION LOGIC
resources within multiple markets. Given inherent
limits to the inimitability of many core resources A second strategic logic by which managers
and moderate market dynamism that may change can create superior performance from firm re-
the value of resources, the duration of competitive sources is position. Under position logic, compe-
advantage is likely to be medium term. With titive advantage stems from executing different
sufficient time, competitors can often build func- activities than the competition or executing the
tionally equivalent resources and/or different same activities in a differentiated way (Porter,
resources that provide their own distinctive and 1996). Superior performance is achieved when the
perhaps superior value in the market. Alterna- resources comprising these activities become
tively, with sufficient time, a firm’s core resources tightly linked to form a unique and valuable
are likely to become out-dated, thereby providing strategic position from which managers can
little value in existing markets and requiring the increase revenue (i.e., differentiation) or decrease
building of new core resources (Tripsas, 1997a, b). costs (i.e., cost leadership).
A major challenge of the leverage logic is the Using position logic, strategy consists of tightly
inherent difficulty of adjusting the portfolio of core linking resources together in mutually reinforcing
resources and deploying them in coevolution with configurations termed activity systems (Porter,
markets. Developing new core resources requires 1996; Rivkin, 2000; Siggelkow, 2002). Unlike the
time, effort, and expense. A more subtle and core resources of leverage logic, the individual
important point is that existing belief structures or resources comprising activity systems may not be
political blocks may make executives slow to inherently VRIN (Hansen et al., 2004). For
develop these resources and/or to deploy them example, Southwest Airlines’ vaunted activity
DOI: 10.1002/mde
system relies on readily obtainable resources such moderate wages, avoidance of commission fees to
as gates at less popular airports, zone assigned brokers, and word-of-mouth marketing instead of
seating, and the use of a single type of aircraft. expensive advertising. The resultant synergy
None of these resources is particularly valuable, among these linked activities provided an over-
rare or inimitable by itself. But, as these discrete riding ‘value for money’ theme that pervaded all
resources becomes more connected to one another, corporate actions and fortified Vanguard’s low
more interdependent, and more mutually reinfor- cost strategic position (Siggelkow, 2002).
cing, the activity system becomes increasingly Over time, strategy under position logic centers
effective at producing the desired products or on increasing and deepening the linkages among
services, and doing so in a unique way (Miller and resources in the activity system as well as adding
Freisen, 1980). Thus, the activity system exhibits new resources to create an increasingly strength-
super-modularity such that performing any one ened strategic position. Executives in some Holly-
activity synergistically increases the value of the wood film studios, for example, increased and
others (Milgrom and Roberts, 1990). deepened the linkages among their resources over
An illustration of activity systems occurs in time in order to increase the value and uniqueness
research by Carmeli and Tishler (2004). Using data of their activity systems. This strengthened their
from 99 Israeli government authorities, they found strategic positions. Between 1936 and 1950,
that linkages among resources reinforced one MGM, Paramount, and United Artists relied on
another. That is, managerial skills, human capital, mutually reinforcing linkages among resources
internal auditing, labor relations, organizational such as exclusive long-term contracts with stars,
culture, and reputation complemented each other technological patents, well-situated theaters, capi-
such that the value of any one of these resources tal-intensive equipment, and key geographic loca-
was increased by the increased presence of the tions of studios in order to build increasingly
other resources. Specifically, although two re- valuable and unique strategic positions (Miller and
sources were much more valuable on their own Shamsie, 1996). These resources were added over
than the other four, all six resources mutually time to strengthen ones already in place, not as
enhanced the value of the others (Carameli and substitutes for existing resources. Adding owner-
Tishler, 2004). ship of well-situated theaters, for example, created
Central to position logic is building the activity distribution outlets that enhanced the value of the
system in a valuable and unoccupied (i.e., rare) studios’ films. In addition, this practice also
strategic position. Thus, while strategy using enabled executives to centralize key activities such
leverage logic focuses on building a few core as advertising, administration, and even popcorn
resources and deploying them in one or more purchases. Overall, the strategy of increasing the
markets in which they are valuable and rare, linkages among resources and adding new re-
strategy using position logic involves the unique sources enabled these Hollywood studios to set
linkage of numerous, often mundane resources in themselves apart from the competition, exert
ways that are synergistic with one another. The power over suppliers, and create high barriers to
intent is to occupy a valuable strategic position in entry for many years (Miller and Shamsie, 1996).
