International Journal of Management Reviews (2009)doi: 10.1111/j.1468-2370.2008.00252.xThe development ofORIGINAL Journal ...
The resource-based view of the firmbe considered to represent a stock of assets to          reflection on the state of heal...
March       2009to sustain a position of competitive advantage.                     by the resource inputs, non-zero Πj (i...
The resource-based view of the firmfirm’s possession of some superior physical,              resource base, and hence the o...
March      2009resource recombination and resource creation,                       1984). Resources may have a number ofwh...
The resource-based view of the firmmanagers may be poor at understanding                    the simultaneous deployment of...
March      2009firm’s resource portfolio’ (Sirmon et al. 2007,                      will generate an excess capacity in the...
The resource-based view of the firmthere is a well-established trade-off between                                          ...
March      2009testable form, any empirical assessment of its                      effects of specific resources. Birger We...
The resource-based view of the firmrequire differing resource bundles such that a            into an observable performanc...
March      2009As with the drunk looking for his keys under                                                               ...
The resource-based view of the firmsince the transactions costs usually considered            determine their subsequent d...
March     2009of specific expertise (of markets, technology,                       large firms. First, a large number of man...
The resource-based view of the firmshare in the firm’s core business, while falling          ‘complexity’, measured as the ...
March      2009   we know. We also know there are known unknowns;                  paper in 1984 was a disagreement with P...
The resource-based view of the firm   Fourth, the resource base of the firm is con-          attention needs to be devoted ...
March        2009This is a huge advantage of the RBV, as com-                        3 It can avoid some of the management...
The resource-based view of the firm  resource-based view. Journal of Management, 27,               Gray, B., and Wood, D.J...
Resource based view of the firm [lockett, morgenstern and thompson, international journal of management reviews (2009)]
Resource based view of the firm [lockett, morgenstern and thompson, international journal of management reviews (2009)]
Upcoming SlideShare
Loading in …5

Resource based view of the firm [lockett, morgenstern and thompson, international journal of management reviews (2009)]


Published on

Published in: Business
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Resource based view of the firm [lockett, morgenstern and thompson, international journal of management reviews (2009)]

  1. 1. International Journal of Management Reviews (2009)doi: 10.1111/j.1468-2370.2008.00252.xThe development ofORIGINAL Journal of Ltdthe firmInternational ARTICLEXXThe resource-based view of 2008XXX UK Publishing Management Reviews© Blackwell1468-23701460-8545IJMROxford,Blackwell Publishing Ltdthe resource-based viewof the firm: A criticalappraisalAndy Lockett,1 Steve Thompson andUta MorgensternOver the last 20 years, the resource-based view (RBV) has reached a pre-eminent positionamong theories in the field of strategy, but debate continues as to its precise nature. Thispaper contributes to the debate by critically reviewing the development of the RBV to date.The critical appraisal examines the development of the RBV in terms of theory, method,empirical evidence and practical insights. It is contended that the permeable and eclecticnature of the RBV stems from its being a theory about what firms are and how theyfunction, and that its popularity is due to an absence of limiting behavioural assumptions.Finally, the authors provide their own subjective views on where they think RBV scholarsshould focus their efforts in the future. terms of competitive advantage or performanceIntroduction (e.g. Barney 1986, 1991; Collis 1994; DierickxIn this paper we examine the body of theoret- and Cool 1989; Peteraf 1993; Rumelt 1984;ical and empirical work that encompasses the Wernerfelt 1984).resource-based view of the firm (henceforth The RBV views the firm as a historicallythe RBV). Over the last 20 years, the RBV determined collection of assets or resourceshas risen to a pre-eminent position in strategy which are tied ‘semi-permanently’ to the firmresearch. Although the relative weight attri- (Wernerfelt 1984). Some users of the RBVbuted to different scholars’ contributions may distinguish resources which are fully appro-be subject to debate, it is clear that, over time, priable by the firm, such as physical capital ora series of papers have laid the intellectual brand names, from less tangible assets, suchfoundations for a body of thought relating to as organizational routines and capabilitiesthe relationship between the opportunity set (Teece et al. 1997). Similarly, distinctions mayfacing the firm, the strategic behaviour to be be drawn between static and dynamic resources.implemented by managers and the outcome in The former are those that, once in place, may© 2009 The AuthorsJournal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USAInternational Journal of Management Reviews Volume 11 Issue 1 pp. 9–28 9
  2. 2. The resource-based view of the firmbe considered to represent a stock of assets to reflection on the state of health of the RBVbe used as appropriate over a finite life (e.g. research. Our intention is not to provide anBarney 1986, 1991; Peteraf 1993; Rumelt exhaustive interpretation of all papers that1984). Dynamic resources may reside in have been written about the RBV; rather, wecapabilities, such as an organization’s capacity reflect on how the core elements of the theoryfor learning, which generate additional and its application have developed over time,opportunities over time (e.g. Collis 1994; to explain how we have arrived at the positionTeece et al. 1997). Here, we follow Combs we have today. In doing so, we examine fiveand Ketchen (1999) in noting that the crucial interrelated facets of the RBV: (i) theory, (ii)requirements of the RBV are that the relevant method, (iii) empirical evidence, (iv) practicalresources, whatever their nature (i.e. resources, insights and (v) the RBV looking forward.capabilities or dynamic capabilities), are The paper unfolds by examining each of thespecific to the firm and not capable of easy facets in turn.imitation by rivals (Barney 1991). Therefore,such resources constitute the source of The Resource-based View: TheoryRicardian rents that comprise a firm’s com-petitive advantage and, to the extent that their In this section we examine the theoreticalreplication by others is problematic, imply a development of the RBV. The central tenets ofsustainable advantage over the longer term. the RBV are path dependence and firm heter-Because each firm’s resource bundle is unique, ogeneity (Lockett 2005; Lockett and Thompsonbeing the consequence of its past managerial 2001). The RBV is a theory about the naturedecisions and subsequent experience, it follows of firms, as opposed to theories such as trans-that so is each firm’s opportunity set. action cost economics which seeks to explain As empirical evidence relating to the decom- why firms exist (see Coase 1937). As such,position of firm performance (e.g. McGahan the RBV requires minimal limiting assump-and Porter 1997) typically finds that firm-specific tions about the nature of strategic behaviour.effects are at least as important as industry In effect, the RBV is a statement about howcharacteristics, the RBV offers an obvious firms actually operate. The minimalistic natureframework for analysing inter-firm variations of the RBV’s assumptions (i.e. its two centralin performance. As such, it acts as a natural tenets) makes formalization difficult. Ultimately,complement to the external, market-based the RBV’s message that firms’ performanceapproach to competitive advantage that is differs because of different resource endow-grounded in industrial organization economics ments is probably incapable of falsification.(IO) and synthesized in, for example, the work However, theoretical insights have been developedof Porter (1980). from these central tenets. Below, we provide The prominence of the RBV as a core theory an overview of the main theoretical insights,in the area of management suggests that employing the game of poker (where relevant)the time is right to reflect on its development. as an illustration.Given that a number of reviews on the RBVhave already been published, which have Resources and Performance: Sustainableeither been focused towards descriptive ac- Competitive Advantagecounts of the development of the RBV (e.g.Ambrosini 2007; Barney 1995; Barney 2001b; The sustainable competitive advantage (SCA)Barney and Arikan 2001; Barney et al. 2001) approach to the RBV is exemplified by theor have provided a summary of empirical work of Barney (1986, 1991), Peteraf (1993)approaches and evidence on the RBV (e.g. and Rumelt (1984). Employing the resourceArmstrong and Shimizu 2007; Newbert 2007), as the unit of analysis the theory seeks towe focus our attention on providing a critical explain the extent to which a firm may be able10 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  3. 