1'1) Pergamon European Management Journal Vol. 15, No.2, pp. 209-212, 1997 Published by Elsevier Science Ltd. Printed in Great Britain

0263-2373/97 $17.00+0.00

Books for Managers

Resource-Based and Evolutionary Theories of the Firm: Towards a Synthesis edited by CYNTHIA MONTGOMERY, Boston: Kluwer, 1995,273 pages, £61.25

The history of ideas in the field of strategic management is rather short. Kenneth Andrews' course on business policy at Harvard Business School in the 1950s was the genesis of the subject. It was seen as the capstone of the MBA programme and an opportunity for students to synthesise and apply all the various elements of the functionally based courses they had previously studied. Andrews' major contribution to the conceptual development of the field was to emphasise the importance of analysing the enterprise's strengths and weaknesses (giving us the . famous SWOT acronym). After Andrews came Ansoff, to whom we are indebted for the eponymous box, setting out the parameters of choice for strategic direction. Many (and especially Henry Mintzberg) would say that part of the strategic management community then took a major wrong turn and became long­range planners. Incorporating Andrews' and Ansoff s insights they went too far in attempting to apply structured, rational, linear, deductive, logical thinking to the task of giving overall direction to the firm. They prescribed a set of simple steps to be taken in the planning process -decide on the corporate objectives, analyse strengths and weaknesses, identify the gap between present performance and aspirations, generate, using Ansoff s box, a range of strategic options, evaluate them, choose the best, and implement. One major problem with this approach is that the level of complexity, uncertainty and disagreement about the organization, its objectives and its environment undermines such a linear, left-brained, rationalistic

approach. The other problem, addressed by this book, is that it fails to provide adequate tools to understand the strengths and weaknesses of the enterprise's current position and future potential.

One major cause of these problems has been the relative absence of economic analysis to the field up to this stage, a weakness corrected in part by Michael Porter in the 1980s when he applied the well-established structure-conduct-performance approach and other basic economic concepts to the strategy field and gave birth to the well-known five­forces model and to the idea of generic strategies.

Important and useful as these ideas were, they still treated the firm (as did most economics up to this time) as a black box. But since the early 1980s economists and management theorists have developed several important ideas about the firm itself. which have now passed into common management practice and parlance. The idea of there being 'core competencies of the corporation', suggested by Prahalad and Hamel in their classic Harvard Business Review article of the same title in 1990 (May/June issue), is a popularisation of some of the newer ideas within the management community, known generically as the 'resource based view' (RBV) and having their origin in Edith Penrose' 1959 classic, The Theory of the Growth of the Firm (originally published, and now reissued, by Oxford University Press). Other economists have, in parallel and following Schumpeter, applied insights from the increasingly influential evolutionary perspective within their own discipline.

In brief the RBV emphasises the competitive advantage accruing to the firm from its resources - in particular its established routines and other forms of tacit knowledge, its internal and external 'relational

European Management Journal Vol 15 No 2 April 1997

contracts' (particularly important in view of what we now know about transaction costs), and its reputation. The evolutionary perspective also gives due weight to resources, but has perhaps a more developed conceptualization of the importance of history in its notion of path­dependency - the effect on the competitive position of the firm now of what it has done in the past and where it has come from. But within both perspectives history is very important, as the RBV emphasises the extent to which it takes considerable time to develop routines, relationships and reputation, and each perspective recognises the flip-side to these resource endowments, viz. that firms can easily become locked into ways of doing things that get out of step with developments external to the firm in markets and technologies.

This particular edited collection of scholarly articles provides an excel­lent summary of the development of these ideas, contains a number of state-of-the art pieces by leading scholars who have contributed to these streams of thought, and is the forum for a spirited debate between the RBV and evolutionary camps.

Most scholars and teachers will want to read this book to brief themselves about the latest ideas in the strategy field and they will value several of the chapters for this. There is an excellent introductory exploration of the common ground and summary of the positions by Foss, Knudsen, and Montgomery. Rumelt and Montgomery critique the behavioural assumptions of each other's perspective - Rumelt noting the extent to which the evolutionary view downplays the intentionality of individual managers and Montgomery warning against the over-optimism about management capacity in the RBV. Langlois deals with the problem of coherence in strategic development - asking, and partly answering, what it is that

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BOOKS FOR MANAGERS

fundamentally distinguishes the viable firm as an historical entity, rather than 'just an arbitrary collection of businesses held together by the thin glue of transaction cost minimization'? Knudsen also deals with the problem of coherence, from a transaction cost perspective, and addresses the question of how to link the evolutionary and RBV of the firm, suggesting that common work on transaction cost analysis is a fruitful way forward. And there are two useful, though somewhat partisan, pieces by Winter and Freeman. Winter compares and contrasts the two approaches under the heading of 4 Rs (rents, resources, routines, and replication), arguing for the superiority of the evolutionary approach. Freeman, with a slightly different agenda that is still, rightly, concerned with the importance of the Porter-esque market power approach, argues that a population ecology perspective combines insights from both this perspective and the resource based view of the firm.