a given market. Such a position creates higher Underlying the strategic logic of position is the
profitability through the ability to charge higher assumption of a relatively stable market. That is,
prices (e.g., differentiation strategy of Apple in the industry structure (e.g., buyer and supplier power,
computer industry) or to achieve lower costs (e.g., competitive rivalry, and threat of substitutes) is
low cost strategy of Dell in the computer industry). stable and unambiguous (Porter, 1980), and
Executives at the mutual fund giant Vanguard, for market disruptions are rare. In such markets,
example, built an activity system that enabled the organizational boundaries are clear and long-term
firm to occupy the low cost position within their planning is useful (Hamel and Prahalad, 1994;
industry (Siggelkow, 2002). They focused on Lengnick-Hall and Wolff, 1999). This market
conservatively managed no-load funds, such as stability enables executives to elaborate increas-
index funds, with no retail branches and small ingly strong strategic positions in an orderly
investments in information technology. They also fashion. That is, they can add resources and
linked these activities with others geared toward synergistic linkages to their activity systems in a
cost savings, such as no management perquisites, deliberate and planned way that strengthens their
DOI: 10.1002/mde
current strategic positions over time (Raff, 2000). much more difficult for rivals to create the
Stability in the early motion picture industry, for credibility for a no-layoff policy and gain the trust
example, allowed executives to predict with of workers that Lincoln forged over 60 years. It
significant certainty the specific stars, directors, would be even more challenging to build these
and genres of films that would remain popular for activities while simultaneously shifting the work-
many years, and so build corresponding activity force from employees fit to engage in traditional
systems (Miller and Shamsie, 1996). Market work activities to those able to excel in a unique
stability also ensures that a valuable and rare activity system such as Lincoln’s. In short, when
strategic position will enjoy long-term competitive resources are tightly linked into activity systems, it
advantage and superior performance, and so is difficult to copy the activity system accurately,
justifies extensive investment in building elabo- quickly, and in the correct sequence. Further, the
rated activity systems. benchmark firm is probably also strengthening its
The numerous and tightly linked resources that activity system even as imitators attempt to copy
form activity systems are difficult to imitate. Their it, and so is improving its competitive advantage
complexity in terms of the number of resources and increasing its superior performance.
makes them challenging for imitators to under- A major challenge to firms relying on position
stand and time consuming to copy (Rivkin, 2000). logic arises when markets change. Executives are
The organizational processes of activity systems likely to have difficulty in initiating change when
are particularly difficult to observe from outside resources are tightly linked. They may not
the firm. Even when imitators understand which recognize the need to change because they are
resources comprise the activity system, they may focused on further elaborating their current
be unable to understand the precise nature of the activity systems. Even if they do recognize the
linkages among them because they are often need to change, they may be reluctant to do so
numerous and have unpredictable synergistic because change requires halting organizational
effects (Rivkin, 2001). These complex and reinfor- momentum, changing direction, and modifying
cing linkages, therefore, make imitation slow and many resources simultaneously (Nadler et al.,
inaccurate because even small errors can throw it 1995; Lengnick-Hall and Wolff, 1999). In addition,
off (Rivkin, 2000). Successful imitation often executives often change ineffectively by modifying
requires not only knowing which resources and only a few resources in their current activity
linkages comprise the activity system, but also systems. Since activity systems are often highly
deciphering the proper sequence of their assembly interdependent, piecemeal changes to some re-
(Brown and Eisenhardt, 1997). This additional sources usually undermine the performance of
information further increases causal ambiguity other resources by creating internally conflicting
and stymies imitation. Together, these arguments activities (Miller and Friesen, 1980). Therefore,
suggest that imitators of strategies using position although changing only a few resources may seem
logic are unlikely to succeed (Rivkin, 2000). effective, it usually is not. Rather, it tends to upset
Since competitive advantage stems from activity the internal coherence of a firm’s current strategy
systems of tightly linked, mutually reinforcing and lower performance, without necessarily mov-
resources that are difficult to imitate and that ing the firm toward a more valuable strategic
occupy strategic positions within relatively stable position (Rivkin and Siggelkow, 2003). Finally, in
markets, the duration of competitive advantage is order to build an activity system in a new strategic
often long term. Consider, for example, the position within a changed market, performance
challenge of imitating Lincoln Electric’s highly often must become worse before its improves
successful human resources activity system (Mil- (Siggelkow, 2001). Executives usually must dis-
grom and Roberts, 1995). Even if competitors mantle existing activity systems, and then rebuild
understood how its value depended on mutually resources and link them together in a new strategic
enhancing resources such as ownership structure, position. Besides being slow, this dismantling and
bonus incentives, and inventory policy, it would be rebuilding invariably lowers performance. Ironi-
challenging to build those same resources in an cally, performance often does not increase sig-
appropriate order, and to do so quickly and nificantly until the end of the rebuilding because of
without making mistakes. It might be easy, for the disproportionate effects of later linkages on
example, to copy piece rate pay. But, it would be performance.
