Managerial decision making and firm performance under a resource‐based paradigm

Abstract

A framework is presented that connects managerial decision making to resource building and firm performance. The framework takes a behavioral view of decision making and distinguishes two distinct decision‐making processes. First there is the creative conceptualization of new resource configurations that are intended to deliver competitive advantage. Then there is the painstaking development of resources required to implement strategy. We argue that heterogeneity in the resources of rival firms arises from the interplay of these two processes: resource conceptualization and resource development. Heterogeneity spawns performance differences that can be explained ex ante from characteristics of managerial decision‐making processes. We illustrate the approach in a simulated decision‐making environment representing a highly competitive and dynamically complex industry. Results from repeated simulation experiments conducted with executive and MBA students show vast differences in performance among firms, even when they started with identical resource positions. In a departure from traditional resource‐based literature, we explain how these differences stem from path dependent accumulation of resources and spontaneous variety in the way rivals conceptualize resources. Copyright © 2010 John Wiley & Sons, Ltd.