The Resource Based View (RBV) as a basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable interchangeable and intangible tangible (intangible tangible makes no sense) resources at the firm’s disposal. To transform a short-run competitive advantage into a sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile. Effectively, this translates into valuable resources that are neither perfectly imitable nor substitutable without great effort. If these conditions hold, the bundle of resources can sustain the firm’s above average returns. The VRIO and VRIN model also constitutes a part of RBV. There is strong evidence that supports the RBV.
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 or In-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.
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.
Makadok emphasizes the distinction between capabilities and resources by defining capabilities as “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.” “Resources are stocks of available factors that are owned or controlled by the organization, and capabilities are an organization’s capacity to deploy resources.” Essentially, it is the bundling of the resources that builds capabilities.
A Competitive Advantage can be attained if the current strategy is value-creating, and not currently being implemented by present or possible future competitors. Although a competitive advantage has the ability to become sustained, this is not necessarily the case. A competing firm can enter the market with a resource that has the ability to invalidate the prior firm’s competitive advantage, which results in reduced/normal rents. Sustainability in the context of a sustainable competitive advantage is independent with regard to the time frame. Rather, a competitive advantage is sustainable when the efforts by competitors to render the competitive advantage redundant have ceased. When the imitative actions have come to an end without disrupting the firm’s competitive advantage, the firm’s strategy can be called sustainable. This is in contrast to views of others (e.g., Porter) that a competitive advantage is sustained when it provides above-average returns in the long run.Business frameworks like Resource-Based View are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.