3. March 2009to sustain a position of competitive advantage. by the resource inputs, non-zero Πj (i.e. aSustainable competitive advantage is based competitive advantage) in the face of com-on the ownership of firm-specific resource(s) petitive rivalry in the market for j indicatesthat, following Barney (1991), has the follow- that our firm has access to at least one resourceing attributes: (1) it must be valuable; (2) it input on more favourable terms than its rivals.must be rare; (3) it must be inimitable; (4) it If it is also the case that Πj > 0 persists in themust be non-substitutable. These conditions longer term (i.e. that a competitive advantageare what Barney (1991) terms VRIN – valuable, is sustainable), this resource advantage mustrare, inimitable and non-substitutable. Valu- also persist over time. Viewed in this light, anyable resources can be used to exploit opportu- SCA is simply a rent conferred by one or morenities and/or neutralize threats in a firm’s imperfections in the resource market that pre-environment. Rare resources are those that are vents at least one input being available on equallimited in supply and not equally distributed terms to all actual or would-be competitors.across a firm’s current and potential competi- Thus, the RBV at its most basic offers antion. Inimitability refers to the extent to which interpretation of the existence of profits inresources are difficult to replicate by other equilibrium based on firm heterogeneity.firms, which may be due to factors such as If that were all it offered, it would be essentiallysocial complexity (Dierickx and Cool 1989), trivial. It would amount to a statement thatcausal ambiguity and specific historical firms differ in performance because they dif-circumstances (Barney 1991). Non-substitutability fer in attributes. True but hardly informative!of resources implies that one resource cannot It is scarcely surprising that critics of the RBVbe simply replaced (or substituted) by another (e.g. Priem and Butler 2001a,b) have accusedone. its proponents of tautological reasoning by Other authors writing on this issue have attributing the generation of competitivehighlighted the importance of limits to com- advantage to possession of those resourcespetition – both ex ante and ex post – in whose own value reflects these scarcity rents.resource markets as a necessary condition for However, contributors to the RBV literatureSCA (see Peteraf 1993), and the importance of have sought to generate testable hypotheses con-isolating mechanisms as a necessary condition cerning those characteristics of such inputsfor SCA (see Rumelt 1984). that are likely to render them strategic resources The RBV is in essence a theory of rents in the sense of being a source of sustainablebased upon resource market imperfections rents. Barney’s (1991) VRIN framework,(Amit and Schoemaker 1993). At one level it outlined above, sets out the broad conditionsmay be considered both tautological and even necessary for a resource’s comparative scarcitytrivial. Consider a firm earning to elevate it to strategic significance. Peteraf and Barney (2003), among others, begin with Πj = PjQj – Σpijrij the assumption of resource heterogeneity and then consider which (if any) of a given collec-Where Πj, the profit of the firm on product j, tion of resources satisfy the VRIN conditionsis defined as the difference between the revenue outlined above. They point out that resourcesreceived (price of product j [Pj] multiplied by differ in their impact on the firm’s ability tothe quantity of product j [Qj]) and the sum of generate cost or differentiation advantages, andthe resource inputs consumed in producing hence performance. Moreover, if the cost of aproduct j [rij] multiplied by their actual or resource reflects the full potential rents it mayshadow prices [pij]. generate, it cannot, by definition, be a source If we assume for simplicity that there is of a competitive advantage.either no product differentiation or, equivalently, A resource market imperfection may bethat differentiation is completely determined exogenous, in the sense that it results from the© 2009 The Authors 11Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  4. 4. The resource-based view of the firmfirm’s possession of some superior physical, resource base, and hence the opportunity set,organizational or intangible resource that has can be shifted.been accumulated as a result of the firm’sunique historical evolution. Alternatively, it Resources and the Role of Managersmay be endogenous, in the sense that it resultsfrom a conscious strategic decision by the Viewing the RBV as we have outlined abovefirm’s managers. Such a decision might apply enables us to gain a better understanding ofto the acquisition of a resource to facilitate how managers may be able to exploit marketthe firm’s own production and/or to secure its imperfections, in both resource and productadvantage over a rival. For example, a depart- markets, to advance firm performance. Notment store corporation’s decision to become merely does it cede a substantial role tothe ‘anchor’ for a new shopping mall complex managers, but it also links the internal andis both a move to secure a resource (market external environments in which they operate.access) for the firm and a means of pre-empting In this way, it also distinguishes the academica rival. This parallels the distinction between study of strategic management from that ofstructure and conduct in the SCP paradigm in industrial organization economics. The latterindustrial economics. Here market structure has made considerable progress in analysinghas been traditionally treated as exogenously the firm’s optimal response to its externaldetermined by the underlying industry charac- environment, including the behaviour of itsteristics. Firm conduct, on the other hand, is rivals, but it tends to retain its traditionalthe endogenous outcome of managerial decision- characterization of the firm’s internal workingstaking, albeit within bounds set by structural as a ‘black box’ beyond scrutiny. Moreover,characteristics. Thus, collusion, for example, managers are largely treated as optimizingwhich is usually considered to be facilitated by algorithms. Under the RBV, managerialhigh concentration, is imperfectly predictable responsibilities include the need to repositionwithout further modelling. the firm as opportunities change and its In acknowledging that resources are tied resource set evolves. By contrast, industrial‘semi-permanently’ to the firm, in the phrase organization economics sees the managers’ roleof Wernerfelt (1984), the RBV recognizes that, as responsive. Thus, managers in the RBVin the short run, the resource set confronting are both adaptive and proactive, i.e. they areparticular managers is largely exogenously ‘enactors’ (Lado and Wilson 1994), whiledetermined. However, it also concedes a role their counterparts in industrial organizationfor the manager in perceiving opportunities, economics have a role analogous to that ofmatching these to the available resources and, managers in a regulated utility, whose decisionswithin limits, augmenting the latter with such largely concern marginal adjustments to outputadditional resources as are necessary to imple- and input levels.ment its strategy. Thus, the role of a manager in It is the sources of market imperfections,the RBV is akin to that of a card player. The allied to the roles managers play, whichplayer is provided with a dealt hand of cards, makes the RBV an interesting theory. Managers,with the value of each card being broadly through the decisions they make, change thedetermined ex ante by the rules of the game. nature of competition in markets. The deci-Success depends upon the relative skill with sions that managers take are inextricablywhich that hand, augmented by any cards linked to their perceptions about the internalsubsequently acquired, is played in competition characteristics of their own firms and also ofagainst rivals. However, whereas each hand the external environment in which they com-of cards starts out with a completely new pete (Penrose 1959). Managerial perceptionsdeal, managers are typically engaged in an become important in relation to three centralevolving game in which over time the elements of the RBV: resource functionality,12 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  5. 