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date: 20 April 2019

The Resource-Based View of the Firm

Summary and Keywords

The Resource-Based View of the firm (RBV) is a set of related theories sharing the assumptions of resource heterogeneity and resource immobility across firms. In this view, a firm is a bundle of resources, capabilities, or routines which create value and cannot be easily imitated or appropriated by competitors due to isolating mechanisms. Grounded in the economic traditions of the “Chicago School” of economic efficiency, the “Austrian School” of economics, and organizational economics, the RBV comprises theories that explain the existence of (sustained) competitive advantage and of economic rents. Empirical research from this perspective addresses both firm performance and firm behavior at the level of business strategy (e.g., within-industry competition) and corporate strategy (e.g., acquisitions). Initially developed through a series of papers by several authors in the 1980s–1990s, major extensions and refinements of the RBV include the knowledge-based view of the firm (KBV), dynamic capabilities, and the relational view, which recognizes capabilities can be developed and shared through alliances between firms.

Keywords: resource-based view, competitive advantage, firm performance, knowledge-based view, sustained competitive advantage, capabilities, resources, dynamic capabilities

First labeled by Wernerfelt (1984) and developed through a series of papers by various authors, the resource-based view of the firm (RBV) explains how firms achieve competitive advantage and economic rents through ownership and management of assets, capabilities, knowledge, and similar internal resources. Resource-based theory is complementary to more outward-looking theories of competitive advantage, most notably Porter’s (1980) Five Forces approach to analyzing industry structure. The RBV has been applied to derive hypotheses about numerous areas of research in strategic management and other disciplines, becoming a prevailing perspective employed in the field over recent decades. However, criticism of the RBV as untestable, incomplete, or even tautological has generated substantial debate. Major reviews of the theory (e.g., Mahoney & Pandian, 1992; Hoskisson, Hitt, Wan, & Yiu, 1999; Barney & Arikan, 2001; Lockett, Thompson, & Morgenstern, 2009; Kraaijenbrink, Spender, & Groen, 2010) and empirical RBV literature (e.g., Armstrong & Shimizu, 2007; Newbert, 2007; Crook, Ketchen, Combs, & Todd, 2008) inform this current essay. The remainder of this essay discusses key assumptions and definitions, the historical development of the core literature and extensions, empirical applications, critiques and responses, and suggestions for use by researchers.

Assumptions and Definitions

Industrial organization economics typically assumed that firms were undifferentiated suppliers responding to demand and thereby setting prices to clear markets. Thus, observed performance differences between firms over time were seen as stemming from structural differences in industries and economies, such as government regulation or barriers to entry. If one firm discovered a useful asset or activity, other firms could quickly copy it and compete away any economic profits in excess of a basic return to risk. By contrast, the resource-based view (RBV) assumes the following:

  • Resources are heterogeneous across firms.

  • Resources are imperfectly mobile across firms.

As explained by Wernerfelt (1984), just as firms might occupy different positions in product markets (Porter, 1980), they might acquire or build different resources aligned with those positions. Developing products that make best use of one’s existing resources, and developing new resources that best support a set of products are two sides of the same coin. Therefore, firm strategy is idiosyncratic and heavily path-dependent—past investments, activities, relationships, and knowledge create the conditions for subsequent decisions by a given firm.

Resources are “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” (Daft, 1983; as quoted by Barney, 1991, p. 101).

While this early definition of resources listed “capabilities” as one example, later literature uses the term “resources” to indicate mostly assets rather than activities, described by nouns rather than verbs. Resources or routines (i.e., “regular and predictable behavioral patterns,” see Nelson & Winter, 1982, p. 14) tend to be discussed as discrete inputs to be used in more complex or “higher-order” (Winter, 2000) activities called “capabilities.”

A capability “refers to the ability of an organization to perform a coordinated set of tasks, utilizing organizational resources, for the purpose of achieving a particular end result” (Helfat & Peteraf, 2003, p. 999). These authors further distinguish between operational and dynamic capabilities:

An operational capability is “a high-level routine (or collection of routines) that, together with its implementing input flows, confers upon an organization’s management a set of decision options for producing significant outputs of a particular type” (Winter, 2000, p. 983).

