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Explicating resource-based view 
critiques from a competitive heterogeneity perspective
 

Explicating resource-based view 
critiques from a competitive heterogeneity perspective

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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 ...

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.

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    Explicating resource-based view 
critiques from a competitive heterogeneity perspective Explicating resource-based view 
critiques from a competitive heterogeneity perspective Document Transcript

    • Explicating resource-based view critiques from a competitive heterogeneity perspective Author: Kevin Rommen (S4072294) Course: MOR-005 - Project Designing Research Contact information: info@kevinrommen.nl / 00 31 (0)6 4390 5126
    • 2 Explicating resource based view critiques from a competitive heterogeneity perspective 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
    • 3 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;
    • 4 Explicating resource based view critiques from a competitive heterogeneity perspective 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,
    • 5 Explicating resource based view critiques from a competitive heterogeneity perspective 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).
    • 6 Explicating resource based view critiques from a competitive heterogeneity perspective 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.
    • 7 Explicating resource based view critiques from a competitive heterogeneity perspective 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.
    • 8 Explicating resource based view critiques from a competitive heterogeneity perspective 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.
    • 9 Explicating resource based view critiques from a competitive heterogeneity perspective 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. References Adner, R. and Helfat, C. (2003). “Corporate effects and dynamic managerial capabilities,” Strategic Management Journal, 24, 1011-1025. Amit R. and Schoemaker P.J.H. (1993). “Strategic assets and organizational rent,” Strategic Management Journal 14(1), 33–46. Barney, Jay B. (1986). “Organizational culture: Can it be a source of sustained competitive advantage?,” Academy of Management Review, 11(3), 656-665. Barney, Jay B. (1991). “Firm Resources and Sustained Competitive Advantage,” Journal of Management, 17(1), 99-120. Barney, Jay B. (2001). “Resource-Based Theories of Competitive Advantage: A Ten-Year Retrospective on the Resource-Based View,” Journal of Management, 27(6), 643-650. Bromiley P. and Fleming L. (2002). “The resource-based view of strategy: a behavioral critique,” Change, Choice and Organization: Essays in memory of Richard M. Cyert, Augier M, March JG (eds). Edward Elgar: Cheltenham, 319-336
    • 10 Explicating resource based view critiques from a competitive heterogeneity perspective Felin T. and Hesterly W.S. (2007). “The knowledge-based view, nested heterogeneity, and new value creation: philosophical considerations on the locus of knowledge,” Academy of Management Review 32 (1), 195–218. Foss NJ, Knudsen C, Montgomery CA. (1995). “An exploration of common ground: integrating evolutionary and strategic theories of the firm,” In Montgomery CA, Resource-Based and Evolutionary Theories of the Firm: Towards a Synthesis, (1-18). Norwell: Kluwer. Helfat, C. E. and Peteraf, M. A. (2003). “The dynamic resource-based view: Capability lifecycles,” Strategic Management Journal, 24, 997-1010. Hoopes, David G., Madsen, Tammy L., and Walker, Gordon. (2003). “Guest Editors’ Introduction to the Special Issue: Why is There a Resource Based View? Toward a Theory of Competitive Heterogeneity,” Strategic Management Journal, 24(10), 889-902. Hoopes, David G and Madsen, Tammy L. (2008). “A capability-based view of competitive heterogeneity,” Industrial and Corporate Change 17(3), 393–426. Lavie D. (2006). “The competitive advantage of interconnected firms: an extension of the resource- based view,” Academy of Management Review 31(3), 638–658. Kraaijenbrink, Jeroen, Spender, J.-C. and Groen, Aard J. (2010). “The Resource-Based View: A Review and Assessment,” Journal of Management, 36(1), 349-372. Makadok R. (2001). “Towards a synthesis of resource-based and dynamic capability views of rent creation,” Strategic Management Journal 22(5), 387-402. Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press. Porter, M. E. (1985). Competitive advantage. New York: Free Press. Priem R.L. and Butler J.E. (2001). “Is the resource-based 'view' a useful perspective for strategic management research?,” Academy of Management Review 26, 22-40. Teece, D. J. (2007). “Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance,” Strategic Management Journal, 28, 1319–1350.