Competing through operations and supply

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Competing through operations and supply The role of classic and extended resource-based advantage

1032 Received May 2007 Revised August 2008, February 2010 Accepted April 2010

Michael Lewis and Alistair Brandon-Jones Information, Decisions, and Operations (IDO), School of Management, University of Bath, Bath, UK

Nigel Slack Operations Management Group, Warwick Business School, University of Warwick, Coventry, UK, and

Mickey Howard Exeter Centre for Strategic Processes and Operations (XSPO), University of Exeter Business School, Exeter, UK Abstract Purpose – The paper seeks to analyze the evolution of competitive advantage using both “classic” and “extended” resource-based theory (RBT). The aim is to examine the different ways in which “classic” and “extended” resource-based advantage develops and how they might combine to create long-term advantage. Design/methodology/approach – A single case study method is used to examine the process by which competitive advantage has accumulated over a 50-year period at Food Services Group Inc., a highly successful food service company based on the West Coast of the USA with an annual growth rate currently running at 10 percent. Findings – Preliminary conclusions suggest support for the sequential, iterative, and slow-cycle development model associated with proprietary bounded resources and, the strategic resource-rigidity paradox. The work also highlights preliminary evidence for a faster cycle development process possible with inter-firm resources associated with extended resource-based theory (ERBT) and, long-run sustainable advantage requiring synchronization and integration of both bounded and relational resources. Originality/value – This is the first rich empirical study of the way competitive advantage evolves using both RBT and ERBT. The research provides insights into how organizations can combine both classic and extended resources in seeking to establish competitive advantage. It illustrates how unbounded external resources, such as the role of suppliers engaged in new product development, can create an initial advantage for firms who then build on this by investing in bounded resources such as specific skills within their organization. Keywords Resource management, Resource efficiency, Competitive advantage, Food service, United States of America Paper type Research paper International Journal of Operations & Production Management Vol. 30 No. 10, 2010 pp. 1032-1058 q Emerald Group Publishing Limited 0144-3577 DOI 10.1108/01443571011082517

The authors wish to thank all FSGs for their participation in this research. In addition, they would like to express their gratitude to the editors and reviewers for the time and effort they gave in reviewing this paper. The feedback provided was extremely useful in improving the work.

Introduction Resource-based theory (RBT), arguing that proprietary resources are as important as industry market factors in determining competitive advantage, has come to occupy a central part of the strategy landscape (Wernerfelt, 1984; Rumelt, 1987; Barney, 1991; Conner, 1991; Mahoney and Pandian, 1992; Peteraf, 1993; Teece and Pisano, 1994; Foss et al., 1995; Teece et al., 1997). Although “classic” RBT has obvious appeal, terminological ambiguity has limited its impact on practice (Stevenson, 1976; Porter, 1991; Scarbrough, 1998) and raised theoretical concerns over the inference that only bounded resources can create competitive advantage (McEvily and Zaheer, 1999; Afuah, 2000; Das and Teng, 2000). As a result, “extended” resource-based theory (ERBT) has developed, exploring competitive advantage within a broader network context (Matthews 2003a, b; Lavie, 2006; Arya and Lin, 2007). ERBT assumes that strategic resources lying beyond the boundaries of the firm can be used to generate “relational” (Dyer and Singh, 1998) or “collaboration specific quasi-rents” (Madhok and Tallman, 1998), thereby emphasizing their reliance on certain types of inter-firm relationships (Ireland et al., 2002). This study analyzes the evolution of both “classic” and “extended” resource-based advantage over a 50-year period at Food Services Group (FSG) Inc., a highly successful food service company based in the USA. Such case work has limitations but is an explicit response to the call of other RBT researchers (Pandzˇa et al., 2003, p. 846) for study “that is rich in description and that explains this dynamic phenomenon.” The aim is to explore the way advantage has developed and to address how classic and extended resource-based advantage might combine to create long-term advantage. Our paper is structured as follows. First, there is an examination of the literature relating to classic RBT and ERBT. Second, the methodology for our study is described in detail. Third, we provide information about FSG, including the industry it operates in, its history and product sales over time. Fourth, analysis of case material and its relationship to antecedent literature is provided. Finally, conclusions are drawn including the implications for theory and practice, research limitations, and opportunities for further research. Resource-based theory RBT proffers an explanation of how competitive advantage is generated in the face of competitive pressures (Nanda, 1996). Recognition that endogenous resources are as important as exogenous market factors is not new, having historical roots in diverse works by, amongst others, Marshall (1925), Schumpeter (1934), Selznick (1957), Penrose (1959), Ansoff (1965), Andrews (1971), Richardson (1972), and Nelson and Winter (1982). The specific contribution of RBT lies in the fundamental principle that long-term competitive advantage lies primarily in firms creating bundles of strategic resources that competitors find difficult to substitute or imitate without great effort (Rumelt, 1984; Hoopes et al., 2003). The term strategic resources can include assets, capabilities, organizational processes, firm attributes, information, and knowledge. RBT classifies such resources as those that are: . Scarce. Strategic resources are by definition rare (Barney, 1986a, 1991). Unequal access to resources leads to their uneven distribution amongst competing firms (Dierickx and Cool, 1989). Scarce resources include bespoke hardware facilities, proprietary software, experienced IT support staff, etc.

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Imperfectly mobile. Resources developed in-house, based on experience and tacit knowledge, or interconnected with other resources, are “bound” to the firm and cannot be traded. Any advantage they create can be retained over time by the firm (Mahoney and Pandian, 1992). Imperfectly imitable. Whilst short-term advantage may be created by controlling a valuable resource, it is only sustainable if competitors are unable to duplicate the asset perfectly (Barney, 1986b; Peteraf, 1993). Where strategic resources are knowledge-based, imperfect imitability tends to increase because such resources are often idiosyncratic to the firm in which they reside (Mahoney and Pandian, 1992; Peteraf, 1993; Miller and Ross, 2003). Imperfectly substitutable. It is insufficient to have a resource that is scarce, imperfectly mobile and imperfectly inimitable if competitors are able to replace it with an alternative (Conner, 1991). If substitution occurs, prices are driven downwards resulting in zero economic rents for a previously value-creating resource (Barney, 1986a). Learning curve effects, buyer switching costs, and economies of scale all help to prevent both substitution and imitation of strategic resources.