A dynamic capability is “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece, Pisano, & Shuen, 1997, p. 516); or to “build, integrate, or reconfigure operational capabilities” (Helfat & Peteraf, 2003) in any environment.

Despite these distinctions, the same logic applies to any of these conceptions of the internal components of a firm, whether these are called resources or capabilities, are considered as static or dynamic, reside in managers or other employees, or are distinguished in other ways. Assuming the component differs across firms, and rivals cannot easily copy the component, it is possible for firms competing in the same market (i.e., under the same structure) to have different performance, even in the long run, and different optimal strategies.

Clarifying earlier statements by various authors, Peteraf and Barney (2003), state that different versions of resource-based theory can explain either competitive advantage or economic rents, offering the following definitions:

An enterprise has Competitive Advantage if it is able to create more economic value than the marginal (breakeven) competitor in its product market. (Peteraf & Barney, 2003, p. 314)

Economic rents are “returns to a factor in excess of its opportunity costs” and equivalent to the excess residual value (i.e., total economic value created less value delivered to the customer) of a focal firm relative to its break-even rival (Peteraf & Barney, 2003, p. 315).

Competitive advantage relates closely to value creation, while economic rents take into account aspects of value appropriation, including what the firm has to pay in strategic factor markets (Barney, 1986a) to acquire resources. Neither competitive advantage nor economic rents are defined as equal to profits or above-average returns. The extent to which indicators of financial performance such as market valuation, accounting returns, or growth reflect the fundamental dependent variables is an important discussion within the empirical literature on the RBV.

Development

Economic Foundations

Resource-based theory was built on diverse foundations in the underlying discipline of economics, reflecting the perspectives of the multiple authors who collectively developed the theory over several years. Primary influences were the “Chicago School” of economics, with its emphasis on efficiency; the “Austrian School” of economics, as interpreted through the lens of Edith Penrose’s Theory of the Growth of the Firm (1959); and organizational economics, particularly evolutionary economics (Nelson & Winter, 1982). As a comparison, Porter’s (1980) industry analysis derived directly from the approach of the “Harvard School” of industrial organization economics and its Structure-Conduct-Performance (S-C-P) paradigm (Mason, 1939; Bain, 1968; Caves, 1984). Whereas the S-C-P paradigm pointed to market power and barriers to competition as antitrust concerns, the “Chicago School” countered that a greater firm size and market share could arise instead from greater efficiency, in which case industry concentration was not necessarily harmful to social welfare. These efficiency arguments were brought into the strategic management literature by Demsetz (1973) and Rumelt (1982), among others, retaining the assumption that markets reach equilibrium (Lippman & Rumelt, 1982). Austrian economics (e.g., Von Hayek, 1948; Von Mises, 1949) does not share that assumption, focusing more on subjective, entrepreneurial alertness and judgment in an ever-changing business landscape. However, the links to Austrian economics were mediated through Penrose (1959). Her definitions of resources and their constraints, the distinction between resources themselves and the services that those resources provide, and the importance of managerial capabilities in teams are essential to the resource-based view (RBV) (Kor & Mahoney, 2004). Nevertheless, the potential for further refinements to the RBV using the assumptions and insights of Austrian economics was only appreciated later (Foss & Ishikawa, 2007; Foss, Klein, Kor, & Mahoney, 2008). Similarly, evolutionary economics, with its portrayal of industries as moving toward, yet never reaching, equilibrium, and its analysis at the level of routines, was incorporated into early RBV theory primarily through recognition that competitive advantage arises out of Schumpeterian “creative destruction” (Schumpeter, 1950; Barney 1986b). However, later emphasis on knowledge resources and dynamic capabilities brought the influence of evolutionary economics to the forefront (Mahoney & Pandian, 1992; Teece et al., 1997).