5. March 2009resource recombination and resource creation, 1984). Resources may have a number ofwhich we discuss next. different functions, which may enable them to be employed across a number of different markets over time. An important role forResource Functionality managers is to determine the most profitableThe issue of resource functionality has a long usage for the resources at their disposal.tradition in the RBV literature. Penrose Consequently, resource usage is influenced by(1959) proposed that the size of a firm’s pro- the subjective perceptions of managers. Further-ductive opportunity set imposes a limit on its more, resource usage shapes the competitivegrowth. She defined the productive opportunity landscape. It is the managers of firms whoset of the firm as ‘all of the productive employ their resources in similar ways to theirpossibilities that its “entrepreneurs” see and competitors that determine the boundaries ofcan take advantage of ’ (Penrose 1959, 31, our industry membership. If we take the exampleitalics). That is, the effective set of productive of the manager (landlord) of a public house,opportunity is determined by both managerial he/she will view their premises as a keyperceptions and the resources at their disposal. resource for the retailing of their drinks andPenrose further suggested that the search for other consumables. The building, however,novel uses of existing resources may expand could have multiple uses. For example, thethe firm’s opportunity set. Where a firm’s building could be used as a pet shop. It is howresources are incompletely used and there is the resource is used that determines the industryalways some slack, there is a potential oppor- to which the business belongs.tunity for firm growth. In order for any excess As outlined above, an important role ofcapacity of existing resources to be exploited, mangers is the search for the most profitablethe resources may need to be combined with use of the resources at their disposal. A bundleother available resources in order to generate of resources will have different values accord-productive services; we return to this issue ing to their usage across different markets.below. Penrose also highlights that firms Revisiting our analogy of the game of poker,attempt to discover more about the potential this makes the rules of the game much moreuses of their existing resource via research and permissive and hence the game much moreother types of proactive searches. She represents complex. If we permit resources to be employedthis by arguing that managers frequently across a range of different markets, this isreflect: ‘there ought to be some way in which akin to a poker player being able to take hisI can use that’ (Penrose 1959, 77). Penrose, in hand of cards and play across a number ofeffect, raises the issue about what the func- different games on different tables. The rulestionality of a resource is. of the game will vary between tables, and so The issue of what resources actually do was the value of the poker players’ cards will varyrevisited by Wernerfelt (1984), who employed accordingly. The role of the poker player isthe concept of duality to discuss the relation- quickly to assess which games he/she wantsship between resources and the products and to play in, i.e. to assess where their cards canservices that result from their usage. Accord- be deployed most to Wernerfelt, firms can be defined either The problem facing managers, therefore, isin terms of products/services or in terms of how to understand the functionality of theresources. The two are the different sides of the resources that are under their control, and alsosame coin. to understand those that are under the control It is not the resource type per se that of other firms. This will aid managers in notmatters, it is the functionality of the resource only detecting present competitors but alsoand how the resource is employed (Penrose in anticipating future competitors. Peteraf1959; Peteraf and Bergen 2003; Wernerfelt and Bergen (2003, 1029), however, argue that© 2009 The Authors 13Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  6. 6. The resource-based view of the firmmanagers may be poor at understanding the simultaneous deployment of resourcesthe range of potential functions from their and factors of production (Teece et al. 1997).resource-bases for a number of reasons. These The literature on dynamic capabilities shouldinclude: a lack of time and attention; bounded be viewed as a complement to the RBVrationality (e.g. Williamson 1975); cognitive (Ambrosini and Bowman 2009; Wang andbiases; and framing limitations (Amit and Ahmed 2007).Schoemaker 1993). The limitation of managers In addition to the productive opportunityto perceive competition from outside their set of the firm being influenced by resourcenarrowly defined industries dates back to usage, Penrose (1959) argues that thethe work of Levitt (1960) and the problems opportunity set is also influenced by the wayassociated with managers’ myopia. in which managers are able to combine Not only must managers understand the resources to produce productive services (orfunctionality of their resources, they must also capabilities). At any given point the knowncomprehend the capacity for usage their productive services arising from a given bundleresources permit. Some resources may have of resources are unlikely to exhaust its fullmultiple functions, and also a capacity that potential. There is always the potential for firmenables them to be used in a number of different expansion. Based on the discovery of changesways simultaneously. That is, a resource may in customer preferences and innovation, man-have a high capacity for usage so that its use agers choose to engage in the recombinationon one market does not preclude it from of existing resources to satisfy this perceivedbeing used in another market. In the case of demand. Hence, opportunities for expansionintangible resources, especially in the form of are limited to the extent to which the managersknowledge, there is no real limit to the extent of a firm perceive there to be opportunities,to which the resource can be shared. Conversely, are willing to act on them and are able tophysical resources may be easily exhausted, capitalize on them with their own resourcesas their use on one market precludes it being (Penrose 1959, 84). Thus, the growth of theused in another. firm involves discovering new market opportu- nities and changing and using existing resources to match these opportunities.Resource Recombinations Sirmon et al. (2007) offer a more detailedPenrose (1959) argues that resources are seldom conceptualization of resource recombination,valuable in isolation. In effect, it is unlikely focusing on the nature of resource recombina-that we can attribute the success of a firm tions and their effect on capabilities. In doing(and hence SCA) to one specific resource. so, they draw a distinction between the activitiesConsequently, it may be more fruitful to of stabilizing, enriching and pioneering.consider combinations of resources. By com- Stabilizing involves making minor incrementalbining resources firms may be able to add improvements in existing capabilities throughvalue if they are: complementary (Harrison minor improvements to existing al. 1991), related (Dierickx and Cool 1989) A strategy of stabilizing may be a way ofor co-specialized (Lippman and Rumelt 2003) maintaining a current position of competitivein nature. The concepts of complementarity, advantage in conditions of low environmentalrelatedness and co-specialization all speak to uncertainty. Enriching involves extending andthe issue as to how resource combinations elaborating current capabilities through activitiescan create value. The idea of resource com- such as learning or adding a complementarybinations (and recombinations) is central to resource. Pioneering is a more advanced processthe literature on capabilities. A capability is of resource recombination which entails ‘thedefined as the firm’s ability to undertake a integration of completely new resources thatproductive activity, which is created through were recently acquired ... and added to the14 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  7. 7. March 2009firm’s resource portfolio’ (Sirmon et al. 2007, will generate an excess capacity in their282). This process involves creativity and resource-bases. It is the excess capacity in aexploratory learning in order to create novel resource base that presents the basis for firmcapabilities. expansion. The activities of the firm will lead If managers are able to recombine their to the development of resources over time.resources in a range of different ways, they The firm’s resources, therefore, will be directlymay be able to produce new outputs for the related to the past activities of the firm, i.e. thefirm. For example, revisiting our pub landlord resource base of the firm will be path dependent.above, we find out that in addition to owning Although Penrose highlighted that resourcesa public house he/she also owns a pet shop. In may be created through the process oforder to attract people into the pet shop, the competing in markets, little attention hasmanager buys a large snake, which he/she can been focused on the issue of resource creationalso sell if required. The snake, however, is (Bowman and Collier 2006). A notable excep-only employed in the pet shop during the tion is the Management Science paper ofopening hours of 9 to 5 Monday to Saturday. Dierickx and Cool (1989).As the snake does not have to work hard for Dierickx and Cool (1989) attempted toits keep, and given that it is under-utilized summarize the growth and decay processesoutside the shop opening hours, the manager affecting those intangible assets that form thestarts to think how he/she can make a more core of the RBV. Barney (1991) examined theprofitable use of the resource. The manager consequences of firm heterogeneity (for athen has an idea of combining the snake, with given set of resources), whereas Dierickx andone of the bar maids, and hey presto a resource Cool (1989) examined the causes of firmrecombination leads to the creation of an heterogeneity. The genesis of Dierickx andexotic dancer to perform during the evenings Cool’s (1989) argument is that, given that factorand/or on Sundays. The manager of the pub has markets for intangible assets are incomplete,diversified into offering entertainment through critical resources are accumulated rather thana resource recombination. acquired in ‘strategic factor markets’. Further- Invoking our poker analogy again, the issue more, they argue that the immobility of aof resource recombination, like the issue of resource position is linked to the characteristicsusage, makes