Priem and Butler (2001) argue that the characteristics listed do not create sustainable competitive advantage individually, but only when they are combined. As such, the resource is only as valuable as its weakest element. RBT has steadily evolved since the early 1990s, from static lists of ingredients for competitive advantage, towards more dynamic explanation of the process by which these elements are utilised (Teece and Pisano, 1994; Newbert, 2007). Despite its obvious appeal, there are a number of criticisms of classic RBT which have limited its impact on practice (Scarbrough, 1998). First, the idea that value creation is based on resources that are valuable is circular and tautological (Priem and Butler, 2001). Second, the concept of “rare” important in Barney’s resource based view (RBV) framework, may be redundant. Hoopes et al. (2003) argue that resources need not be rare to generate competitive advantage, whilst Priem and Butler (2001) suggest that any resource that meets the standards of value, inimitability, and non-substitutability is, by definition, rare. Third, in assuming that endogenous resources drive competitive advantage, RBT tends to ignore exogenous factors that may undermine otherwise advantageous capabilities. Peteraf (1993) notes that firms need to understand what their valuable capabilities are in order to manage them and that external change can nullify competitive advantage or even transform it into a weakness. Finally, a number of authors have concerns that RBT infers that only bounded resources can create competitive advantage (McEvily and Zaheer, 1999; Afuah, 2000; Das and Teng, 2000). Extended resource-based theory Whilst firms may need valuable, rare, inimitable, non-substitutable resources, and capabilities, it is also understood that this approach is insufficient in light of the ability to alter them (Newbert, 2007), extract rents across alliance networks (Lavie, 2006), and understand collaborative outcomes that realise their full potential (Arya and Lin, 2007). As a result of pragmatic and conceptual criticisms of RBT, interesting research has emerged considering the development of competitive advantage in situations where resources and capabilities are held beyond the boundary of the firm – ERBT (Lewis, 2000;

Dyer and Nobeoka, 2000; Duliba et al., 2001; Carr and Pearson, 2002; Lucas et al., 2002; Matthews, 2003a, b; Lavie, 2006; Arya and Lin, 2007; Squire et al., 2009). Lewis (2000) illustrates how competitive advantage occurs through the interplay between organizations and their external environment. He notes that provided resources cannot be copied or replaced by competitors, their ownership is not of critical importance – many strategic resources developed in manufacturing processes are in fact “owned” by suppliers. Dyer and Nobeoka (2000) argue that the creation of competitive advantage in Toyota has much more to do with its supplier relationships than the existence of inimitable manufacturing resources. Duliba et al. (2001) illustrate the applicability of ERBT in the airline industry through the extension of reservation systems in travel agencies to create travel-related supermarkets. The heavy investment in these boundary-spanning systems creates an extended resource-based advantage that is difficult to replicate. In their research into the New York Stock Exchange, Lucas et al. (2002) discusses the way new assets, knowledge, and capabilities emerge as a result of interaction between existing actors in the supply chain. Squire et al. (2009) provide empirical support for the logic of ERBT in a study of UK manufacturing firms, with results indicating a strong relationship between suppliers’ capabilities, supply chain collaboration, and buyer performance. Although ERBT is a relatively recent development, it shares explicit links with supply literature, particularly in relation to research exploring appropriate levels of synergy between supply actors which make reference to issues of buyer-seller relationship evolution, strategic returns from collaboration, and economic value of market power (Croom et al., 2000). ERBT is founded on the assumption that strategic resources beyond the boundaries of the firm can be accessed, especially given the existence of certain types of inter-firm relationships (Hodgson, 1998; Ettlie and Sethuraman, 2002; Ireland et al., 2002; Rungtusanatham et al., 2003; Wilk and Fensterseifer, 2003; Napier and Nilsson, 2006). For example, Rungtusanatham et al. (2003) develop a conceptual framework which describes, explains, and predicts the competitive advantage derived from supply chain linkages. The authors argue that ERBT can help justify investment in both up-stream suppliers and down-stream customers within supply chains to create competitive advantage. Based on analysis of the wine industry in Southern Brazil, Wilk and Fensterseifer (2003) argue that competitiveness depends not only on individual resources and capabilities, but also on those shared with supply chains or clusters of firms. Napier and Nilsson (2006), in exploring the development of capabilities, note the role of creative entrepreneurs as a key component in building collaboration, exploiting knowledge, and enhancing relationships beyond the boundary of the firm. ERBT represents an extension of classic RBT because the structure and function of relationships relates to the specificity of the resources to be transferred. As an illustration, analogous research focused on inter-firm knowledge transfer has explored the differential performance implications of strong and weak ties between network nodes (Granovetter, 1973). It is argued that weak ties (i.e. those lacking history, reciprocity, emotional intensity, etc.) are best suited to the transfer of codified technical-type information and are difficult for the transfer of richer knowledge (Szulanski, 1996, 2000). Conversely, Dyer and Nobeoka (2000) found that strong ties were central to the development of Toyota’s hugely effective supply network. They analyzed the evolution of these relationships and characterized three different stages:

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Stage 1, where there was virtually no knowledge sharing; Stage 2, where Toyota created a supplier association and engaged in a range of supplier development activities; and Stage 3, where non-competitive suppliers were encouraged to co-operate. A central concern for the ERBT perspective is whether knowledge flowing across the firm’s boundary can be held as proprietary knowledge or whether knowledge diffusion makes advantage hard to maintain. Adopting ERBT, Lavie (2006) extends Barney’s (1991) RBV framework, distinguishing between shared and non-shared resources in relation to contribution towards extracting rents from alliance networks. After reassessing the heterogeneity, imperfect mobility, imitability, and substitutability conditions, it is concluded that the nature of relationships may matter more than the nature of resources in networked environments. Lavie (2006) incorporates the notion of network resources that play a role not only in the evolution of alliance networks (Gulati, 1998), but also in shaping the competitive advantage of interconnected firms. By incorporating RBT with social network theory, Lavie’s study goes beyond consideration of the intensity of relational ties, defining a set of opportunities and constraints on the focal firm’s rent accumulation behavior. Further proponents of ERBT, Arya and Lin (2007), analyze not-for-profit networked organizations to understand collaborative outcomes as influenced by organizational characteristics, supply partner characteristics, and network structures. Again, their study demonstrates the importance of unique resources at individual, dyadic, and full network levels that allow these organizations to develop capabilities and competencies. Arya and Lin (2007) claim that by applying RBT beyond the boundary of the firm, the study reveals that organizations can enhance their capabilities by collaborating with others and as a consequence enjoy higher monetary (and non-monetary) benefits compared with less collaborative firms. Such claims may be difficult to substantiate given the embryonic nature of theory development towards value creation in relation to ERBT. The traditional adherence of classic RBT to the notion of “competitive advantage” as prime benefit to the firm, rather than nominal monetary value, gives some indication of the conceptual difficulties in not only the contextual nature of resources, but also how to extend and maintain such value beyond the boundary of the firm. Research questions Our literature review gives rise to two questions that this study seeks to explore: RQ1. What differences exist in the evolution of classic and extended resource-based advantage? RQ2. Can firms integrate both classic and extended resources to create competitive advantage? Research methodology Our research seeks to analyze the evolution of both classic and extended resource-based advantage in FSG Inc., a food service company based on the West Coast of the USA. The group is privately owned and managed by a team that includes members of the original founder’s family and has impressed industry observers with annual average revenue growth of 10.5 percent (þ 3 to þ 16 percent) from a base of around 50,000 customers. Given the fact that our research was concerned with the evolution of advantage over time, it was important to gather longitudinal data

