Resource-based view

The resource-based view (RBV) is a managerial framework used to determine the strategic resources with the potential to deliver comparative advantage to a firm. These resources can be exploited by the firm in order to achieve sustainable competitive advantage.

Barney's 1991 article "Firm Resources and Sustained Competitive Advantage" is widely cited as a pivotal work in the emergence of the resource-based view. However, some scholars argue that there was evidence for a fragmentary resource-based theory from the 1930s. RBV proposes that firms are heterogeneous because they possess heterogeneous resources, meaning firms can have different strategies because they have different resource mixes.

The RBV focuses managerial attention on the firm's internal resources in an effort to identify those assets, capabilities and competencies with the potential to deliver superior competitive advantages.

Origins and background

During the 1990s, the resource-based view (also known as the resource-advantage theory) of the firm became the dominant paradigm in strategic planning. RBV can be seen as a reaction against the positioning school and its somewhat prescriptive approach which focused managerial attention on external considerations, notably industry structure. The so-called positioning school had dominated the discipline throughout the 1980s. In contrast, the emergent resource-based view argued that the source of sustainable advantage derives from doing things in a superior manner; by developing superior capabilities and resources. Jay Barney's article, "Firm Resources and Sustained Competitive Advantage" (1991), is seen as pivotal in the emergence of the resource-based view.[1]

A number of scholars point out that a fragmentary resource-based perspective was evident from the 1930s, noting that Barney was heavily influenced by Wernerfelt's earlier work which introduced the idea of resource position barriers being roughly analogous to entry barriers in the positioning school.[2][3] Other scholars suggest that the resource-based view represents a new paradigm, albeit with roots in "Ricardian and Penrosian economic theories according to which firms can earn sustainable supranormal returns if, and only if, they have superior resources and those resources are protected by some form of isolating mechanism precluding their diffusion throughout the industry."[4] While its exact influence is debated, Edith Penrose's 1959 book The Theory of the Growth of the Firm is held by two scholars of strategy to state many concepts that would later influence the modern, resource-based theory of the firm.[5]

The RBV is an interdisciplinary approach that represents a substantial shift in thinking.[6] The resource-based view is interdisciplinary in that it was developed within the disciplines of economics, ethics, law, management, marketing, supply chain management and general business.[7]

RBV focuses attention on an organisation's internal resources as a means of organising processes and obtaining a competitive advantage. Barney stated that for resources to hold potential as sources of sustainable competitive advantage, they should be valuable, rare, imperfectly imitable and not substitutable (now generally known as VRIN criteria).[8] The resource-based view suggests that organisations must develop unique, firm-specific core competencies that will allow them to outperform competitors by doing things differently.[1]

Although the literature presents many different ideas around the concept of the resource-advantage perspective, at its heart, the common theme is that the firm's resources are financial, legal, human, organisational, informational and relational; resources are heterogeneous and imperfectly mobile and that management's key task is to understand and organise resources for sustainable competitive advantage.[9] Key theorists who have contributed to the development of a coherent body of literature include Jay B. Barney, George S. Day, Gary Hamel, Shelby D. Hunt, G. Hooley and C.K. Prahalad.

Concept

Achieving a sustainable competitive advantage lies at the heart of much of the literature in both strategic management and strategic marketing.[6] The resource-based view offers strategists a means of evaluating potential factors that can be deployed to confer a competitive edge. A key insight arising from the resource-based view is that not all resources are of equal importance, nor possess the potential to become a source of sustainable competitive advantage.[6] The sustainability of any competitive advantage depends on the extent to which resources can be imitated or substituted.[10] Barney and others point out that understanding the causal relationship between the sources of advantage and successful strategies can be very difficult in practice.[11] Thus, a great deal of managerial effort must be invested in identifying, understanding and classifying core competencies. In addition, management must invest in organisational learning to develop, nurture and maintain key resources and competencies.

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation.[12][13][14]

The key managerial tasks are:

1) Identify the firm’s potential key resources.

2) Evaluate whether these resources fulfill the following criteria (also known as VRIN criteria:[15]

  • Valuable - they enable a firm to implement strategies that improve its efficiency and effectiveness.
  • Rare - not available to other competitors.
  • Imperfectly imitable - not easily implemented by others.
  • Non-substitutable - not able to be replaced by some other non-rare resource.

3) Develop, nurture and protect resources that pass these evaluations.

Definitions

Given the centrality of resources in terms of conferring competitive advantage, the management and marketing literature carefully defines and classifies resources and capabilities.