Early Statements

Foundational writings in business policy included detailed accounts of how the internal workings of large corporations allowed them to thrive in difficult industries (e.g., Andrews, 1971). After heavy emphasis on industry characteristics in the early days of strategic management, Wernerfelt (1984) sought to restore the balance between internal and external analysis. He defined resources as the set of tangible and intangible assets semi-permanently attached to a firm. He proposed that the kind of resources subject to “resource position barriers” (Wernerfelt, 1984, p. 173) can lead to high profits (akin to first-mover advantages; Lieberman & Montgomery, 1988); that strategy involves balancing the exploitation of existing resources and the development of new resources; that bundles of resources can be acquired in imperfect markets for entire businesses; and that this perspective leads to a new understanding of corporate diversification distinct from industry attractiveness and market power. Prahalad and Hamel (1990) further developed and popularized the idea that corporations should diversify on the basis of their “core competence.” Wernerfelt stated that “…these authors were single-handedly responsible for diffusion of the resource-based view into practice” (Wernerfelt, 1995, p. 171).

Using a similar assumption of resource heterogeneity, Rumelt (1984) clarified several “isolating mechanisms” that prevent imitation of strategic resources, particularly “causal ambiguity” (Lippman & Rumelt, 1982), or uncertainty surrounding the link between any particular resource and the firm’s performance, which can lead to response lags. Barney (1986a) further developed the concept of efficient strategic factor markets, using economic logic (Demsetz, 1973) to propose that gaining resources at an advantageous cost must come down to either differing expectations (preexisting heterogeneity, especially in information) or luck. Therefore, resources are only a source of economic rents when they are not fully tradeable. Barney (1986a) concluded that internal analysis of one’s resources is a more likely path to economic rents than external analysis of industry conditions. Peteraf (1993) formalized the necessary conditions for resource-based economic rents as superior (heterogeneous) resources, ex post limits to competition (i.e., isolating mechanisms), imperfect resource mobility, and ex ante limits to competition (i.e., differing expectations under uncertainty). The mechanisms for imperfect resource mobility were explicated by Dierickx and Cool (1989). Along with causal ambiguity, they explain additional barriers to imitation: time compression diseconomies (related to learning curves; Lieberman, 1987), interconnected asset stocks (also called cospecialized assets; Teece, 1986), and asset mass efficiencies (e.g., R&D know-how creates absorptive capacity for further learning; Cohen & Levinthal, 1990). Dierickx & Cool (1989) also discuss the possibility of asset erosion and causal ambiguity about not only the function of resources, but also the process of their accumulation, pointing toward later, more dynamic variations of resource-based logic.

Next, a highly influential paper by Barney (1991) summarized the conditions for resource-based sustainable competitive advantage (SCA) through a concise framework: value, rareness, imperfect imitability, and non-substitutability (VRIN). This paper has been cited over 14,000 times (Web of Science). Barney later amended the framework to combine imitability and substitutability, adding organization (VRIO) to exploit the resource as the fourth factor (Barney, 1995). A resource or capability which is valuable, but not rare, can only bring the firm to competitive parity, at best. Value and rareness, with appropriate organization, can yield temporary competitive advantage. But only if all four conditions are met can the firm generate SCA from its resources. Barney’s (1991) framework brought together the earlier insights from multiple authors, clearly linking barriers to imitation (i.e., isolating mechanisms [Peteraf, 1993]) with sustainable competitive advantage. Other typologies (e.g., Black & Boal, 1994), descriptions of resource characteristics (e.g., Amit & Schoemaker, 1993; Grant, 1991), and clarifications of how the RBV relates to economic theories of the firm (e.g., Conner, 1991) further enriched this approach.

Major Extensions

As with the RBV in general, the development of the “knowledge-based view” (KBV) came through contributions from several authors. Building on Polanyi’s (1966) distinction between codified and tacit knowledge, Kogut and Zander (1992) describe the firm as a knowledge-bearing entity which acts as a social community. Since the knowledge developed in the firm is partially tacit and usually socially complex, knowledge is the quintessential resource that meets the VRIO criteria. Zander and Kogut (1995) further explicated five dimensions of knowledge: codifiability, teachability, complexity, system dependence, and product observability. A key distinction within statements of the KBV is whether knowledge is constructed at the collective level (Spender, 1996) or exists at the individual level, requiring organizational learning and integration capabilities to support a strategy (Grant, 1996a).