(Miller and Ross, 2003; Jones and Miskell, 2007). However, a “pure-form” longitudinal study was impractical given resource commitments. Therefore, longitudinal data were collected, but within a cross-sectional timeframe (Sekaran, 2003). The level of interference was minimal, because the aim was not to manipulate variables, but to examine RBT and ERBT in a working environment. Our research adopts a critical realist position which is increasingly popular with operations management (OM) academics as a way of combining the ontological strengths of realism with the epistemological value of both positivism and anti-positivism (Ellram and Carr, 1994; Mingers, 2001). To compensate for the incomplete appreciation of reality of those involved in research, the critical realist paradigm advocates the use of triangulation (Jick, 1979; Abrahamson, 1983; Flynn et al., 1990; Lim and Dubinksky, 2004). Methods used to explore the evolution of FSG’s competitive advantage included interviews, historical archive analysis, and participant observation. Interviews Interviews are an essential source of information in case study research and acted as the primary source of data for our work. The aim was to explore the development of competitive advantage within FSG from managerial perspectives, rather than from the researcher’s own frame of reference (Easterby-Smith et al., 1997). Many of the interviewees had “grown up” in the firm and participated in some of the key moments in the company’s expansion, so interviews were used to generate a global description and understanding of the behavior of the case firm over time. Based on concerns with a “non-directive” approach (Yin, 2008), semi-structured interviews were deemed most appropriate for the study. This approach ensured consistency across interviews, whilst giving respondents the opportunity to provide their own narrative on the key events in FSG’s history. A total of 22 interviews were carried out over a six-month period with a range of operational, marketing, sales, procurement, human resources, and technical staff at different levels of the firm, FSG’s strategic supply partner, two co-packers (first-tier suppliers), and an ex-manager of the company. The key was not to ensure statistical representation, but rather gain detailed insight into FSG practices. A respondent-driven critical incident technique was employed to map incidents as individual respondents experienced them (Flanagan, 1954; Bitner et al., 1990; Edvardsson, 1992; Mattsson, 1993; Johnston, 1995). For this purpose, we defined an incident as “a retrospective organization of a set of inter-related incidents into a comprehensive narrative” and to be classified as “critical” meant that it was “perceived to have had a positive or negative outcome for a person or the organization”. Interviews lasted between 1.5 and 2.5 hours and, with the permission of individuals, were taped and transcribed verbatim. Whilst it is impossible to guarantee absolute impartiality, every effort was made to maintain neutrality during the interview process. Response bias is difficult to avoid, especially as the topic under discussion was sensitive to some. In fact, it was surprising how candid interviewees were. Interviewer bias may occur when the researcher imposes his or her frame of reference on the interviewee, when questioning and interpreting answers (Easterby-Smith et al., 1997). To avoid leading respondents, the interview guide was carefully considered by a number of academics to ensure questions did not elicit socially desirable answers (Gummesson, 1991).

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Historical archive analysis Historical archives have been used in this research to support primary data collection and involved the unobtrusive collection of documentation and archival records (Flynn et al., 1990). The group’s founder had a keen interest in the history and economic development of his region and had therefore amassed records of FSG, its competitors, suppliers, and customers. Annual reports, publicity material, mission statements, project plans, selected market data, internal reports, audit reports, and process flow charts have been examined to gain a clearer understanding of the structure and strategy of FSG and the food service market in general. Participant observation Participant observation has the advantage of gaining data from events as they occur normally and allow the observer to record contextual information as it relates to events. Considering schemas for researcher role (researcher as employee; researcher as explicit role; interrupted involvement; and observation alone), our approach was for observation alone to minimize the risk of bias (Flynn et al., 1990). Observations were carried out at the group sales agency, the picking and packing operation for frozen and chilled products, one of the three factories, on a daily delivery route, and during a sales trip. Approach to data analysis Before analysis, transcribed interviews, historical archive documentation, and observation notes were coded based on a two-phase procedure (Lowe and Glaser, 1995). Initial coding used a process known as open coding which essentially “describes” the development of FSG over a 50-year period based on critical events. Axial coding was then used to group codes with similar characteristics into four broad functional categories – sourcing, sales, logistics, and production. The coding process was an iterative one with several rounds of sorting over several weeks. To improve the reliability and validity of the results, interim findings (including potential differences of interpretation) were presented in a series of working documents, giving participants an opportunity to question the initial conclusions drawn. Given the competitive sensitivity of the material under investigation, confidentiality was a key factor in negotiating access and therefore much of the data have been heavily disguised. FSG Inc. – industry, history, and product sales The food service industry The food service industry, also known as the catering industry, is concerned with the provision of food and beverage products in the “out of home” setting. The sector as a whole has a growth rate of 2.75 percent per year and forecasts indicate that international food service sales will match those in retail before 2025 (Promar International, 2000). This growth is based on the increasing propensity of consumers in many global markets to spend more time and money eating in restaurants and buying food through vending machines as opposed to purchasing food to be consumed in the home. The largest food service market is the USA which accounts for $329 billion of a $700 billion global market. Within food service, the market is usually divided into commercial and institutional (non-commercial) sectors. The commercial sector represents around 82 percent of the total food service market by value and includes restaurants, cafe´s, bars, clubs, fast-food, hotel chains, leisure, and travel-related catering. The remaining 18 percent is attributed to the institutional sector which

includes schools, hospitals, company restaurants or canteens, and social catering, such as welfare, army, and prisons. The rate of innovation in the food service industry is increasing and whilst profit margins for new products can be quite high, they are also usually short-lived as competitors respond rapidly using imitation and substitution. Mass customization is increasingly being applied to create individualized products but on a mass scale. This trend creates the need for operations and supply systems that are flexible enough to deal with variety at low cost.

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Food Services Group Inc. FSG Inc. was founded in 1946 in Northern California, where it retains the majority of its market strength and resources. The company competes in the B2B food service market with approximately 53 percent of revenues generated in the commercial sector and 47 percent in the institutional sector. FSG employs around 400 in manufacturing, 500 in distribution, 350 in sales, and 150 in various administrative functions including sourcing. FSG has over 50,000 customers and its revenues have grown at an average of 10 percent per annum over the last 15 years. This compares to a worldwide industry growth rate of 2.75 percent and a US growth rate of 5.9 percent. Sales currently stand at $6.34 billion, positioning FSG as the dominant player in its market (Table I). The company has a reputation for innovation, and launches between 90 and 100 new products every year from around 120-130 initial projects. Generally, it takes three months for new product development, but in some circumstances it has been as little as three weeks. Over half of all products were successful in meeting or exceeding sales volume forecasts and internal return on investment (ROI) targets at the end of the first year after introduction (FSG internal audit report). Around 20 percent of sales turnover (180 stock-keeping units) comes from products that have been launched in the last three years (FSG sales data). For internally manufactured products, this figure is closer to 30 percent. Such levels of innovation have helped maintain impressive levels of profitability that have averaged 12.43 percent over the last 15 years (Figure 1). FSG product sales Analysis of the relative contribution made by its major product groups over time illustrates both the increasing complexity and changing market dynamics for FSG over the last 50 years (Figure 2). By 1950, FSG was trading on the global food market for key ingredients, purchasing products at favorable prices and shipping them around the USA. In the mid-1950s,

FSG Competitor Competitor Competitor Competitor Competitor Competitor Total

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4.0 3.7 2.4 2.0 1.5 0.3 0.2 14.1

6.34 3.7 4.0 3.7 1.9 0.8 0.4 20.84

Table I. Sales revenue for FSG and major competitors

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Figure 2. The relative contribution made by each of FSG’s major product groups over time

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Other Frozen menu organic Frozen menu Frozen desserts Frozen meat/fish Frozen vegetables Canned pork

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the firm decided to exploit the then innovative idea of selling and distributing frozen food to commercial and institutional clients. By 1960, around 30 percent of sales revenue derived from frozen foods (vegetables, meat/fish, and desserts) and this continued to grow over the next two decades reaching 80 percent by 1980. During 1990s, FSG accelerated its move towards more “elaborated” menu products and away from its core frozen commodities. In a ten-year period between 1990 and 2000, revenue from frozen menu dishes had risen from 10 percent to almost 50 percent. This included 8 percent from the new but rapidly growing organic menu range. Just as in 1980s and early 1990s, FSG had known that embracing high quality would allow them to differentiate from competitors. They also had the feeling that embracing nutrition would similarly allow differentiation in the future. In 1993, the company became the first commercial food service provider to publish a booklet that fully detailed the nutritional values of its entire product range. Although this initiative provided little immediate market value, the firm felt that they could create a first-mover advantage and exploit a general market trend towards healthier eating. By 1995, FSG began to market healthier products and services and hired dieticians to develop products. At the turn of the century, FSG tried to expand to the health sector (hospitals and care homes) where their market position was relatively weak. These products sell into very different markets from FSG’s other products (targeting doctors and nurses rather than caterers, for instance) and there were already two established competitors.

