RBV: Issues and Perspectives

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The Resource - Based View (RBV): Issues and Perspectives.

Pankaj M Madhani

Asst. Professor, ICFAI Business School (IBS), Ahmedabad, India

Executive Summary

Resource based view (RBV) focuses on the concept of difficult-toimitate attributes of the firm

as sources of superior performance and competitive advantage (Barney, 1986; Hamel and

Prahalad, 1996). Resources that cannot be easily transferred or purchased, that require an

extended learning curve or a major change in the organization climate and culture, are morelikely to be unique to the organization and, therefore, more difficult to imitate by competitors.

The RBV has been useful in identifying the basis by which the resources and capabilities of a

firm serve as sources of sustained competitive advantage (e.g., Wernerfelt, 1984; Barney, 1991;Peteraf, 1993). As such, resources and capabilities are fundamental underpinnings of any source

of advantage (Rumelt, Schendel, & Teece, 1991). Valuable resources are termed strategic assets(Barney, 1991; Amit & Schoemaker, 1993). The RBV asserts that ownership and control ofstrategic assets determines which organizations will earn superior profits and enjoy a position of

competitive advantage over others.

The RBV deals with competitive business environment faced by firms but take an inside-out

approach i.e. it starts with analysis of firms internal environment. As such RBV is often

considered as an alternate to Porters five force model. The RBV emphasizes internal resourcesand capabilities of firm in formulating strategy to achieve sustainable competitive advantages in

the market place. Internal resources and capabilities determine strategic choices made by firms

while competing in its external business environment. Firms abilities also allow some firms to

add value in customer value chain, develop new products or expand in new market place. Whenfirms capabilities are considered as paramount in the creation of competitive advantages, it will

focus on reconfiguration of value chain activities. This is necessary as it provides opportunity to

identify the capabilities within value chain activities which provide it with competitiveadvantages. The RBV draws upon the resources and capabilities that reside within the

organizations in order to develop sustainable competitive advantages. Resources may be

considered as inputs that enable firms to carry out its activities.

According to RBV, not all the resources of firm will be strategic resources and hence sources of

competitive advantage. Competitive advantage occurs only when there is a situation of resourceheterogeneity (different resources across firms) and resource immobility (the inability of

competing firms to obtain resources from other firms)._____________________________________________________________________________

Madhani, P. M. (2010), The Resource - Based View (RBV): Issues and Perspectives.,PACE,A Journal of Research of Prestige Institute of Management, Vol. 1, No. 1, pp. 43-55, January

2010.


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If the resource is not perfectly mobile (i.e., the resource is not free to move between firms, or if a

firm without a resource faces a considerable cost burden in developing, acquiring or using it, thata firm already using it does not), then the resource is likely to be a source of sustained

competitive advantage. If a resource is imitated or substituted then any advantages gained may

be short lived. In short, the more mobile a resource is, the less sustained the advantage gainedfrom that resource will be. In this current era of fast changing globalized world, if an

organization is able to change swiftly and be more alert to changes in the competitive market,

then they are more likely to gain and sustain competitive advantage.

Keywords: Resource Based View, Market Based View, Dynamic Capabilities, Strategy


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The Resource - Based View (RBV): Issues and Perspectives.

Pankaj M Madhani

Asst. Professor, ICFAI Business School (IBS), Ahmedabad, India

Introduction

Resource based view (RBV) deals with competitive business environment faced by firms buttake an inside-out approach i.e. it starts with analysis of firms internal environment. As such

RBV is often considered as an alternate to Porters five force model. The RBV emphasizes

internal resources and capabilities of firm in formulating strategy to achieve sustainablecompetitive advantages in the market place. Internal resources and capabilities determine

strategic choices made by firms while competing in its external business environment. Firms

abilities also allow some firms to add value in customer value chain, develop new products orexpand in new market place. When firms capabilities are considered as paramount in the

creation of competitive advantages, it will focus on reconfiguration of value chain activities. This

is necessary as it provides opportunity to identify the capabilities within value chain activitieswhich provide it with competitive advantages. The RBV draws upon the resources and

capabilities that reside within the organizations in order to develop sustainable competitive

advantages. Resources may be considered as inputs that enable firms to carry out its activities.

