The advantage chain: Antecedents to rents from internal corporate ventures

Abstract In this article, we argue that the resource-based perspective on strategy offers a useful basis for understanding the contributions to the firm of corporate ventures. The heart of the resource-based view of the firm lies in arguments set forth by Penrose and by Nelson and Winter. Penrose (1959) argued that differential mechanisms for resource combination and utilization result in heterogeneity among firms, even among firms with similar factor endowments. Nelson and Winter (1982) argued that behavior, in particular behavior with respect to the utilization of firm resources, becomes routinized over time. People are often unable to describe or reconstruct well-honed repetitive routines with ease (Van de Ven 1986). Consequently, no two firms are likely to develop identical routines, and it is often difficult for one firm to copy routines originated in another. The idea that resources may be combined in routinized, but relatively idiosyncratic, ways suggests that firms will develop enduring differences in resource profiles, and consequently in strategic potentialities over time. Consider the benefits a corporate venture can offer. Entering new markets, making a new product, developing a new technology, or reconfiguring internal processes all require changes to existing resource configurations and routines. These changes can allow the firm to discover ways of combining its resources, and to the extent that the new combinations incorporate difficult-to-imitate routines, it will take some time before that combination can be matched by competitors. In other words, venturing is one mechanism through which a firm gains superior insight about and access to firm-specific resources with future rent potential value. So a substantive and desirable outcome of venturing is the generation of valuable new resource combinations, specific to the firm, which it alone may exploit. The article presents a model of those conditions that are necessary antecedents to streams of Ricardian rent from the venture. Five such conditions are proposed, all of which must be met if the firm is to derive rents from its venturing activities. The first antecedent to securing rent streams from venturing is the emergence of causal understanding of the drivers of the venture's performance. New causal understanding creates insight into new opportunity areas. Next, team proficiency is essential to translate causal understanding into coordinated delivery of the product or service to the market. New competences emerge as a result of evolving causal understanding and team proficiency, which allow the organization to achieve new purposes. From these new competences there may then develop distinctive competences that will differentiate the firm from competing organizations. These distinctive competences may then become competitive advantages if they can be deployed in delivering product or service attributes that are preferred by the market to the offerings of competitors, and competitors cannot readily duplicate them. Rents can only ensue when these inimitable competitive advantages allow a firm to achieve either distinctive efficiency in the firm or distinctive value for the customers. The final section of the article offers ways in which this framework could be used, first for research purposes and secondly by venture management.