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Two distinct causal mechanisms—resource‐picking and capability‐building—have been proposed in the strategic management literature about how firms create economic rents. Under the resource‐picking mechanism, managers gather information and analysis to outsmart the resource market in picking resources, similar to the way that a mutual fund manager tries to outsmart the stock market in picking stocks. Under the capability‐building mechanism, managers design and construct organizational systems to enhance the productivity of whatever resources the firm acquires. These two rent‐creation mechanisms are certainly not mutually exclusive, and it is likely that firms generally use both of them. It is therefore important to consider the interaction between these two rent‐creation mechanisms: Do they complement each other? Or are they substitutes for each other? In other words, do they enhance each other's value, or detract from each other's value? Answering these questions is a necessary precondition to understanding how firms should allocate their time and effort between these two rent‐creation mechanisms. The present paper develops a basic theoretical model to address these questions, and derives testable hypotheses from the model. The model predicts that the two rent‐creation mechanisms are complementary in some circumstances but substitutes in others. Copyright © 2001 John Wiley & Sons, Ltd.
Strategic Management Journal – Wiley
Published: May 1, 2001
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