Foundation of Resource Based ViewThe RBV analyze and interpret resources of the organizations to understand how organizations

achieve sustainable competitive advantage. The RBV focuses on the concept of difficult-to-imitate attributes of the firm as sources of superior performance and competitive advantage

(Barney, 1986; Hamel and Prahalad, 1996). Resources that cannot be easily transferred or

purchased, that require an extended learning curve or a major change in the organization climate

and culture, are more likely to be unique to the organization and, therefore, more difficult toimitate by competitors. According to Conner, performance variance between firms depends on

its possession of unique inputs and capabilities (1991).

The RBV takes an inside-out view or firm specific perspective on why organizations succeed

or fail in the market place (Dicksen, 1996). Resources that are valuable, rare, inimitable and nonsubstitutable (Barney, 1991) make it possible for businesses to develop and maintain competitive

advantages, to utilize these resources and competitive advantages for superior performance

(Collis & Montgomery, 1995; Grant, 1991; Wernerfelt, 1984). According to RBV, an

organization can be considered as a collection of physical resources, human resources andorganizational resources (Barney, 1991; Amit and Shoemaker, 1993). Resources of organizations

that are valuable, rare, imperfectly imitable and imperfectly substitutable are main source ofsustainable competitive advantage for sustained superior performance (Barney, 1991).______________________________________________________________________________

Madhani, P. M. (2010), The Resource - Based View (RBV): Issues and Perspectives.,PACE,

A Journal of Research of Prestige Institute of Management, Vol. 1, No. 1, pp. 43-55, January2010.


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A resource must fulfill VRIN criteria in order to provide competitive advantage and sustainable

performance. A VRIN criterion is explained below.

1. Valuable (V): Resources are valuable if it provides strategic value to the firm. Resources

provide value if it helps firms in exploiting market opportunities or helps in reducing

market threats. There is no advantage of possessing a resource if it does not add orenhance value of the firm;

2. Rare (R): Resources must be difficult to find among the existing and potentialcompetitors of the firm. Hence resources must be rare or unique to offer competitive

advantages. Resources that are possessed by a several firms in the market place cannot

provide competitive advantage, as they can not design and execute a unique businessstrategy in comparison with other competitors;

3. Imperfect imitability (I): Imperfect imitability or inimitability means making copy or

imitate the resources will not be feasible. Bottlenecks for imperfect imitability can be

many viz. difficulties in acquiring resource, ambiguous relationship between capabilityand competitive advantage or complexity of resources. Resources can be basis of

sustained competitive advantage only if firms that do not hold these resources cannotacquire them;

4. Non-substitutability (N): Non-substitutability of resources implies that resources cant besubstituted by another alternative resource. Here, competitor cant achieve same

performance by replacing resources with other alternative resources.

According to Barney valuable resource must enable a firm to do things and behave in ways that

lead to high sales, low costs, high margins, or in others ways add financial value to the firm

(1986, 658). Barney also emphasized that resources are valuable when they enable a firm toconceive of or implement strategies that improve its efficiency and effectiveness (1991, 105).

RBV helps managers of firms to understand why competences can be perceived as a firms most

important asset and, at the same time, to appreciate how those assets can be used to improve

business performance. RBV of the firm accepts that attributes related to past experiences,organizational culture and competences are critical for the success of the firm (Campbell and

Luchs, 1997; Hamel and Prahalad, 1996). Annexure- I provides brief outline of prior work on

RBV.

Resource Based View: Types of Resources and Capabilities

According to RBV, resources can be broadly defined to include assets, organizational processes,firm attributes, information, or knowledge controlled by the firm which can be used to conceive

of and implement their strategies (Learned, Christensen, Andrews, & Guth, 1969; Daft, 1983;

Barney, 1991; Mata et al., 1995). Examples of resources are brand names, technological abilities,efficient procedures, among others (Wernerfelt, 1984; Olavarrieta & Ellinger, 1997; Spanos &

Lioukas, 2001). Other researchers have classified different resources as tangible and intangible

(Itami & Roehl, 1987; Hall, 1992; Hall, 1993). When identifying resources, several researchershave grouped specific types of resources that may enable firms to conceive and implement value


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creating business strategies (e.g., Hitt & Ireland, 1985; Grant, 1991; Amit & Schoemaker, 1993;

Black & Boal, 1994; Bogaert, Maertens, & Van Cauwenbergh, 1994; Wade & Hulland, 2004).

Barney (1991) categorises three types of resources:

1. Physical capital resources (physical, technological, plant and equipment),

2.

