research@hec - Issue #23 - (Page VI)

The Resource — Performance Link Why Your Competitor’s Resources Should Matter to You Tomasz Obloj research BIOGRAPHY Tomasz Obloj joined the HEC department of strategy and business policy in 2011. He holds a PhD in strategy and an M.S. in management from INSEAD, and an M.S. in economics from Warsaw School of Economics, where he taught from 2004 to 2006. He has written many articles and taken part in many academic conferences. Current research focuses on the role that organizational incentives play in the division of value within firms. When it comes to business performance, studies have led us to assume that the companies with the most tangible and/or intangible resources — human, innovation, material, etc.— are likely to be market leaders. But Tomasz Obloj noticed that this was not the case, and he and co-researcher Laurence Capron suspected that the importance of resource “stock” or abundance was being misinterpreted. Focusing on the intangible resource of seller reputation, they crafted a study of online auctions of a mobile phone to test the their hypothesis that what really matters about resources is not how much you possess, but how much more than others. RESOURCES VS. RESOURCE GAPS Obloj explains that prior to this study, the correlation between a seller’s reputation and people’s willingness to pay had been established, but no one had ever raised the issue of the difference or gap between various sellers’ reputations. Could a seller benefit from having not merely a good reputation, but a reputation that was visibly better than its competitor? Studying the different sales prices of a same mobile phone showed that competitors’ reputations do indeed make a difference. The larger the gap between a seller’s and its competitor’s reputations, the greater the seller’s ability to command a higher price premium — so the higher the seller’s relative business performance. “This means Many studies have established the connection between business resources and success; it’s basically a matter of “the bigger the better”. So why are so many was intrigued by this question, and he found out that just having a lot of a competitors! But this advantage will not hold indefinitely. firms with huge resources not out-performing their competitors? Tomasz Obloj resource is not enough! You have to be able to boast that you have more than your hec BRIDGING RESOURCE GAPS Obloj was actually quite surprised by the magnitude of the gap effect. Indeed, taking into account reputation gap allowed explaining 40% of the difference in price premia across sellers. In contrast, absolute resources (in this case, reputation) traditionally accounted for just 12% of performance differences between parties. So should you do whatever it takes to bridge a resource gap? When it comes to reputation, Obloj and Capron found that there are limits to the impact of a gap. “Customers definitely care that you are better than your competitor, and they will pay for it. But they do not care if you are hugely better,” that resources need to be looked at in a different way,” Obloj comments. “The absolute size of resource stock is not the only thing that matters. Firms have to take an interest in their competitor’s stock of a same resource, assess the difference, and decide what to do about it.” In this study, relative reputation stops mattering at about 200%, or when a seller’s reputation is three times as good as its main competitor’s, but Obloj says this figure is probably context specific. In commodities markets, for example, reputation is unlikely to be a valuable resource, whereas it is doubtlessly even more valuable in luxury or collectables markets, where reputation is extremely important to customers. VI research@hec • october-november 2011

Table of Contents for the Digital Edition of research@hec - Issue #23

Art Market: Understanding Changes in Prices
Rumors: How They Spread and How to Combat Them
The Resource—Performance Link : Why Your Competitor’s Resources Should Matter to You
HEC PARIS News

research@hec - Issue #23