DOI: 10.1002/mde
The response of apparel giant Liz Claiborne to attractive opportunities (Eisenhardt and Sull,
changes in the retail market highlights the 2001). Attractive opportunities are those with the
challenges of changing activity systems and shift- highest potential for revenue and profit, and so
ing strategic positions (Siggelkow, 2001). During their capture creates superior performance (Davis,
the 1980s, Liz Claiborne’s production and dis- Eisenhardt and Bingham, 2007). For example,
tribution, marketing, design, presentation, and Cisco’s strategy during the late 1990s was its
selling processes were mutually reinforcing in a acquisition process. Cisco gained competitive
tightly linked activity system that occupied a advantage and superior performance by acquiring
differentiated strategic position that targeted a series of technology-rich ventures sooner, more
working women. In the early 1990s, changes in quickly and more effectively than its competitors.
demand and in the company’s main distribution Similarly, Nokia’s strategy during the same time
channel (i.e., department stores) made Claiborne’s period included its product innovation process by
activity system and related strategic position less which the firm captured numerous, new product
valuable, and lowered performance. In an effort to opportunities in the burgeoning market of wireless
improve performance, Claiborne executives chan- communication.
ged specific resources such as the ‘no reordering’ A key point is that these organizational pro-
policy. However, because the company’s ‘no cesses are semi-structured (Bingham and Eisen-
reordering’ policy was tightly linked with other hardt, 2005), and so are unlike the complicated,
policies such as ‘no production to order’ and routine organizational processes of the leverage
activities like low spending on information and logic (e.g., Nelson and Winter, 1982). Their
distribution technologies, the reordering policy simplicity or more formally, semi-structure enables
could not be undone without introducing internal flexible opportunity capture by leaving room for
conflicts with other resources. Consequently, the spontaneous and improvisational action such that
specific change to the reordering policy destroyed managers can effectively seize attractive and yet
synergies within the existing activity system, and unexpected opportunities (Brown and Eisenhardt,
worsened financial performance. Only when Clai- 1997). If the processes were more structured,
borne executives dismantled their activity system, executives would not have the flexibility to adapt
and began to build a new one did performance to unexpected opportunities, and yet, if they were
improve. completely unstructured, executives would not
have the coherence to adapt to opportunities
(Brown and Eisenhardt, 1998; Davis et al., 2005).
For example, Pisano (1994) found that a key
OPPORTUNITY LOGIC process for creating manufacturing innovations
among biotechnology ventures was more effective
A third strategic logic that enables the creation of when it was semi-structured, and based on
superior performance from firm resources is experimentation and learning by doing. Similarly,
opportunity. Related to Austrian economics Eisenhardt and Tabrizi (1995) observed that semi-
(Schumpeter, 1934; Schumpeter, 1942; Jacobsen, structured, improvisational product development
1992; Kirzner, 1997), a strategic logic of opportu- processes characterized successful firms in the
nity argues that competitive advantage and super- high-velocity work station and personal computer
ior performance stem from entrepreneurial action markets. In addition, these semi-structured orga-
(Roberts and Eisenhardt, 2003). In particular, nizational processes are usually only loosely linked
superior performance under this strategic logic with one another, and so are unlike the tightly
derives from the firm’s ability to capture attractive, linked organizational processes within activity
fleeting market opportunities for creating revenue systems (e.g., Porter, 1996). For example, Ama-
and profits sooner, faster and more effectively than zon’s strategy during the later half of the 1990s
competitors (Eisenhardt and Martin, 2000). was two processes, product category expansion
Given the logic of sensing and seizing opportu- and internationalization, that were almost com-
nities, strategy consists of picking one or perhaps pletely unlinked.
