Testing resource-based and industry factors in a multi-level model of competitive advantage creation.

Clelland, Iain J. ; Douglas, Thomas J. ; Henderson, Dale A. 等

ABSTRACT

This study examined an integrative, multi-level conceptual framework incorporating manufacturing facility practices and performance, factors influencing industry rivalry, and firm-level creation of economic value in order to partially explain the creation of competitive advantage. Additionally, this article supports work establishing environmental practices and performance as a strategic factor in manufacturing. Data from a cross-sectional sample of 250 corporations with 1762 manufacturing facilities in four industries are analyzed in a structural model. The study results indicate: (1) strategic environmental asset productivity within manufacturing facilities contributes to firm-level value creation; (2) complementary environmental assets within manufacturing facilities strengthen the relationship between asset productivity and firm-level value creation; (3) firm-level value creation mediates the relationship between manufacturing facility asset productivity and a competitive advantage; and (4) firms competing within industries with greater numbers of competitors experience a stronger relationship between firm-level value creation and a competitive advantage. This paper supports the role of the resource-based construct of value creation as a mediating factor between intra-firm productivity and inter-firm competitive advantage creation and the need to further develop a multi-level, resource-based model.

INTRODUCTION

The development of the resource-based view (RBV) of competitive advantage (Barney 1991) is seen by many management researchers as having the potential to become a theory-based successor to contingency/fit models of strategy if integrated with industry level frameworks (Conner 1991; Helfat & Lieberman, 2002; Levinthal & Myatt, 1994) and intrafirm models of strategy formulation and implementation (Govindarajan and Fisher, 1990; Ramanujam & Wiersema, 1986). However, as outlined by Priem and Butler (2001) and supplemented by Barney (2001), much work still needs to be done before the full theoretical contributions and limitations of the RBV are demonstrated. In particular, efforts to operationalize and test resource-based concepts have tended to draw direct linkages between internal strategic assets and market outcomes (McGrath, MacMillan & Venkatraman 1995) and treated strategic industry factors as influences to be controlled rather than integrated into a multi-level model.

Following in the steps of management research attempting to employ both firm-based and industry-based factors (Hawawini, Subramanian, & Verdin, 2003), this study attempts to make four contributions to research related to broadening the RBV as a multi-level model of competitive advantage creation. The first is to add to the understanding of RBV relationships by testing the effect of value creation as a mediator between important strategic assets and a firm's financial performance relative to its competitors. The mediating role of value creation derived from strategic asset deployment or implementation should help to explain why control of strategic assets does not necessarily directly result in the creation of a competitive advantage (Collis, 1994). A second contribution is to test the moderating effect and importance of complementary assets on the relationship between strategic environmental assets and their value-creating efficacy (Vicente-Lorente, 2001). This should help explain the role of complementary assets that interact with existing strategic assets to produce value for the firm (Barney, 1991). The third contribution of this paper is the testing of the influence of complementary environmental asset rareness within our multi-level model. Few, if any, tests of asset rareness have been explored and this is a key industry-level element of the RBV (Priem and Butler, 2001). Finally, prior studies have demonstrated firm-level resource influence on environmental performance (e.g., pollution abatement investments) and competitive advantage (Sharma and Vredenburg, 1998) and industry-level factors on the contribution of a firm's environmental reputation to competitive advantage. The fourth contribution of the study extends recent work (Russo & Harrison, 2005) examining pollution performance-a factor not usually considered a source of competitive value--by integrating the effects of intrafirm environmental assets with external contingency factors into one testable model (Amit and Schoemaker, 1993).

SCOPE OF THE PROPOSED THEORETICAL MODEL

The interaction of strategic and complementary assets and the creation of value are conceptual linchpins in the RBV's explanatory power and are needed to answer the "how" question about competitive advantage creation proposed by Priem and Butler (2001). These scholars have reiterated the need to better clarify the interaction of internal value creation and the competitive context within which it is deployed. Hence, it is appropriate to begin exploring the linkages between internal strategic assets as proposed by the RBV framework and external competitive conditions.

It should be noted that the scope of this model was limited to the multi-level creation of competitive advantage rather than factors influencing the sustainability of the competitive advantage. As noted by Priem and Butler (2001), "... rarity and value are each necessary but not sufficient conditions for competitive advantage, whereas nonimitability, nonsubstitutability, and nontransferability are each necessary but not sufficient conditions for sustainability of an existing competitive advantage" (p. 25). Thus, this model includes the factors of value creation and rareness, but does not include testing the competitive sustainability factors of imitability, substitutability, or transferability. The following discussion explains where this multi-level (manufacturing facility, firm, industry) model of competitive advantage creation (see Figure 1) fits into the evolution of RBV research and the specific hypotheses associated with it.

[FIGURE 1 OMITTED]

STRATEGIC ENVIRONMENTAL ASSET PRODUCTIVITY AND VALUE CREATION

Strategic assets have been defined as "the set of difficult to trade and imitate, scarce, appropriable and specialized Resources and Capabilities that bestow the firm's competitive advantage" (Amit and Schoemaker, 1993, p. 36). In order to empirically evaluate our integrative model of competitive advantage, a specific context, including the relevant strategic and complementary assets must be selected. Use of these assets to support the creation of either a differentiation or cost leadership strategy is fundamental to understanding competitive advantage (Grant, 1991). The strategic assets chosen in this research for the evaluation of this multi-level model are those manufacturing capabilities associated with pollution and waste reduction.