The literature on dynamic capabilities also highlights combinative capabilities (Kogut & Zander, 1992), while elaborating on other capabilities that can build or alter resources or operational capabilities, especially in environments with rapid change (Grant, 1996b). Definitions and exemplars of dynamic capabilities differ somewhat across seminal papers by Teece et al. (1997), Eisenhardt and Martin (2000), and Winter (2003). Some of the dynamic capabilities literature emphasizes the dynamics of markets, which require firms to use such capabilities; while other literature emphasizes the endogenous change that such capabilities enable, even to the point of enacting the environment. However, the core logic is consistent, and fits well within the RBV. Firms develop dynamic capabilities over time in a path-dependent manner, and constantly employ them to update their resources and activities. The complexity of these capabilities makes it difficult for competitors to understand or imitate them.

The third major extension of the RBV explains that resources and capabilities can be jointly developed, controlled, and used by firms in cooperative relationships. This “relational view” maintains a focus on internal operations, but allows more than one firm to share those operations. Dyer and Singh (1998) theorize that inter-organizational competitive advantage can come from relationship-specific assets, routines for extensive knowledge exchange, complementary and scarce resources or capabilities, and governance mechanisms that reduce transaction costs. The relational view has provided a bridge for more sociological explanations to influence the RBV (e.g., Gulati, 1999). The approach is consistent with Eisenhardt and Schoonhoven’s (1996) resource-based explanation that alliance formation arises from the combination of strategic needs and social opportunities. A more comprehensive resource-based theory of strategic alliances is provided by Das and Teng (2000).

Empirical Applications

Scholars have employed the Resource-Based View (RBV) to study phenomena in business strategy, corporate strategy, and cooperative strategy. Here, I cite early papers on each topic. For single-business firms, some studies of sustainable competitive advantage (SCA) have considered tangible assets such as property or location (Miller & Shamsie, 1996). Greater emphasis has been placed on intangible assets, including knowledge and innovation gained through R&D (Henderson & Cockburn, 1994) and know-how in functions of manufacturing, marketing, or information technology (Brush & Artz, 1999; Li & Calantone, 1998). Human resources have been studied both in terms of HR systems and policies for the development of firm-specific human capital (Delaney & Huselid, 1996) and strategic leadership (Castanias & Helfat, 1991). For corporate strategy, resource-based logic has driven research on corporate diversification (Robins & Wiersema, 1995), mergers and acquisitions (Capron, 1999), restructuring and divestitures (Bergh, 1998), international diversification (Arora & Gambardella, 1997), and technological diversity (Miller, 2004). The study of relational resources has shed light on alliance formation (Mowery, Oxley, & Silverman, 1996), performance (Combs & Ketchen, 1999), and duration (Dussauge, Garrette, & Mitchell, 2000). Overall, a bibliometric analysis identified 42 core papers in the RBV, which were cited by 3,904 papers published between 1991 and 2001 (Acedo, Barroso, & Galan, 2006), and thousands more since 2001.

Critiques and Responses

The resource-based view (RBV) has been criticized on the basis of various concerns. See Kraaijenbrink et al. (2010) and Lockett et al. (2009) for more extensive analysis.

Several points of criticism concern the nature of resources. The broad definitions of resources in early RBV papers have been criticized as overly inclusive (Priem & Butler, 2001). Further, if every firm’s resources are unique, then comparisons, let alone generalizations from large-sample statistical analysis are impossible (Gibbert, 2006). Also, the types of resources most likely to support sustainable competitive advantage (SCA) (i.e., knowledge, reputation, or complex internal processes) will be difficult for researchers to observe (Godfrey & Hill, 1995). Finally, managers may have limited ability to control the sources of heterogeneity or even to effect change on the basis of resource-based logic, given imperfect property rights and uncertainty (Coff, 1999; McGuinness & Morgan, 2000).