several organizational processes (e.g., acquisition, These semi-structured organizational processes
alliance, internationalization, and product innova- are composed of a few, unique simple rules that
tion) that put the firm in an abundant flow of guide opportunity capture (Bingham, Eisenhardt
DOI: 10.1002/mde
and Davis, 2007). These heuristics enable execu- security software firm, executives created several
tives to cope with situations about which they have rules to successfully guide the process including
very little information (Eysenck and Keane, 1995). that target customers should: (1) be large and
Specifically, they help executives to effectively and established; (2) possess extensive and highly
quickly capture fleeting opportunities via applying proprietary information; and (3) have the ability
a few rules of thumb while improvising the rest of to pay. Executives were then able to use the rules
their actions. These simple rules provide behavior- as improvisational referents in each of the firm’s
al shortcuts that reduce the complexity of captur- subsequent entries. The rules provided direction
ing opportunities and improve the speed of about the profile of target customers, and yet gave
decision making (Zimbardo and Gerrig, 1999). executives the freedom to flexibly pursue a variety
Simple rules act as guiding themes around which of customers depending on local market condi-
real-time adjustment or more accurately, improvi- tions. Thus, executives improvised to capture
sation can occur (Miner, Bassoff and Moorman, attractive opportunities with big insurance com-
2001). In jazz improvisation, these rules are themes panies in Malaysia, multinational manufacturing
that may take the form of pre-composed sequences firms in Japan, large state-owned enterprises in
of harmonic chords (Weick, 1998). In strategy, China, and oil companies in Saudi Arabia, while
these rules are the heuristics for identifying and simultaneously achieving some efficiency and
executing opportunities within a given abundant coherence.
flow of attractive opportunities. Over time, strategy under opportunity logic
A good example of simple rules is the heuristics requires that executives are alert to changes in
of the alliance process at Yahoo! (Rindova and markets such that they maintain an optimal
Kotha, 2001). In the early days of the company, number of rules, with fewer rules in less predict-
the alliance process was a key strategy that placed able markets and more rules when markets are
Yahoo! in an abundant flow of attractive oppor- more predictable (Davis et al., 2005). This requires
tunities. These alliances accelerated the firm’s executive actions such as adding rules, changing
ability to scale its number of products and so levels of abstraction, deleting rules, and refining
grow rapidly. Specifically, executives relied on them. Occasionally, if an opportunity flow
three rules to capture attractive alliance opportu- becomes less attractive (e.g. greater competition
nities: (1) the basic service or product provided by for the opportunities, lower likely payoff from the
the alliance must be free; (2) form an alliance only opportunities) or if more attractive opportunity
if the product or service enhances the customer flows emerge, then executives should switch to a
experience; and (3) create no exclusive alliances. superior flow and its related organizational pro-
These three simple rules provided direction to cess. Thus, changes in where to operate are driven
executives regarding the capture of alliance op- by the attractiveness of opportunity flows, and not
portunities, but did not tightly prescribe their by whether the core resources are valuable and
actions. This gave executives the flexibility to rare in a given market as in leverage logic.
improvise their alliances to fit with particular An assumption of a high-velocity market under-
partners and products, while giving their actions lies opportunity logic. Such markets are character-
some efficiency and coherence. Over time, these ized by abundant flows of unpredictable, often
rules helped Yahoo! executives to create partner- fast-moving and ambiguous opportunities of un-
ships for products such as e-mail, chat rooms, and clear duration (Davis, Eisenhardt and Bingham,
electronic commerce that, in turn, became compe- 2007). Industry structure is often ambiguous,
titive advantages and sources of high performance. uncertain, and shifting as competitors come and
There are several types of rules that relate to go, customers alter or clarify their preferences, and
specific facets of opportunity capture. These organizational boundaries shift (Santos and
include boundary rules for selecting opportunities, Eisenhardt, 2005). These shifts are often non-
priority rules for ranking them, process rules for linear and unpredictable. This suggests that too
execution, and timing rules for sequencing and much generalization from the past can negatively,
pacing them. Bingham, Eisenhardt and Davis, not positively, impact performance (Haleblian and
(2007), for example, described how the simple rules Finkelstein, 1999). Therefore, it is effective to
for the internationalization processes of six tech- discard opportunity-specific learning, and to keep
nology-based ventures emerged. At one young processes and rules appropriately simple.