Environmental performance has previously been established as a strategic issue for many manufacturing firms since it is often advantageous for them to integrate it into their plans for economic performance (King and Lenox, 2000). Environmental management has been studied by a number of researchers within the lens of the RBV in recent years. For instance, Russo and Fouts (1997) found that ratings of environmental performance were positively related to economic performance in a sample of 243 firms across most industrial sectors. Christmann (2000) surveyed 88 chemical companies and established that complementary assets related to innovation need to be in place in order to realize cost savings when implementing pollution prevention "best practices". These studies and others have established the strategic importance of identifying manufacturing facility level assets that address performance issues relating to the natural environment. Our multilevel model was tested, therefore, using the strategic assets in manufacturing that contribute to pollution reduction.

Another major element of the RBV that serves as a criterion for prioritizing resource and capability development is the firm-level concept of value creation. In order for a resource or capability to contribute to competitive advantage, it must specifically address the extant opportunities and/or threats within the organization's environment (Barney, 1991). Hence, either through acquisition of external strategic assets or internal strategic asset implementation (Makadok, 2001) the value created for the firm could either result in a cost advantage or a differentiation advantage (Grant, 1991) relative to competitors.

Few empirical studies examining the RBV have taken the key element of value creation into consideration when testing the influence of resources or capabilities on economic rent generation (Dutta, Zbaracki, & Bergen, 2003; Miller and Shamsie, 1996). Indeed, the difficult measurement of "unobservable" (intra-firm) strategic assets makes investigation of this central element a challenge for researchers (Godfrey and Hill, 1995). Without including and testing firm-level value creation, however, it cannot be known if the failure to produce above-normal economic rents was due to the inability of the firm's strategic assets to produce value or that the value produced in the form of process efficiency or product/service differentiation was insufficient relative to strategic industry factors (Priem and Butler, 2001). This may significantly limit contributions to an important aspect of practitioner interest.

In one of the few empirical studies to measure intra-firm strategic assets and their productivity, Henderson and Cockburn (1994) tested whether component or architectural capabilities contributed to internal drug discovery productivity within pharmaceutical companies. They found support for this relationship and this suggests that a strategic asset's productivity will contribute to the determination of its core competence potential for the firm.

Another study focused on value creation by looking at 120 development projects for assembled goods (Tatikonda & Montoya-Weiss, 2001). While their unit of analysis was the individual development project, they tested whether intra-firm process factors such as concurrent engineering practices strongly supported the value creation outcomes of product quality, unit cost, and time-to-market. In this manufacturing setting, these operational outcomes were evidence of the productivity of particular strategic product-development assets embedded in structure and practices. The question remains as to whether such product-level results would consistently aggregate to firm-level value creation superiority. Our study attempted to accomplish this with another form of strategic asset productivity-pollution reduction at the manufacturing facility level.

With respect to the natural environment, firms lacking the ability to deal effectively with pollution can incur higher costs. For example, Sharma and Vredenburg's (1998) examination of the Canadian oil and gas industry support both cost- and differentiation-based advantages by proactively addressing issues associated with the natural environment. As also noted by Christmann (2000) strategic assets related to environmental performance must reduce the costs of production in order to produce value with the potential for a cost advantage. Examples include recycling, lowered use of toxic inputs, and process redesign. Our study focused on pollution reduction and we limited our examination of the relationship between strategic assets and value creation to production efficiency. Hence, the more productive the strategic assets in lowering relative pollution levels of a manufacturing firm within an industry, the greater the expected value creation for the firm. Thus, the following hypothesis was developed.

Hypothesis 1: The productivity of a firm's strategic environmental assets is positively related to internal value creation.

MODERATING ROLE OF COMPLEMENTARY ENVIRONMENTAL ASSETS

Complementary assets or capabilities "refer to a firm's capacity to deploy resources, usually in combination, using organizational processes, to affect a desired end" (Amit and Schoemaker, 1993, p. 35). The vast majority of these actions are based in the development of new operational routines across functional departments. As such they involve organizational coordinative capabilities, skill development by employees (Miller and Shamsie, 1996), solutions tailored to the unique problems posed by each firm's structure and culture, and product and process innovations (Hart 1995). These are the intangible or "invisible" assets that have been identified by Teece, Pisano & Shuen (1997) as having the greatest potential for assisting in the creation of difficult-to-imitate value.

One set of capabilities that has recently been noted as contributing to operational efficiency is the internal organizational activities supporting pollution prevention (Hart and Ahuja 1996). For example, the waste management function of a firm utilizes the knowledge and skills of individuals and teams working at the facility level. Waste management activities focus on reduction of pollutants before and during the production process. These activities center on reducing waste in both current and newly installed manufacturing processes. Waste management spans many functional areas including research and development (e.g., product redesign; OTA 1992), inbound logistics (e.g., inventory control; Wu and Dunn, 1995), production (e.g., equipment modifications; Nehrt 1996), and outbound logistics (e.g., packaging modifications; Klassen and Whybark, 1999). While waste management activities also extend to issues of solid waste and energy conservation, they directly target toxic or hazardous materials used or created by the firm. They include substituting less toxic chemicals as feed stocks, leak or spill prevention of hazardous substances, in-process recycling of toxic production inputs, and more efficient methods of feedstock preparation and finished product handling (Office of Pollution Prevention & Toxics, 1995).