In response to these criticisms about the nature of resources, some authors have acknowledged that not everything can be a strategic (Amit & Schoemaker, 1993) or critical resource (Wernerfelt, 1989). Also, heterogeneity does not have to imply uniqueness: firms could differ based on some quality of a resource measured on a continuum. While some empirical tests reinterpret common variables as proxies for resources (e.g., R&D, which is an input to organizational learning, not a direct measure of knowledge), other literature employs archival, observational, or survey methodology to assess well-defined resources or capabilities in a given setting (e.g., Henderson & Cockburn, 1994; Miller & Shamsie, 1996; Makri, Hitt, & Lane, 2010; Rawley & Simcoe, 2010; Wu, 2013). The main admonition of RBV proponents in this regard has been to improve theory and empirics through operationalization of key terms (Rouse & Daellenbach, 2002). The extensive empirical literature using RBV logic gives evidence that scholars seem to be able to define resources in a meaningful way and measure them to some extent, and Prahalad and Hamel’s (1990) explanation of core competence was widely embraced by corporate executives.

Regarding the paper by Barney (1991) laying out the resource characteristics of value, rareness, imperfect imitability, and non-substitutability, the strongest critique has been about value. Priem and Butler (2001) contend that (the use of) a resource can only be valuable if an economic actor outside the firm desires to pay for it. Therefore, the definition of value is exogenous to the RBV. If the resource itself is static (its characteristics do not change over time), then a resource-based SCA is only possible if markets are relatively stable. Furthermore, Priem and Butler (2001), among others, argue, it is a tautology to define competitive advantage as the condition of implementing a rare value-creating strategy while theorizing that the resources that create competitive advantage are those that are valuable and rare.

The defense by Peteraf and Barney (2003) exemplifies several aspects of response to this critique. First, they clarify terms, such as competitive advantage, for which multiple definitions existed by different authors (Powell, 2001). Second, they explain that valuable resources do not necessarily lead to competitive advantage, but only create potential for it. Third, they draw on the “value-price-cost” framework (Anderson & Narus, 1998) to distinguish between value creation and appropriation. Barney (2001) acknowledges that value is exogenous to resource-based explanations, while Makadok (2001) attempts to break the tautology by suggesting value is only revealed after the resource is deployed in the market, and Kraaijenbrek et al. (2010) suggest that a more subjective and socially defined view of value would help.

Other critiques highlight the boundaries of resource-based theory. First, it is possible to state the core propositions of the RBV (e.g., Barney & Arikan, 2001) without explaining how resource heterogeneity arises. Therefore, while resource-based research may explore the emergence of heterogeneity, it is not inherent to the theory itself. Second, VRIO (valuable, rare, costly to imitate, and organizationally enabled) resources are not a necessary condition for SCA; lasting differences in firm profitability can exist due to industry or national economic structure. Even at the resource level of analysis, uncertainty and sunk costs (e.g., as in bidding on mineral rights) can generate SCA in a set of initially homogeneous firms (Foss & Knudsen, 2003). Third, competitive advantage is not a sufficient condition for economic rents or above-normal returns, due to the principle of equifinality (Ray, Barney, & Muhanna, 2004). Rivals may have distinct resources that yield similar improvements in efficiency, which would be a case of resource substitutability. Yet even if rivals have different sources and realizations of improved efficiency—for instance, lower raw-material costs versus economies of scale in production—they could each have a (sustained) competitive advantage but no difference in overall cost or profits. Thus, superior financial performance does not necessarily imply the presence of VRIO resources, nor does the presence of VRIO resources guarantee superior financial performance.

Scholars writing in the RBV tradition tend to see these issues as opportunities to combine resource-based logic with theory at other levels of analysis, such as individual creativity, team production, industry structure, technology evolution, or legal systems. Along with extensive consideration of firm performance (Armstrong & Shimizu, 2007), the empirical RBV literature seeks to explain or predict firm behavior which might also reflect these non-resource-level factors. In this way, a particular study might test one step in the chain of causality, such as from a unique historical circumstance to persistent superior efficiency or reputation, without trying to link that advantage to financial performance.