The firm currently loses money in this area of the business, but is convinced that it is the correct strategic direction and is therefore determined to remain in this market. In the food business, safety is the key criterion, and has traditionally been viewed as a hygiene factor. However, FSG now see the ability to trace all products back to source as a potential delighting factor for its clients as the issue of provenance becomes increasingly important. FSG is currently working on a project for tracking batches in real time using barcoding and radio-frequency identification (RFID) across its supply network. Data analysis The following four sections present critical incidents from our coding of interview transcripts, historical documentation, and observation notes. In illustrating the evolution of both classic and extended resource-based advantage at FSG, we have presented information relating to four key functional areas – sourcing, sales, logistics, and production. Sourcing Until 1977, FSG had a very limited manufacturing capacity with just a small workshop employing seven individuals. The vast majority of revenues and profits were generated through trading on the global market for bulk food stuffs, including dried and ambient packaged goods and frozen food, which were sold largely in the restaurant market: “The key thing we learned was how to make more profits without any significant investments in manufacturing” (General Manager, FSG). As such, central to FSG’s early competitive advantage was the ability to ensure the availability and dependable delivery of products from its extended supply network: “Buying and selling have always been crucial to FSG. From the very beginning, the firm deployed and developed a great deal of expertise in trading with international food markets” (Senior Buyer, Chilled Products, FSG). Whilst FSG started out with few relational ties, it was able to rapidly generate these and in doing so develop extended resource-based advantage. This was in part owing to the provision of sizeable travel budgets which allowed purchasing staff to travel all over the world, looking for the best suppliers and new product ideas. FSG always sought to take a leadership role in the evolving commercial and institutional food service markets: “[. . .] if competitors had found a new product, FSG would view it as not worth entering the market with the same product” (Chief Purchasing Officer, FSG). During 1980s, FSG made a series of further investments in their supply market, purchasing three medium-sized meat preparation businesses. There were also investments to reinforce their reputation in particular traded product segments, such as fish. The firm continued to recognise the benefits of operational focus and correspondingly, relied upon a huge network of suppliers and co-packers to develop extended resource-based advantage. Co-packers (essentially first-tier suppliers) were chosen on the basis of their capability to manufacture finished products, but were also increasingly encouraged to jointly develop new products for FSG. Under the responsibility of FSG’s Purchasing and Marketing Department, 53 percent of all new products are now created by co-packers. It has been noted that “development of a new product in collaboration with a co-packer is totally different to trading. Relationship development and quality assurance of both product and manufacturing processes are of prime importance in supplier selection” (Marketing Director, FSG).

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Taking supplier collaboration one step further, 1982 saw the creation of a strategic supply partnership whereby FSG took a 50 percent stake in one of its established suppliers. The move to bring an unbounded resource partially in-house was taken partly to minimize the erosion of competitive advantage caused by competitors finding ways to access capabilities outside the firm’s control. However, it was also felt that the partnership offered the opportunity to focus on core capabilities. FSG could invest in manufacturing and the supplier could further develop, and invest stakes in, other supply companies on an entrepreneurial basis, thus generating new competitive advantage beyond the boundary of the firm. The size and complexity of FSG’s supply network has continued to grow over time. In many ways, FSG now relies on its supply partner to access the capabilities of second-tier suppliers within its network. This is especially the case for accessing new suppliers. Whilst there may be excess capacity in the supply industry on which FSG depends, switching of suppliers is not common: “Working together for years, we understand what each other wants without being told every time. Trust has built up over time, setting up barriers to new entrants” (Purchasing Director, FSG). However, despite the closeness that exists with suppliers, FSG still appears willing to assert its market power if necessary, especially in its trading environment: “it is always made clear to the suppliers that they are just that and there is never any talk of partnership!” (Senior Buyer, Ambient Commodities, FSG). In summary, much of FSG’s competitive advantage over the last 50 years has relied on the company’s ability to effectively control unbounded resources in its sourcing of products in both a traded environment and through its network of co-packers. Suppliers not only act as manufacturers of FSG products, but are increasingly involved in the innovation process. It is worth noting that FSG has not developed a responsive supply chain to cope with the customer demand for more innovative products (Fisher et al., 1994). Instead, their shift towards innovative product markets has taken place in order to take advantage of pre-existing capabilities in their extended supply chain. Sales Whilst sourcing expertise was clearly important in accessing products in traded and non-traded environments, FSG also needed an effective sales network to connect to potential clients. FSG employs 350 people in a national “selling” network based around a series of regional agencies. From the outset, each sales agency was a profit centre (with sales people and area managers remunerated on an incentive basis linked to revenue) and a highly effective organizational structure evolved over the following years. In refining this network in the early 1980s, each salesperson was paired with a telephone operator to cover a specific area dealing with an average of 200 customers. Customers were generally visited once every two weeks, typically two days before the delivery day defined at the opening of the account. From the outset, FSG placed great emphasis on training, especially for its client-facing sales network: “We load them with a heavy rucksack and expect them [sales personnel] to use everything in it. What’s in there changes all the time, but it’s always been real heavy” (Human Resource Manager, FSG). Product knowledge was considered particularly important and the centralized commercial department regularly issued detailed information about new products being launched by both FSG and its competitors in the food service market. Video tapes showing the internal

manufacturing process were used to educate the sales force further. Finally, with the move towards nutritionally balanced meals in the mid-1990s, FSG hired five dieticians to train the sales force. During 1990s, the sales network shifted emphasis to focus not just on selling existing products, but also generating extended resource-based advantage through customer engagement: “We are the eyes and ears on the market” (Sales Coordinator, East Coast, FSG). New products, based on customer ideas, could then be developed by FSG and its co-packer network: When one of the leading restaurant chains on the West Coast asked FSG to develop a new fish meal to add to their menu in 1997, we developed a brand new recipe and, with a supply partner, a fire resistant aluminum wrap. The customer was very pleased and a real partnership led to other developments such as lentil and smoked pork salad, a hand-made kebab, and a ratatouille stir fry. That company’s increased its sales four-fold! (General Manager, FSG).