In keeping with the theory of complementary assets, waste management activities have limited ability to generate significant economic value creation by themselves. However, when aggregated across the organization and combined with a firm's other strategic manufacturing assets (Klassen & Whybark, 1999), these complimentary assets can enhance a firm's realization of its value creating potential (Dutta, Zbaracki, & Bergen, 2003). As complementary assets, waste management activities serve to strengthen the relationship between the effectiveness of strategic assets associated with lowering pollution levels and enhanced production efficiency potentially resulting in a cost advantage (Christmann 2000). Hence, in the RBV, complementary assets, such as waste management practices, have a moderating rather than a direct role in contributing to a firm's competitive value.

Hypothesis 2: Complementary assets will moderate the relationship between the productivity of a firm's strategic assets and value creation: this relationship will be stronger for firms with higher levels of complementary assets.

MEDIATING ROLE OF VALUE CREATION

Barney has defined competitive advantage in terms of "implementing a value creating strategy not simultaneously being implemented by any current or potential competitors" (1991: 102), although a monopoly position with respect to strategic resources is not necessary to gain advantage from a value creating strategy. Black and Boal (1994) emphasized the role of asset-strategy "fit" in creating value is contingent upon the fit of the firm's strategy with the external environment. Thus, the ability of value creation to mediate the relationship between strategic environmental asset productivity and competitive advantage in the form of above-normal economic rents must be determined externally to the organization (Priem & Butler, 2001). For example, ceteris parebis, cost-driven value creation can result in superior economic rents only when a firm's strategic asset productivity can lower its cost structure relative to other competitors (Porter, 1985). Therefore, we assert that the cost-related value creation of strategic environmental assets will be related to competitive advantage and the following hypothesis is offered:

Hypothesis 3: A firm's value creation is positively related to a competitive advantage.

MODERATING ROLE OF ASSET RARENESS

The scarcity of particular strategic assets across a population of competitors has been labeled rareness in the RBV (Barney 1991). Rareness implies that valuable resources and capabilities must be in limited supply within the industry or market area in order for an organization to realize competitive advantage. Barney also stated that "as long as the number of firms that possess a particular valuable resource (or a bundle of valuable resources) is less than the number of firms needed to generate perfect competition dynamics in the industry, that resource has the potential of generating a competitive advantage" (p. 107). The lack of preciseness concerning the degree of rareness necessary to generate rents suggests that the best way to empirically evaluate this concept is within each industry under study. There has been little distinction between the rareness of strategic assets generally and the subset of complementary assets. However, Powell and Dent-Micallef (1997) have argued that standardization (i.e., lack of rareness) of computer software reduced the rent appropriation power of complementary information technology capabilities for large retailers. Hence, an industry-level moderating influence of strategic asset rareness between firm value creation and competitive advantage was hypothesized.

Hypothesis 4: Rareness of a set of complementary assets in an industry will moderate the relationship between value creation and competitive advantage; this relationship will be stronger the lower the industry diffusion of complementary assets.

MODERATING ROLE OF INDUSTRY STRUCTURE

Not only is the process of competitive advantage affected by asset rareness, but also by industry structure. Barney (1997) characterized industry structure as a critical element of "the question of value" that integrates the traditional internal analysis with analysis of external threats and opportunities. The ability of internal value creation to produce above-normal economic rents is influenced by a number of industry factors including the level of competition, product differentiation, barriers to entry, and cost structures (Barney, 1997). While the influence of industry structure has varied across research studies and is now seen as having less of an impact than indicated in earlier research, it is clear that industry structure still significantly influences the performance of firms (Hansen and Wernerfelt, 1989; McGahan and Porter, 1997; Rumelt, 1991). Thus, external industry-level factors should also be considered in determining the degree to which superior value creation can be converted into superior financial performance.

In contrast to early economic views of long-term dissipation of above-normal economic rents through imitative conduct or entry, resource-based theory posits that above-normal returns can be obtained in the face of competitive forces in an industry (Barney, 2001). In particular, two studies of large, multi-unit organizations have indicated that the resource-based perspective may be most relevant in the context of intense industry competition. First, Cool, Dierickx & Jemison (1989) tested the influence of industry rivalry on the relative influence of firm attributes versus market share on the ability to generate above-normal returns with a sample of commercial banks. They found that market share generates above-normal returns in less rivalrous industry settings (e.g., oligopoly) whereas "differential efficiency" (Schmalensee, 1987) between firms based on firm attributes was more likely to generate such returns in highly competitive industry settings.

Echoing the findings of Cool, Dierickx & Jemison (1989), Barnett, Greve & Park (1994) also found that single-unit firms, in order to be profitable, were forced into historical, path-dependent "learning" to develop distinctive competencies when subjected to industry competition. Multi-unit firms, on the other hand, substitute positional advantage (e.g., market share) for competency "learning" and engage in mutual forbearance (Karnani & Wernerfelt, 1985) with competitors in order to be profitable. Both strategies can be successful in generating above-normal economic rents, but each is systematically influenced by the degree of industry rivalry. That is, it is anticipated that firm-level value creation based on internal strategic assets will more likely result in competitive advantage when implemented in the context of industry structural factors that increase industry rivalry.

