Resource Based View of the Firm

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Summary

Economic theory holds that in the normal course, and in the absence of market imperfections, abnormal economic rents will get competed away by rivals or new entrants to an industry. The Resource Based View holds that firms can earn sustainable supra-normal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanism preventing their diffusion throughout industry.

Early adopters of the Resource Based View

Edith Penrose contributed to the RBV field as early as 1959, when she argued: "a firm is more than an administrative unit; it is also a collection of productive resources the disposal of which between different users and over time is determined by administrative decision. When we regard the function of the private business firm from this point of view, the size of the firm is best gauged by some measure of the productive resources it employs". And Birger Wernerfelt coined the term in 1984.

Jay Barney's Resource Based View of the Firm

However most scholars consider Jay Barney as the father of the modern Resource-Based View of the Firm (RBV). His theory ('91) suggests that there can be heterogeneity or firm-level differences among firms that allow some of them to sustain competitive advantage. Therefore, the RBV emphasizes strategic choice, charging the management of the firm with the important tasks of identifying, developing and deploying key resources to maximize returns.

Barney (1991: "Firm resources and sustained competitive advantage") made clear that abnormal rents can be earned from resources to the extent that they are VRIN:

Valuable (when they enable a firm to conceive or implement strategies that improve its efficiency or effectiveness)
Rare (valuable firm resources possessed by large numbers of competing firms can not be sources of either a competitive advantage or a sustainable competitive advantage)
Imperfectly Imitable (because of {a combination of} three reasons: unique historical conditions, causally ambiguous, social complex)
Non-Substitutable (there must not be strategically equivalent valuable resources that are themselves either not rare or imitable)

Other strategists on the Resource Based view of the firm

Differences may occur in the form of resources such as patents, properties, proprietary technologies, or relationships. Most scholars claim that it is only/mainly intangible resources that explain performance heterogeneity among firms and thus are the likely sources of competitive advantage. (Galbreath and Galvin recently discovered that while RBV theory largely associates firm performance with intangible resources, the association may not always hold true empirically. One explanation may be that the strength of some resources are dependent upon interactions or combinations with other resources and therefore no single resource - intangible or otherwise - becomes the most important to firm performance. (Academy of Management Best conference Paper 2004 BPS: L6))

'VRIN resources' are tough to find. This becomes especially clear when we look at the work done on strategies sometimes characterized as 'economizing' (Porter, 1996). These include reengineering, enterprise systems, benchmarking, downsizing, and other similar approaches of efficiency. Unfortunately, such techniques are available to all competitors in an industry. They merely raise the bar for everyone, usually in a transparent way, and do not produce long-term competitive advantage.

There is a dilemma in attainable resources not being sustainable. Clearly valuable resources that sustain advantage must be hard or impossible to imitate -and therefore not available to those who do not already have them. Imitable resources, on the other hand, can be attained by their aspirants. But as soon as they show clear promise, they risk being competed away: their strength becomes their weakness. Thus attainable resources are not sustainable.

Recent developments on the Resource Based View

More recently, the dynamic capability perspective has extended the Resource Based View to the realm of evolving capabilities. By developing capabilities based on sequences of path-dependent learning, a firm can stay ahead of its imitators and continue to earn superior returns (Dierickx and Cool, 1991; Teece et al., 1997). There is nothing to say, however, that most firms have the capacity to place themselves on a learning curve that would prevent rivals from leapfrogging them. To do so they would have to pick an optimal capability development trajectory that is (a) strictly path dependent to sustain first mover advantage, and (b) nonsubstitutable with an equally efficient trajectory. Bounded rationality conditions might obstruct the first aim, conditions of equifinality the second. Again the goal of inimitability is highly demanding, and asks the question of how to achieve it with assets, resources, or capabilities the firm does not already have. Thus notwithstanding major advances in the field of strategy, practitioners are left with a dilemma: how to develop sustainable advantage that they do not possess, but is nonetheless attainable.

A study by Danny Miller of a number of firms shows how some of them were able to build not so much on resources and capabilities as on asymmetries. Asymmetries are typically skills, processes, or assets a firm's competitors do not and cannot copy at a cost that affords economic rents. They are rare, hard or impossible to imitate and non-substitutable, although not connected to any engine of value creation, and, in fact, often act as liabilities. By discovering and reconceptualizing these asymmetries, embedding them within a complementary organizational design, and leveraging them across appropriate market opportunities, many firms were able to turn asymmetries into sustainable capabilities.

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Challenges of Managing Conglomerates...
I am currently dealing with following question: what are the challenges of managing conglomerates, starting from the res (...)

1 comments

Extended RBV Approach
The problem of resource based theory lays in restricted definition of the resources as ontological objects. It seems to (...)

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Can 'Product Design Capability' be a Resource for an Organization?
I am trying to fit Product (or Service) Design from the perspective of Resource-based theory, with a special emphasis on (...)

3 comments

Relevance of RBV When Facing Low Cost Competition
Is the RBV still relevant given the rise of competition from low wage countries (ie China)?
New competitors are not (...)

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Strategic Resource Planning
Are there models exercises / solutions available on strategic resource planning?
Any experienced managers in this f (...)

🔥	NEW Relationship Between Isolating Mechanisms / Barriers of Imitation and Company Size Does anyone know an article that deals with the relationship between isolating mechanisms/barriers of imitation and comp (...) 4

Empirical Research of RBV
Did anyone perform empirical research of RBV? If you have any experimental information please share. (...)