In summary, FSG has created a sales network that is highly effective in accessing potential clients. The evolution of classic resource-based advantage within FSG’s sales force appears to have followed a sequential model of development and enhancement. More recently, we also see the development of extended resource-based advantage with clients increasingly used as an additional source of product innovation. The close relationship with clients has not only helped generate new product ideas, but also helps to “lock-in” clients to a company that is seen to deliver products that are customized to their requirements. Logistics FSG has a service policy to accept any size order from its customers which translates into demand for 1.5 million deliveries per year. A large number of these orders are placed at the last minute, when a chef discovers that a restaurant is full for the following evening. In addition, demand is punctuated by large special events, including world summits, music festivals, and a recent papal visit to the USA. Clearly, there is a need for highly efficient and robust systems for receiving, filling, and dispatching orders to clients. Given the embryonic nature of frozen food distribution that existed in 1960s, FSG invested in its own trucking operation. This distributed products shipped from its international network of commercial suppliers via their main warehouses to regional depots and onto their ever-growing number of clients. In addition, internally produced goods from FSG factories were also sent to its central warehouse prior to distribution. When we look at logistics networks of FSG, it is important to differentiate between raw materials (sugars, fats, fish, etc.) and semi-finished products (cut and peeled vegetables, skinned fish, pastry cases, etc.) combined by FSG in their factories to make different recipes. These two inputs are delivered directly to FSG’s factories and are checked on arrival by the factory laboratory. Trading products are bought on the open market and sold to FSG’s customers, often under the FSG brand, and represent around 45 percent of total sales. Finished products, representing around 55 percent of total sales, come from FSG’s own factories or from co-packers and are all sold under the FSG brand. Trading and finished products are dispatched to the customers via different routes depending on their characteristics. Chilled products, introduced in 1995, and high stock-turn frozen products (quality assured by suppliers) are shipped directly to regional

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distribution centres and then onto the customers, sometimes via smaller transshipment points. Low stock-turn frozen products are shipped to a central warehouse, checked for quality and then, as needed, shipped to the regional distribution centres. A key point in the approach to logistics is the level of responsibility given to individuals. In their own area of competencies, people are given a high degree of control. As an example: “Drivers check their delivery schedule the day before and, according to this, they decide the time they want to be on the road the day after” (Driver, FSG). The company has centralized certain parts of the business – quality control, marketing, purchasing, and finance – but decentralized those aspects that are close to the client. In 2005, distribution costs were broken down into the following figures: 62 percent transportation, 38 percent warehousing and handling. The total costs represented 10.1 percent of net proceeds of sales. This relatively low level of distribution costs is all the more impressive given that fact that order size is small (58 percent of all orders weighed , 40 kg) and daily tonnage per vehicle is just 1.45 tons. In summary, in addition to sourcing and sales expertise, FSG’s long-term competitive advantage relied on the ability to deliver required products dependably and at speed. The decision to invest in a wholly owned logistics operation, a classic bounded resource, was made largely because of the lack of third-party alternatives that existed when FSG began trading. Over the following decades, significant investment was made in this logistics system following a sequential model of bounded resource development and enhancement. For several years, the high level flexibility (in terms of volume, variety, location and “drop-time”) represented the “state-of-the-art” in logistics provision. However, the emergence of highly effective and low-cost third-party logistics providers in 1990s up to the present day, has presented FSG with the prospect that this once-valuable resource may be creating longer term rigidity. This may reflect the asynchronous nature of bounded resource development and supply/demand market evolution, in which changes in a market can turn an asset into a potential liability over time. Production It was not until the late 1970s that FSG transitioned away from trading for foodstuffs on the global market and towards greater emphasis on industrial production through the acquisition of its own factories. Therefore, within production, we see that early competitive advantage originated from unbounded resources which were then combined with classic bounded resources over time. The first factory, completed in 1977, operated with five lines making dough-based products such as sweet tarts, savory crepes, quiches, and fruit pies. By the middle of 1980s, FSG had begun to improve its production capabilities in order to develop and respond to a new trend for more elaborated “ready to cook” products. The firm used the idea of product platforms in the factory to prepare large volumes of semi-finished products which were then used in a wide variety of finished products. “The numbers of raw ingredients were kept to a minimum – In 1984, for example, just two ingredients represented 55 percent of raw material inputs” (Former FSG Business Unit Manager). In 1985, FSG invested in a new second factory producing “frozen menu dishes”. This facility enabled the firm to offer innovative “chef-developed” products that were designed to be in the tradition of mid-price restaurant service but were different from anything offered on the frozen produce consumer market at the time. The factory, located in an important agricultural region, was close to a wide range of actual and

potential suppliers. It focused on meat, poultry, and vegetable dishes that were complementary to the existing product catalogue. Employing approximately 200 people and structured around seven modular production lines, the factory was designed with volume and variety flexibility very much in mind. In 1995, a third factory was opened, running three lines (two frozen and one chilled). Production planning was carried out daily for chilled products and weekly for frozen products. Building upon previous production experience, this facility was designed to be a very efficient and low cost plant. A low waste policy was established from the outset, which led to the creation of some innovative products incorporating re-work. These included a fish soup from fish block sawdust, and fish fingers from off-cuts. Paradoxically, the use of these waste materials gives a higher quality product than some commercial rivals, who used bought-in fish stock. Using “primary” fish protein from sawdust both reduced waste and improved texture and flavour characteristics. To deal with increasingly volatile volume and product mix demand, the factory was designed to be highly flexible, typically producing 30 different recipes per day. The marketing function was deeply involved in the design of the factory, in particular identifying the three broad product groups that would define its focus. The factory was not expected to make anything outside these groups but was intended to be extremely flexible within each group. Flexibility was achieved in a number of ways. First, all machines (with minor exceptions like the large frying vessel and the spiral freezers) were on wheels and changeovers could be completed in less than five minutes. Second, second-hand machines for particular products were leased in response to short-term changes in demand, which also helped minimize asset investment. Third, of those employed in the factory, over 30 percent were temporary employees allowing a close match between product demand and resource allocation. To ensure that the design vision carried over into the actual operations, the original project manager became the factory manager and afterwards, all technical development in the factory remained his direct responsibility. In 1996, Factory 3 was extended to incorporate a separate production centre for the range of organic menu foods. Initial volumes were just 700 tons but the production rapidly grew. By 2003, organic products accounted for 12,000 of the 46,837 tons produced at the factory (FSG production data). In summary, FSG’s process of industrialization has increased flexibility and responsiveness, and stimulated innovation. FSG can produce in small batches which minimize inventory holding costs and reduce the risk of product obsolescence. The facilities allow a high variety of product mix without the commonly associated increase in production costs. FSG has followed a dedicated manufacturing strategy, focused exclusively on food service, with high levels of customization, and involvement of customers in product development: Only when we became the leader in frozen foods did we consider getting into a new technology for chilled products and we still kept our focus on the core business of food service (General Manager, FSG).

