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RBV and its value


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RBV and its value

  1. 1. Strat. Change 11: 307–316 (2002)Published online 25 June 2002 in Wiley InterScience( DOI: 10.1002/jsc.593The resource-based view of strategyand its value to practising managersTom Connor∗Luton Business School, The University of Luton, Luton, UK• A dominant theoretical paradigm in academic strategic management circles is the Resource-Based View (RBV). This paper reviews the literature of this position and the extent to which the RBV may be seen as a source of practical guidance for managers seeking competitive advantage and strategic success.• The theories of management academics should be of practical value to managers, otherwise such theories are of limited value. The test of the validity of theorizing about management is whether the theories produced help to improve the art of management. That is the criterion adopted in this paper.• The RBV is an ‘inside-out’ perspective, according to which, competitive success lies within the hands of managers themselves and it is from the point of view of practising managers that this paper examines competitiveness. Consequently, the assessment of the RBV will be a purely instrumental one. Does it help managers to manage better? Copyright  2002 John Wiley & Sons, Ltd.Introduction The literature of the resource-basedThe RBV is essentially an ‘inside-out’ view – a summaryapproach to developing successful strategy. The literature within the RBV is quite eclecticThe firm is not the reactor of the positioning with contributions from a variety of per-school but can find strategic success through spectives including organizational structuresthe acquisition, development and deploy- and cultures, managerial competence, tech-ment over time of scarce resources and skills nological capabilities and core competences.which are either unique in themselves or in In consequence, that body of literature thatthe way they are combined with other assets. describes the RBV is syncretic in nature andThe RBV claims its inspiration from classical a central theme is quite difficult to identify.microeconomics. It is the acumen and expe- However, this view broadly sees the resourcerience of managers and their ability to create endowment of a firm as the principal sourceunique advantages in the marketplace which of strategy options rather than constant repo-are difficult, if not impossible, for other firms sitioning in the face of shifts in the externalto emulate or compete away, which lay the environment. The resources of the firm willfoundations for value creation and sustained provide the basis for its survival and successcompetitive advantage. through time as external conditions in the environment change.* Correspondence to: Tom Connor, Luton Business A central thrust of the RBV is the con-School, The University of Luton, Putteridge Bury,Hitchin Road, Luton, Bedfordshire, LU2 8LE, UK. tribution of core competences as strategicE-mail: assets which will be the continuing source ofCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  2. 2. 308 Tom Connor view of strategy based upon industry per- A central thrust is the spectives. Vasconcellos and Hambrick (1989) contribution of core enrich this insight by pointing out that an industry-based approach to strategy, driven competences as by concepts of key success factors, would strategic assets not explain the heterogeneous range of firm strategies and performance asymmetries which we actually see. Thus profit perfor-new products and services through whatever mance is determined by the deployment offuture developments may take place in the firm resources and capabilities within themarket, which by their nature, are unknow- industry setting. The differing responses ofable. Thus the emphasis of the RBV approach managers will reflect a multitude of causesto strategic management decision-making is (largely the consequence of differing view-on the strategic capability of the firm rather points), uncertainty, confusion, bias, experi-than attempting to constantly ensure a per- ence, and other factors. (Kahneman, Slovic,fect environmental fit. According to McKier- and Tversky: 1982). This point is supportednan (1997): by Oliver (1997) who argues that decisions about strategy, even if based upon a ratio- The resource-based view has a long nal analysis of strategic assets, will actually history. The rich vein can be traced from be made in a distinctive institutional envi- Marshall (1890), through Coase (1937) ronment with its own norms and values. and Andrews (1949) to Penrose (1959). Hence, bounded rationality will to a large degree determine decision-making processes Although stemming from microeconomic and outcomes.theory, the tradition has departed from Collis (1994) believes that any advantagethe steady-state, diminishing returns to in the marketplace that might be enjoyed byscale model of the classical theory of the a firm will in fact, be competed away by afirm towards the difficult-to-model world competitor’s ‘higher-order capability’. Thus,of heterogeneous assets as the source market failure in strategic assets will be over-of growth and performance asymmetries come by other firms creating better strategicbetween firms. From a firm-level view the assets of their own. A key feature of Collis’sRBV approach sees the source of sustain- view is the great importance placed uponable competitive advantage proceeding from management itself as a strategic asset drivingthe possession and deployment of strategic the adaptability of firms and their ability toassets that demonstrate particular properties recognize market opportunities. This linksand characteristics that through market fail- with the importance of the idea of intangi-ure generate economic rents for successful ble assets as central to the RBV approach tocompanies. understanding competitive advantage. Tan- Powell (1996), in the tradition of Schmal- gible assets may be relatively easy to imitateansee (1985), Wernerfelt and Montgomery or acquire, but the real difficulty (market fail-(1988) and Rumelt (1991), demonstrated the ure) is encountered in the case of intangiblerelative importance of firm-level factors, as assets. Hall (1992) identified the importanceopposed to industry factors, in determining of such intangible assets as know-how, prod-the financial performance of the compa- uct reputation, culture and networks, innies he researched. This is fundamentally contributing to the overall success of a firm.opposed to the positioning paradigm asso- Hall (1992) saw these intangible assets asciated with Porter (1980). This stance is fundamental to the types of capability dif-reinforced by Amit and Schoemaker (1993) ferential identified by Coyne (1986) as thewho argue that success comes to managers basis for firm superiority. Thus, the asymme-with a company perspective rather than a tries of performance between heterogeneousCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  3. 3. The resource-based view of strategy 309firms are very much driven by the intangible Peteraf (1993), considering competitivestrategic assets. The intangible assets iden- strategy, sees the strategic assets as of bothtified by Stopford and Baden-Fuller (1994) tangible (technology) and intangible (capa-may essentially be defined as corporate bility) types. The heterogeneity of firms isentrepreneurship. These assets are exempli- the source of economic rents and this het-fied by proactiveness, striving aspirations, a erogeneity is largely path dependent. Inteamwork approach, dilemma resolution and this context, Makadok (2001) discusses thea learning capability. This view may be con- alternative approaches to rent creation ofsidered in much the same light as Collis’s ‘resource picking’ (acquisition) and ‘capabil-(1994) proposition of management itself as a ity building’ (organic development). Inter-strategic asset determining the firm’s ability estingly, the importance of path dependencyto recognise market opportunities. Lovas and as a causal explanation would mesh with theGhoshal (2000) hypothesize that evidence for equifinality emerging from the Jennings and Seaman conclusions. Implicit Firms that are able to choose strategic in the RBV is the idea of market failure initiatives which effectively exploit their and this leads Peteraf (1993) and Werner- existing human and social capital while, felt (1989) to the view that diversification is at the same time, facilitating the develop- the logical process at the corporate strat- ment of new, variable human and social egy level in the attempt to seek to earn capital, will perform better in the long run economic rents on potentially multiple-use than those that are not able to achieve resources which are in excess of the needs of this synergy between exploitation and core activities. This is consistent with Hamel creation. (1994) who speaks of the longevity and tran- This view is in a direct link with the ideas of scendence of core competences (intangibleDierickx and Cool (1989) who wrote of the strategic assets) and sees this as a basis, notaccumulation of strategic asset stocks over for product/market-specific strengths of thetime through consistent investment. The organization in a particular setting, but fordevelopment of strategic asset stocks is fur- the source of competitive products and ser-ther examined by Prencipe (2001). Jennings vices over time. This reflects the distinctionand Seaman (1994), using Hage’s (1965) between adaptation and adaptability, whichorganizational attribute typology, contend are quite different in any consideration of anthat the organization structure itself is pro- organization’s chances for evolutionary sur-posed as a key strategic asset, determining vival. This theme of adaptability is expandedthe extent to which the firm is capable of by Bogaert, Martens and Van Cauwenberghdelivering a selected strategy. Rather than (1994) who note the central role of managerssupporting the idea of establishing strategy deploying experience and game skill in fittingas a response to industry factors, they see the strategic assets to elusive and