Human capital resources (training, experience, insights) and3. Organizational capital resources (formal structure).

Brumagim (1994) presents a hierarchy of resources with four different levels of corporateresources;

1. Production/maintenance resources (considered the most basic or lowest level),

2. Administrative resources,3.

Organizational learning resources, and

4. Strategic vision resources (considered the most advanced or the highest level).

All firms possess a wide spectrum of resources and capabilities. For better understanding of

resources it is necessary to distinguish such varied resources. One useful approach for suchclassification is to group resources in two categories viz. tangible resources and intangible

resources (Table 1).

Table 1: Types of Resources and Capabilities

Tangible resources and capabilities

Resources Examples

Financial - Ability to generate internal funds

- Ability to raise external capital

Physical - Location of plants, machines, offices, and their

geographic locations- Access to raw materials and distribution channels

Technological - Possession of patents, trademarks,copyrights, and trade secrets

Organizational - Formal planning, command, and control systems- Integrated management information systems

Intangible resources and capabilities

Resources Examples

Human - Managerial talents

- Organizational culture

Innovation - Research and development (R & D) capabilities to

innovate new product, process and services- Capacities for organizational innovation and change

Reputational - Perceptions of product quality, durability, andreliability among customers

- Successful product branding and positioning with


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satisfied and loyal customer base- Reputation as a good employer

- Reputation as a socially responsible corporate citizen

(Sources: Compiled by author; Adapted from (1) J. Barney, 1991, Firm resources and sustained

competitive advantage, Journal of Management, 17: 101; (2) R. Hall, 1992, The strategicanalysis of intangible resources, Strategic Management Journal, 13: 135-144.)

Identification of Resources and Capabilities: A Strategy for Sustainable Competitive

Advantages

The RBV has been useful in identifying the basis by which the resources and capabilities of a

firm serve as sources of sustained competitive advantage (e.g., Wernerfelt, 1984; Barney, 1991;Peteraf, 1993). As such, resources and capabilities are fundamental underpinnings of any source

of advantage (Rumelt, Schendel, & Teece, 1991). Valuable resources are termed strategic assets

(Barney, 1991; Amit & Schoemaker, 1993). The RBV asserts that ownership and control of

strategic assets determines which organizations will earn superior profits and enjoy a position ofcompetitive advantage over others. Three major questions are asked of resources to identify the

impact they have:

1. Is the resource or capability valuable?

2. Is it heterogeneously distributed across competing firms?3.

Is it imperfectly mobile?

As shown in Figure 1, it is only when the three questions are confirmed that a sustainedcompetitive advantage is likely to be gained.


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(Source: Chart developed by author - Adapted from Mata et al., 1995)

Figure 1: Identification of Resources and Capabilities

The question of a resources value is generally confirmed in two ways. First, if a resource is usedto reduce a firms cost it can be seen as valuable (low cost resources). Second, if a resource is

used to increase a firms revenue it can be seen as valuable (differentiated resources). As such,

valuable resources may be used to implement new strategies to improve efficiency andeffectiveness (Barney, 1991), improve customer satisfaction (Bogner & Thomas, 1994; Verdin &

Williamson, 1994), or reduce cost (in relation to competitors) (Barney, 1986; Peteraf, 1993). In

essence, a resource is valuable if it helps an organization to improve its performance relative totheir competitors. If the resource meets these conditions the second question is examined. If not,

and the resource is exploited, at worst, a competitive disadvantage may be gained this is

because the resource is not valuable to the organization.

YesNo

Is it heterogeneously

distributed across

competing firms?

Yes

SustainedCompetitive

Advantage

Is itimperfectly

mobile?

YesNo

No

TemporaryCompetitive

Advantage

Competitive

Disadvantage

Competitive

Parity

Is a resource

or capability

valuable?


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The second question regarding the distribution of a resource examines whether the given

valuable resource is freely available. If the resource is freely available to all firms, then a

competitive parity may be gained, allowing the firm to have the same resources as itscompetitors. However, if it is not freely available (heterogeneously distributed), then the

resource may be a source of competitive advantage (given the third question). While some firms

may enjoy resource based advantages (due to their resource base) others will be in a position ofresource based disadvantage (Michalisin et al., 1997). Put another way, the resource

heterogeneity implies that firms have varying capabilities. Therefore, firms with marginal

resources can expect to breakeven, while firms with superior resources should expect to earnrents (Peteraf, 1993). The differences in firm resource endowments can be attributed to several

factors: the time the firm enters the marketplace, different sets of knowledge, products and

systems of learning, as well as decision made over time (Helfat, 2000).