FSG’s proprietary bounded resource development in this area follows a sequential, iterative, and slow-cycle process. As such, the high level of flexibility in FSG’s third factory is largely a result of incremental developments in mass customization and modularity that occurred within its other factories in the preceding 15 years. This approach has been

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highly profitable; with products coming from FSGs own manufacturing representing over 40 percent of total company profits. The key challenge for FSG is to maintain flexibility in the face of rapid growth. Summary of analysis Table II summarizes the evolution of FSG in relation to sourcing, sales, logistics, and production. It also illustrates how both classic and extended resource-based advantage combined to create consistently impressive revenue growth and profitability during the firm’s 50-year history. Until the late 1970s, FSG essentially adopted a “trader model” and as such relied heavily on expertise in sourcing to create competitive advantage. In this model, purchasing staff were encouraged to travel all over the world looking for new suppliers and low cost product sources. In addition, FSG were keen to take a leadership role in products and tended to avoid markets where strong competition already existed. Whilst sourcing expertise was clearly very important, competitive advantage developed as a result of combining this with other aspects of the business. First, FSG developed an effective sales network which contributed to “technical” relationships with clients and thus slowed down the erosion of FSG’s market advantage in the food service industry. Second, the company made substantial investments in its logistics operation to distribute products from international suppliers, via warehouses and regional depots, to clients quickly, dependably, and at low cost. Inevitably, any relatively “rich” market will attract competitors and increasingly FSG’s once-favorable margins were put under pressure. Fortunately, FSG’s strategic emphasis on first-mover advantage meant that they realized the implications of these trends relatively early and began to look for ways to add value to their product. The 1980s brought a greater emphasis on industrial production through the acquisition and construction of wholly owned production facilities. This “industrial model” saw the investment in two of FSG’s three factories with increasing investment in processes that enabled high levels of volume and mix flexibility. Whilst FSG continued to spot trade for many raw materials, during 1980s the firm developed close relationships with its small group of co-packers who were expected to produce finished products and, in some cases, jointly develop new products. The investment of a 50 percent stake in a strategic supplier during this period illustrates how the firm saw the need to look beyond its own boundary in an attempt to generate revenue growth, profits, and long-term competitive advantage. At the same time, the continued refinements to the sales and logistics networks helped maintain sales growth. For example, it was during this period that the sales network introduced the “pairing system” which linked sales personnel in the field with specific telephone operators in the back office. In 1990s to the present day has seen a marked acceleration towards more elaborated menu products in line with emerging market themes such as organic and health. This “professional model” has seen more emphasis placed on added value products and services. Products have increasingly high-margin and sales benefit from the close relationships that have been established between sales and clients over FSGs history. This period has also seen the investment in a third factory that has pushed the idea of flexibility much further, typically producing 30 different recipes each day and switching between production runs in just five minutes as a result of the “machines-on-wheels” concept. Whilst product innovation has been a key aspect of

1975-1984

Pre-1975

Majority of revenues from spot trading as opposed to manufacturing # Trading for canned pork " Trading in dry/ambient purchased goods and frozen commodities High investment in trading and travel to access new supply markets Close relationship with Factory 1 supplier Continued spot trading with slight decline Development of longer term relationships with small number of suppliers Investment in key suppliers to ensure availability and range – three medium-sized meat preparation business Strategic supply partnership (50 percent stake) – entrepreneur to invest in second-tier suppliers " Use of co-packers to produce finished products and some joint new product development (NPD)

Sourcing Very limited investment in inhouse production capability Small flexible workshop with seven employees

Acquisition of Factory 1 from supplier: five lines, dough-based products Improved production capabilities # In frozen “commodities” " In “ready to cook” products Use of product platforms – high volumes of semi-finished inputs 20 new precuts in three months

Established wholly owned logistics operation owing to limited third-party options Emphasis on quality of inputs for raw materials and semi-finished products Use of laboratories at factories and central frozen warehouse

“Any size order” policy introduced translates into high volume of smaller orders averaging 64 kg Significant investment makes logistics “state-of-art” Individual responsibility emphasis, e.g. drivers deciding routes and timing

Creation of selling network – treated as a profit centre from the outset “Technical” relationships slow competitor erosion of FSG market advantage

Improved network with “pairing system” (telephone operative and sale person) Very close contact with clients – one visit every two weeks – to persuade adoption of new products including frozen meals Decentralized training in regional offices

(continued)

Production

Logistics

Sales

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Table II. Summary of analysis

Table II.

1985-1994

Building of Factory 2: seven modular production lines with increased variety " In frozen menu dishes – “chef developed” meat, poultry, veggie " In profit margins for products " In scarce/inimitable technical expertise ISO 9001 accreditation

Building of Factory 3: Bespoke in-house design. Three lines, two frozen and one chilled, producing 30 recipes per day. High flexibility by wheeled machines and 5 min changeover, leasing machines, use of temporary workers Range extension – " in chilled products and salads and customized specials Introduction of organic production centre – growing to 8 percent total sales by 2003 Products from waste materials 90-100 new products launched per year 40 percent profit from manufactured products

Use of ISO 9001 for supplier quality accreditation allowing direct shipping to clients for high-turn frozen products Investment in additional capacity for central distribution centre

273 vehicles and 20 distribution centres Extended service to include chilled products as well as frozen Self-certification for suppliers of chilled products to avoid need for in-house lab testing Rationalization of regional distribution centres Development of resource rigidity with the emergence of effective third-party logistics Investment in RFID tracking across supply network

" Emphasis on training, e.g. use of videos showing manufacturing process to transfer of knowledge within FSG Centralized training by commercial department " Investment in feedback mechanisms from market to judge new product launches Shift towards customer as innovator – use of customer for ideas then passed to manufacturing and co-packer network Use of dieticians for training in nutritional aspects of products, especially for links to health sector markets Knowledge pooling using intranet to share sales techniques and customer feedback Further investment in client relationships, especially for highmargin products

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" Reliance on strategic supplier to access global suppliers in network and identify innovations Some use of suppliers to independently drive new product development Significant " in number of suppliers and complexity of supply network – use of partner and co-packers to part-manage this 1995-Present Re-design of NPD process to formally integrate supplier ideas Average three-month NPD leadtime and 55 percent success rate Exploration of new product sources to counter # in “core” fish stocks Continued mix of weak ties in trading and strong ties with a few key suppliers Marketing becomes dominate “owner” of supply network to integrate customer, production, and supplier inputs into innovation process

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competitive advantage for FSG throughout its history, the sources for this innovation have become increasingly diverse. The role of suppliers in new product development has now been formalized with many of the 90-100 new products each year originating directly from suppliers or in collaboration with them. In addition, the end client is increasingly encouraged to drive innovation, with a number of products made for specific clients or special markets. Finally, innovation comes from FSG’s facilities, with some products developed in response to process efficiency, such as the example of a fish soup from fish block sawdust which not only reduces waste, but also increases product quality. Discussion We now reflect on our two research questions in relation to the evolution of competitive advantage over time: RQ1. What differences exist in the evolution of classic and extended resource-based advantage? RQ2. Can firms integrate both classic and extended resources to create competitive advantage? The evolution of classic resource-based advantage Our analysis of FSG’s competitive evolution indicates a high-level sequential (or “sand cone”: Ferdows and de Meyer, 1990) model of bounded resource development and enhancement. Managers were explicit about this sequential process at FSG and emphasized the iterative nature of creating strategic resources. For example, when we consider the evolution of FSG’s logistics operation for frozen desserts and menu dishes, the exploitation of “higher-level” flexibility (in terms of volume, variety, location, and “drop-time”) was only possible because of a long established commitment to dependability in product delivery. Similarly, although the national sales network was based from the outset upon a set of sensible management principles, it took around five years of refinement for the highly effective pairing of regional salespeople and specific telephone operators to be finalized. Finally, the high level of production flexibility that exists in Factory 3 is largely a result of incremental developments in mass customization and modularity that took place in Factories 1 and 2 in the preceding 15 years. Our analysis also illustrates how advantage-bearing resources can, over time, create potential-inhibiting rigidities (Barney, 1991; Leonard-Barton, 1992; Lewis, 2000). At one level, this is symptomatic of the asynchronous nature of bounded resource development and supply/demand market evolution. For instance, FSG developed its wholly owned truck distribution operation because at that time, there was no real market for third-party logistics provision. For a time, their significant investment created a resource-based advantage in this area of the business. However, the emergence of effective and low-cost third-party logistics providers has created an environment where this asset may become a liability. At another level, the FSG logistics story illustrates how bounded rationality may play a critical role in the emergence of such rigidities. FSG managers had always argued that, in addition to overcoming a supply market constraint, their proprietary distribution network allowed them to gain extra insight into the needs of the market. This narrative, together with the significant sunk cost of the truck fleet made it very difficult for participants to