DOI: 10.1002/mde
Although it is not inherently difficult for firms to their innovation processes to consistently develop
use the same processes and rules, a strategy based new products that formed a series of temporary
on opportunity logic is difficult to copy because of advantages. Likewise, Roberts and Amit (2003)
its simplicity. Surprisingly, a strategy of a few key discovered that successful firms in the deregulated
organizational processes and few simple rules is Australian retail banking industry actively pur-
often difficult to imitate because the resulting sued a strategy focused on the capture of new
emergent behavior is unpredictable and compli- opportunities. In particular, the banks that con-
cated. As Gell-Mann (1994) notes, the most tinuously pursued new product opportunities
complicated system behavior emerges from partially achieved the highest performance.
structured systems within which extensive improvi- A major challenge of opportunity logic is
sational behavior occurs. Moreover, since each maintaining an appropriate level of structure
opportunity is unique, its capture involves real-time (termed ‘edge of chaos’) (Brown and Eisenhardt,
learning that is not necessarily used or useful for 1997, 1998). Too much structure renders the
subsequent opportunities. These features make it strategy too rigid to capture opportunities effec-
challenging for competitors to infer the rules tively, while too little renders it too slow and
associated with the strategy. Timing is also an inefficient (Okhuysen and Eisenhardt, 2002). Emer-
important source of inimitability in opportunity ging research suggests that maintaining the optimal
logic. Even when competitors figure out a strategy level of simplicity requires constant and vigilant
based on simple rules and imitate it, the exemplar tinkering with the rules (Bingham et al., 2007).
firm typically retains competitive advantage because Moreover, this ‘edge of chaos’ becomes increasingly
of starting sooner and locking up the most precarious as unpredictability increases (Davis
competitively advantaged opportunities before et al., 2007). A second challenge is being too
others arrive (Eisenhardt and Martin, 2000). For tentative. In the face of unpredictability and
example, while many competitors eventually imi- ambiguity, individuals have a tendency to ‘wait
tated aspects of Cisco’s acquisition process, they and see’. But if they do so, they may be too late.
could not imitate many of the resources that Cisco For example, Lieberman and Montgomery (1998)
had already acquired. Thus, opportunity logic relies found that firms that were more tentative in
on two distinct sources of inimitability: the simpli- capturing emergent opportunities struggled because
city of the organizational process itself and the early movers had become established. Similarly,
timing advantages associated with capturing oppor- Zott (2003) found that firms that hesitated when
tunities sooner and faster than competitors. This seizing opportunities often failed to catch up with
timing is, moreover, particularly powerful in high- earlier movers. Tentativeness limits firms’ ability to
velocity markets where networking and information create advantage because earlier competitors may
effects that favor early movers often exist. have already captured the best opportunities, and
Given a high-velocity market, the duration and perhaps even moved on to new opportunity flows
scale of competitive advantage are unpredictable (Ozcan and Eisenhardt, 2007).
(Eisenhardt and Martin, 2000). Opportunities may
unexpectedly emerge and then disappear, making
it impossible for managers to predict how long DISCUSSION
their competitive advantage may last and how
large it will be. Given this unpredictability, We began by observing that, while the resource-
executives often assume that their competitive based view (RBV) of the firm is a major theoretical
advantage is transient, and thus emphasize flex- framework that addresses the source of interfirm
ibility and movement to new advantages. Indeed, performance differences, its contribution is un-
the famous Intel axiom, ‘only the paranoid fulfilled. In our view, part of the confusion
survive’ reflects Intel managers’ belief at any point surrounding RBV relates to the concept of
in time, that their competitive advantage could end resources and its confounding with the strategic
(Grove, 1996). The result is often a series of logic of RBV. This confounding obscures the
temporary competitive advantages (Makadok, insight that the tie between resources and compe-
1998; Roberts, 1999). Roberts (1999), as one titive advantage involves not only the nature of
illustration, found that successful firms in the specific resources, but also the linkages (i.e.,
unpredictable pharmaceutical industry deftly used relationships) among the resources. In this paper,
DOI: 10.1002/mde
we disentangle the concept of resources from the described by Collis and Montgomery (1995) and
strategic logic of RBV. Overall, we attempt to Prahalad and Hamel (1990).