The third and final question measures the degree of competitive advantage which may be gained

from the given resource. This is achieved by questioning the mobility or inimitability of a

resource. If the resource is perfectly mobile then the resource is likely to be only a source of

temporary competitive advantage, at best (Mata et al., 1995). This temporary nature is attributedto the advantage because the resource could, due to its mobile nature, change hands. Michalisin

et al. (1997) states that since a firms advantage is based on a firm having strategic assets that aresuperior to ones competitors, therefore, the ability to sustain the advantage is a function of the

heterogeneity of such resources.

Barney (1991) defines sustained competitive advantage as a non-duplicatable advantage. This

follows from Lippman and Rumelts (1982) and Rumelts (1984) definitions that outline a

sustained competitive advantage as an advantage that continues to hold after efforts of others toduplicate the advantage have ceased (Barney, 1991). Barneys (1991) definition of sustained

competitive advantage does not mean it will last forever. Rather, it suggests that it will not be

competed away or easily duplicated by the efforts of others (Barney, 1991).

Barney states that sustained advantages may be challenged when unanticipated changes in the

economic structure of an industry occur. Such unanticipated changes therefore, can make what

was a source of sustained advantage no longer a source of advantage. Rumelt & Wensley (1981),and Barney (1997) call these unanticipated changes Schumpeterian Shocks. Therefore, a firm

enjoying a sustained competitive advantage when faced with a Schumpeterian Shock may

experience a major shift in the nature of competition and any sources of sustained competitiveadvantage may be nullified. A sustained competitive advantage may only be made when

resources are strategic and valuable, are heterogeneously distributed and imperfectly mobile and

firms should sustain the advantage notwithstanding periods of Schumpeterian Shock.

Resource Based View (RBV) Vs Market Based View (MBV)

The resource based view (RBV) is a way of viewing the firm and consecutively of imminent

strategy. The resource based view (RBV) was popularized by Hamel and Prahalad in their book

Competing for the Future (1996). RBV considers the firm as a bundle of resources. Theseresources, and the way that they are combined, make firms different from one another and in turn


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allow a firm gain competitive advantage. This concept of RBV is quite different from the

traditional Market Based View (MBV). According to MBV perspective, firms are considered as

fairly homogenous and driving force for market competition is marketing efforts of competingfirms in terms of marketing mix strategy. Further, according to MBV, identifying alternative

market as characterized by Michael Porters five forces model is major strategic issue. MBV

does not take into account whether firm is in position to exploit available market opportunity i.e.whether firms have enough resource and capabilities to compete in the market place.

RBV in Changing Environment: Dynamic CapabilitiesAs market is dynamic, firms resources also need to change over a period of time to make them

relevant to changing market condition. This perspective is based on the dynamic capabilities and

is outcome of RBV (Teece, Pisano, & Shuen, 1997). Dynamic capabilities have been defined asfirms processes that use resources specifically the processes to integrate, reconfigure, gain, and

release resources. While RBV primarily concentrates on types of resources and capabilities for

its strategic importance, the dynamic capability concentrates on how these resources and

capabilities need to change or update over a period of time to keep their relevance in the

changing market place.

The RBV considered resources and competencies as static that can be pointed as stationary atcertain time frame work and will remain so over a period of time also. The focal point is that

when firms are having resources that are valuable, rare, inimitable and non substitutable, it

enables firms to develop value enhancing strategies that are not easily copied by competing firms(Barney, 1991; Conner & Prahalad, 1996; Peteraf, 1993; Wernerfelt, 1984). However in this era

of dynamic economy, there is need for firms to build up new capabilities or competencies for

sustaining such competitive advantage. (Teece, Pisano & Schuen, 1997). Dynamic capabilitiesthus are the organizational processes or strategic routines by which firms develops new

configuration for updating resources as per market requirement (Eisenhardt & Martin, 2000).

Such dynamic capabilities require that organizations establish processes that enable them tochange their routines, services, products, and even markets over time.