Two of the most important aspects of industry structure that affect industry rivalry are the degree of industry concentration and the market demand by customers for an industry's products/services (Scherer & Ross, 1990). Porter (1985) argued that the greater the number of competitors within an industry, the greater the diversity of strategies, capabilities, and market segmentation. This results in greater strategic uncertainty, higher mortality rates, and increased efficiency pressures for each firm (Barney, 1997). Therefore, this research suggests a moderating role of industry concentration on the relationship between competitive value and the ability to generate a competitive advantage, with the relationship being strongest in more rivalrous markets.

Hypothesis 5a: Industry concentration will moderate the relationship between value creation and competitive advantage; this relationship will be stronger the lower the industry concentration.

In addition to industry concentration, the growth rate of an industry influences internal rivalry. A higher level of competition will be found in an industry with a lower growth rate, reflecting an increasingly zero-sum game of mutual dependence. In such an environment, a firm must directly wrestle away customers and sales from rivals (Porter, 1985). Thus, the lower the growth rate the greater the intensity of rivalry between firms and the greater the influence on the relationship between value creation and its efficacy in producing a competitive advantage.

Hypothesis 5b: Industry growth will moderate the relationship between value creation and competitive advantage; this relationship will be stronger the lower the growth rate of an industry.

SAMPLE

To allow for diversity in pollution performance across industries a sample of firms was selected from four manufacturing industries (2-digit SIC) with varying levels of pollution burden per production facility from 1991 to 1993. This time frame was chosen because US companies were required to begin reporting toxic emissions of over 300 chemicals beginning in 1988 (Office of Pollution Prevention & Toxics, 1995) to the Toxics Release Inventory (TRI) database managed by the federal Environmental Protection Agency (EPA). Sampling the companies reporting a few years after the introduction of TRI reporting allowed for considerable standardization of EPA reporting processes to help ensure reliability of the data. An additional benefit of this time frame was broader variability in pollution prevention practices before companies moved down the learning curve in later years towards a smaller set of pollution prevention activities (TRI Program Division, 2005).

Initially, twenty (2-digit SIC) manufacturing industries were rank ordered according to their average volume of toxic pollution per facility for 1992 (Office of Pollution Prevention & Toxics, 1995). After removing one extreme outlier (Chemicals), the industry with the highest average pollution per facility, Primary Metals (SIC 33), was assigned a rating of 100 and selected as the first of the sample industries. Ratings were calculated for the remaining eighteen industries by dividing their pollution per facility values by the value for Primary Metals and multiplying by 100. Three additional industries were selected to assure distinct differences in pollution levels as well as a wide range of technologies, locations, and competitive dynamics as well as a sufficient sample size. These were Paper and Allied Products (SIC 26) with a rating of 59, Electronic and Other Electric Equipment (SIC 36) with a rating of 28, and Industrial Machinery and Equipment (SIC 35) with a rating of 10.

All publicly-owned firms from these four industries that reported chemical releases to the air, water, or land in the 1992 TRI database, and for which no missing data was evident across all of the study variables, were included in the sample based on their primary 2-digit SIC. The final sample consisted of 250 corporations (80% of the total reporting) in four industries distributed as follows: Forty-one in SIC 26 (95% of the total reporting), forty-three in SIC 33 (72% reporting), eighty in SIC 35 (71% reporting), and eighty-six in SIC 36 (90% reporting). Table 1 contains selected variables for 1992 with which to compare these four industries. As can be seen, there is considerable variability across the selected industries in terms of the average number of employees, manufacturing facilities per firm, and annual sales.

MEASURES

Firms have developed a number of methods that help them deal with pollution abatement in their manufacturing processes. Two approaches are common and vary widely in use of strategic assets. The first, pollution prevention, is heavily dependent upon strategic assets and takes two complementary forms: The first form is comprised of ongoing manufacturing practices (e.g., recycling, reuse, toxic feedstock substitutions) which reduce pollution at the source (i.e., manufacturing facility), increase efficiency in the use of raw materials, energy, water, or other resources, or protect natural resources by conservation (Hart, 1995). The second form of pollution prevention is comprised of pollution-reducing investments in production technology (Nehrt, 1996) and is closely linked with a manufacturing firm's stock of strategic assets. Pollution-reducing production equipment replacement fits with the source-reduction paradigm (e.g., National Pollution Prevention Act of 1990), but tends to be more infrequent relative to manufacturing practices, particularly in capital-intensive industries (Nehrt, 1996).

A second abatement approach, pollution control, typically involves acquisition of end-of-pipe equipment, such as effluent treatment ponds, is capital intensive, and has often been mandated by regulators in the U.S. (Russo & Fouts, 1997). While pollution control makes the least use of strategic assets and is often characterized as a reactive form of environmental compliance by firms (Clelland, Dean & Douglas, 2000), it is often an important choice within the range of possible abatement solutions (Aragon-Correa, 1998). As a result, prevention and control approaches to pollution abatement have been referred to as comprising the "environmental technology portfolio" of large manufacturing firms (Klassen & Whybark, 1999).

Since firms often jointly employ these two pollution abatement approaches this study adopted the proxy measure of pollution level to represent the strategic environmental asset productivity of their related manufacturing processes. Calculation of this measure began with aggregating the volume (lbs) of 1993 pollution reported by manufacturing facilities for corporations in the sample to the federal EPA's Toxic Release Inventory (TRI) database. Manufacturing facilities with more than 10 employees and using/producing greater than five tons of about 300 chemicals are required to report this pollution volume. This aggregate volume was then weighted by each chemical's human and environmental health hazard value (Davis et al, 1994) because, to a great extent, firms and regulatory agencies prioritize their pollution abatement actions based on the overall hazard potential posed by chemicals (Hart and Ahuja, 1996).