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make an objective assessment of its current strategic value. As such, we see how the existence of a “steady-state” culture may limit FSG’s ability to change: Our culture has probably created a kind of bubble around the company and its co-packer network. We are often sure that nobody else knows our business, so we’re not the most open to new ideas that don’t emerge from us or the [co-packers] (Production Manager, Factory 3, FSG).

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Our analysis indicates that the development of resource rigidities can be reversed; in some cases as a result of exogenous market factors. In the frozen meat and fish product category, for instance, product availability was a source of differentiation in 1970 (when international supply markets were less well developed) but by 1985, competition had greatly increased client supply options. However, by 2000, availability for frozen fish categories at least, was once again a significant issue as supply scarcity effects resurfaced. As a result, FSG’s purchasing power and market influence began to differentiate them from their rivals. Thus, we see how bounded resource-based advantage can ebb and flow in light of customer and supply market forces. The evolution of extended resource-based advantage Our analysis indicates that the evolution of extended resource-based advantage has followed a quite different trajectory to that of classic bounded resources. A strong theme which runs throughout FSG’s 40 years as a purveyor of food services is the method of collaborating with its extended supply network. FSG’s expertise in trading in international food markets required the firm to develop strong ties with suppliers who were essential to the business as a reliable source of delivery. Yet not only was the firm capable of leveraging a relationship based on dependable supply, it also recognized the strategic value of collaborating with selected suppliers on innovative new food products. The development of this trading-based “product arbitrage” between the firm’s supply base and its customers was eventually to affect how FSG viewed its manufacturing resources. The ownership of production assets was not allowed to inhibit the direct relationship between the firm’s supply and customer networks. Taking the ERBT perspective, a major element of FSG’s success was its ability to differentiate between the collaborative skills needed in trading with co-packer suppliers (e.g. quality assurance, just-in-time), and the “higher order” capabilities required for the co-development of new products (e.g. entrepreneurship). Returning to the Toyota example discussed earlier for instance (Dyer and Nobeoka, 2000), in the first stage of their network development, there was virtually no knowledge sharing, whereas FSG began to operate from day one on a global stage with the deliberate intent of learning as much as possible about different food products and manufacturing processes. Using the strong/weak tie logic, FSG began with no ties and very rapidly created a series of strong relationships that effectively transferred rich knowledge and led to competitive advantage. In seeking to consider how sustainable such relational resources might be, it is important to note first-mover effects but also to consider some of the characteristics that, despite the short development lead-time, map onto the strong tie construct. In particular, the absolute managerial philosophy (and hiring of personnel who shared the vision) about product knowledge and quality meant there was clear emotional intensity to all interactions and this was allied to a sizeable travel budget. In other words, in line with the founder’s vision, the firm derived almost immediate strategic benefits from an entrepreneurial insight into supply markets.

It is also interesting to reflect on what impact the relative position of FSG in the supply network had upon its ability to rapidly create relational assets. In the Toyota example, the firm was inevitably adopting a parent/teacher role and therefore had to adopt a series of strategies to help encourage learning, whereas FSG clearly saw themselves as the child/pupil and, moreover, as a pupil who was desperate to learn. This echoes the literature that argues that the “potential difference” between transmitter and receiver has strong explanatory power for relative absorptive capacity (Lane and Lubatkin, 1998). Relationships between players throughout the supply chain appear to be important in order to reduce costs and increase responsiveness. Co-packers and strategic partners are now expected to pursue network efficiencies by seeking a minimum share of purchase agreements in exchange for service guarantees, for example, and to track item movement to improve forecasting. In addition, an FSG “relations intranet” has been established worldwide, to leverage ideas of future innovation and to share ideas on responding to customer needs. Finally, in considering the evolution of extended resource-based advantage, it is interesting to reflect on the order in which FSG has generated valuable capabilities. It could be argued that the firm was not an innovator from the outset, it was rather an opportunist. Owing to the embryonic market of frozen food distribution, the company developed a very flexible supply base and logistics network. However, as products in their market became increasingly functional, FSG faced a supply network which was essentially too responsive for its products – a classic “Fisher mismatch” (1994). As such, FSG has not developed extended resource-based advantage to fit its innovative products, but rather it has sought to develop and market innovative products to take advantage of existing supply chain capabilities. Combining classic and extended resource-based advantage The FSG case provides several examples of the synchronization and co-ordination of different resource cycles. Our analysis does not support the view that extended resource-based advantage is simply an extension of classic resource-based advantage. We see that in the case of FSG, early competitive advantage originated from resources outside the boundary of the firm and these were then combined with classic bounded resources over time – ERBT essentially precedes RBT in this context. Our study also suggests that whilst extended resource-based advantage can be developed and appropriated more rapidly, sustainable advantage appears to be built upon a combination of extended and bounded resources. Consider the following resource development process: FSG purchased a frozen dessert factory in 1977 but the appropriation of much of the value of its assets had begun several years earlier with the careful selection of this supplier and the placement of large supply orders. In the years before FSG’s acquisition, the factory had collaborated in some minor product innovations. Yet in line with the above discussion of sequential strategic resource development, it was then at 18 months from the purchase date before the factory was able to offer any additive performance to the FSG network than it had as an external supplier. Ultimately, however, it was the combination that created an integrated capability that produces levels of performance that in turn underpin a unique and highly profitable market offering: “The acquisition of our own manufacturing facilities not only pushed our internal flexibility, but helped stimulate our suppliers to keep on getting better too” (Purchasing Manager, FSG).

