Stress separates good firms from the bad

The industrial organization (IO) view of strategy is that the industry structure is the most important determinant of long-run profitability. Michael Porter's "five forces" analysis is a popular manifestation of this view. To be succesful, choose a profitable industry with high barriers to entry, few substitutes, low rivalry, and weak customers and suppliers.

In contrast, the resource-based view (RBV) focuses more on differences between firms. To develope a sustainable competitive advantage, firms should organize to develop "resources" that are valuable, rare, and difficult to imitate.

Of course, there is some merit in each of these views, but during downturns, like the Texas banking crisis in 1985-1987, profit differences across banks within the same market dramatically increased. This is consistent with a "resource-based" view of the strategy, that between-firm differences are more important than between-industry differences (CITE: Amel, Dean, and Luke Froeb, Do Firms Differ Much?, Journal of Industrial Economics, 39 (March, 1991) 23-31.)

There are reports of widening between-firm differences in the current downturn.

J.P. Morgan Chase & Co. is raking in money from depositors -- a bank's lifeblood -- as weaker institutions teeter. Golub Capital, a little-known lender to smaller corporations, has zipped to the front of its field ahead of flailing CIT Group Inc. and General Electric Co.'s GE Capital unit.

Ford Motor Co. is luring car buyers away from General Motors Co. and Chrysler Group LLC. Bed Bath & Beyond Inc. hung Linens 'n Things Inc. out to dry.