mutatingthe success or failure of strategy dependent environmental settings. The perceptivenessupon the selection of the correct organiza- of the actors (managers) in interpreting envi-tion structure, which is of greater significance ronmental signals is, therefore, an aspect ofthan the actual strategy selected, using in the tacit strategic asset of effective manage-their case, the Miles and Snow (1978) typol- ment itself and is redolent of Collis’s (1994)ogy. Their findings of no single best strategy ‘metaphysical strategic insights’. In this vein,but, on the contrary, support for the idea Krugman (1994) reminds us that frequentlyof equifinality, is a strong argument for the irrational phenomena, well understood byRBV, since this is a more intuitively attractive managers, can form the basis of strategicexplanation for the firm heterogeneity and value, reinforcing the insight into the roleperformance asymmetries actually observed. of managers in conditions of market fail-In other words decision makers are the archi- ure. An interesting variation on this themetects of their environments. is the idea of causal ambiguity. King andCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  4. 4. 310 Tom ConnorZeithaml (2001) argue the importance of to consider their findings with some degreecausal ambiguity from the viewpoint of not of caution, since a principal concern is theonly competitor firms but also of the focal basis of competitive advantage in contestablefirm. The reasoning is that causal ambiguity markets. In considering the current literatureis necessary not only to prevent managers of competences, Tampoe (1994) reminds usin other firms from understanding the link that although Parsons (1960) had pointedbetween resources and performance in the out over thirty years earlier that the dis-focal firm, but it is also necessary among tinctiveness of a firm was a function of itsmanagers within the focal firm itself so technical core, there was little detailed guid-that knowledge of causal links cannot be ance in the literature how an organizationexported intact from the focal firm. If this is might identify and deploy core competences.true then it would appear to be important Interestingly, Inkpen and Choudhurythat successful managers are not sure what (1995) consider that the absence of a for-they are doing right. This is augmented by mal or explicit business strategy can beWhittington’s (1994) view of the processual interpreted as a virtue if it reflects a stateapproach to understanding strategic manage- of constructive ambiguity underpinning anment processes, whereby managers create adaptive flexibility within the firm. For Ghe-value and advantage by deploying compe- mawat and Ricart i Costa (1993), the key totences and focusing on the imperfections of strategic advantage lies in the ability of theorganizational and market processes. Alvarez firm to use information to learn about theand Barney (2000) suggest that the inclusion possibilities for developing new products,of entrepreneurship as a class of inimitable processes, or capabilities as the substance ofstrategic asset will enhance the RBV. They dynamic efficiency. Again, this echoes Collis’shave in mind such management attributes as (1994) ‘metaphysical strategic insights’ andagility, creativity and fast decision making. also Baden-Fuller and Pitt’s (1996) view that According to Powell and Dent-Micallef the adaptive test of management lies in its(1997), assets should be composed into a ability ‘to recognize where markets will becomplementary bundle embedded in the tomorrow’. For Pettigrew and Whipp (1991),structure of the firm and its culture, which success will depend upon the ‘uncertain,accords with Powell (1995) and Hansen emergent and iterative process’ of the effec-and Wernerfelt (1989) who stress the tive management of change. For them this isgreater importance of embedded cultural the central intangible asset.and behavioural features rather than eco- Mahoney and Rajendran Pandian (1992),nomic or technical process factors, for the building on Penrose (1959), Hofer andexplanation of firm performance and inter- Schendel (1978) and Grant (1991a), holdfirm performance asymmetry. The comple- that the only long-term limitation onmentarity is the path-dependent form whichthe unique competence of the firm takes andthis reminds us of Robinson’s (1958) obser-vation of the ‘organic’ nature of the firm and The only long-termGrant’s (1991b) description of the charac- limitation on a firm’steristics of strategic assets, namely, durabil- growth potential is itsity, transparency, transferability, and repli- managementcability. Ramaswamy, Thomas and Litschert(1994) and Major and Van Wittleoostuijn resources(1996) researched highly regulated marketenvironments and found the importance ofmanagement and qualified labour as the key a firm’s growth potential is its manage-to business success. These were the princi- ment resources. The ‘Penrose effect’ (Marris,pal strategic assets. It is necessary though, 1963), in which firms are seen to experienceCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  5. 