the rules of the game more of the asset accumulation process. Theirpermissive. By recombining a bundle of cards, terminology has been widely followed, anda person may be able to make a series of their typology of asset accumulation may bedifferent hands that can be played in different summarized briefly thus:games. Furthermore, if we relax the assumption Asset mass efficiency describes Dierickx andthat the recombined cards have to be controlled Cool’s (1989) proposition that the marginalby one player only, we open up the potential cost of specific asset accumulation falls withfor players to collaborate in recombining the size of the existing relevant asset base.their cards. The potential for collaboration This is seen most clearly where activities suchsubstantially increases the number of potential as R&D exhibit (at least locally) increasingrecombinations that may be possible. returns with obvious benefit to established research-intensive companies. Time compression diseconomies relate toResource Creation and Decay the observed tendency of the costs of assetThe issue of resource creation was first dealt accumulation to rise within a given time inter-with by Penrose (1959) through her attempts val. The more a firm tries to reduce the timeto theorize the growth process in firms. She horizon associated with asset accumulation,argued that firms develop resources through ceteris paribus, the more costly the processtheir productive activities and, over time, firms will be. Again, R&D is a good example where© 2009 The Authors 15Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  8. 8. The resource-based view of the firmthere is a well-established trade-off between The Resource-based View:the time and cost associated with accelerating Methodological and Practical Difficultiesthe rate of problem-solving. Causal ambiguity, as described by Barney The RBV has developed as a series of related(1991), relates to the difficulty faced by out- propositions that seek to explain the relation-siders – and perhaps even insiders – in isolating ship between a firm’s resource endowmentthe particular factors responsible for a firm’s and its performance and growth. However,competitive advantage. it has not generated clear unambiguous Asset interconnectedness implies that the hypotheses in the manner of more narrowlycost of adding an increment of resource A to conceived theories of firm behaviour or eventhe firm’s stock may be related to its existing transaction cost economics (TCE), an approachstock of resource B. Dierickx and Cool’s with which the RBV is frequently compared(1989) own example is of a manufacturer whose (e.g. by Newbert 2007). For example, TCEproduct development costs are lowered by contends that transaction costs rise with certainfeedback benefits derived from the same (relatively) well-defined market attributes,firm’s customer service department. especially asset specificity, and that vertical Asset erosion refers to the shrinkage of the integration dominates outsourcing wherefirm’s stock of intangible assets, as these are transaction costs are sufficiently high. Together,destroyed by exhaustion, obsolescence and these hypotheses have suggested a simplerivals’ innovation. It is the intangible asset reduced form equation test: namely, thatequivalent of balance sheet depreciation for vertical integration will increase with assettangible assets. It both afflicts the firm in specificity. Variants of such an equation haveisolation and arises through the actions of been estimated by many researchers. By con-its rivals. In effect, the firm is a bundle of trast, the RBV has a number of methodologicalresources whose value is in constant flux. and practical difficulties that limit the generation The work of Dierickx and Cool (1989) has and testing of direct hypotheses.important parallels with Barney’s (1986) bad First, and perhaps most fundamental, is thenews message, which was that, if resource issue of tautology. Perhaps unsurprisingly,markets are perfect, the costs of acquiring for an approach that ultimately ascribesresources will be approximately equal to the differences in firm performance to intrinsicvalue of those resources once they are used differences in the firms themselves, the RBVto implement product market strategies. is certainly prone to circular reasoning. PriemConsequently, if a firm acquires resources, and Butler (2001a,b) in an exchange withand continues to use them in the same way Barney (2001a), debate this point at length.that they were previously employed, SCA will Priem and Butler (2001a,b) reduce the RBVbe difficult achieve in the absence of resource to the following statement: ‘only valuable andmarket imperfections. Denrell et al. (2003) rare resources can be a source of competitiveprovide a more nuanced understanding of advantage’, where rarity and value in turnresource acquisition, which is consistent with depend upon the use to which such resourcesthe work of Dierickx and Cool (1989), by may be put. More generally, they argue thatoutlining two conditions under which SCA the problem of tautology lies in the relationshipmay be possible. First, you may be lucky and between the general and the specific in theacquire the resources below their full market RBV. Competitive advantage is considered tovalue because of a seller’s ignorance. Second, be rooted in firm-specific circumstances thatyou may own, or have access to, other idio- are themselves, at least in part, imperfectlysyncratic resources that are not available other firms and which augment the value Second, if one assumes (as does Barneyof the resources. 2001a) that the RBV may be specified in a16 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  9. 9. March 2009testable form, any empirical assessment of its effects of specific resources. Birger Wernerfeltpredictions requires the identification and recently argued that, if you take a firm likemeasurement of relevant resources. Unfortu- Wal-Mart, there are probably 10,000 littlenately, this has often proved problematic, ideas there that each might be worth $100,000because the resources of central concern are or less in annual profits. Therefore, theoften those associated with organizational complexity of the organization means that alearning etc. and are commonly unobservable whole range of small initiatives may influence(see Ambrosini and Bowman 2001; Godfrey the performance of the firm, but each in aand Hill 1995; Rouse and Daellenbach 1999). very small way (Lockett et al. 2008). Moreover,Resources which can easily be identified and Barney’s (1991) argument that causal ambiguitymeasured are unlikely to be of great interest to sustains competitive advantage, by restrictingRBV researchers. Such resources, however, rivals’ ability to isolate and hence replicateare commonly the focus of empirical studies rent-generating resources, itself suggestslargely because they can be measured, not limited potential for empirical work. If rivals,because they are necessarily important. i.e. competitors within the same strategicConsequently, a significant body of empirical group, cannot fathom a firm’s key resources itresearch on the RBV has parallels with the appears unlikely that models using externallyproverbial drunk looking under the street light measurable variables will achieve strongfor his keys. When asked where he had lost explanatory power, particularly since these arehis keys he responded, ‘somewhere over there often estimated across broad industries toin the dark, but can’t see a thing over there so allow viable sample sizes.I’m looking under the light instead.’ A further Fifth, not merely is agreement on a workingconsequence of the resource identification definition of ‘competitive advantage’ itselfproblem is that researchers have used an controversial (Foss and Knudsen 2003; Powellextremely varied set of proxies for key 2001), but such a concept is directly unobserv-capabilities and resources, making systematic able so that empirical tests normally involvecomparisons across the empirical literature seeking to explain inter-firm differences inmore difficult. performance (see Peteraf and Barney 2003) Third, firm heterogeneity creates problems with respect to observable differences in thefor researchers who are interested in generat- firms’ identifiable resource a homogeneous sample of firms for testing Equating performance and competitivespecific RBV hypotheses. Recall that the advantage in this way strictly tests the jointcentral thrust of the RBV is that any firm’s hypothesis that resources and not other factorscompetitive advantage is rooted in its unique (see Ray et al. 2003) generate a competitiveattribute set. If each firm is unique, any sample advantage, and that the firm is effectivelyof firms is heterogeneous by definition. This managed to harvest this competitive advantage.clearly makes it difficult to derive meaningful Sixth, the logic of the RBV does not predictinferences about the causes of competitive a universal relationship between firm per-advantage across the sample. To reduce formance and any particular resource. On thesample heterogeneity, some researchers have contrary, the value of a resource to the firm willfocused on single-industry studies, often using depend upon the specifics of its use, includingexogenous changes in the industry environment, the deployment of co-specialized assets.e.g. deregulation (see Ingham and Thompson Therefore, even at the industry level, there may1995), as ‘natural experiments’. be no discernible relationship between firm Fourth, identifying and explaining causal performance and the possession of resourcerelationships in large firms is problematic. X. For example, within the airline industry,The sheer complexity of large organizations full service carriers and low-costs operate verymakes it very difficult to isolate the performance different business models which presumably© 2009 The Authors 17Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  10. 