A few other calls for refinement to resource-based theorizing and testing have come from scholars seeking to develop the RBV. Dierickx and Cool (1989) clarify that strategic factor markets are incomplete, and resources accumulated internally over time are particularly good candidates to support SCA. The literature on dynamic capabilities (Teece et al., 1997) recognizes the potential for change in both firm activities and industry conditions. Moreover, the capabilities literature highlights that complex bundles of resources, not standalone assets, are usually necessary to develop SCA (Newbert, 2008). Makadok (2001) distinguishes between resource-picking and capability-building and analyzes how they might interact in a single firm. Others explain the role of managers in resource recombination through activities of stabilizing, enriching, and pioneering (Sirmon, Hitt, & Ireland, 2007). Poor management can lead to erosion of capabilities or their imitation. Also, just as resource heterogeneity and immobility can lead to sustained advantage, it can also lead to long-term disadvantage; the converse of core competence (Prahalad & Hamel, 1990) is core rigidity, being locked in to resources with low value (Leonard-Barton, 1992).

Suggestions for Use

The resource-based view is best considered a “research program” (Lado, Boyd, Wright, & Kroll, 2006) or “metatheory” (Levitas & Ndofor, 2006) involving the core assumptions of resource heterogeneity and imperfect mobility, not a single theory or a paradigm. A resource-based theory can incorporate various additional assumptions, levels of analysis, or logic from complementary theories, and seek to explain or predict various outcomes. Thus, the persistence of the terminology “resource-based view” (RBV) rather than “resource-based theory” (RBT) reflects not only inertia in language, but also an appreciation of the rich ground which the core assumptions provide for research. There is no single resource-based theory, but many are possible. Based on the responses to critiques of the RBV and exemplary studies in the literature, paying attention to the following steps will help to ensure the development of sound and useful resource-based research.

First, define assumptions about decision-makers and their thought processes. Most of the RBV literature fits into Organizational Economics, recognizing bounded rationality, asymmetric information, transaction costs, and limitations to optimal contracting. The knowledge-based view (KBV) is more explicitly behavioral and process-oriented (Hoskisson et al., 1999), often eschewing any consideration of opportunism. Instead, KBV research highlights issues in replication or transfer of tacit knowledge and the possibility of satisficing in the process of knowledge search. Some variations of dynamic capabilities reasoning incorporate a stronger role for the subjective judgment of managers. For example, managers may have mental models or a “dominant logic” (Prahalad & Bettis, 1986) that they apply or adjust depending on their assessment of internal and external factors. Other assumptions about individual and group decision-making—common cognitive biases, the psychology of learning, creativity, negotiation—can provide microfoundations to strengthen resource-based theory.

Second, define the objective of the firm: temporary competitive advantage, sustainable competitive advantage, economic rents, survival, or some other conception of performance. What is an appropriate measure for the objective? If relative to competitors, how are competitors defined? If it is “long term,” then over what length of time should the performance be measured? Resource-based theory does not have to accept the standard business-school goal of maximizing shareholder value. Organizations with an express purpose of benefiting multiple stakeholders still need to compete, and can have resources or capabilities, as well as products, that differ from those of other organizations. Even if the theory is meant to explain strategic behavior, rather than performance, there must be an account of why that behavior would be selected, involving both behavioral assumptions and an objective.

Third, a closely related subject is the nature of economic equilibrium, or the lack of it. Are there barriers to entry or imitation that exist outside the firm’s own efforts? Do managers expect that if they build a strategy on a superior capability, the market will stay consistent enough for that strategy to work years later? Some theoretical treatments of resource-based logic using non-cooperative (e.g., Grahovac & Miller, 2009) or cooperative game theory (e.g., Adner & Zemsky, 2006; Lippman & Rumelt, 2003) clarify definitions, objectives, the structure of markets, and the nature of competition. While such parsimonious precision may not be possible for a large-scale empirical study, such a study can at least be internally consistent with a neoclassical, evolutionary, or subjectivist economic approach, or a more behavioral one.