The final measure of strategic environmental asset productivity was then calculated by taking the ratio of the natural logarithms of this weighted pollution volume and the firm's annual sales volume. The reciprocal of this value was used to represent the relative productivity of the firm's strategic assets for lowering pollution levels, that is, organizations exhibiting higher values on this measure are producing a lower volume of hazardous pollutants.

Complementary environmental assets were measured by focusing on activities that are observable and which result in the development of additional organizational capabilities (Godfrey and Hill, 1995). This study measured the waste management activities undertaken by corporations at the manufacturing facility level. As Mauri and Michaels (1998) have suggested for empirical research in strategic management, it is beneficial to measure capabilities at low levels of aggregation in order to improve the prescriptive ability within the RBV.

Waste management activities that are associated with production processes are reported by manufacturing facilities in the TRI database. Forty-eight types of waste management activities such as improved maintenance scheduling and inventory control, revised leak prevention procedures, modified cleaning or production procedures, revised painting procedures or materials, and changed product specifications are reported. This study used the logarithm of the total number of waste management activities per facility aggregated for each parent firm for the years 1991 and 1992 to measure complementary environmental assets. This time period was used for two reasons. First, previous research examining waste management practices (Clelland, Dean & Douglas, 2000) demonstrated the need to allow time for such complementary assets to interact with other elements of the environmental technology portfolio in order to be able to influence pollution volume. For example, like most new manufacturing technologies, implementing different methods and equipment for using non-petroleum-based paint will take time and practice to achieve optimal results. Second, it was necessary to separate out the influence of waste management practices from the potential influence of such practices included in the proxy measure for strategic environmental asset productivity in 1993. Lagging the measure for complementary environmental assets enables this separation of effects.

Costs can be used as a "surrogate for value" when "there are no (external) markets for intermediate goods" (Hergert and Morris, 1989, p. 183). Thus, we adopted a proxy for firm-level value creation in the form of commonly measured manufacturing efficiency by using the total cost-of-goods-sold. In order to be an effective measure of value creation in terms of contributing to cost advantage, cost-of-goods-sold must be evaluated relative to a firm's total sales dollars. This variable was calculated by taking the ratio of the natural logarithms of both cost-of-goods-sold and the firm's annual sales volume. The reciprocal of this result was used in the analysis so that higher values of the variable represent relatively higher levels of value creation. These data were obtained for 1993 from the Compact Disclosure database produced by Disclosure Inc.

Firm-level financial performance adjusted for industry effects has been used as a proxy for the supranormal rents associated with resource-based competitive advantage (Powell, 1995). Return on Assets (ROA) was used to measure the ability of firms to realize superior economic rents through successfully leveraging the value they created in terms of manufacturing efficiency (Barney, 1997).

Since this analysis was conducted across multiple industries, it was necessary to standardize ROA within each of the 2-digit SICs. Industry effects on firm profitability have been identified in numerous studies (Robins & Wiersema, 1995) and must be accounted for when multiple industries are present. In this study, the z-score associated with a firm's ROA value for 1993, within each of the industries, was used in the analysis. The means and standard deviations used were calculated using the data from the sampled firms. ROA data were obtained from the Compact Disclosure database.

Two industry structure measures were included in order to assess the external impact of the environment on the ability of the additional value created to generate competitive advantage. The first, industry concentration, has been viewed as a basic indicator of barriers to entry and internal rivalry in industrial-organization research (Robins & Wiersema, 1995). The four-firm concentration ratio of the primary 4-digit SIC associated with each firm as the measure of industry concentration was used (Russo & Fouts, 1997). These data were obtained from the 1992 Census of Manufacturers. The second industry structure measure, industry growth, was measured as the annual percentage increase in industry sales for the five year period between 1989-1993 for the primary 4-digit SIC associated with each firm. This measure was calculated by taking the regression coefficient of the trend in the natural logarithm of the industry value of shipments for each of the above years. These data were obtained from the 1993 Annual Survey of Manufacturers.

The moderator effects of industry concentration and growth were estimated using the multiplicative interaction terms of these variables individually combined with the firm-level competitive value variable. To alleviate any potential multicollinearity problems, each of the respective variables were centered on the variable mean prior to creating the interaction terms (Jaccard, Turrisi & Wan 1990).

In order to assess the effect of asset rareness in the context of this study, it was necessary to determine the rareness of facilities developing complementary assets associated with waste management activities within each of the primary 4-digit SICs for firms in the sample. This was accomplished for each of the industries for both 1991 and 1992 by dividing the number of TRI-reporting facilities in each 4-digit SIC that reported waste management activities for each year by the total number of facilities in the TRI data base for that year and multiplying the result by 100. The average of the percentages calculated for each of the two years represents a measure of the relative rareness of facilities using waste management activities within each of the 4-digit SIC industries for the time period 1991-1992. The moderator effects of this variable were calculated in the same manner as the industry structure variables.

Since this study is being conducted across four industries that were selected based on differing levels of toxic pollution releases, it is necessary to include control variables in the analysis to account for these industry differences. Therefore, industry dummies were created for three of the industries (2-digit SIC) for inclusion in the value creation and competitive advantage equations. In addition, firm size in the form of the natural logarithm of the number of employees was included in the study. The number of employees for each firm was obtained from the Compact Disclosure database for 1992.

