Resource Redeployment

by

Timothy B. Folta

• LAST REVIEWED: 25 August 2021
• LAST MODIFIED: 25 August 2021
• DOI: 10.1093/obo/9780199846740-0206

Introduction

Firm resources and capabilities provide a basis for competitive advantage over rivals. By providing a platform for profitable expansion or contraction of firm boundaries, they also underlie corporate advantage—where a corporate parent creates more value than its individual businesses could generate if they were not part of the corporate parent. This article clarifies our current understanding of resource redeployment—one mechanism through which resources might contribute to corporate advantage. Resource redeployment involves a partial or complete withdrawal of resources (and capabilities) from one use and reallocation to another opportunity inside the firm. It typically refers to redeployment of non-financial resources, such as tangible, intangible, and human capital, as we do so here. Capital might also be redeployed, but since its redeployment entails few or no sunk adjustment costs it deserves separate attention, and is only discussed briefly below to highlight similarities with resource redeployment. Resource redeployment represents an explicit preference for internal markets over external markets. Flexibility is a primary benefit for firms having potential for resource redeployment, if they can pursue opportunities more efficiently than firms relying on external markets. Having more flexibility to redeploy should inspire firms to enter markets at lower levels of expected performance and exit markets at higher levels of expected performance. More generally, firms should expand and retrench from markets more fluidly than firms lacking potential for efficient resource redeployment. While this mechanism for corporate advantage has been recently explicated in the literature, it has important precedents. Empirical examination of resource redeployment is just underway. Finally, it is important to clarify how corporate advantage tied to resource redeployment differs from other determinants of corporate advantage. Each of these issues is discussed below, along with future research opportunities.

General Overview

Resource redeployment has been defined by Folta, et al. 2016 as partial or complete withdrawal of tangible, intangible, and human capital resources from one use and reallocation to another use internal to the firm. It is an explicit choice by managers to prefer internal resource markets to external markets as a mechanism to supply (extract) resources to (from) one opportunity to pursue (retrench from) an opportunity. Helfat and Eisenhardt 2004 emphasizes that redeployment of non-financial resources nearly always entails incurring costs necessary to adjust resources for productive use in a new context. Adjustment costs might involve retraining employees, adapting buildings or equipment, or transitioning personnel between uses, or may involve indirect expenses stemming from business disruption or the amount of time involved in resource transfer. Resource redeployment typically refers to reallocations across businesses in a multi-business firm portfolio, but Lieberman, et al. 2017 and Ahuja and Novelli 2016 note that it may also occur across product lines or business models, respectively. Resource redeployment can certainly be implemented without regard to external transaction costs, but the relationship between internal adjustment costs and external transaction costs should determine whether redeployments are value creating versus value destroying. If external transactions are the low-cost alternative, corporate headquarters should prefer using the external market to acquire the necessary resources. Otherwise, efficiency gains obtained through internal markets are the basis for “inter-temporal economies of scope,” as explained by Helfat and Eisenhardt 2004. Sakhartov and Folta 2014 notes that additional value obtains because firms have flexibility to choose between internal and external markets to pursue or retrench from opportunities. Since single business firms have a less munificent internal resource market (i.e., no sibling businesses from which they might internally transfer resources), it is believed that having the flexibility to redeploy resources between businesses might be the basis for corporate advantage. This flexibility advantage has important implications for firm value, firm boundaries, and strategic change embodied in market entry, exit, expansion, and contraction, and qualifies as a fundamental issue in strategic management.

• Ahuja, G., and E. Novelli. “Incumbent Responses to an Entrant with a New Business Model: Resource Co-deployment and Resource Re-deployment Strategies.” In Resource Redeployment and Corporate Strategy. Vol. 35 of Advances in Strategic Management. Edited by Timothy Folta, Constance Helfat, and Samina Karim, 125–153. Bingley, UK: Emerald Group, 2016.

  DOI: 10.1108/S0742-332220160000035006

  The authors clarify that viewing resource redeployment as merely available to multi-business firms unnecessarily constrains the theory. Single business firms, they argue, might also benefit from resource redeployment if they can redeploy resources across their multiple business models.

• Folta, T. B., C. E. Helfat, and S. Karim. “Examining Resource Redeployment in Multi-business Firms.” In Resource Redeployment and Corporate Strategy. Vol. 35 of Advances in Strategic Management. Edited by Timothy Folta, Constance Helfat, and Samina Karim, 1–17. Bingley, UK: Emerald Group, 2016.

  DOI: 10.1108/S0742-332220160000035002

  This edited volume clarifies how resource redeployment is unique relative to alternative theories of corporate advantage. It also introduces other chapters in the volume.

• Helfat, C. E., and K. M. Eisenhardt. “Inter-temporal Economies of Scope, Organizational Modularity, and the Dynamics of Diversification.” Strategic Management Journal 25.13 (2004): 1217–1232.

  DOI: 10.1002/smj.427

  This study clarifies that corporate advantage tied to resources might derive from two types of economies of scope. “Intra-temporal economies of scope” involves simultaneous resource sharing across businesses. “Inter-temporal economies of scope” involves the withdrawal of resources from a business and reallocation to another business opportunity. The explication of inter-temporal economies is novel, as is the discussion of the conditions and process by which they might occur.

• Lieberman, M. B., G. K. Lee, and T. B. Folta. “Entry, Exit, and the Potential for Resource Redeployment.” Strategic Management Journal 38.3 (2017): 526‒544.

  DOI: 10.1002/smj.2501

  The authors argue that since more related firms have lower adjustment costs, entry and exit decisions involve more reversibility. This should lower the required expected performance to induce entry and raise the level of performance to induce exit. Consequently, related diversifiers should have more churn in their businesses. They provide evidence that firms with more related businesses exit more quickly.

• Sakhartov, A. V., and T. B. Folta. “Resource Relatedness, Redeployability, and Firm Value.” Strategic Management Journal 35 (2014): 1781–1797.

  DOI: 10.1002/smj.2182

  A theoretical model predicts how relatedness in a multi-business firm’s portfolio creates value through having the flexibility to redeploy resources across businesses over time. The authors assume relatedness lowers adjustment costs, and show that the value of firms increases with uncertainty and more relatedness, and this value from resource redeployability is distinct from economies tied to resource sharing.