5. The resource-based view of strategy 311successive periods of growth and slowdown, of resources is central to the realization ofis explained in terms of the capacity of man- the value potential of strategic assets. It isagement to devote enough of itself to the this complementarity that Teece and Pisanopursuit of growth rather than maintaining the (1994) and Teece, Pisano and Shuen (1997)status quo. Thus, not only is management the have called ‘dynamic capabilities’, definedsource of growth, it can also be the source by Eisenhardt and Martin (2000) as:of stagnation. The strategic value of manage-ment is in its ability to adopt different styles at The antecedent organizational and strate-different stages of firm growth. This perspec- gic routines by which managers altertive is similar to that of Greiner (1972) who their resource base — acquire and shedconcluded that organizations should change resources, integrate them, and recombinemanagement style appropriately for succes- them — to generate new value-creatingsive phases of organizational growth. strategies (Grant, 1996; Pisano, 1994). The theme of managerial competence asthe key strategic asset is further propounded In effect this view sees the routines referredby Mehra (1996) for whom the deployment to as ‘best practice’ which itself may attractof assets (a management function) is more the criticism of being a post facto evaluation.important than the tangible resource endow- Barney and Griffin (1992) assert the dynamicments themselves. Greenley and Oktemgil nature of resources in organizations and(1996) consider the concept of ‘isolating provide their VRIO framework of assetmechanisms’ that they describe, in effect, rating: Value, Rareness, Inimitability andas the idiosyncratic competences of firms. Organizational orientation.These lead to a number of strategic bene-fits, principally entrepreneurial heterogene- Critique of the literatureity. Once again the role of managementcompetence and experience (Bogaert et al., The RBV is the attempt in recent years to1994) are uppermost in this view and with develop the original classical microeconomictheir idiosyncrasies, are seen centrally as theory of the firm in order to examineinimitable and non-tradeable assets. Oliver the vital behavioural features of the vari-(1997) cautions against the RBV as the sole ables embedded within it. The theory of thesource of our understanding of performance firm was seen as a non-dynamic, steady-stateasymmetry and argues that asset deployment model which, in itself, was not capable ofneeds to be seen in the context of insti- explaining the diverse nature of industriestutional features that may limit adaptability with heterogeneous firms and performanceand flexibility. However, it may be argued asymmetries that was evident in the world.that Oliver, in asserting the importance of It is important that the RBV is seen as thekey intangibles such as culture and manage- development of the theory of the firm, ratherment style, puts her own position well within than a replacement for it. Many of the writersthe RBV camp. in the classical tradition realized its imper- The importance of intangible assets is also fections as a model of reality, but they alsodiscussed by Black and Boal (1994). Their understood it as a powerful tool for analysingkey and important point is the need for the dynamics of competitive behaviour as astrategic assets to be combined in synergistic concept within the economist’s traditional,relationships. The assets may be present analytical framework.but unless the appropriate organizational In summary we can collect the variousdisposition and managerial awareness is characteristics of strategic assets as followspresent the synergy will not be acquired. This in Figure 1. The central message of theamplifies effectively, Oliver’s (1997) point RBV is that strategic assets are essentiallyabove and is in turn supported by Helfat intangible and therein lies the paradox. How(1997) who argues that the complementarity do managers recognise, define and shapeCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  6. 6. 312 Tom Connor success, would appear to be essentially Strategic assets — characteristics tautological, proffering the idea, in essence, Tangible More easily competed away that successful firms deploy assets superior Intangible Less easily competed away to those of less successful firms. The theory does little to advance us from the position Features of seeing strategic assets as accidents of • Inimitable history, which can be subsequently shown • Non-tradeable to have been the result of certain resource • Tacit • Durable strengths in combination with certain benign • Competence environmental conditions. Thus success is a • Capability • Institutional path-dependent phenomenon, the product • Complementarity of human imagination, creativity, luck and • Metaphysical insights adventitious environmental events. Thus, • Competitive advantage an internal rather than external paradigm we are driven to the conclusion that the usefulness of the RBV is of a