The dynamic capabilities approach, examines competitive advantage in the globalized

environment of rapid market change. In such dynamic marketplaces, where the competitiveenvironment is rapidly changing, managers of firms need to develop capabilities embedded in the

firm which are based on sequences of path dependant learning in order to achieve periods of

competitive advantage (Teece et al., 1997; Eisenhardt & Martin, 2000; Miller, 2003). Dynamiccapabilities are strategic and organizational processes like product development and strategic

decision making that create value for firms by manipulating resources inherent with firms

(Eisenhardt & Martin, 2000, p 1106). Winter (2003) views dynamic capabilities as process ofextending, modifying, or creating new capabilities. The key differential between ordinary

capabilities and those that are dynamic is that dynamic capabilities are linked with change and

more particularly, changing the resource base of a firm (Collis, 1994; Winter, 2003).

The RBV, MBV and dynamic capabilities perspective all focus on different unit of analysis and

degree of change as shown in Figure 2. Initially to cope up with market forces, MBV wasconceptualized, subsequently focus shifted to RBV. Finally, to respond to challenges of ever


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changing globalized world, concept of Dynamic Capabilities became popular. This transition is

shown by direction of arrow in Figure 2.

(Source: Model Developed by Author)

Figure 2: Characteristics of RBV, MBV and Dynamic Capabilities

The dynamic capabilities approach is especially relevant today when global competitive forces

are changing landscapes of industries. In this globalized environment ways of achievingcompetitive advantage are changing fast. As such, firms in this marketplace need to have timely

strategies, flexible infrastructures, and an ability to utilize resources and capabilities in coupledand innovate ways (Teece et al., 1997). Therefore, in contrast to traditional RBV assumptionscompetitive advantages gained in the dynamic marketplace may be based on capabilities, which

have greater homogeneity and substitutability across firms (Eisenhardt & Martin, 2000).

Competitive advantages achieved through dynamic capabilities are therefore based on the abilityto change the resource base of the firm. This means dynamic capabilities alter resource bases by

creating, integrating, recombining, and releasing resources (Eisenhardt & Martin, 2000).

Dynamic capabilities have been tightly coupled with a dynamic or rapidly changing environment

(Teece et al., 1997; Sher & Lee, 2004). However, Zahra et al. (2006) also discuss the

applicability of such capabilities in non dynamic marketplaces and suggest that while

organizations which operate in more dynamic marketplaces would gain greater value fromdynamic capabilities; it does not exclude organizations in slower to change marketplaces from

gaining value from dynamic capabilities.

Research MethodologyThe basic methodological approach used in this paper involves design of a framework for

examining the values generated by marketers by leveraging RBV. As discussed earlier, Barney

Unit of Analysis

ResourceBased

View

MarketBased

View

Dynamic

Capabilities

Degree

of

Change

Dynamic

Static

FirmMarket

Market

Forces


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(1991) argued that to gain sustainable competitive advantage, firms must possess resources and

capabilities that have four essential characteristics, namely, valuable, non-substitutable, rare, and

inimitable. The key thrust of marketing is to gain competitive advantage in the market place, butthere has been little formal and systematic study of how the marketing mix strategy can be a

source of sustainable competitive advantage for the firm.

The objective of research methodology presented here is to study the sources of competitive

advantage from the perspective of the firms marketing strategy. The aim is to develop an

integrated framework that links the elements of the marketing mix with the strategicmanagement concept of sources of competitive advantage and the resource characteristics of

valuable, non-substitutable, rare, and inimitable. Thus, the key research question addressed here

is how should a firm design its marketing mix (of product, price, place and promotion) in orderthat the firms overall marketing offering becomes a source of sustainable competitive advantage

for the firm?

A valuable resource means that they allow a firm to create or implement strategies that improve

their efficiency or effectiveness of market offering. A non-substitutable resource means thatthere must be no strategically equivalent valuable resources that could be substituted for the

existing resources. Rare resources imply that the firms target customers regard the marketingoffering as unique and no other rival is perceived to offer the same or similar bundle of benefits

to the customers. Inimitable means that the firms marketing offering cannot be copied by its

rivals. Inimitability helps in sustaining rarity over time.

The research framework proposed in this paper is shown in Figure 3. According to Figure 3, the

two dimensions of the framework are called marketing resources and market outcomerespectively. The framework links the characteristics of the firms marketing strategy based on

marketing resources with its market outcomes. It shows how the resource diversity in marketing

strategy influences the different levels of outcomes in the organization. Each dimension of theframework is further divided into two levels. The two levels of marketing offering are valuable /

appropriable andrare /inimitable. These reflect the characteristics that the firms resources and

capabilities should possess in order to be a source of sustainable competitive advantage for the

firm. The two levels of market outcome are firm level advantage and sustainable competitiveadvantages.