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RBV in Micro Business?
How is the RBV concept applied in micro business? (...)

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Example RBV - Engineering Firm
I am writing a thesis on RBV. One case study is a consulting engineering company. Which are the main features and capabi (...)

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Resource Based View of the Firm and SWOT
Resource-based view of the firm is a bit like a SWOT analysis. You analyze all the available resources of the business t (...)

7 comments

RBV and Comparative Advantage
RBV is also about comparative advantage and strategy.
E. Spulberg at US Kellog University said: "The best strategie (...)

Resource Based View Identifies Core Competences
The RBV can be viewed as an internal strategic analysis tool of an organisation used to identify its core competences. (...)

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The Conditions of RBV are Seemingly Non-Complementary
The two limiting conditions for RBV to be earning sustainable supra-normal returns are seemingly non-complementary. Havi (...)

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Best Practices

The top-rated topics about the Resource-based View. Here you will find the most valuable ideas and practical suggestions.

Resource Based View Industries?
What industries can be said to be heavily based on the resource based view? Why? (...)

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Barney Changed VRIN into VRIO
Barney developed the VRIN framework (1991) to VRIO. The "O" stands for the Organisation's capability to support and deli (...)

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Limitations of Resource Based View of the Firm
What are the limitations of RBV? Can anyone clearly explain it? Thanks. (...)

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Sources for Resource Based View
In order to find possible / potential sources for the resource based view, I recommend you look into the company's:
(...)

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Advantages of RBV (benefits)
The resource based view of the firm is a terrific tool for analyzing the presence, or lack thereof, of wealth-creating m (...)

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RBV & Financial Capability
The Chinese security regulation commission regulates the access to equity and bond. Only firms which meet the qualificat (...)

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Expert Tips

Advanced insights about the Resource-based View. Here you will find professional advices by experts.

	How to Measure Resource Based View of the Firm Measuring the Existence of RBV in an Organization Does anyone have an idea of how to measure the existence of RBV in an organization? At least to my knowledge, there isn (...)
	How to avoid imitation of Strategic Resources? Protection of your Strategic Resources Against Imitation How can barriers to imitation be created? How can we make a competitive advantage into a sustainable one? Here's a lis (...)
	Three Schools of Thought for Firm-internal Factors for Sustainable Competitive Advantage Achieving Sustainable Competitive Advantage Three schools of thought have now been identified as those focused on firm-internal factors (resources and capabilities) (...)
	Differences Between Resources and Capabilities The 4 Main Differences These are the main differences between resources and capabilities according to the relevant management literature on the (...)
	Key Challenges of Internet Age for Management and for Product and Service Development R&D, Product Development, Service Development, Strategy, Marketing, Innovation, Visioning The Internet age represents a huge challenge for most businesses. Why? Because the Internet, wireless devices such as m (...)
	A Corporate Theory: Long-term Handhold and Guidance in Turbulent Times? Inside-out Corporate Strategy, Corporate Visioning According to Professor Todd Zenger, companies should focus less on competitive advantage (this isn't what really interes (...)
	What are Smart Creatives? Traits R&D, Product Development, Service Development, Strategy, Innovation, HR, Career Management To accommodate the strategic demands of the internet age, clever, creative knowledge workers are needed in product/servi (...)
	Distinguish Resources and Capabilites Why the Difference Matters Scholars Silja Korhoen and Juha S. Niemela argue that distinguishing capabilities from resources and understanding their (...)
	Dynamic Capabilities View VRIN: Strategic Learning Click on More for an explanation of Dynamic Capabilities, the ability of firms to develop capabilities or competencies t (...)

Information Sources

Various sources of information regarding the Resource-based View. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

	Resource-based View and Barney's Adapted VRIO Framework In-depth Resource-based View, Barney, VRIO-framework, Internal Analysis Presentation about the Resource-based view focusing on the VRIO-framework of Barney. The presentation includes the follo (...)
	Theory Behind Barney's Resource-based View of Exemplar Returns Understanding / Presenting RBV of the Firm Comprehensive Powerpoint presentation on the background of RbV. (...)
	Why Resources are Important? Funny Picture Humorous picture clearly shows why resources are important. (...)
	Definition, Differences and Relationships between Resources, Capabilities, Competencies and Core Competencies Core Competencies Javidan (1998) has made a great contribution to answering the question for the relationship / differences between resour (...)
	Porter's Industrial Organization Versus Barney's Resource Based View Business Strategy, Value Chain Management This presentation compares Porter's competitive advantage thinking with Barney's Resource Based View, focusing on how co (...)
	Capability Lifecycles Maturity Management Article by Constance E. Helfat and Margaret A. Peteraf introduces the concept of the capability lifecycle (CLC), which a (...)
	The Resource Based View, Comparative Advantage and Competitive Heteroginity Resource Based View, Comparative Advantage This paper by Anoop Madhok and Sali Li is primarily concerned with competitive heterogeneity. By revisiting Ricardian ec (...)
	The Networked Firm and RBV Networks, Social Capital This conceptual paper by Nick Wills-Johnson provides a brief review of and introduces concepts from the social networks (...)
	Resource Based View Diagram Business / Corporate Strategy Download and edit this 12manage PowerPoint graphic for limited personal, educational and business use. Republishing in (...)