ANALYSIS AND RESULTS

LISREL 8 was the analytical procedure used to estimate this structural equation model. This technique combines path analysis with multiple regression analysis (Joreskog and Sorbom 1993) in a manner that matches the theoretical model displayed in Figure 1. Table 2 displays the means, standard deviations, and correlations for all of the variables in the study. All of the correlations between the variables are low or moderate (all less than 0.4) indicating that multicollinearity is not a problem (Covin, Slevin & Schultz, 1994).

Based on the LISREL 8 procedure, the overall results of the hypothesized model are displayed in Table 3. The Chi-square test associated with this model is [chi square] = 65.34, with 13 degrees of freedom (p = .000). The fit of the model was tested using the Comparative Fit Index (CFI) suggested by Bentler (1990). While many fit indices have been developed over the last 15 or so years, the CFI was recommended in a review and evaluation of such indices by Medsker, Williams & Holahan (1994). Values of the CFI should realistically range from 0 to 1, with the values closest to 1 representing the best fit (Marsh, Balla & McDonald, 1988). The value of the CFI calculated in this study was 0.91, suggesting that the model estimated fits the data sufficiently well. The structural model accounted for 23% of the variability in the value creation variable and 9% of the variance in the competitive advantage variable. It can also be observed in Table 3 that all of the component variables of the moderator variables had non-significant direct effects, further supporting the overall model.

A significant relationship between strategic environmental asset productivity (pollution level) and value creation (manufacturing efficiency) was found in our data set. The standardized coefficient associated with the relationship between strategic environmental asset productivity and value creation is 0.21 and is significant at the .001 level. The sign and significance are as expected by the theory. The indications are that lower levels of toxic pollution lead to reductions in a firm's cost-of-goods-sold. Hypothesis 1 is, therefore, confirmed.

Hypothesis 2 is supported by the data. The relationship between strategic environmental asset productivity and value creation is conditioned by the level of complementary environmental assets (waste management practices) that exist in the organization. The standardized coefficient corresponding to the interaction of strategic environmental asset productivity and complementary environmental assets is 0.15 and is significant at the .01 level. This signifies that the greater the development of an organization's complementary environmental assets, the stronger the relationship between strategic environmental assets and firm-level value creation. Figure 2 depicts this conditional relationship.

[FIGURE 2 OMITTED]

Hypothesis 3 is also firmly supported by the data. A positive relationship was found between value creation and competitive advantage. The standardized coefficient corresponding to this path in the model was 0.19 and is significant at the .01 level.

Hypothesis 4 is not supported by the data. The moderating role expected by theory concerning the effect of the rareness of complementary environmental assets on the relationship between value creation and competitive advantage (relative profitability) was not found.

Two industry structure variables affecting the intensity of rivalry were hypothesized to moderate the relationship between firm-level competitive value and above-normal economic rents. The standardized coefficient associated with the interaction of industry concentration and firm-level competitive value on competitive advantage is -0.19 and is significant at the .01 level and confirms Hypothesis 5a. Although in the hypothesized direction, the standardized coefficient corresponding to the interaction of industry growth and value creation is not significant. Thus, Hypothesis 5b is not supported by the data.

In light of the significant finding with respect to Hypothesis 5a, the main effect between value creation and competitive advantage was evaluated further (Jaccard et al, 1990). The graph associated with this conditional effect is displayed on Figure 3. In the presence of lower levels of industry concentration, higher values of value creation lead to significantly higher ROA values. For industries where firm concentration rates are high, the slope of the line relating unit value creation to ROA is not significantly different from zero within this data set, indicating that in such high concentration industries changes in relative value may not affect ROA significantly. This is congruent with our hypothesized logic regarding intensity of rivalry.

[FIGURE 3 OMITTED]

The standardized coefficient associated with the path from firm size to firm-level competitive value (-0.18, p < .01) is significant, signifying that size helps explain the variation associated with this dependent variable. As expected, the paths from the two "dirtier" industries (see Index of Pollution Releases in Table 1), Primary Metal Industries (SIC 33) and Paper and Allied Products (SIC 26), exhibited negative and significant paths to value creation (-0.28, p < .001 and -0.14, p < .05, respectively).

DISCUSSION AND CONCLUSIONS

The purpose of this study was to empirically examine key mediating and moderating relationships after explicitly separating, yet integrating, three levels of factors influencing the creation of competitive advantage to better understand their interaction within the resource-based perspective (Priem and Butler 2001). The results of this study support a direct relationship between strategic environmental asset productivity and value creation. Henderson and Cockburn (1994) found support for the antecedent path between R&D competencies and their productivity, but did not link such intra-firm productivity with firm-level value creation (e.g., quality differentiation). The present study found support for the additional relationship and this suggests that the value creation process is dependent upon successfully extracting asset productivity through superior process execution. Thus, a manager must be as concerned with superior process execution to create value which can be appropriated (Dutta, Zbaracki, & Bergen, 2003) as much as with the ongoing competitive advantage sustainability factors of resource imitability or embeddedness of unique competencies (Priem & Butler, 2001).

There may be industry settings (e.g., pharmaceuticals) where both strategic asset productivity (value creation) and uniqueness (sustainability of advantage) are extremely important, yet others where rapid, continual enhancement of strategic assets is the only advantage of note (Eisenhardt and Martin 2000). Future resource-related research should examine the relative importance of strategic asset productivity and uniqueness on the value creation process.