As the firms marketing resources and capabilities progressively improve from being valuableand non-substitutable to rare and inimitable, its market outcome is correspondingly enhanced

from mere firm level advantage at the lowest level, to sustainable competitive advantage at the

highest level. Thus, the level of market outcome that is attained by the firm depends critically onthe quality of its marketing resources and capabilities. Conversely, depending on the set

objectives, firms can configure their marketing resources and capabilities to achieve the desired

level of market outcome.

Finally, the upward pointing arrow with positive slope in the Figure 3 indicates that as the firm

enhances its resources and capabilities, there is a corresponding improvement in the firmsmarket outcome. That is, the level of market outcome is a function of the characteristics of


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Table 2 below explains value of edges of cube with interpretation in terms of resources.

Table 2: Value of edges of cube with interpretation in terms of resources

Value Interpretation

1-1-1 Lack of advantages

1-9-1 Unproductive Rare and inimitable resources

1-1-9 Unproductive Valuable and Non- Substitutable resources1-9-9 Unproductive overall resources

9-1-1 Unsustainable firm level advantages

9-9-1 Differentiated competitive advantages

9-1-9 Unsustainable firm level advantages

9-9-9 Overall sustainable competitive advantages

(Source: Model developed by author)

Marketing activities are designed to enhance customer value proposition and ensure long term

customer loyalty. Marketing strategy focuses on activities that enable the organization to gaincompetitive advantages. The concepts of valuable, non-substitutable, rare and inimitable that are

developed in the RBV literature for the firms resources and capabilities can therefore beusefully adapted to analyze and evaluate the firms marketing initiatives. The basic aim of this

framework is to apply these concepts to analyze the firms marketing strategy and to understand

how the marketing mix can be designed to have the characteristics of valuable, non-substitutable,rare and inimitable resources and become a source of sustainable competitive advantages for the

Market

OutcomeValuable andNon-

Substitutable

resources

Rare and

inimitable

resources

1-1-1

1-9-1

1-9-9

9-1-1

1-1-9

9-9-1

9-9-9

Figure - 5: Marketing Resources and Market Outcome - CUBE Model(Source: Model developed by author)

1

4

9

9

4

1

4 19

Firm level

Advantages

Sustainable

Competitive

Advantages

9-1-9


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firm. The firm must seek innovative ways of configuring the various elements of the marketing

mix strategy supported by resources of the firm so that its new marketing offerings are perceived

to be different in order to sustain its unique position. That is why; the firm must have a systemicprogram of continuous innovation and a continual passion to reconfigure the marketing mix in

new and ingenious ways.

Limitations of the RBVLimitations of the RBV can be grouped into following three main areas

1:

1. The vagueness of terminology associated with the RBV,2. The tautological nature of some of the views underlying assumptions,

3. Methodological issues.

Vagueness of terminology

The lack of commonality of terms with RBV research has received a lot of criticism in the

literature (e.g., Foss, 1998; Williamson, 1999; Fahy, 2000; Priem & Butler, 2001; Montealegre,

2002; Rugman & Verbeke, 2002; Foss & Knudsen, 2003; Hoopes et al., 2003; Wade & Hulland,

2004). Collis (1994) and others (e.g., Coates & McDermott, 2002; Ray et al., 2004) describe thenumber of definitions as vast. The use of different terminology to explain results of RBV studies

makes it very difficult to compare the results of various studies. For example, while someresearchers outline distinct meanings for the core terms; resources, competencies, and

capabilities (e.g., Helfat & Peteraf, 2003), other researchers use the terms interchangeably (e.g.,

Ray et al., 2004). Nanda (1996) suggests that the lack of commonality of terms limits theusefulness of results of RBV research to strategic thinking. Conner comments that since

everything in a firm may be seen as a resource resources lose (their) explanatory power (1991,

p 145). Similarly, Hax and Wilde (2001) suggest a significant limitation of RBV research is thevagueness of the theory.

Tautological natureAnother significant assessment of the RBV is that the view is essentially a tautology (Porter,

1991; Foss, Knudsen, & Montgomery, 1995; Mosakowski & McKelvey, 1997; Priem & Butler,

2001; Bromiley & Fleming, 2002) in nature. Porter claims that at its worst, the resource based

view is circular (1991, p 108). The researchers also challenge the premise of the RBVsuggesting that the view seems to assume what it seeks to explain (Hoopes et al., 2003, p 891).

