Causal ambiguity

Causal ambiguity was identified by Lippman and Rumelt (1982) as an imitation-limiting condition that helped explain performance differences among firms. They described it as the “basic ambiguity concerning the nature of the causal connections between actions and results [among factors of production]” (p. 418). Their model includes not only the existence of economic rents that attracts imitation and new entrants into the industry, but also has the limitation of atomistic price-taking. Their arguments included both intra- and inter-firm ambiguity, but they did not identify its sources. The concept was then brought into the emerging Resource-based View by Reed and DeFillippi (1990). They held intra-firm ambiguity constant at or near zero, and explained inter-firm causal ambiguity in terms of tacitness arising from the skills and routines embedded in competencies, complexity among combinations of competencies, and the specificity of assets within competencies. They described how, either individually or in combination, those characteristics can create causal ambiguity in the relationship between inputs (competencies) and outputs (firm performance). Assuming a competency-based competitive advantage, that ambiguity becomes a mechanism for sustaining the advantage and consequent superior performance. It is important to realize that both Lippman and Rumelt (1982) and Reed and DeFillippi (1990) saw causal ambiguity as a lack of understanding by observers of the relationship between business inputs and outputs. Neither pair of authors saw it as a source of firm performance. Rather, it is a mechanism that helps a firm maintain an existing superior performance differential.