This study also empirically supported value creation as the firm-level outcome of aggregated, manufacturing facility strategic assets that can lead to potential competitive advantage. As such, value creation represents the resource-based "market bet" made by a strategic business unit as the basis for its competitive advantage when it is not relying on positional strength (e.g., market share). These results suggest that future research needs to include value creation as a mediating variable in order to avoid spurious findings by directly linking intra-firm strategic assets with financial performance. For example, if no relationship were found between strategic assets and rent generation, would this indicate that the RBV is misspecified or that the particular resources tested did not directly or indirectly create competitively useful value (Powell, 2001). Without including value creation in future studies, little progress will be made in understanding the interaction of strategic assets and competitive advantage.

For a manager, the addition of this mediating factor could mean the difference between fostering further development of a capability through either reassessment or elimination. For pollution prevention capabilities aimed at improving operational efficiency and pollution burdens, such a reassessment may reveal poor implementation or procedural training rather than inherent inability to contribute to such objectives.

Empirical support regarding the moderating relationship of complementary environmental assets between strategic environmental asset productivity and value creation represents another contribution of our study. Research by Christmann (2000) indicated that the complementary capabilities of process innovation and implementation moderated the relationship between environmental practices and value creation in the form of lower manufacturing costs. Our study supplemented these findings in that pollution prevention practices moderated the relationship between intra-firm strategic asset productivity (environmental performance) and firm-level manufacturing costs. While these results support Makadok's (2001) discussion concerning the complexity of resource and capability combinations in creating value, they also point out the multilevel nature of strategic assets. Our measurement of complementary environmental assets and strategic environmental asset productivity were aggregated from the manufacturing facility level to the firm-level in order to test their overall contribution to value creation. This effort was conducted to show that the oft-mentioned "unobserved variables" associated with resources and capabilities do have viable measures and explanatory power and should not be ignored by researchers despite the measurement challenges.

Relatedly, the complementary assets examined in this study--pollution prevention activities-extends research into an area not usually considered a primary source of competitive value. The waste management activities within the firm are generally located at the manufacturing facility level. They represent management's resource focus on individual and team efforts to improve selected processes within a facility with pollution prevention and organizational efficiency as key measures. These activities are very similar to the ones identified by Sharma and Vredenburg (1998) as being associated with environmentally proactive companies. From a manager's perspective, the focus should then be on the synergistic, manufacturing productivity benefits of complementary environmental capabilities. The strategic asset criterion of complementarity will help to ensure mutual support of environmental and manufacturing performance as noted by Klassen & Whybark (1999).

It was also the intent of the paper to test the moderating influence of complementary asset rareness on the relationship between value creation and competitive advantage. As a snapshot of this process, the study did not find that the lower the proportion of competitors also having complementary environmental assets in an industry, the stronger the relationship between value creation (manufacturing efficiency) and competitive advantage (above-normal economic rents). This may have been due to a lack of recognition of the competitive value of pollution prevention activities on the part of our sample firms although it appears that first movers gain the most from environmental investments (Nehrt, 1996). In the sample, about 21% of the firms had implemented pollution prevention practices at the facility level and these may have had the most to gain from such efforts. Perhaps the remaining firms could not benefit financially to the same degree as these first movers and had made a conscious effort not to adopt these practices. Future research should examine the role of first-movers in understanding the concept of strategic asset rareness. Are first-movers the only firms that can obtain advantages from strategic asset rareness? Strategic asset rareness may have such an inherent temporal dimension.

Another contribution of our study pertains to the moderating influence of industry structure on the relationship between firm-level value creation and competitive advantage. As affirmed by Priem and Butler (2001, p. 64), "Resources, representing what can be done by the firm, and the competitive environment, representing what must be done to compete effectively in satisfying customer needs, are both essential in the strategy-making process." However, other than control variables, linkages of strategic industry factors with intra-firm strategic asset elements have rarely been investigated. We explicitly attempted to integrate facility and firm-level resource-based constructs as well as industry-level factors to move towards a more integrative framework explaining the phenomenon of competitive advantage.

For the industry structure element of concentration, such a moderating influence was supported. Specifically, low concentration strengthened the positive relationship between value creation and above-normal economic rents. This provides further support for the contextual breadth of the RBV and reinforces the findings of Cool et al (1989). That is, the greater the intensity of competition, the greater the ability of the intra-firm produced value to create competitive advantage.

Surprisingly, the industry structure dimension of growth did not seem to substantially moderate the relationship between competitive value and superior economic rents. The t-value associated with this relationship's coefficient was 1.56, not statistically significant at conventional levels, but a possible indication that a weak relationship exists within this data set. Although the industries represented in the sample should have provided sufficient variability in industry growth rates, perhaps the unrelated diversification of many sample firms mitigated the ability of industry growth to sufficiently influence rivalry. Future research might investigate the role of diversification and industry growth on the relationship between internally generated value creation and superior economic rents.

While our study accounted for a number of possible confounding effects, it did have some limitations that should be addressed in future research. Although it employed some lagged relationships and included multiple years, the study had a cross-sectional design that prevented it from testing an important RBV attribute; the dynamic interplay between factors influencing the sustainability of competitive advantage. This study can generalize to the creation of a competitive advantage, but not to the durability of competitive advantage over time. It has been suggested that like all strategic assets, environmental technologies and capabilities evolve over time as new public policy comes into effect and firms develop a greater understanding of how to reduce or eliminate their environmental burdens (Bansal, 2005). Thus, future research should continue to investigate the change dynamic between strategic industry factors and strategic asset development.