Furthermore, the researchers posit that the lack of clarity about core aspects of the RBV impede

the development of theory and fruitful debate.

Methodological issues

Each of the studies of resources and firm performance vary substantially in terms of themethodology employed and the way the RBV research is designed. Rouse and Daellenbach

(1999) question the strong bias towards quantitative research methods suggesting that such a

methodology is not appropriate for RBV research in general. The researchers suggest that thenature of advantages in organizations should be firm based and complex and, as such, qualitative

1Karyn Chri S Tine Rastrick, http://adt.waikato.ac.nz/uploads/approved/adt-uow20080115.215153/public/04c..


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and field based methodologies are much appropriate. Chan (2000) supports this position

suggesting that the field of research may not be fully understood until more qualitative

contributions are added to the conversation.

Conclusion

According to RBV, not all the resources of firm will be strategic resources and hence sources ofcompetitive advantage. Competitive advantage occurs only when there is a situation of resource

heterogeneity (different resources across firms) and resource immobility (the inability of

competing firms to obtain resources from other firms). If the resource is not perfectly mobile (i.e.,the resource is not free to move between firms, or if a firm without a resource faces a

considerable cost burden in developing, acquiring or using it, that a firm already using it does

not), then the resource is likely to be a source of sustained competitive advantage. If a resource isimitated or substituted then any advantages gained may be short lived. In short, the more mobile

a resource is, the less sustained the advantage gained from that resource will be. In this current

era of fast changing globalized world, if an organization is able to change swiftly and be more

alert to changes in the competitive market, then they are more likely to gain and sustain

competitive advantage.


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ANNEXURE- I

Prior Research Study on the RBV

Authors (year) Major Contribution

Penrose (1959) Emphasizes the internal resources of a firm. Afirms growth is based on a firms resources and

limited by managerial resources

Andrews (1971) Emphases management of internal resources

Lippman and Rumelt (1982) Sustained competitive advantage results from rich

connections between uniqueness and causal

ambiguity

Wernerfelt (1984) Firms as bundles of resources

Rumelt (1984) Strategic theory of the firm based on the idea of

firms as resource bundles

Barney (1986) Characteristics of the factors market determine

possibilities for a firm to earn rentsRumelt (1987) Firms as rent-seekers. The importance of isolating

mechanisms to earn rents

Rumelt (1987), Dierickx and Cool

(1989)

Summary article on imitability barriers (e.g.,

causal ambiguity and isolating mechanisms likeasset interconnectedness, asset stock efficiencies,

etc.) that impede (or make very costly) imitation

from other competitors

Day and Wensley (1988), Aaker

(1989), Grant (1991), Wernerfelt(1989)

Strategic formulation models that have firm

resources as the central concept and as the sourcesof sustainable competitive advantage

Prahalad and Hamel (1990) Core-competencies as the drivers of corporatestrategy and diversification.

Business should exploit and leverage corecompetencies. Corporations should diversify in

related businesses which can make use and

enhance the core competences of the organization

Hansen and Wernerfelt (1989),

Rumelt (1991)

Empirical studies that support the hypothesis that

firm-specific resources or organizational factorsare more important than industry variables for

explaining firm superior performance

Barney (1991) Key strategic resources can be sources of strategic

competitive advantage if they are scarce, difficultto imitate, non-substitutable, and valuable

Conner (1991) Comparison of the resource based theory of the

firm with other strategic approaches derived fromeconomics. Clarification of assumptions of the

resource based theory and its implication for rent

earning strategies


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Peteraf (1993) An integrative resource based framework forstrategic competitive advantage. Proposes that

firms obtain superior performance, by earning

rents from scarce and efficient resources and/orform market power in the product markets

Day (1994) Capabilities framework of strategic competitiveadvantage. Distinguishes between outside-in,

spanning and inside-out capabilities

Collis and Montgomery (1995) Managerially-oriented review of the RBV

Grant (1996) Knowledge based view develops considering

knowledge as the key or strategic asset of firms

Teece, Pisano, and Shuen (1997) Dynamic capabilities as sources of competitive

advantage

(Source: Compiled by author; Adapted from Olavarrieta & Ellinger, 1997; Mahoney, 2004)


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