BA 591 – Longitudinal Strategy Jim EmeryProf. Mitchell

Summary of Barney’s “Firm Resources and Sustained Competitive Advantage”

Core Idea / Focus Resource-based view (RBV) is used to explain and explore sources of firm competitive

advantage. Specifically, Barney develops a framework identifying the factors that can allow resource heterogeneity and immobility to create sustained competitive advantage1 (see Figure 1 below)

Figure 1

Strengths Provides an overview of where this work fits in relative to other strategy models (e.g.,

SWOT analysis) and addresses a few key concepts and assumptions to compare and contrast RBV with traditional strategy theory Two implicit assumptions of traditional theory include: 1) homogeneity among firms

(in terms of resources controlled and strategies pursued), and 2) high mobility of resources (presumably enabling high imitability of strategies)

The resource-based view relaxes these assumptions Does a good job defining the terminology and key concepts identified in his framework

(i.e., all the terms in Figure 1 are defined and, where appropriate, linkages to existing literature are identified)

Identifies opportunities for future research to test the causal relationships identified in his framework; Barney specifically develops 3 examples of how the framework might be applied to firm resources: 1) strategic planning (formal and informal), 2) information processing systems (particularly those systems deeply embedded in the firm’s formal and informal decision-making processes), and 3) positive reputation.

Barney concludes by establishing some linkages between RBV (and his framework) and other concerns and theories of economics and strategy (e.g., social welfare concerns, organization theory and behavior); he also contrasts his framework with the population ecology perspective (i.e., managers do matter in his framework).

Open Questions Barney’s paper is interesting and raises a number of practical questions, particularly with

respect to the issue of imperfect imitability. In the paper, Barney asserts that in order for a firm’s resource to hold the potential of sustained competitive advantage, it must have all four factors identified in the middle box of Figure 1 (pp. 105). Barney describes three factors that can contribute to imperfect imitability including: unique historical conditions,

1 Defined as a firm implementing a value creating strategy that is not simultaneously being implemented by current or potential competitors and when these other firms are unable to duplicate the benefits of the strategy.

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Firm Resource Heterogeneity

Firm Resource Immobility

ValueRarenessImperfect Imitability

- History Dependent- Causal Ambiguity- Social Complexity

Substitutability

Sustained Competitive Advantage

BA 591 – Longitudinal Strategy Jim EmeryProf. Mitchell

causal ambiguity, and social complexity. As a practical matter, many executives engaged in formal strategic planning today spend time trying to understand best practices of other firms (both within and outside of their industry) that are believed to contribute to sustained competitive advantage. Often the practical goal of this activity is to understand how the practice can be applied (i.e., imitated to some extent) within the organization conducting the planning. Yet if you believe Barney’s framework, you must conclude that those best practices that truly contribute to sustained competitive advantage cannot be accurately imitated (or even fully described). This has several potential implications including:

For Managers “best practice” imitation may be useful to avoid falling behind competitors, but it

will probably not provide a source of sustained advantage; and understanding the tangible success measures that customers apply to the products

of firms with sustained advantage may be more fruitful in developing firm-specific strategies that lead to sustained competitive advantage.

For Researchers imperfect imitability implies that sample sizes of firm resources contributing to

sustainable competitive advantage are likely to be very limited (i.e., 1?); and it may be interesting to consider the role of bounded rationality as it may

moderate the need to assume inimitability of a resource (e.g., if we assume that managers limit their search for best practices, could firms develop sustained competitive advantage simply by continually scanning and implementing best practices which cannot be imitated quickly enough by their competitors – perhaps itself an inimitable “rate of improvement” strategy).

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