10. The resource-based view of the firmrequire differing resource bundles such that a into an observable performance advantage.performance–resource model indiscriminately Furthermore, where this resource bundle isestimated across airlines is unlikely to yield imperfectly imitable the competitive advantagestrong results. is sustainable in at least the medium term. Finally, best practice firm-level empirical Testing this relationship presents difficulties,work now generally uses first-differenced some of which have been outlined in the pre-panel data sets, usually unbalanced to minimize vious section. Among these are problems in bothselection/survivor biases. However, in empirical specifying testable hypotheses and measuringwork on the RBV it is the fixed effects, dependent and explanatory variables.discarded in differencing, that contain most In the case of the dependent variable, it isof the interest. It follows that much empirical noted above that difficulties in definingwork in the field still tends to use the (otherwise and measuring comparative advantage havediscredited) single equation, cross-sectional ensured that a variety of performance variablesdesign. This raises inevitable problems of have been used in the literature. These havecausality. For example, if a study of pharma- included both accounting and stock market-ceutical companies reports a positive corre- based measures. The choice of resource measureslation between performance and R&D spend, as explanatory variables is necessarily eventhe researcher cannot, without further tests, wider. This is not simply a reflection of therule out the possibility that R&D depends availability of data to particular researchers; itupon performance rather than the reverse. also reflects the specific nature of any hypoth-Furthermore, multicollinearity of explanatory esized link between resources and competitivevariables, often size related, is common in advantage. However, an overall consequencecross-sectional firm-level work. This reduces of the diversity of the available empiricalthe efficiency of estimates, leading to what literature on the RBV and the range of variablesSwann (2006) terms the noise–signal ratio. Many it uses is that formal meta-analyses are pre-cross-sectional studies do not address these cluded, and even summary statistics are difficultdifficulties. to compute. The most comprehensive treatment of the RBV performance literature is that of NewbertThe Resource-based View: Empirical (2007), who performed a semi-quantitativeEvidence analysis of the studies identified via a formalEmpirical testing of elements of the RBV has search procedure. Newbert (2007) used a keyfocused on two main issues. First, scholars word search across the management literaturehave examined the relationship between firm to identify papers appearing to offer a test ofperformance and the possession of identifiable the resource–performance linkage. After theand imperfectly imitable resources/capabilities/ application of relevance criteria, he was leftcompetences. Second, researchers have with 55 studies from which he generated theexamined whether the prior possession of such following conclusions: First, only 53% of theresources shapes the subsequent development papers he examined offered positive supportof the firm in ways the RBV predicts. for the link between resources (broadly defined) and performance. This figure, he suggests, is broadly consistent with other theories ofResources and Firm Performance strategic management such as transactionAs suggested above, the overarching proposition cost economics (see David and Han 2004).of the RBV suggests that a firm’s possession Second, he found evidence that resourceof specialized resources may permit it to combinations, and/or capabilities/competences,enjoy a competitive advantage over its rivals are more likely to explain performance differ-which, given suitable management, is converted ences rather than single resources in isolation.18 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  11. 11. March 2009As with the drunk looking for his keys under Product/Service Market Diversificationthe light, many RBV scholars (includingthe authors) have focused on resources that One of the most explicit and implicit empiri-can be easily measured, e.g. simple measures cal application of the RBV has been in theof human capital. literature examining patterns of diversification Given the methodological problems in via new market entry. Econometric studies bydesigning general tests of the resource– Lemelin (1982), MacDonald (1985), Mont-performance relationship, discussed above, the gomery and Hariharan (1991) and Inghamrelatively modest empirical support revealed by and Thompson (1995) have shown that diver-Newbert’s survey is generally unsurprising. sification is not a purely random process,Perhaps more worrying for those of us work- driven by idiosyncratic managerial decisions,ing in the field is that even this level of but instead follows a pattern consistent withsupport is probably inflated by publication the exploitation of existing identifiable resourcesbias: that is the tendency of journal editors to (see Montgomery 1994, for a review). Lemelindisproportionately reject insignificant findings. (1982) found that diversification tended to occur across industries using similar resources. MacDonald (1985) and Montgomery andResources and Firm Development Hariharan (1991) used US firm-level dataAs noted above, an important strand of the to demonstrate a similar outcome, whereasRBV literature, going back to the pioneering Montgomery and Wernerfelt (1988) identifiedwork of Penrose (1959), is concerned with the that specific resources may only be transferredway in which the firm’s current resource into a small number of industries and thatbundle shapes its future development. This firms with more specific resources couldwork implicitly assumes that in a competitive generate higher rents with less diversification.environment decisions concerning the firm’s Ingham and Thompson (1995) used financialactivity set will reflect managers’ attempts to services deregulation in the UK as a ‘naturaluse the resources at their disposal in the experiment’ to show that diversification intointerest of advancing the firm’s performance. previously prohibited, but nonetheless related,This leads to predictions about shifts in the financial product markets followed the firms’boundaries of the firm conditional upon its resource endowments at the time of deregulation.current resource set. Among boundary decisions While the RBV has been explicitly andanalysed in this way are issues concerning implicitly used in analysing firms’ diversify-diversification, modes of entry to new markets ing expansions into new product markets, theand refocusing. The diversity of these issues firm’s decision to expand its operation by pro-has thus far precluded any quantitative survey ducing its existing products in new regions orof which we are aware. The literature review national markets involves directly analogousthat follows is based on an updating of that in reasoning. Here the dominant internalizationLockett and Thompson (2001). We depart paradigm (see Caves 1996, for a survey) usedfrom David and Han (2004), Newbert (2007) to explain the internationalization of business,and Armstrong and Shimizu (2007) in our suggests that firms choose to become multi-approach to reviewing the empirical literature, national when the specific assets they possesswhich employs a keyword search for RBV are more economically transferred acrosspapers, because we feel that such an approach international boundaries within the firm ratheromits empirical studies that may be RBV in than by using markets. Internalization theory’snature, but do not explicitly mention the RBV. focus is upon the role of comparative levels ofOur survey includes papers that test hypotheses transactions costs in determining the optimalcongruent with the RBV, even if they do not form of expansion, and therefore, it might beexplicitly mention it.2 considered an application of TCE. However,© 2009 The Authors 19Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  12. 12. The resource-based view of the firmsince the transactions costs usually considered determine their subsequent development andto drive this decision are those attached to specialization. Thompson (2007) reaches aintangible assets and firm-specific attributes, similar conclusion with respect to entrants towhere replication is also problematic, there is the digital camera business, while Mitchellan obvious relevance for the RBV. Non-specific (1991) and Carroll et al. (1996) report com-resources pose far fewer problems for market parable results from the diagnostic imagingcontracting but, conversely, since activities and early US car industry, respectively.depending upon them alone can be easily Scott Morton (1999) shows that, among thereplicated, offer little opportunity for sustaining set of generic pharmaceutical producers,a competitive advantage. prior technological, scientific and marketing The evidence on foreign direct investment, experiences determine which new productat industry and firm levels, is generally con- markets, created by compound discovery orsistent with the internalization perspective patent lapse, individual firms choose to enter.