Explicating resource-based view critiques from a competitive heterogeneity perspective

Explicating resource-based view

critiques from a competitive

heterogeneity perspective

Author: Kevin Rommen (S4072294)

Course: MOR-005 - Project Designing Research

Contact information: [email protected] / 00 31 (0)6 4390 5126

mailto:[email protected]

mailto:[email protected]

Introduction

Whether resource based view is applicable to the field of strategic management or not we can

definitely state that this view had, and still has an enormous impact in the field over the last 25

years. Many papers were, and still are, written about the subject either critiquing, improving or

extending the view. Hoopes, Madsen and Walker (2003) state that resource-based view is

powerful within the conceptual landscape and by looking at the critiques made by among others

Kraaijenbrink, Spender and Aard (2010), Hoopes et al. (2003), Priem & Butler (2001) and Makadok

(2001) we see that a problem regarding resource-based view generally lies in translating

resource-based view from a conceptual model to an applicable theory.

The resource-based theory of competitive advantage received stiff critiques during the years,

and research discovered several weaknesses. By incorporating resource-based view into

competitive heterogeneity we’ll try to weaken common critiques and strengthen the

applicability of resource-based view in creating sustainable competitive advantage.

The problem statement can be redefined in these subquestions:

Can competitive heterogeneity, or other concepts within competitive heterogeneity, weaken

common critiques regarding resource-based view?

Does competitive heterogeneity provide a solid base for translating resource-based view from

a conceptual model towards practical applicability?

Can resource-based view be seen as an integral part of competitive heterogeneity as theory

for sustainable competitive advantage?

Competitive Heterogeneity

Exploring all ins and outs of competitive heterogeneity is out of the scope of this paper. Specifically

we want to examine if parts of competitive heterogeneity can supplement the resource-based view

and ultimately strengthen its position as a firm and applicable view within the theory of

competitive heterogeneity for which Hoopes et al. (2003) paved the way.

Hoopes et. al (2003) and Hoopes, Madsen (2008) define competitive heterogeneity as “Like the

RBV, competitive heterogeneity refers to enduring and systematic performance differences among

close rivals” (2003, p. 890). Hoopes et al. (2003) also believe that resource-based view is merely

one of the explanations which causes intra-industry differences, a view supported by Helfat and

Peteraf (2003), and suggest that a perspective beyond resource-based view can improve general

understanding of the competitive differences within close rivals. Competitive heterogeneity uses

the VPC-framework (value, price and cost), which a bargaining model. This results in the

possibility for defining superior performance independently from resources and capabilities. This

2 Explicating resource based view critiques from a competitive heterogeneity perspective

of a product, which in terms delivers a certain value (V) to the buyer and also costs (C) the supplier

an amount to product (Hoopes et al., 2003). To summarize, whoever has the highest value and the

lowest costs has an advantage over its competitors. Furthermore, as illustrated in the example in

Hoopes et al. (2003), this also derives into the fact that a “resource or capability is only valuable

when it increases the difference between value and cost (V-C) relative to that achieved by

rivals” (Hoopes et al., 2008, p. 396).

Competitive heterogeneity provides us with a general view which, in contrast to resource-based

view, doesn’t limit itself due to its assumptions and definitions. An interesting point is that

competitive heterogeneity can contain multiple opposing concepts which can work together within

a VPC-framework.

The VPC-framework can incorporate other concepts like dynamic capabilities, firm evolution and

industry evolution (Hoopes et al., 2003). This is an important expansion because this implies the

causal relationship between other factors which can influence the strive for sustainable

competitive advantage, a problem we’ll see in the critiques regarding resource-based view. To

conclude competitive heterogeneity can lead to sustainable competitive advantage in multiple

ways, and the resource-based view is one of them (Hoopes et al., 2003).

Resource-based view

Barney (1991) is taking a complete new approach to reach sustainable competitive advantage. He

is changing important assumptions, thus giving resource-based view a complete new position

opposite to the work of, for example, Porter (1980, 1985). The resource-based view assumes that

one, organizations can differ in the recourses they control and two, resources maybe not

transferable between these organizations. In other words resources are heterogenous and

immobile.