Resources

Barney defines firm resources as: "all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness” [16]

Capabilities

Capabilities are “a special type of resource, specifically an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm.” [17]

Competitive advantage

Barney defined a competitive advantage as "when [a firm] is able to implement a “value creating strategy not simultaneously being implemented by any current or potential competitors.”[18]

Classification of resources and capabilities

Firm-based resources may be tangible or intangible.

Tangible resources include: physical assets such as financial resources and human resources including real estate, raw materials machinery, plant, inventory, brands, patents and trademarks and cash.[19]
Intangible resources may be embedded in organisational routines or practices such as an organization's reputation, culture, knowledge or know-how, accumulated experience, relationships with customers, suppliers or other key stakeholders.[20]

RBV and strategy formulation

Firms in possession of a resource, or mix of resources that are rare among competitors, are said to have a comparative advantage. This comparative advantage enables firms to produce marketing offerings that are either (a) perceived as having superior value or (b) can be produced at lower costs. Therefore, a comparative advantage in resources can lead to a competitive advantage in market position.[21]

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation. Hooley et al. suggest the following classification of competitive positions:[22]

  • Price positioning
  • Quality positioning
  • Innovation positioning
  • Service positioning
  • Benefit positioning
  • Tailored positioning (one-to-one marketing)

Criticisms

A number of criticisms of RBV have been widely cited,[23] and are as follows:

  • The RBV is tautological[24]
  • Different resource configurations can generate the same value for firms and thus would not be competitive advantage
  • The role of product markets is underdeveloped in the argument [25]
  • The theory has limited prescriptive implications.[2]

Other criticisms include:

  • The failure to consider factors surrounding resources; that is, an assumption that they simply exist, rather than a critical investigation of how key capabilities are acquired or developed.[26]
  • It is perhaps difficult (if not impossible) to find a resource which satisfies all of Barney's VRIN criteria.
  • An assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources does not always hold true. It ignores external factors concerning the industry as a whole; Porter’s Industry Structure Analysis ought also be considered.[27]