Fourth, develop a theory for the particular context. Generalizability is not the ultimate goal of any single RBV study, because resources and their characteristics can only be clearly valued and measured in a particular setting. Thus, findings need to be aggregated and compared across settings to build the overall research program. Ultimately, research on intangible, inimitable resources requires process-based case studies, returning the field of strategic management to its roots. Thus, RBV research may be better approached from a critical realist or constructivist perspective than a positivist philosophy of science (Miller & Tsang, 2011; Mir & Watson, 2000; Tsang & Kwan, 1999). A theory of sustainable competitive advantage for the particular context could mean paying attention to operationalizing each part of VRIO (value, rareness, imitability and substitutability, and organization) and how those parts interact. For instance, value might derive from R&D to create a product feature favored by consumers, or from improved efficiency in manufacturing. This distinction has implications for imitability: the internal process may be more causally ambiguous, whereas the same product feature that increases willingness-to-pay might be achievable through a substitute capability. Further, if the industry is already an oligopoly because other resources are rare, the adoption of a resource with greater value-creation potential would induce rivals to be willing to pay more to imitate that resource, so value, rareness, and imitability are intrinsically tied (Grahovac & Miller, 2009). For small firms, organization may be primarily owner/manager attention to the capability, while for large firms, whether a resource is fully utilized depends more on organizational structure. Constructs and variables need not be generalizable across contexts. Note that the VRIO framework is multiplicative, not additive: all four parts must be satisfied for sustainability. However, reviews of the empirical RBV literature have generally found most papers focus on either value or imitability; rareness is implied by barriers to imitation (Crook et al., 2008), and organization is often assumed.

Fifth, evaluate endogeneity directly. The RBV explains that managers play an active role in selecting and using resources and capabilities, resulting in strong path-dependence. Therefore, any sample of firms with variation in a resource will not capture random assignment of resources to firms. To evaluate the relationship between the quantity or quality of a resource and firm performance (or other outcomes), one must take into account the likelihood of the firm having that resource (Masten, 1993). Since both resources themselves and the decision processes behind their accumulation are often unobservable, dealing with endogeneity is a primary challenge for empirical research in the RBV. Note that controlling for endogeneity through the use of longitudinal data and statistical methods (e.g., Heckman selection equations or propensity scores) is necessary not only to establish the direction of causality between constructs, but also to accurately assess the magnitude and sign of the correlations themselves. For instance, resource-based literature on diversification uses various techniques to evaluate both the possibility of endogeneity from feedback loops (i.e., better performance facilitating further diversification) and possible spurious relationships; questioning whether there is a significant performance effect of diversification at all, on average (e.g., Villalonga, 2004; Miller, 2006). In a related manner, Bayesian techniques allow researchers to evaluate each firm’s decision as unique, more fully incorporating known heterogeneity (e.g., Mackey, Barney, & Dotson, 2017). These techniques answer the question “What should a given firm do?” rather than “What should the average firm do?” Empirical studies in the RBV have moved away from simple regressions of performance on measures of resources, and toward systems of equations incorporating latent factors, self-selection, and instrumental variables to control for endogeneity.