descriptive ratherFigure 1. The principal characteristics of strategic than explanatory nature and as such does notassets within the RBV literature. equip strategists with practical competitive advantage-building propositions.the intangible? The features in Figure 1 Furthermore, the theory describes success-are either abstract nouns or adjectives ful organizations with market power that, byand provide little of a concrete nature definition, are likely to be a small proportionthat managers could use as a touchstone. of the corporate population. Managers inThese words are of a highly generalized smaller businesses that are not ‘big names’and qualitative nature and contain a vastly or industry leaders normally operate in adiverse range of potential meanings. It is fashion that is typically:this imprecision in terms that render realmeaning unascertainable. It is this largely • Operations and cost focusedrhetorical nature that may render the RBV • Customer drivenunusable in practical terms. • Reactive • Concerned with short-term results • Planned within a steady-state industryThe RBV and managers modelThe theory appears in many respects to bea means only of providing ex post facto (See, for example, Beaver and Jenningsanalysis and assessment of successful firms. 2000).The literature seems to offer little in the way In these circumstances the stimulus forof guidance to managers seeking to create management decision making is usuallystrategic assets. The theory says little about provided by external pressure which, inhow strategic assets are created or where combination with a probably price-elasticthey come from within an organization. It is demand function, would suggest that fornot possible from the argument of the RBV small businesses the idea of strategic assetsto look at a particular asset of a firm and to with their concomitant of market powerknow a priori whether that asset will prove is inappropriate. In the absence of marketin the future to be a strategic asset. power and facing a demand curve of The insights of the RBV would appear dominant buyers there appears little, if any,to require the endorsement of history for scope for such managers to pursue thetheir validation. The discussion of strategic creation of strategic assets as envisaged byassets within the literature takes them the RBV — even if the RBV were capable ofas a starting point and to this extent providing specific guidance in this respect.the RBV, as an explanation of strategic Our knowledge of the business world tellsCopyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  7. 7. The resource-based view of strategy 313us that there is a large class of firms that science. It must be said that further researchare successful in a modest way but with no is needed if we are to be able to define thesustainable long-term advantage in the form contexts within which the RBV as a partialof strategic assets. theory, is applicable. Without this it will not In a general sense the thrust of the RBV is to be possible to use the RBV systematically as astress the importance of diversity for poten- means of synthesis or a source of competitivetial strategic success. In effect it strongly prescriptions.suggests the reality of equifinality. Thus if Generally the RBV literature seems tomanagers can learn from the theory that raise more questions about the nature ofthere is no one best way to success then competitiveness and strategic success than itthis might prove to be a benefit. However, itmust be said that good managers have proba-bly always known this anyway. It is this pointthat probably encapsulates the essential para- The RBV literaturedox that appears to lie at the heart of the seems to raise moreRBV. The theory describes successful orga- questions than itnizations. Unsuccessful organizations are, by answersdefinition, unequipped with strategic assetsand managers in them would probably notknow how to use the descriptive insights ofthe RBV in a creative manner. answers. In particular, we are faced with the problem of an absence of any firm definition of the concept of competitiveness. To be ofConclusions use, a definition must be expressed in termsIn considering the RBV as a means of improv- of identifiable and measurable properties. Ifing corporate performance and understand- this is not the case, the definition, such asing the sources of corporate success it would it is, will merely be an imprecise assertionprobably be appropriate to conclude that it susceptible of a range of interpretations. Itsis ill-advised to bifurcate into environment- imprecision will render it of little, if any value,positioning-based and resource-based theo- in purposeful management discourse.ries. Each of these approaches combines with In conclusion, the RBV appears to leavethe other to provide an integrated under- unaddressed a number of key questions thatstanding of the process of seeking the highest may render it ineffective as a rubric forprobability of strategic success. In fact to use a practising managers. Such questions are:concept from the RBV, ‘metaphysical insight’as a strategic