In conclusion, this study found support for a multi-level, resource-based model that had not been previously tested. Support was found for the influence of value creation and one dimension of industry structure on the process of competitive advantage. Furthermore, complementary environmental assets at the manufacturing facility level were also shown to influence value creation. This variable demonstrates the importance of including manufacturing facility assets that represent difficult-to-imitate organizational processes. Future research on the resource-based perspective needs to explore the "black box of strategic assets" of resources and capabilities across facilities, branches, or divisions of corporations in order to gain a better understanding of their interrelationship and their contribution to competitive value. The strategic environmental assets examined in this study also extended recent work in an area not usually considered a source of competitive value. The strength of "green" assets in creating competitive advantage appears to depend on their degree of embeddedness in a firm's value-creating competencies (e.g., manufacturing facility efficiency). In the future, researchers applying the resource-based framework to developing ecologically sustainable models of firm performance need to incorporate this influence.

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Table 1: 1992 Averages for the Parent Companies for the Selected
Industries (a)

Industry Index of
 Pollution Number of
 Releases Employees

Primary Metals 100 5668
Paper and Allied Products 59 14758
Electronic and Other 28 17452
 Electric Equipment
Industrial Machinery and 10 19562
 Equipment
 Number of Annual Sales
 Facilities in Millions

Primary Metals 8.0 1029.5
Paper and Allied Products 11.5 2607.8
Electronic and Other 5.7 1979.2
 Electric Equipment
Industrial Machinery and 5.7 2928.9
 Equipment

(a) Statistics based on the 250 firms and 1762 manufacturing
facilities in the sample

Table 2: Means, Standard Deviations, and Correlations of
All Variables (a)

Variable Mean s.d. 1 2

1. Competitive Advantage 0.00 1.04
2. Value Creation (b) 1.02 .01 .13
3. Strategic Env. Asset 0.82 .16 -.08 .27
 Productivity (b)
4. Complementary Env. Assets (b) 0.87 .66 -.04 -.09
5. Industry Concentration 38.17 14.88 -.03 -.02
6. Industry Growth 0.02 .05 -.02 .18
7. Compl. Env. Asset Rareness 41.25 12.40 .05 .17
8. Firm Size (b) 8.35 1.54 .01 -.16
9. SIC 26 0.17 .37 .00 -.15
10. SIC 33 0.17 .37 .02 -.31
11. SIC 35 0.32 .47 -.01 .21

Variable 3 4 5 6

1. Competitive Advantage
2. Value Creation (b)
3. Strategic Env. Asset
 Productivity (b)
4. Complementary Env. Assets (b) -.04
5. Industry Concentration .01 .19
6. Industry Growth .16 .01 -.02
7. Compl. Env. Asset Rareness .11 .13 .22 .38
8. Firm Size (b) .12 .31 .31 -.07
9. SIC 26 -.09 .06 .02 -.15
10. SIC 33 -.24 .05 .05 -.38
11. SIC 35 .22 -.11 -.09 .05

Variable 7 8 9 10

1. Competitive Advantage
2. Value Creation (b)
3. Strategic Env. Asset
 Productivity (b)
4. Complementary Env. Assets (b)
5. Industry Concentration
6. Industry Growth
7. Compl. Env. Asset Rareness
8. Firm Size (b) .15
9. SIC 26 -.04 .15
10. SIC 33 -.29 -.05 -.20
11. SIC 35 -.09 -.06 -.31 -0.31

(a) N = 250; p < .05 for all r > .12; p < .01 for all r > .16.

(b) Natural logarithm

Table 3: Sturctural Coefficients, Squared Multiple Correlations,
and Goodness of Fit Indicators

 Coefficient Standardized
Parameters Estimates Coefficients

Exogenous (or Endogenous)
 Variable/Endogenous Variable
 Strategic Env. Asset .02 *** .21 ***
 Productivity / Value Creation
 Complementary Env. Assets / 0 0
 Value Creation
 Strategic Env. Asset Prod. X .02 ** .15 **
 Compl. Env. Assets /Value
 Creation
 Firm Size / Value Creation 0 -.18 **
 SIC 26 / Value Creation -.01 * -.14 *
 SIC 33 / Value Creation -.01 *** -.28 ***
 SIC 35 / Value Creation 0 0.01
 Value Creation / Competitive 13.65 ** .19 **
 Advantage
 Industry Concentration / 0 -0.02
 Competitive Advantage
 Ind. Conc. X Value Creation / -1.13 ** -.19 **
 Competitive Advantage
 Industry Growth / Competitive -1.76 -0.08
 Advantage
 Ind. Grwth X Value Creation / -156.66 -0.12
 Competitive Advantage
 Compl. Env. Asset Rareness / 1 0.07
 Competitive Advantage
 Compl. Env. Asset Rareness X -0.05 -0.01
 Value Creation / Comp.
 Advantage
[R.sup.2]
 Competitive Advantage 0.09
 Value Creation 0.23
Goodness-of-Fit Indicators
 [chi square] 65.34
 df 13
 p 0
 GFI 0.97
 AGFI 0.71
 CFI 0.91

* p < .05; ** p < .01, *** p < .001