contribute to several areas. Position logic in contrast focuses on building an
First, a primary contribution is a typology of activity system of resources that are tightly linked
strategic logics and competitive advantage that links in synergistic relationships that occupy a unique,
heterogeneous firm resources to competitive ad- valuable strategic position. Unlike leverage logic,
vantage (Table 1). We term these strategic logics these resources need not be valuable or rare in
leverage, position, and opportunity. Leverage logic their own right. Also unlike the leverage logic, they
focuses on the ownership of specific core resources. are tightly linked and so difficult to copy.
Competitive advantage is achieved by leveraging Competitive advantage is achieved when this
these core resources into markets where they are activity system provides either the lowest cost or
valuable and rare. The linkage of these core a unique differentiation for which customers will
resources with one another and with complemen- pay a premium. Over time, new resources and
tary resources is moderate in order to facilitate linkages are added and existing linkages are
redeployment of core resources into new combina- deepened in order to increase inimitability, en-
tions that are more appropriate as new markets are hance strategic position, and improve profitability.
entered and existing ones change. Over time, the Second, we introduce the logic of opportunity.
portfolio of core resources is updated in coevolu- Opportunity logic focuses on selecting a few
tion with changing markets in order to maintain organizational processes (e.g., acquisition, alli-
the highest performing resource portfolio and ance, new product development, or internationa-
most effective deployment of that portfolio. lization) that place the firm in abundant flows of
Leverage is the strategic logic that is most closely attractive, but often fleeting opportunities, and
associated with RBV, particularly the strands developing a few heuristics to guide the fast and
Table 1. A Typology of Strategic Logics and Competitive Advantage

Strategic logic Leverage Position Opportunity
Basis of logic Ownership of specific core Activity system that occupies a Entrepreneurial action to
(VRIN) resources unique, valuable (cost capture attractive, fleeting
leadership or differentiated) opportunities faster, sooner,
strategic position and more effectively than rivals
Strategy Identify, build, and exploit Build tightly linked, mutually Pick one or several
portfolio of core resources reinforcing resource organizational processes in
in current markets and configuration}i.e. activity abundant flows of attractive
deploy into new markets system opportunities and develop unique
simple rules to capture them
Resources and linkages Moderately linked core and Many, often mundane Loosely linked, semi-structured
complementary resources resources with tight mutually processes comprised of simple
reinforcing linkages rules and improvised action
Sources of inimitability Property rights, path Causal ambiguity due to Causal ambiguity due to
dependencies, and time numerous, tightly coupled challenges in inferring strategy
compression diseconomies resources, path dependencies from simple rules and emergent
and time compression improvisational action and timing
diseconomies of early opportunity capture
Environment assumption Moderately dynamic Stable High velocity
Sustainability of advantage Medium term Long term Unpredictable duration and
size
Performance Profitability and growth Profitability (Ricardian rents) Growth (Schumpeterian rents)
Challenges Adjusting portfolio of core Adjusting activity system Maintaining optimal (edge of
resources hampered by hampered by dysfunction of chaos) structure and
cognitive inertia, preference piecemeal changes and threat of tentativeness in opportunity
for short-term performance, steep performance decline capture
and political blocks
DOI: 10.1002/mde
effective capture of those opportunities yielding and duration. Finally, when moderate market
the highest payoff. Specifically, we argue that dynamism is assumed, executives can predict the
heuristics act as improvisational referents. Their evolution of markets fairly accurately. Competi-
semi-structure keeps organizational behavior tive advantage is achieved by maintaining a
bounded and thus partially coherent and some- portfolio of core resources in coevolution with
what efficient. Yet it also permits adaptation and changing markets, and deploying these core
flexibility such that leaders can adjust the specifics resources in moderately linked configurations into
of opportunity capture to the unique situation. markets where these core resources are valuable
Unlike leverage logic, these organizational pro- and rare. Given market change and the limits to
cesses are not necessarily rare. They are also inimitability, advantage is often medium term.