Cynthia Montgomery is to be congratulated in drawing together such leading edge work in one volume, and presenting it so coherently. To the extent that one detects she has an underlying agenda to demonstrate the superiority of the evolutionary perspective this merely adds spice and interest to the collection rather than diminishes the impact of the ideas presented by each side. Scholars and researchers in the strategy field will greatly enjoy this collection, as will those who are concerned to keep their teaching at the leading edge. Busy managers should ensure that those who attempt to teach them or give them consultancy advice are abreast with the ideas discussed in this book.

Arthur Francis

International Management: A Reader, ed i t ed b y PERVEZ N. G H A U R I and S. B E N J A M I N P R A S A D , London:

Dryden Press, 1995. 393 pp.

A raft of intemational management

books and academic courses, both undergraduate and MBA, have recently appeared. This development is not unsurprising given the rise over the last decade or so of foreign direct investment by firms looking to establish overseas operations, develop foreign markets or collaborate in joint ventures and strategic alliances. While the internationalisation of capital is not new, it is fashionable amongst academics, corporate managers and politicians to look overseas for salvation for creaking domestic markets and firms or for yardsticks by which to compare the state of national economies and perceived failures of domestic management and organisational practices.

It is difficult, however, to find a textbook that adequately appreciates, let alone describes and analyses the international economy, and management of it and within it. With this reader Ghauri and Prasad present a number of near classic contributions by eminent academics. Although in a short review it is impossible to discuss all twenty-four contributions covering over four hundred pages, it can be said that the collection reflects very well the current state of writing about international management.

The twenty-four chapters are divided into four parts; theoretical frameworks and company approaches; co-operative intemational competition; understanding non- western structures; developing global managers. The chapters are sourced from nearly thirty years of middle- to high-brow academic journals. The oldest contribution, that of Perlmutter, is timeless; as relevant today as when first published in I969. Outlining three profiles - ethnocentric; polycentric, geocentric - by which to assess a firm's internationalisation of product, function and geography, Perlmutter provides an as yet unsurpassed framework of critique of the strategy, structure and practices of such firms. Equally path-breaking is the oft-cited contribution of Levitt which proclaims national and regional differences to have disappeared, swept aside by corporate convergence and customer demands for product standardisation. Of course, Levitt, like other

proponents of globalisation, is over- awed by the technology of telecommunication and seduced by his own rhetoric. Those enamoured with globalisation would do well to read Perlmutter, or simply take note of part three of the reader. Here five chapters illustrate the national and cultural differences in economic organisation that continue to exist in the late twentieth century. Given the continued triadic, not globalised, economy, discussion of them' focuses mainly on Japan though some inclusion is made of Chinese (Kao) and South Korean (Whitley; Prasad and Ghauri) business systems. The inclusion of the latter taking the publications included in the reader through to I993.

Part three also exposes the limited intent of much of the material included in this reader and international management writing in general. Intemational management should be concerned with the management of and within an international economy. Instead, the more usual approach is one concerned with aiding the management of Western (read US and to a much lesser extent European) firms as their geographical reach extends to other parts of the world. Three basic issues then arise from this approach which can be summarised in question format. Firstly, what effect are they having on us? Secondly, how do we do business with them? Thirdly, what can we learn from them? These issues are addressed here, for example by Hamel, Doz and Prahalad; Perlmutter and Heenan; Tung; Parkhe; and Parker and McEvoy. Of course, for managers and national politicians of Western firms and governments these are important issues, especially in an international economy made increasingly competitive by the emergence and apparent success of firms and nations from East and South East Asia. Nevertheless, international management as an academic discipline has to shake off such instrumental ethnocentrism.

Understanding intemational management requires more than just completing, and hence fitting together', a jigsaw of pieces of national managements starting with those of the West as the centre. The lack of critical reflection results in

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