asset is the ability to understand • What determines strategic assets?in a special way the nature of the environ- • How do we recognize a strategic asset?ment and the future it potentially holds. • How do we plan to develop intangibleSpanos and Lioukas (2001) sensibly sug- strategic assets?gest that successful company performance • How do we assess the life span of a strategicis better explained by linking industry and asset?resource perspectives in combination ratherthan promoting one or the other approach For managers these are key questions relat-as the superior and complete explanation. ing to the fundamental issues of businessMcGuinness and Morgan (2000) have also performance and exemplify Tampoe’s (1994)cast doubt on the capacity of the RBV (or observation of the lack of detailed guidancedynamic capabilities approach as they pre- in the literature about the creation of strate-fer) to provide prescriptive help to managers. gic assets. It is facile to expect academic theo-They suggest a more fruitful theory of strategy reticians to provide managers with clear pre-formulation may emerge from complexity scriptions for successful business initiatives.Copyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
  8. 8. 314 Tom ConnorThe contribution of the academic should be Black JA, Boal KB. 1994. Strategic resources:to help managers: Traits, configurations, and paths to sustainable competitive advantage. Strategic Management• Clarify issues Journal 15: Summer Special Issue, 131–148.• Provide analytical constructs and Bogaert I, Martens R, Van Cauwenbergh A.• Help improve managerial productivity and 1994. Strategy as a situational puzzle: The effectiveness. fit of components. In Competence Based Competition, Hamel G, Heenev A (eds). John If achieved, these are concrete outcomes Wiley: Chichester; 57–74.and are the measures of the value of the Coase RH. 1937. The nature of the firm. Economica 4: November, 386–405.academic contribution. These are the criteria Collis DJ. 1994. Research note: How valuableagainst which the RBV needs to be evaluated. are organisational capabilities? StrategicIn the view of this observer the RBV fails to Management Journal 15: 143– them. Coyne KP. 1986. Sustainable competitive advantage — What it is and what it isn’t.Biographical note Business Horizons Jan./Feb: 54–61. Dierickx I, Cool K. 1989. Asset stock accumula-Tom Connor has been at the Luton Business tion and sustainability of competitive advan-School in the University of Luton since 1991. tage. Management Science 35(12): 1504–1510.His interests are in the field of strategic Eisenhardt KM, Martin JA. 2000. Dynamicand financial management. His earlier career capabilities: What are they? Strategicwas at senior management levels in industry Management Journal Special Issue, 21:followed by a period of consulting in 1105–1121.private practice. He has published articles in Ghemawat P, Ricart i Costa JE. 1993. Theleading journals including Strategic Change, organisational tension between static andStrategic Management Journal, Corporate dynamic efficiency. Strategic ManagementGovernance, and European Business Review. Journal 14(S2): 59–73. Grant RM. 1991a. Contemporary Strategy Analysis: Concepts, Techniques, Applications.References Basil Blackwell: Cambridge, MA.Alvarez S, Barney J. 2000. Entrepreneurial Grant RM. 1991b. The resource-based theory capabilities: a resource-based view. In of competitive advantage. California Manage- Entrepreneurship as Strategy: Competing on ment Review Spring. the Entrepreneurial Edge, Dale Mayer G, Hep- Grant RM. 1996. Toward a knowledge-based pard KA (eds). Sage Publications: Thousand theory of the firm. Strategic Management Oaks, CA; 63–81. Journal Summer Special Issue, 17: 109–122.Amit R, Schoemaker PJ. 1993. Strategic assets Greenley GE, Oktemgil M. 1996. An empirical and organisational rent. Strategic Management study of isolating mechanisms in UK Journal 14(1): 33–46. companies. Aston Business School ResearchAndrews PWS. 1949. Costs of production, Part 2: Paper Series, No. RP9611. The effects of changing organisation. In Greiner LE. 1972. Evolution and revolution as Manufacturing Business. Macmillan: London. organisations grow. Harvard Business ReviewBaden-Fuller C, Pitt M. 1996. Strategic Innova- July–August. tion. Routledge: London. Hage J. 1965. An axiomatic theory of organi-Barney JB, Griffin RW. 1992. The Management of sation. Administrative Science Quarterly 10: Organisation: Strategy, Structure, Behaviour. 289–320. Houghton Mifflin Company: Boston, MA. Hall R. 1992. The strategic analysis of intangibleBeaver G, Jennings PL. 2000. Small business, resources. Strategic Management Journal entrepreneurship and enterprise development. 13(2): 135–144. Journal of Strategic Change 9(7): 397–403. Hamel G. 1994. The concept of core competence.Beer S. 1979. The Heart of Enterprise. John Wiley: In Competence Based Competition, Hamel G, Chichester. Heene A (eds). John Wiley: Chichester; 11–33.Copyright  2002 John Wiley & Sons, Ltd. Strategic Change, Sept–Oct 2002
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