Performance Persistence in the Presence of Higher Order Resources

If firms want to make more profit than their competitors for prolonged periods of time, they must have access to resources that competitors cannot effectively obtain, such as brands, patents, captive customers, or specialized plants. This paper shows that not only these “operating resources” drive long‐term profit differences across firms, but also “higher‐order resources,” such as strategic planning, M&A capabilities, and superior forecasts. Such higher‐order resources do not affect profits directly, but allow firms to obtain superior operating resources over time. A mathematical model incorporating higher‐order resources suggests an average duration of competitive advantage of about 18 years, almost four times as long as implied by traditionally used models.