The resource-based view states that sustainable competitive advantage is accomplished not by

looking from an outside-in perspective, the environment of an organization according to the

weaknesses, strengths opportunities and threats, but by looking from an inside-out perspective,

the attributes of an organization. (Barney, 1991; Porter 1980,1985). Within the resource-based

view Barney (1991) changes the emphasis from an environmental view into an emphasis on the

attributes of the organization. Resource-based view can be seen as a framework which emphasizes

the relationship between resource heterogeneity & immobility towards sustainable competitive

advantage (Barney, 1991). However Hoopes, Madsen and Walker (2003) criticize that the resource-

based view doesn’t provide tangible translations for operationalizing the theory and furthermore

many researchers consider the resource-based view to be a tautology (Priem & Butler, 2001;


Bromiley and Fleming, 2002; Foss, Knudsen and Montgomery, 1995). These are some of the

critiques which resource-based view faces and are amongst other a source for the inapplicability of

the view.

1) The RBV has no managerial implications (Kraaijenbrink et al., 2010)

Because Barney (1991) states that resource-based view is a framework for defining the

relationship between heterogeneity & immobility and sustainable competitive, or in other

words trying to explain competitive advantage between close rival firms, “and, as such, was

never intended to provide managerial prescriptions” (Kraaijenbrink et al., 2010, p. 352).

Furthermore Barney (2001) explains that resource-based view can be used in different ways,

combining different related papers according to the empirical context of the organization under

research. So the lack of workable guidelines can be refuted.

The fact that this can be refuted doesn’t strengthen or improve the position at all, this is mere

gentlemen’s battle over who is “right”. So even when this argument is refuted, resource-based

view still has complications regarding managerial implications. An issue which from a competitive

heterogeneity perspective can be refuted and even solved. The VPC-framework offers a dynamic

growth cycle for firms to improve their market position (Hoopes et al (2003), i.e. gain sustainable

competitive advantage. The resource-based view acts as a control-mechanism within this

perspective.

2) The RBV implies infinite regress (Kraaijenbrink et al., 2010)

Realizing that the theory of resource-based view is ultimately aimed at creating sustainable

competitive advantage within organizations, and not a “positivistic quest for certainty-for the

ultimate source of sustainable competitive advantage” (Kraaijenbrink et al., 2010, p. 352)

refutes the critique of infinite regress. Depending on the view regarding capabilities, where

from a practical management perspective the interaction between capabilities is more

interesting than the hierarchal order perspective, resource-based view it’s infinite regress is

inapplicable.

The theory of resource-based view lacks a degree of dynamics, most researchers look at resource-

based view from a static perspective. However, competitive advantage, disadvantage and also the

environment changes over time. The resource-based view must incorporate the time aspects

regarding resources and capabilities (Helfat et al., 2003). This perspective of continuous change

contradicts infinite regress.

3) The RBV’s applicability is too limited (Kraaijenbrink et al., 2010)

Arguments that resource-based view cannot be generalized, applies only to large organizations,


and that sustainable competitive advantage resources are expensive to acquire in the first place

are refuted from different viewpoints. Kraaijenbrink et al. (2010) refute the critiques regarding

applicability by stating that they are either “being overly academic”, “diluted whenever non-

tangible resources are admitted” and “that every firm’s past shapes its present and future

performance”, respectively.

Even though these critiques can be refuted Barney (2002) indicates that the applicability of

resource-based view is bounded by the “rules of the game” within an industry. These “rules” need

to be relatively fixed, when this is not the case sustainable competitive advantage needs to be

explained beyond the resource-based view. From this we can derive that resource-based view

indeed could be proven useful as part of a larger theory. Then constraints opposing resource-based

view can be dealt with by other concepts, other parts of the general theory where resource-based

view is merely part of. Important to realize that this doesn’t change resource-based view on a

theoretical level, but other concepts can fill the gaps. The many papers written on extending the

resource-based view (Hoopes et al., 2003 & 2008; Helfat et al., 2003; Makadok, 2001; Lavie,

2006; Felin and Hesterly, 2007)

4) SCA is not achievable (Kraaijenbrink et al., 2010)

Because organizations are continuously changing and innovating the marketplace it is

suggested that sustainable competitive advantage isn’t achievable. Kraaijenbrink et al. (2010)

indeed agree that long term sustainable competitive advantage can’t last forever, but they also

mention that just that dynamic instinct can trigger sustainable competitive advantage in the

short run. Hereby emphasizing the goal of sustainable competitive advantage leading to an

overrun of the “natural” timing of an industry. Resource-based view thus plays the role of

improving innovation or slowing imitation.