See also

References

  1. 1 2 Prahalad, C. K.; Hamel, G. "The Core Competence of the Corporation". Harvard Business Review. 68 (3): 79–91.
  2. 1 2 Priem, R. L.; Butler, J. "Is the Resource-Based 'View' a Useful Perspective for Strategic Management Research?". Academy of Management Review. 26 (1): 20–40. doi:10.5465/amr.2001.4011928.
  3. ↑ Mahoney, J.T.; Pandian, J.R. "The Resource-Based View Within the Conversation of Strategic Management". Strategic Management Journal. 15 (5): 363–380. doi:10.1002/smj.4250130505.
  4. ↑ Lewis, A. and Kipley, D., "Resource-Based View," in: Matthew R. Marvel (ed), Encyclopedia of New Venture Management, Sage Publications, 2012, p. 397, DOI: https://dx.doi.org/10.4135/9781452218571.n158
  5. ↑ Edith Penrose's (1959) "Contributions to the Resource-based View of Strategic Management", Yasemin Y. Kor and Joseph T. Mahoney, Journal of Management Studies 41:1 January 2004 0022-2380 http://www.business.illinois.edu/josephm/Publications/jms_kor%20and%20mahoney%20(2004).pdf
  6. 1 2 3 Fahy, J and Smithee, A. "Strategic Marketing and the Resource Based View of the Firm," Journal of the Academy of Marketing Science Review, Vol. 1999, 10, online at http://www.amsreview.org/articles/fahy10-1999.pdf or https://pdfs.semanticscholar.org/025b/5aa7e682f4cbf1d7637a0bbe51a2a0d602e7.pdf
  7. ↑ Hunt, S.D., "A General Theory of Business Marketing: R-A theory, Alderson, the ISBM Framework and the IMP Theoretical Structure," Industrial Marketing Management, Vol. 41, 2013, pp 283-293
  8. ↑ Barney, J. B., "Firm Resources and Sustained Competitive Advantage." Journal of Management, Vol. 17, No. 1, 1991, pp. 99–120
  9. ↑ Makadok, R., "Toward a Synthesis of the Resource-Based View and Dynamic-Capability Views of Rent Creation," Strategic Management Journal, Vol. 22, 2001, pp 387-401; Hunt, D. S. and Derozier, C., "The Normative Imperatives of Business and Marketing Strategy: Grounding Strategy in Resource-Advantage View," Journal of Business and Industrial Marketing, Vol. 19, No. 1, 2004, pp. 5–22
  10. ↑ Lowson, R., "The Nature of Operations Strategy: Combining Strategic Decisions from an Operations and Market based Perspective," Management Decision, Vol. 41, No, 6, pp. 538–49
  11. ↑ Barney, J. B., "Firm Resources and Sustained Competitive Advantage," Journal of Management, Vol. 17, No. 1, 1991, pp. 108–09; Barney uses the term "causally ambiguous" which he describes as a situation when "the link between the resources controlled by the firm and the firm's sustained competitive advantage is not understood or understood only very imperfectly."
  12. ↑ Day, G.S.; Wensley, R. (1988). "Assessing Advantage: A Framework for Diagnosing Competitive Superiority". Journal of Marketing. 52: 1–26. doi:10.2307/1251261.
  13. ↑ Day, G. S. (1994). "The Capabilities of Market-Driven Organizations". Journal of Marketing. 58: 37–52. doi:10.2307/1251915.
  14. ↑ Hooley, G. J.; Greenley, G. E.; Fahy, J.; Cadogan, J. W. (2001). "Market-focused Resources, Competitive Positioning and Firm Performance". Journal of Marketing Management. 17 (5–6): 503–520. doi:10.1362/026725701323366908.
  15. ↑ Prahalad, C. K. and Hamel, G., "The Core Competence of the Corporation," Harvard Business Review, Vol. 68, No. 3, pp. 79–91; Barney, J. B., "Firm Resources and Sustained Competitive Advantage," Journal of Management, Vol. 17, No. 1, 1991, pp. 99–120
  16. ↑ Barney, J.B. (2001). "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?". Academy of Management Review. 26 (1): 101. doi:10.5465/AMR.2001.4011938.
  17. ↑ Makadok, R., "Toward a Synthesis of the Resource-Based View and Dynamic-Capability Views of Rent Creation," Strategic Management Journal, Vol. 22, 2001, No. 5, pp. 387–401
  18. ↑ Barney, J.B. (2001). "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?". Academy of Management Review. 26 (1): 102. doi:10.5465/AMR.2001.4011938.
  19. ↑ Andriessen, D., Making Sense of Intellectual Capital: Designing a Method for the Valuation of Intangibles, Elsevier Butterworth-Heinemann, Burlington, 2004
  20. ↑ Lev, B., Intangibles: Management, Measurement, and Reporting, Brookings Institution Press, Washington,, 2001
  21. ↑ Hunt, S.D. and Morgan, R.M., "The Comparative Advantage of the Firm," Journal of Marketing, Vol. 59, April, 1995, pp 1-15
  22. ↑ Hooley, G., Broderick, A. and Moller, K., "Competitive Positioning and the Resource-Based View of the Firm," Journal of Strategic Marketing, Vol. 6, 1998, pp. 97–115
  23. ↑ Barney, J.B. (2001). "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?". Academy of Management Review. 26 (1): 41–56. doi:10.5465/AMR.2001.4011938.
  24. ↑ Collis, D. J. "Research Note: How Valuable Are Organizational Capabilities?". Strategic Management Journal. 1994: 143–152. doi:10.1002/smj.4250150910. ; Priem, R.L.; Butler, J.E. "Tautology in the Resource-Based View and Implications of Externally Determined Resource Value: Further Comments". Academy of Management Review. 26 (1): 57–66. doi:10.5465/amr.2001.4011946.
  25. ↑ Priem, R.L.; Butler, J.E. "Is the Resource-Based Theory a Useful Perspective for Strategic Management Research?". Academy of Management Review. 26 (1): 22–40. doi:10.5465/amr.2001.4011928.
  26. ↑ Stinchcombe, A.L., "On Equilibrium, Organizational Form, and Competitive Strategy, in Joel A.C. Baum, Frank Dobbin (eds), Economics Meets Sociology in Strategic Management (Advances in Strategic Management), Volume 17, Emerald Group Publishing Limited, pp 271 - 284
  27. ↑ Rumelt, R. P., "How Much does Industry Matter?" Strategic Management Journal, Vol. 12, No. 3, 1991, pp. 167-185

Further reading

  • Peteraf, M. A. (1993). "The Cornerstones of Competitive Advantage: A Resource-based View". Strategic Management Journal. 14 (3): 179–191. doi:10.1002/smj.4250140303.
  • Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, NY: Free Press
  • Teece, D.; Pisano, G.; Shuen, A. (1997). "Dynamic Capabilities and Strategic Management". Strategic Management Journal. 18 (7): 509–533. doi:10.1002/(sici)1097-0266(199708)18:7<509::aid-smj882>3.0.co;2-z.
  • Wernerfelt, B (1984). "A Resource-based View of the Firm". Strategic Management Journal. 5: 171–180. doi:10.1002/smj.4250050207.
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