Resource and strategy:
Your people put you over the edge

Michael Hitt , Distinguished Professor of Management, Joseph Foster ’56 Chair in Business Leadership and C.W. and Dorothy Conn Chair in New Ventures

In the minefield of international business expansion and the push to outsource more and more internal functions, firms in search of success must balance and leverage their resources and ally with partners who share the same strategic intent.

Those findings are central to the current research of Distinguished Professor of Management Michael Hitt, whose rich and prolific career in the academics of strategic management spans four decades.

Uncovering how businesses obtain, manage and employ their resources to gain a competitive advantage is an overarching premise in much of Hitt’s current scholarly endeavors.

In forthcoming research, Hitt and three co-authors explore the relationship between the resources of professional service firms and those firms’ ability to open new branches overseas. More knowledgeable executives and partners are better able to establish international offices, while high quality employees attract additional highly-skilled people to fill those new offices.

The researchers conclude that for professional service firms, knowledge as acquired and disseminated through human capital serves as the push behind international expansion efforts and as a critical factor to the firm’s success in those new markets.

In other words, companies build their strategy on their resources, Hitt says. That lends weight to arguments against downsizing and layoffs in people-dependent service and professional industries. Firms must instead carefully manage their valuable resources to avoid incurring costs that can precipitate to reductions in labor.

“What we’re trying to show is that human capital is really critical, that those who value their human capital tend to do better,” Hitt says.

That resource-based theoretical framework flows into a second stream of research occupying Hitt’s time these days: International strategy. U.S. firms expanding into new pockets of the world must align themselves with international partners whose resources include complementary needs and skills — including knowledge of the culture and regulations in the target country.

But even more important to the success of the venture is securing a partner who shares the same strategic intent, Hitt says. In addition to being willing to share, which builds trust in a foreign partner, both sides have to have the same goals.

For U.S. firms, that lesson is just now beginning to take hold. In his research, Hitt observes times when U.S. partners are the only parties pleased with an alliance.

“We need a ‘due diligence’ process for partner selection that’s not just financial but really about getting to know your partner,” Hitt explains. “Intrapersonal relationship building has to take place. We’re learning that in the United States, but it’s not in our nature.”

Strategic flexibility and innovation is another key area Hitt has explored with fellow researchers, finding in an award-winning conference paper that firms do best when they combine outsourcing with a necessary degree of internalization. The forthcoming paper “Balancing Vertical Integration and Strategic Outsourcing: Effects on Product Portfolio, Product Success and Firm Performance,” co-authored by Hitt, Frank T. Rothaermel and Lloyd A. Jobe, received the Strategic Management Society Conference Best Paper Prize when it was presented in 2004.

By “tapering” their integration techniques, the more lucrative microcomputer manufacturing firms Hitt and co-authors analyzed kept knowledge critical to their operations in-house but outsourced to keep up with new technologies and reduce costs.

That balanced integration allows firms to stay current and innovative through their outsourcing partners yet flexible when it comes to choosing those service providers and independent because of the store of firm knowledge it retains internally. “You’re in both worlds,” Hitt says.

Hitt, the author of more than 200 publications and 20 co-authored or co-edited books, is already riding the rails of his research to find a greater understanding of corporate governance in international relationships. He’s working with colleagues on an expansive study of more than 40 countries to examine the type of partner alliances, resources leveraged and strategies implemented by businesses as they enter each country’s market.

It’s research, he said, that will most likely be used by other researchers — work that can predict how geographic diversification is managed and provide a piece of the puzzle as business minds in the future ponder why a firm used a given strategy in a certain country.

For the Strategic Management Society’s president-elect and the Academy of Management’s past president, impacting students and fellow researchers, educators and an audience of business practitioners is his chief aim as he uncovers new dimensions in effective management.

“If we can help businesses in the end be more effective and efficient because of the things that we learn,” Hitt said, “then we all have a chance at a better life.”

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