Kraaijenbrink (2010) his reasoning claims that the strive for long term sustainable competitive

advantage aims the managers into the right direction and emphasizes the need to beat the

“market’s natural timing”. This implies a dynamic environment in which organizations reside, and

therefore requires resource-based view to incorporate this dynamic in order to reach a state pf

sustainable competitive advantage. Dynamic capabilities need to be continuously changed,

extended, improved, created and protected in order to flow with that changing environment

(Teece, 2007). From a competitive heterogeneity viewpoint other variables, i.e. differences

between close rivals, can be pointed out which influence the timeframe for sustainable competitive

advantage. Different examples of these variables, as pointed out in Hoopes et al. (2003), are

network relationships and market segmentation (loyalty, switching costs, etc).


Logically not all resources are capable of delivering sustainable competitive advantage and Barney

(1991) describes different important attributes that a specific resources needs tot have in order to

be applicable in sustainable competitive advantage:

Value resources

In order to be a potential interesting resource which will lead the organization towards sustainable

competitive advantage it’s important that the resource is valuable, i.e. the resource will lead to

more efficiency or effectivity within the organization. If not the resource lacks the possession to

improve the organization in any way (Barney, 1991).

Rare resources

When a resource is not rare and can be easily duplicated within the industry, the possibility of a

homogenous situation is created. Therefore some, especially as many, of the resources of the

company should be rare. When not, other organizations can conceive the same strategy; hereby

diminishing the sustainable competitive advantage (Barney, 1991).

Imperfectly imitable resources

Even though when resources are both rare and valuable its important that other organizations

cannot obtain or even posses the same resources. They have to be imperfectly imitable, which can

have a single reason or have a combination of three reasons. Barney (1991) calls these reasons:

unique historical conditions, causal ambiguity and socially complex. He states that resources are

amongst others also based upon the history of an organization and the specific place in time that

this gives the organization. These resources cannot be imitated due to the fact that other

organizations have another space and place in time. If the link between sustainable competitive

advantage and resources isn’t understood this lead to another reason for imperfectly imitation.

Without this understanding duplication of the situation is practically impossible. Lastly social

complexity is an important which makes resources imperfectly imitable, this means that resources

can be a socially complex phenomenon. Examples of a social complex phenomenon are corporate

culture, interpersonal relationships, traditions, etc. (Barney, 1991)

Substitutability

Barney (1991) describes one last important attribute for resources to be applicable towards gaining

sustainable competitive advantage. The requirement is that a resource cannot be substituted for

another equivalent of this resource. An equivalent of an resource can inevitably conceive, however

with different resources, the same strategy and thereby undermining the desired sustainable

competitive advantage.


5) VRIN/O is neither necessary nor sufficient for SCA (Kraaijenbrink et al., 2010)

This critique is one of the first which is more challenging to refute, but which in the future must

be in order for the resource-based view to sustain an important role within the field. This

critique comes in twofold, bearing both a sufficiency issue and a necessity issue. Where

resource-based view states that resources lead to sustainable competitive advantage when

those resources are VRIN/O. However, empirical support for this view is lacking. That is the first

sufficiency issue at hand. Furthermore the sufficiency side of this critique states that having

VRIN/O resources doesn’t automatically lead to sustainable competitive advantage, next to

VRIN/O resources organizations must be able to deploy these resources.

When incorporating resource-based view within a theory of competitive advantage

more empirical research could be accounted for, due to the fact that empirical research

at this moment implies other factors to influence sustainable competitive advantage.

Competitive advantage incorporates among others dynamic capabilities, industry

evolution & industry evolution (Hoopes et al., 2003) which account for some of the

factors which current empirical research couldn’t account for. Also the deployment of

these resources is an influence to sustainable competitive advantage, which is further

elaborated and proved by Adner and Helfat (2003). They define as follows: “Dynamic

managerial capabilities are the capabilities with which managers build, integrate, and

reconfigure organizational resources and competences.” (Adner et al., 2003, p. 1012).