(see Caves 1996). It points to concentrations Thus, prior expertise with a particular class ofof multinational activity in R&D-intensive compounds, delivery mechanism or diseaseindustries (where proprietary technology is treatment market will increase the probabilityimportant) and advertising-intensive industries, of entry. Interestingly, she notes how differentwhere marketing and brand name issues are firm resources, the result of divergentimportant. Of particular relevance to the RBV experiences, assist the industry by preventingis the firm-level evidence (e.g. Caves 1996; the simultaneous entry of large numbers ofGrubaugh 1987) that confirms the effect of producers with inevitable widespread lossesproprietary assets and relative R&D and (Scott Morton 1999, 436). This confirms theadvertising outlays on the probability of a large classic argument of Richardson (1972) on thefirm having multinational operations. importance of firm heterogeneity in the orderly Inter-industry differences in firm organiza- diffusion of innovations.tion constitute a potential difficulty forfirm-level work in this field. In consequence, Mode of Market entry (Product andsingle-industry studies generally allow a more Geographic)detailed specification of relevant resource vari-ables than would be possible in inter-industry Firms seeking to extend their profitablework. Recent examples include case studies of activities typically require assets to com-the US TV receiver industry by Klepper and plement their existing resource bundles andSimons (2000), Internet service providers frequently need to obtain these from existing(ISPs) by Greenstein (2000), and the generic firms. Mergers and acquisitions, joint venturespharmaceutical industry by Scott Morton and other collaborative associations have been(1999). Klepper and Simons (2000) show that analysed quite extensively as alternative mecha-prior experience in radio technology was a nisms for the acquisition of complementarymajor determinant of success among entrants assets for domestic and foreign expansionsto the rapidly expanding TV receiver market alike. In some instances, for example, in obtain-from the 1950s to the 1970s. Furthermore, the ing access to specific assets in countriesadvantage conferred by radio experience con- with poorly developed capital markets or withtinued to exert a statistically significant effect, restrictions on private and/or foreign ownership,even after 1965 when colour TV began to the costs associated with acquisition may bedominate the market. Greenstein (2000) prohibitive. In others, joint venturing with thedemonstrates that, although entrants to the desired party may turn out to be simplyISP sector have come to a completely new unattainable. However, a growing body ofindustry, their prior experience, commercial research suggests that, where a choice exists,background and local market characteristics joint venturing tends to be associated with a lack20 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  13. 13. March 2009of specific expertise (of markets, technology, large firms. First, a large number of managers,cultures, etc.) on the part of the firm con- perhaps acting on incorrect suppositions ofcerned. Singh and Kogut (1989) using foreign internal capital market superiority may haveentrants to the US, Hennart and Reddy (1997) simply got it wrong. In the RBV, as in Austrianfor Japanese entrants to the US, and Thompson economics (see below), there appears to be no(1999) using domestic and foreign expansions necessary presumption that managers alwaysby diversifying UK utility companies, all report make correct decisions. Second, it is possiblethat having controlled for size, prior market that previously optimally organized firmsexperience encourages expansion by acquisi- found themselves over-diversified becausetion rather than joint venture. Such a result is the comparative advantage of the M-form hadsupportive of the RBV in that it confirms that declined. This has been alternatively attributedoutsiders with incomplete resources need to to capital market innovations and a reductionsecure specific resources via cooperation with in transaction costs (Hoskisson and Turk 1990)the insider. The experienced entrant is able to and a decline in scarcity rents to the resourcepurchase the relevant resources by acquiring a of general management (Goold and Luchssuitable company. Of course, this does not pre- 1993). Since these changes coincided withclude joint venturing having other advantages.3 the internationalization and deregulation of capital markets in the 1980s, the reversal of corporate diversification also dates from thisCorporate Refocusing (Market Exit) time (Haynes et al. 2003).The reversal of diversification is refocusing. It By contrast, the AT hypothesis attributesis reasonably well established (see Haynes over-diversification to the diversion of freeet al. 2003; Markides 1995, and references cash flow into preferred (sometimes negativetherein) that, in the USA and UK, there was a net present value) investments by managerscontinuing increase in diversification among insulated from capital market discipline bylarger firms until the early 1980s. Thereafter, weak corporate governance arrangementsthere has been a discernible trend towards cor- (Jensen 1986). The widespread subsequentporate refocusing, defined here as the disposal reversal of this process is again attributed toof peripheral activities and the renewed con- capital market changes, particularly the rise incentration upon core businesses. In the past, hostile and debt-financed takeovers in thethis has frequently involved the divestment of 1980s that tended to pressurize managers intounrelated activities acquired in the conglomerate a return towards value-maximizing behaviourmerger boom of the 1960s and 1970s (Shleifer (Jensen 1986, 1993).and Vishny 1991). This reversal of the trend A growing volume of empirical studies oftowards diversification suggests a number of corporate refocusing provides support forinteresting questions for researchers. First, both strategy and governance hypotheses inwhy did so many firms engage in apparently explaining the phenomenon (Johnson 1996).unsuccessful diversification, especially unre- Markides (1992) found that refocusing firmslated diversification, in the 1960s and 1970s? were highly diversified and suffered fromSecond, what caused this policy to be reversed? poor performance relative to their industryAnd third, why did this reversal occur in the counterparts. He also found that the higher the1980s? R&D intensity of the core business, the lower Both the RBV and Agency Theory (AT) the likelihood that the firm would refocus.4provide insights into these questions which Haynes et al. (2003), using a panel of largeare, at least in part, both substitutes and com- UK firms, include strategic and governanceplements. From the perspective of the RBV, variables in an analysis of divestment activity.there are at least two contending explanations They find that divestment, variously measured,for widespread over-diversification among increases with size, diversification and market© 2009 The Authors 21Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  14. 14. The resource-based view of the firmshare in the firm’s core business, while falling ‘complexity’, measured as the interaction ofwith performance. However, they also report a size and the level of diversification, andsignificant positive coefficient for leverage, reports that the benefits of divestment arein line with Jensen’s (1993) free cash flow substantially greater for ‘complex’ firms. Inreasoning and, tellingly, a large and highly brief, the refocusing literature tends to reinforcesignificant increase in divestment in the year the conclusion from that on corporate diversi-following the publication of a bid rumour. They fication, in many respects its opposite, aboutfind some support for strategy–governance the importance of relatedness in successfulinteraction effects. For example, firms with firm growth.