simpler rather than highly detailed. Unlike posi- More broadly, these varying market assump-
tion logic, these processes and their rules are only tions suggest that these different strategic logics
weakly linked. Competitive advantage is achieved are useful at different stages of market evolution
when these organizational processes enable the and address distinct performance objectives. For
capture of attractive opportunities faster and example, opportunity logic is particularly useful
better than competitors. Over time, the categor- for flexibly adapting to nascent markets, and
ization, complexity, and abstraction heuristics may creating first mover competitive advantages. While
be adjusted to allow more effective capture of high profitability may ensue, the performance
flows of opportunities (Bingham et al., 2007). objective is typically aggressive, risky and growth
Likewise, focal organizational processes them- oriented. In contrast, position logic is particularly
selves may be shifted and adjusted in order to useful in more mature markets for deepening and
remain within the opportunity flow that offers the reinforcing a unique, valuable (but relatively
greatest potential for high performance. Overall, stationary) strategic position. While growth may
competitive advantage with this strategic logic ensue (especially if the market is expanding), the
ensues from using heuristics of particular types to performance objective is typically profitability.
profitably capture high value opportunities Finally, leverage logic is particularly useful in
through a mix of real-time improvisation and growing markets or for firms with diverse, but
mindful rule following (Bingham and Eisenhardt related businesses. Here, the performance objec-
2007; Davis et al., 2007). tive is likely to balance growth and profitability.
Third, we contribute conceptual clarity about Fourth, we contribute an elaborated understand-
the influence of market dynamism as a boundary ing of resources, especially the implications of
condition. The absence of boundary conditions linkages among resources. We distinguish between
has been a particular weakness of RBV. As Priem mundane resources that are often not rare, inimi-
and Butler (2001 a, b: 32) note, ‘little effort to table, or valuable in their own right (position), and
establish appropriate contexts for the RBV has core resources per se that do possess those
been apparent’. Specifically, we suggest that characteristics (leverage). We also distinguish be-
RBV’s logic of leverage is mismatched with both tween detailed and highly grooved organizational
stable and high-velocity markets. Rather, when processes that are designed to produce repeatable
stable markets are assumed, competitive advan- actions (position and leverage), and organizational
tage comes from building a defensible low cost or processes that consist of a few simple rules that
differentiated strategic position with often mun- enable improvisation (opportunity). Most impor-
dane resources that are tightly and synergistically tantly, we also distinguish between tight, moderate,
linked into activity systems. The result is often and loose linkages among resources.
long-term advantage. When high-velocity markets Our central argument is that these resource and
are assumed, competitive advantage comes from linkage distinctions have different sources of
relying on a few key organizational processes and inimitability. While rarity (or uniqueness or super-
their simple rules to capture attractive opportu- iority) is always determined relative to the
nities in flows that are often unpredictable, resources of the competition and value is always
ambiguous, and fast-moving. These processes determined by the market context, inimitability is
and rules enable extensive flexibility. Given the an inherent attribute of particular resources and
nature of the market, the result is often a series of resource configurations. As argued earlier, it is
temporary advantages with unpredictable scale also the resource attribute that most directly
DOI: 10.1002/mde
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DOI: 10.1002/mde

Position, Leverage and Opportunity: A Typology of Strategic Logics Linking Resources With Competitive Advantage

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MANAGERIAL AND DECISION ECONOMICS

Manage. Decis. Econ. 29: 241–256 (2008)

Position, Leverage and Opportunity: A

The resource-based view’s (RBVs) contribution toward understanding competitive advantage

INTRODUCTION others in their industry. For example, ﬁrms create

Copyright # 2007 John Wiley & Sons, Ltd.

Table 1. A Typology of Strategic Logics and Competitive Advantage

relates to the sustainability of competitive advan- REFERENCES

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