6) The value of a resource is too indeterminate to provide for useful theory (Kraaijenbrink et

al., 2010)

Kraaijenbrink et al. (2010) conclude that resource-based view can be best seen as a heuristic

instead of a theory. The definitions of value and resource are tautological in its explanations

and therefore we cannot fully understand and interpret resource-based view, because we

cannot test statements which are true by definition.

When we put resource-based view as part of competitive heterogeneity, thus incorporating it with

the VPC-framework the critique on resources would be solved. There the value of a resource is

defined as “only valuable when it increases the difference between value and cost (V-C) relative to

that achieved by rivals” (Hoopes et al., 2008, p. 396).

7) The definition of resource is unworkable (Kraaijenbrink et al., 2010)

The inclusiveness of the definition of resource strengthens the tautology perspective of

resource-based view and thereby weakening it.


Firm resources include 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. (Barney, 1991, p. 101)

This over-inclusive definition of resource makes it impossible to derive whether a resource is an

input for the organization or a resource is a process within the organization which uses that

input. Next to that, there is no distinction in types of resources which can differ in contribution

towards competitive sustainable advantage.

While the definition of resources could be seen as over-inclusive, this can also be one of

the strengths of the resource-based view (Barney, 2001). However, this does not mean

every single resource has to be equally strong in improving efficiency and effectiveness.

Furthermore the strength of a resource also changes, as too the environment changes.

One important distinction, the one between resource and capability, is necessary to

make (Makadok, 2001; Helfat et al., 2003). This is defined by Amit and Schoemaker

(1993, p. 35).

Capabilities, in contrast, refer to a firm’s capacity to deploy Resources, usually in combination, using

organizational processes, to effect a desired end. They are information-based, tangible or intangible

processes that are firm-specific and are developed over time through complex interactions among the

firm’s Resources. They can abstractly be thought of as ‘intermediate goods’ generated by the firm to

provide enhanced productivity of its Resources, as well as strategic flexibility and protection for its final

product or service. [italics in the original]

While still mostly unclear, the relationship between resources and capabilities within resource-

based view and competitive heterogeneity is extremely important. Especially in case of

incorporating resource-based view and dynamic capabilities with each other.

Conclusion & Discussion

In this paper we’ve investigated if common critiques regarding the resource-based view could be

weakened or even refuted, thereby strengthening its position, when placed within another

context; this context being competitive heterogeneity as a global theory of reaching sustainable

competitive advantage. Hoopes et al. (2003) paved the way in for this idea in their paper “Why is

there a resource-based view? Toward a theory of competitive advantage”.

Can competitive heterogeneity, or other concepts within competitive heterogeneity, weaken

common critiques regarding resource-based view? We can definitely state that concepts within

competitive heterogeneity have a positive impact on the critiques regarding resource-based view.


We can determinate, through the VPC-framework, the value of a resource and find that dynamic

capabilities are necessary to keep up with an ever-changing environment. To conclude competitive

heterogeneity is more than capable of weakening critiques regarding resource-based view. Does

competitive heterogeneity provide a solid base for translating resource-based view from a

conceptual model towards practical applicability? Especially through the growth cycle competitive

heterogeneity provides a tangible mechanism which is applicable. When combined resource-based

view acts as a monitoring and controlling mechanism, there is action and reaction between both

competitive heterogeneity and resource-based view. While this doesn’t intrinsically change

resource-based view it does provide a way of applicably working with resource-based view.

Can resource-based view be seen as an integral part of competitive heterogeneity as theory for

sustainable competitive advantage? Within this paper we can conclude that different critiques can

be weakened from the perspective of competitive heterogeneity and deriving from that there does

appear to be a causal relationship between the two, however to further research is needed. While

competitive heterogeneity ”shows great talent” we cannot take a shortcut, there’s still research

that needs to be done into this perspective proving if a theory of competitive heterogeneity is even

possible. For example, the implications of dynamic managerial capabilities viewpoint (Adner et al.,

2003) should be explored. Only by building on the view by Hoopes et al.(2003) which is

empirically tested in Hoopes et al. (2008), creating a conceptual theory and finally testing that

theory with empirical research the viewpoints of this paper can be truly tested.

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Explicating resource-based view critiques from a competitive heterogeneity perspective