Strategic resource decay

Abstract

Abstract Research Summary The isolating mechanisms of strategic resources ensure their robustness against external factors. However, resources are also internally dynamic: Natural resources are depleted, employees retire, and patents expire. We develop a theoretical framework about the limitations to the sustainability of resource‐driven competitive advantage and posit that most strategic resources endogenously lose their value‐creating potential due to two factors, time and deployment, through what we label “strategic resource decay.” Our typology links resource characteristics to the mechanisms of decay and replenishment. We then examine the relationship between strategic resource decay and firm performance and explore its boundary conditions. We conclude that the firm can mitigate the negative effects of decay if it synchronizes its resource management actions with the temporal properties of its strategic resources. Managerial Summary To sustain a competitive advantage, managers need to understand not only the competitive dynamics of the industry but also the lifespans of the firm's strategic resources. Decay limits the useful lives of strategic resources temporally and/or in the resources’ potential extent of deployment. Because firms can potentially prevent the exhaustion of their non‐tradable strategic resources through replenishment, the decay of tradable strategic resources poses a greater challenge for managers. We also posit that strategic resource decay is a more salient threat in industries that are not characterized by rapid change. To counter the threat posed by strategic resource decay, firms need to engage in resource management activity, the timing and extent of which should be aligned with the temporal properties of the strategic resources.

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