Sixth, employ resource-based logic with other theories. Broadly speaking, the RBV is a firm-level theory. Thus, factors at other levels of analysis can create important contingencies in the relationships between resources/capabilities and competitive advantage or economic rents. Empirical research employing resource-based logic has incorporated national, industry, strategic group, dyad, network, and corporate parent levels of analysis. Early on, Amit and Schoemaker (1993) noted the importance of adjusting the performance variables in RBV studies for industry, and dummy variables for other levels of analysis are common. More interesting is research that develops the logic of how the internal and external factors interrelate. There are also levels of analysis within firms, such as teams, individuals, or various stakeholders. These micro levels of analysis particularly shed light on who appropriates the value created in a firm (e.g., Coff, 1999). Cooperative game theory is another approach by means of which to explain value appropriation, with economic actors defined at various levels of analysis (e.g., Adegbesan, 2009; Lippman & Rumelt, 2003). Another broad characterization of the RBV is that it explains what happens to resources and because of resources, but does not necessarily explain why a firm has those particular resources. One opportunity for new combinations of theory comes from the intersection of RBV with literature on entrepreneurship and creativity. Insights about the origin of resources can especially help to define what it means for a resource to be non-substitutable. Another opportunity is to link RBV logic with a specific theory of the firm. Gibbons (2005) formalizes four such theories based around transaction costs (with rent-seeking), property rights, incentive systems, and adaptation. In particular, the KBV meshes well with Transaction Cost Economics, since knowledge is difficult to trade without revealing it to another party (e.g., Argyres & Zenger, 2012; Silverman, 1999). Property rights theory fits with management of tangible resources (e.g., Kim & Mahoney, 2005), while dynamic capabilities align well with incentive systems and adaptation theories (e.g., Teece, 2007). Attempts to define the RBV (or KBV) as a theory of the firm itself (Conner, 1991; Conner & Prahalad, 1996; Grant, 1996a) have not been widely accepted (e.g., Foss, 1996; Mahoney, 2001). Likewise, since strategic management is an eclectic field, it is unlikely that anyone will build a grand, unified theory of competitive advantage with resources as the foundation. Instead, it is possible that many different contributions will develop, adopting various theoretical perspectives in conjunction with the core assumptions and insights of the RBV.

Further Reading

Armstrong, C. E., & Shimizu, K. (2007). A review of approaches to empirical research on the resource-based view of the firm. Journal of Management, 33, 959–986.Find this resource:

Barney, J. B. (1986a). Strategic factor markets: Expectations, luck, and business strategy. Management Science, 32(10), 1231–1241.Find this resource:

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.Find this resource:

Barney, J. B., & Arikan, A. M. (2001). The resource-based view: Origins and implications. In M. A. Hitt, R. E. Freeman, & J. S. Harrison (Eds.), The Blackwell Handbook of Strategic Management (pp. 124–188). Oxford, U.K.: Blackwell.Find this resource:

Dyer, J., & Singh, H. (1998). The relational view: Cooperative strategy and sources of inter-organizational competitive advantage. Academy of Management Review, 23(4), 660–679.Find this resource:

Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21(10–11) (Special Issue), 1105–1121.Find this resource:

Grant, R. M. (1996). Toward a knowledge-based theory of the firm. Strategic Management Journal, 17 (Winter Special Issue), 109–122.Find this resource:

Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: Capability lifecycles. Strategic Management Journal, 24, 997–1010.Find this resource:

Kraaijenbrink, J., Spender, J.-C., & Groen, A. J. (2010). The resource-based view: A review and assessment of its critiques. Journal of Management, 36(1), 349–372.Find this resource:

Lippman, S. A., & Rumelt, R. P. (1982). Uncertain imitability: An analysis of interfirm differences in efficiency under competition. The Bell Journal of Economics, 13(2), 418–438.Find this resource:

Lockett, A., Thompson, S., & Morgenstern, U. (2009). The development of the resource-based view of the firm: A critical appraisal. International Journal of Management Reviews, 11, 9–28.Find this resource:

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Peteraf, M. A., & Barney, J. B. (2003). Unraveling the resource-based tangle. Managerial and Decision Economics, 24, 309–323.Find this resource:

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Priem, R. L., & Butler, J. E. (2001). Is the resource-based “view” a useful perspective for strategic management research? Academy of Management Review, 26(1), 22–40.Find this resource:

Spender, J. C. (1996). Making knowledge the basis of a dynamic theory of the firm. Strategic Management Journal, 17(Winter Special Issue), 109–122.Find this resource:

Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.Find this resource:

Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal 5(2), 171–180.Find this resource:

Winter, S. G. (2003). Understanding dynamic capabilities. Strategic Management Journal, 24 (October Special Issue), 991–995.Find this resource:

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