‘strong’ governance regimes, defined in termsof management equity ownership and the Practical Insights from theexistence of substantial ‘blockholders’, ex- Resource-based Viewperience a much larger sensitivity to poorperformance. In contrast to Johnson (1996), As academics working in Business andwho finds internal and external antecedents to Management Schools, we are increasinglycorporate refocusing in the US, Haynes et al. encouraged to make prescriptive statements(2003) do not find a significant role for senior on the basis of existing management changes. The use of case studies in strategy teaching While the RBV does not unambiguously illustrates this dilemma. On the one hand, thesupport the superiority of related diversification suitably selected case can illustrate neatlyover unrelated diversification (see Chatterjee the successful or unsuccessful past attemptand Wernerfelt 1991), there is a presumption of some managers to achieve a winning fitin much of the refocusing literature that between resources and strategy. Such teachingdivesting peripheral activities to concentrate aids both reinforce the analysis we are offer-upon those more closely related to one another ing and capture the attention of the class byshould raise performance. This is reinforced grounding the subject in a relevant businessby arguments, dating back at least to Penrose context. One the other hand, the subject also(1959), that suggest the costs of management emphasizes the importance of the unknown inrise with size and complexity and, unless these the specifics of individual cases. Indeed, asare offset by comparable benefits, as prom- noted above, the inevitable ignorance of theised, for example, by the M-form hypothesis, outsider confronted by causal ambiguity isperformance may be enhanced by decoupling. both an important device to sustain com-These conjectures have been supported by a petitive advantage and a partial blindfold tonumber of studies of the effects of divestiture any would-be case analyst. The user of caseson corporate performance. Montgomery and must resist the misplaced certainty of ex postThomas (1988), John and Ofek (1995) and rationalizations. Analyses offering 20:20Hoskisson and Johnson (1992) all reported an hindsight do not merely disguise the complexityimprovement in ROA following corporate of the decision-taking they cover but are alsoasset sales. Markides (1995) found a large and unfalsifiable. Under imperfect information, exstatistically significant increase in profitability ante optimal decisions can have unpleasantfollowing reductions in diversification, although outcomes while ex ante mistakes can yieldhis results also suggest that the gains were fortuitous mistakes. As Donald Rumsfeldlarger for the earlier cases of refocusing in his opined about the problems facing US militarysample. Haynes et al. (2002), in a dynamic operations in Afghanistan:panel study of firm profitability, report statis-tically significant positive shocks following Reports that say that something hasn’t happeneddivestment for up to four years after the are always interesting to me, because as we know,event. This study also explores the effect of there are known knowns; there are things we know22 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  15. 15. March 2009 we know. We also know there are known unknowns; paper in 1984 was a disagreement with Porter’s that is to say we know there are some things we do work on industry analysis and generic com- not know. But there are also unknown unknowns – petition, which abstracted away from inter-firm the ones we don’t know we don’t know. differences (Lockett et al. 2008). Wernerfelt’s view was that opportunities and threats cannotClearly there are resources – known knowns – be exploited solely through the external posi-whose potential to impact on a firm’s future tioning of businesses. The firm’s distinctivegrowth is appreciated. Similarly, there are internal characteristics are central to anyfactors – known unknowns – whose causal discussion of strategy formulation. Strategydirection is understood but whose impact should encapsulate what the firm is distinctivelycan only be evaluated ex post. Finally, there good at, and also seek to address the potentialare the unknown unknowns, the products of weaknesses of the firm. A rare example ofunfolding market, technological or other events, authors who have focused on the problemswhose manifestation cannot be anticipated associated with firm weaknesses are West andand incorporated in even the most careful DeCastro (2001) or Powell’s (2001) considera-scenario planning. For example, firm managers tion of competitive disadvantage.may know that their firm is outperforming its Second, the resource base of the firm isrivals but are unable to explain why this is the path dependent, i.e. history matters. Firmcase, i.e. the causal ambiguity problem. An resources are developed through competitionexample of known unknowns would be the in markets, and so the markets in whichfuture value of a firm’s resources as markets the firm competes today, and the way in whichevolve. We know the value of the resources it competes, will be the most importantwill change over time but not how. We may determinants of that firm’s resource basenot be on our own in not being able to under- tomorrow. In effect, any learning by the firmstand the notion of unknown unknowns. will be, ceteris paribus, closed in to its existing Known knowns are unlikely to enable a operations.firm to outperform its rivals in the medium to Third, managers need to be able to under-long run unless there are market impediments stand the functionality of their resources.that prevent competition for the underlying Resources are defined by their usage. Forresources (this is the genesis of Barney’s 1991 example, a building may be used for a numberpaper). Known unknowns, however, are much of different purposes, but its current usagemore interesting from an RBV perspective. may blinker managers from fully appreciatingThe role of managers is to try and make sense the full range of potential functions theof known unknowns and to manage the building could be used for. This idea linksambiguity surrounding them. As for unknown back to Levitt’s (1960) marketing concept, inunknowns, what can we do about them if we that customers are not interested in the resourcesdo not ever know about them, even ex post? of a firm, rather they are interested in how The approach adopted in this paper is to firm resources may satisfy their wants andtreat the RBV not as a theory of firm behaviour needs. Two firms may be able to satisfy similarbut, primarily as a theory that offers insights wants and needs of a customer but by usingabout the decision-making behaviour of different resources. In the area of informationmanagers. Below, we have outlined some of and communication technology, high degreesthe main practical insights of the RBV, which of technological change have led to a blurringare presented as an illustrative rather than of market boundaries. Companies from com-exhaustive list. puting, telecommunications, software, consumer First, managers need to understand what electronics are now all competing against oneare the strengths and weaknesses of a firm. another in similar markets but with histori-Wernerfelt’s motivation for writing his seminal cally very different backgrounds.© 2009 The Authors 23Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  16. 16. The resource-based view of the firm Fourth, the resource base of the firm is con- attention needs to be devoted to the theoreticaltinuously subject to the processes of resource issue of the causes of firm heterogeneity. Allcreation and decay. As markets evolve, the RBV work begins with the explicit or implicitunderlying value of a firm’s resource base assumption of firm heterogeneity. Evenchanges over time. Changing technology and Dierickx and Cool’s (1989) arguments aboutconsumer tastes, allied to the competitive the causes of competitive advantage focus onprocess, will tend to erode the value of many how differences between firms may becomeresources over time. In general, the resources amplified over time. If the RBV is to developthat may hold the key for a firm’s position of as a theory, it is important that we understandcompetitive advantage in one period may the origins of firm heterogeneity. In a recentmerely become a necessary resource to earn interview Birger Wernerfelt has posed thenormal returns. Consequently, firms should question as to whether or not it is possible tocontinuously seek to manage their resource start with a model of homogeneous firms orbases, investing in decaying resources and homogeneous people, or at least randomlyalso seeking to develop new resources. distributed people, and generate significant Fifth, acquiring competitive advantage in a heterogeneities between firms (Lockett et al.resource market is not possible in the absence 2008). We feel that, by providing insights intoof asymmetric information and/or co-specialized the origins of firm heterogeneity, we may beresources with which you are going to aug- able to understand better how managers canment the new resources (Denrell et al. 2003). generate and manage their firm’s distinctiveTherefore, it is likely that any position of differences.competitive advantage will have to be internally Second, more scholarly attention needs todeveloped (Barney 1986). be focused on the neglected theoretical issue of resource functionality. Evidence of this neglect can be identified in the burgeoningThe Resource-based View Looking literature on dynamic capabilities (seeForward Ambrosini and Bowman 2009). Scholars ofWhere is the RBV going, and where should it dynamic capabilities have focused on the role ofbe going? The RBV, owing to its permeable resource creation/decay and resource recom-and eclectic nature, has become something of bination, but have not addressed the issue ofa broad church (Hoskisson et al. 1999). In this resource functionality. Any discussion thatpaper, we have focused on the core essence of products and resources are two sides of thethe RBV, but many sub-fields have developed same coin, and that resource usage mayas areas of study, including the study of determine how we perceive the functionalityknowledge (as a specialized firm resource), of a resource is largely absent from the RBVcapabilities (created by bringing together literature. We feel that this is a fundamentalbundles of resources) and dynamic capabilities weakness of the RBV literature to date. It is(the ability to continuously adapt and re- important, therefore, that more scholarly effortconfigure a resource and capability base). We is invested in trying to understand resourcecannot predict where future developments will functionality and how this relates to the potentialtake the RBV. Instead, we conclude by offering product/service market space a firm maya subjective view on where we think scholars compete in. There are obvious links that mayshould focus their efforts in the future. We be made here to cognitive psychology andfocus on theory and method as we feel that decision framing.empirical evidence and practical insights will Third, as the RBV is a theory about whatfollow logically in time. firms are, and does not require a host of First, rather than focusing on the conse- limiting assumptions, it can be deployed withquences of firm heterogeneity, more scholarly other theories to explain strategic behaviour.24 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  17. 