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Our analysis also points to situations when extended resource-based advantage ceases to be sustainable, because competitors start to find ways of accessing capabilities outside of the control of the firm. The case of investing a 50 percent stake in a strategic supplier is an example of an extended-resource being partially brought in house – becoming part-bounded – in order to minimize the erosion of competitive advantage. However, this partnership had the added benefit of creating new sources of extended resource-based advantage through, for example, the entrepreneurial investment in second-tier suppliers by the strategic partner which generate new product innovations. Likewise, whilst FSG’s highly effective sales network had, until recently, contributed to competitive advantage largely through its bounded resources (i.e. internal sales partnering), the recent use of external clients to drive product innovation, is an example of competitive advantage in this area extending beyond the boundary of the firm. More pragmatically, both classic and extended resource-based advantage is not readily “amenable to management’s cultivation and control” (Scarbrough, 1998, p. 226). Therefore, any integrative decision-making construct needs to at least recognize this phenomenon and consider re-classifying strategic resources by the extent to which they are managerially biddable. “Perfect biddability” might exist when quickly accessing, albeit with a clear strategic purpose, traditional factor markets. “Imperfect biddability” could exist on a spectrum from FSG’s “eager pupil” model of learning from factor markets, through to the co-evolution of more complex relational and firm-bounded resource sets such as those underpinning FSG’s organic food product delivery systems. The test of whether the blend of ERBT and RBT in this context produced any competitive advantage is essentially a question of whether an alternative strategic path would have produced a better return for FSG and whether its competitors moved to a better and/or a more sustainable position than FSG during the period studied. Neither question is straightforward because FSG (and some of its competitors) do not publish full financial data. Nevertheless, two aspects of performance do indicate relative competitive success for FSG. First, as we specified earlier, market share and growth rates consistently outpaced the competition. Second, FSG seems to have a superior reputation for product innovation. Over an 11-year period the firm had won the Food Service Industry’s award for “Most Innovative Food service Product” five times; more than any other firm. Conclusions This paper examined how classic and extended resource-based advantage develops over time using longitudinal case data from FSG. Inevitably, it has limitations: this was an exploratory single-case study and although established models were used, there was no formal hypothesis testing. Moreover, the analysis relies heavily on expost managerial “sensemaking” (Weick, 1979, 1995), thereby raising important questions about the normative value of knowing what a firm “believes made it good in the past” a judgment in turn heavily influenced by imperfect information, political forces, and cultural bias (Leonard-Barton, 1992). Accepting these limitations however, it is possible to draw some specific conclusions relating to the interaction and evolution of RBT and ERBT. Although RBT sits comfortably as a theoretical backdrop for traditional OM, the increased emphasis on supply themes within the discipline – operations and supply

management (OSM) – may create a potential conceptual disconnect. Alternatively, this may create an opportunity for ERBT to better reflect competition between networks of firms. In the case of FSG, competitive advantage started as an entrepreneurial activity in the supply chain and only later “backed into” production. The firm explicitly recognized that its key assets were its links to the supply chain and the flexibility this created. The products they then developed were designed to take advantage of this capability rather than developing a supply chain to suit product characteristics. The value flows to FSG in its supply chain not because it is large, but because of these key relationships, i.e. it is network-enabled. Intriguingly, this appears to be an example of ERBT followed by RBT, rather than vice versa. Over an extended timeframe, it appears to be the synchronization of classic and extended resources that make the firm successful but, crucially, our analysis suggests a faster cycle (and more programmatic) process is possible when developing and deploying resources that are not within the boundary of the firm (i.e. ERBT) whilst providing further empirical confirmation of the sequential, iterative and slow-cycle development processes associated with proprietary bounded resources (i.e. classic RBT). This is significant for two reasons. First, it would be easy to conflate extended resourced-based advantage with rich, strong ties and assume that relationships tend to be long established. However, the FSG case indicates that it is possible to use both weak ties strategically and rapidly create strong ties – assuming an appropriate competitive context, commitment signaling and, knowledge of “potential difference.” This suggests that knowledge-based relationships and opportunistic behavior are not necessarily incompatible and, moreover, it may allow for OSM to make a significant contribution to “start-up” businesses where, arguably, the traditional OM toolset is best suited to established, scale operations. Second, the paper reiterates the impact of a capability-rigidity paradox – where exogenous factors nullify competitive advantage or even transform it into a weakness (and vice versa). In other words, bounded resource development and supply/demand market evolution are asynchronous; making reconciliation to achieve enduring strategic fit a challenging process (Slack and Lewis, 2008). The differential cycle-times associated with classic and extended resources suggest a refinement to this process of alignment – perhaps in the development of an OSM version of the ambidextrous organization (Tushman and O’Reilly, 1996; van Looy et al., 2005). Implications for practice This study suggests that the evolution of classic resource-based advantage and extended resource-based advantage are different and correspondingly that the skills and tools to manage these capabilities may vary. However, pragmatically it is the synchronization of these two processes that marks out sustainable advantage – so what practical lessons does the research suggest for achieving this? First, there is clear evidence that it is operations and supply that matters. There has long been a belief that firms can be better at buying because of their production experience but this work suggests that firms can also learn to be better at making because of their purchasing experience. In other words, there is significant scope for re-balancing in most firms. Advocates of production capability (an RBT logic) and “in-sourcing” need to recognize that firms can use buying as a strategic capability (an ERBT logic) and, in doing so, react more rapidly to market opportunities. Advocates of purchasing capability

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and “outsourcing” need to recognise that there is more to be determined than efficiency maximization and transaction cost minimization (i.e. firms only undertake activities where adverse costs might arise from operational difficulties in a market exchange). A more balanced perspective would consider both economizing arguments with a logic where: “the complementarity of capabilities, strategic relatedness, relational capability-building mechanisms, and cooperative experience [are equally] important” (Holcomb and Hitt, 2007). Second, synchronizing internal and external resources within a competitive environment is clearly a dynamic process and four key sub-processes were apparent from this work. Developments can be simultaneous or sequential (e.g. FSG undertook boundary and internally focused activities in sequence) and structural (e.g. different business units working on different projects, joint venture then later acquisition, etc.) and/or contextual (e.g. targeting specific market segments) in approach. Whilst we can offer no detailed guidance on deployment patterns/combinations at this stage in the evolution of the research, it is important to stress that a range of different process options exist. More generally, any mechanisms that can encourage OSM planning to move beyond static optimization (e.g. options-based or game theoretic strategies, etc.) are crucial. Further research A rich case like FSG presents numerous opportunities for further analysis and conceptualization, but one aspect of relational resource evolution in the case is particularly intriguing: the repeated suggestion that the firm has never regarded knowledge-based relationships as incompatible with highly dynamic and opportunistic behavior. In particular, the group’s purchasing agents were always encouraged to seize a good bargain if it presented itself and worry about how products could be sold later. As an indication of how strongly embedded this policy is within the firm, FSG do not differentiate between in-house and supply network capacity – any categorization employed in their planning process relates exclusively to dynamic, cost, and capability issues: “it’s never ever who owns what [. . .] our own capacity has to stand on its own feet” (Senior Buyer, Chilled Products, FSG). Insofar, as there are generic lessons from such an approach, further specifying the exact nature of these relationships may help address an enduring criticism of RBV (especially from advocates of a transaction cost perspective) that it does not allow for entrepreneurial or opportunistic action. References Abrahamson, M. (1983), Social Research Methods, Prentice-Hall, Englewood Cliffs, NJ. Afuah, A. (2000), “How much do your co-opetitors’ capabilities matter in the face of technological change?”, Strategic Management Journal, Vol. 21 No. 3, pp. 387-404. Andrews, K. (1971), The Concept of Corporate Strategy, Dow Jones-Irwin, Homewood, IL. Ansoff, H.I. (1965), Corporate Strategy, Penguin, Harmondsworth. Arya, B. and Lin, Z. (2007), “Understanding collaboration outcomes from an extended resource-based view perspective: the roles of organizational characteristics, partner attributes, and network structures”, Journal of Management, Vol. 33 No. 5, pp. 697-723. Barney, J.B. (1986a), “Strategic factor markets: expectations, luck and business strategy”, Management Science, Vol. 32 No. 10, pp. 1231-41.

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