17. March 2009This is a huge advantage of the RBV, as com- 3 It can avoid some of the management/digestionplex relationships can seldom be understood problems associated with the acquisition ofthrough a single theoretical lens (Gray and diversified firms (see Kay 1997). An expandingWood 1991). To date the RBV has been linked firm entering a joint venture can target the resources it requires without having to acquireto theories of the firm, such as AT and trans- and subsequently dispose of (see Ravenscraft andaction cost economics. For example, RBV Scherer 1987) the unwanted remainder. Similarly,provides insights into the issue of value the lower level of sunk commitment associated withcreation within firms, whereas TCE provides joint venturing may reduce risk by comparisoninsights into economic organization (Madhok with a full acquisition (see Balakrishna and Korza2002). We urge scholars to embrace the 1993).permeable, eclectic and permissive nature of 4 A result that suggests that diversification is bene-the RBV to generate new insights into firm ficial in capturing the spillover effects of R&D.behaviour. Finally, scholars need to reflect on their Referencesmethodological approaches to empiricalresearch on the RBV. We have suggested that Ambrosini V. (2007). The resource-based view of theit is those resources that are complex, unob- firm. In Jenkins, M., Ambrosini, V. and Collier, N.servable and difficult to measure that are (eds), Advanced Strategic Management: A Multi- Perspective Approach. Basingstoke: Palgrave.likely to be of greatest importance. Further- Ambrosini, V. and Bowman, C. (2001). Tacitmore, the paper has noted that problems of knowledge: some suggestions for operationalization.multicollinearity and endogeneity plague Journal of Management Studies, 38, 811–829.hypothesis testing in the area, particularly Ambrosini, V. and Bowman, C. (2009). What arewith firm-level data. Addressing these problems dynamic capabilities and are they a useful construct inwill not be easy. It may be that more effort strategic management? International Journal ofneeds to be devoted to the collection of data Management Reviews, this the business unit level or with samples of Amit, R. and Schoemaker P.J.H. (1993). Strategicsmaller firms where the resource set is less assets and organizational rent. Strategic Manage-complex. Also, management researchers may ment Journal, 14, 33–46.need to become more diligent in their search Armstrong, C.E. and Shimizu K. (2007). A review of approaches to empirical research on the resource-for suitable instruments to overcome the based view of the firm. Journal of Management, 33,endogeneity problem in commonly employed 959–986.variables (Lockett et al. 2008). These improve- Balakrishnan S. and Korza, M. (1993). Informationments in quantitative investigation will hope- asymmetry, adverse selection and joint ventures:fully be accompanied by insightful case-study theory and evidence. Journal of Economic Behaviorwork. and Organization, 20, 99 –117. Barney, J. (1986). Strategic factor markets: expectations, luck, and business strategy. Management Science,Notes 32, 1231–1241.1 Address for correspondence: Andy Lockett, Profes- Barney, J. (1991). Firm resources and sustained com- sor of Strategy and Entrepreneurship, Nottingham petitive advantage. Journal of Management, 17, University Business School, Jubilee Campus, 99–120. Wollaton Road, Nottingham, NG8 1BB, UK. Barney, J. (1995). Looking inside for competitive Tel.: +44 (0) 115 9515268; Fax: +44 (0)115 8466667; advantage. Academy of Management Executive, e-mail: 9(4), 49–61.2 Lockett and Thompson (2001) argue that there is Barney, J. (2001a). Is the resource-based ‘view’ a useful a considerable body of empirical evidence in the perspective for strategic management research? Yes. field of economics that empirically tests hypotheses Academy of Management Review, 26, 41–58. congruent to the RBV; i.e. the RBV is present but Barney, J. (2001b). Resource-based theories of com- unrecognized. petitive advantage: a ten-year retrospective on the© 2009 The Authors 25Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management
  18. 18. The resource-based view of the firm resource-based view. Journal of Management, 27, Gray, B., and Wood, D.J. (1991). Collaborative alliances: 643–650. moving from practice to theory. Journal of AppliedBarney, J. and Arikan, A.M. (2001). The resource- Behavioral Science, 27(1), 3–22. based view: origins and implications. In Hitt, M.A., Greenstein, S. (2000). Building and delivering the Freeman, R.E. and Harrison, J.S. (eds), Handbook virtual world: commercializing services for internet of Strategic Management. Oxford: Blackwell. access. Journal of Industrial Economics, 48,Barney, J., Wright, M. and Ketchen, D.J. (2001). 391–412. The resource-based view of the firm: ten years after Grubaugh, S.G. (1987). Determinants of direct foreign 1991. Journal of Management, 27, 625–641. investment. Review of Economics & Statistics,Bowman, C. and Collier, N. (2006). A contingency 69(1), 149–152. approach to resource creation processes. International Harrison, R.E., Hitt, M.A., Hoskisson, R.E. and Journal of Management Reviews, 8, 191–211. Ireland, D. (1991). Synergies and post-acquisitionCarroll, G.R., Bigelow, L.S., Siedel, M.D.L. and Tsai, performance: differences versus similarities in L.B. (1996). The fates of de novo and de alio resource allocations. Journal of Management, 17, producers in the American automobile industry. 173–190. Strategic Management Journal, 17(Summer Special Haynes, M., Thompson, S. and Wright, M. (2002). Issue), 117–137. The impact of divestment on firm performance:Caves, R.E. (1996). Multinational Enterprise and empirical evidence from a panel of UK companies. Economic Analysis. Cambridge: Cambridge Univer- Journal of Industrial Economics, 50, 173–196. sity Press. Haynes, M., Thompson, S. and Wright, M. (2003).Chatterjee, S. and Wernerfelt, B. (1991). The link between The determinants of divestment: a panel data analysis. resources and type of diversification: theory and evi- Journal of Economic Behaviour and Organization, dence. Strategic Management Journal, 12, 33– 48. 52(1), 147–166.Coase, R.H. (1937). The theory and nature of the Hennart, J.F. and Reddy, S. (1997). The choice firm. Economica, 4(16), 386– 405. between mergers/acquisitions and joint ventures:Collis, D.J. (1994). Research note: how valuable are the case of Japanese investors in the United States. organizational capabilities? Strategic Management Strategic Management Journal, 18, 1–12. Journal, 15(Winter Special Issue), 143–152. Hoskisson, R.E. and Johnson, R.A. (1992). CorporateCombs, J. and Ketchen, D.J. (1999). Explaining restructuring and strategic change: the effect of interfirm cooperation and performance: toward a diversification strategy and R&D intensity. Strategic reconciliation of predictions from the resource- Management Journal, 13, 625–634. based view and organizational economics. Strategic Hoskisson, R.E. and Turk, T.A. (1990). Corporate Management Journal, 20, 867–888. restructuring: governance and control limits of theDavid, R.J. and Han, S.K. (2004). A systematic assess- internal capital market. Academy of Management ment of the empirical support for transaction cost Review, 15, 459–477. economics. Strategic Management Journal, 25, 39–58. Hoskisson, R.E., Hitt, M.A., Wan, W.P. and Yiu, D.Denrell, J., Fang, C. and Winter, S. (2003). The econom- (1999). Theory and research in strategic management: ics of strategic opportunity. Strategic Management swings of a pendulum. Journal of Management, 25, Journal, 24, 977–990. 417–456.Dierickx, I. and Cool, K. (1989). Asset stock accumu- Ingham, H. and Thompson, S. (1995). Deregulation, lation and sustainability of competitive advantage. firm capabilities and diversifying entry decisions: Management Science, 35, 1504 –1511. the case of financial services. Review of EconomicsFoss, N.J. and Knudsen, T. (2003). The resource- & Statistics, 77(1), 177–183. based tangle: towards a sustainable explanation of Jensen, M.C. (1986). Agency costs of free cash flow, competitive advantage. Managerial and Decision corporate finance and takeovers. American Economic Economics, 24, 291–307. Review, 76, 323–329.Godfrey, P.C. and Hill, C.W.L. (1995). The problem Jensen, M.C. (1993). The modern industrial revolution, of unobservables in strategic management research. exit, and the failure of internal control systems. Strategic Management Journal, 16, 519–533. Journal of Finance, 48, 831–880.Goold, M. and Luchs, K. (1993). Why diversify? John, K. and Ofek, E. (1995). Asset sales and the Four decades of management thinking. Academy of increase in focus. Journal of Financial Economics, Management Executive, 7(3), 7–26. 37, 105–126.26 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management