Niall Murphy

FIRM RESOURCES AND

SUSTAINED COMETITIVE
ADVANTAGE

15203870

Niall Murphy

A literature review

Niall.murphy.9@ucdconnect.ie
Word Count:2303

Niall Murphy

Introduction
In Jay Barneys 1991 article Frim Resources and Sustained Competitive
Advantage, Barney lays out the concept of a resource based business strategy.
Barney outlines four attributes which a resource must have in order for it to hold the
potential of achieving a sustained competitive advantage. Furthermore he delves
into each and lays out criteria which defines them.
These are as follows:
1. Valuable

Resources are valuable when they enable a firm to conceive of or

implement strategies that improve its efficiency and effectiveness.
2. Rarity
Barney defines a competitive advantage as when (a firm) is implementing
a value creating strategy not simultaneously implemented by large
number of firms. Hence where a resource is rare, the firm in control of the
resource can exploit it to implement a strategy that no other (or few
others) can, resulting in an advantage.
3. Imperfectly imitability
However rare and valuable a resource may be in order to obtain sustained
competitive advantage, firms not possessing these recourse must not be
able to obtain them. Barney examines three situations where a resource
can be described as being imperfectly imitable
i. Historical Conditions
Citing several economists (Arthur 1983, 1984a, 1984b; Arthur,
Ermiliev & Kaniovski 1984) Barney suggests that a firm may
(obtain) valuable and rare resources because of its unique
path through history which cannot be duplicated by other
firms
ii. Casual Ambiguity
Simply put casual ambiguity exists when the link between the
resources controlled by a firm and a firms sustained
competitive advantage is not understood or understood only
very imperfectly
iii. Socially complex

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Lending from Wilkins (1989), technologically identical firms may
preform differently due to inherent social relations, culture,
traditions etc. as the lesser preforming firm cannot fully
exploit (the) technology in implementing strategies.
4. Substitutability
For a resource to be capable of a sustained competitive advantage, the
resource must not be either (a) possible for a firm to substitute a similar
resource that enables it to conceive and implement the same strategies
and/or (b) be substituted by a very different resource capable of
formulating similar strategies and achieve advantage.

Barney concludes the article by proving a frame work (figure 1.) and three examples
of
how
it
may
be
applied:

Firm Resource
Heterogeneity
Firm Resource
Immobility

Value
Rareness
Imperfect Imitability
History
Dependent
Causal Ambiguity
Social Complexity
Substitutability

Sustained
Compeditive
Advantage

1. Strategic planning
2. Information processing systems
3. Positive reputation
Each of these three examples when examined can possess the criteria to elevate a
resource to one of value, rarity and become imperfectly imitable and incapable of
substitution giving a firm the opportunity to exploit the resource as a tool for
sustained competitive advantage.

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Literature Review
Mahoneys (1995) article suggests that a return to Penroses (1959) resourcelearning for the next generation of resource-based research and argues that an
integration of organizational learning and resource based theory is necessary for . .
. advancing the theory of invisible assets and sustainable competitive advantage.
Mahoney advises that often the idea of the resource of management is
disregarded within resource-based theory and highlights the importance by citing
Penrose (1959) the experience of management will affect the productive services
that all its resources are capable of rendering and Barney (1991) Managers are
important in the resource based model, for it is the managers that are able to
understand and describe the economic performance potential of a firms
endowments without which sustained competitive advantage is not likely. From
this Mahoney puts forward that the optimal growth of the firm involves a balance
between exploitation of existing resources and the development of new resources
and capabilities.
Through Winter (1991), Mahoney submits that firms accumulate knowledge as a
strategic asset through R&D and learning and that to generate economic value
(an) organisation must continually upgrade its core competencies. Hence the
marriage of the organizational learning and resource based theory is imperative for
continued growth and sustained competitive advantage. Furthermore Mahoney
stresses not only the accumulation of knowledge as being of importance but
processing, storage and retrieval of knowledge.
Mahoney calls for combining resource theory with organizational theory and
proposes four examples that synthesize both approaches (see table below). It is
Mahoneys conclusion that both these approaches cannot be sufficient in isolation
as each can only be so effective for sustaining competitive advantage. The
Resource-based approach can highlight conditions for sustainable competitive
advantage however it cannot articulate management practices that will enable
firms to earn rents.

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Millers 1996 article tests the principals held by the resource-based view in
examining Hollywood movie studios between the mid nineteen-thirties to mid
nineteen-sixties. Miller examines the financial performance of the studios through
the lens of property-based resource, for the first half of the period, and a
knowledge-based for the second half, where the variation in the two time period is a
changing environment, due in large to the introduction of home-entertainment in
the form of television. Miller notes that by 1950, television sets had entered 25%
of homes and the penetration doubles to 50% by 1952.
Miller suggests that the financial success of the studios in the golden years was
predominantly secured due to the predictability of the market as demand for films
remained strong highlighted by a stable pattern of attendance . . . and by
gradually increasing box office revenues. Furthermore a stable customer
preference allowed studios to predict the popularity of certain stars, directors and
genres and could contract these resources to control them and thus maintain a
competitive advantage.
Derived from this Millers forms his first two hypotheses:
Discrete (1) (and) Systematic (2) property based-resources produce a
superior financial performance in predictable environments but will not do so
in uncertain Environments.
However, in the later years up to the mid nineteen-sixties cinema turnout had
halved, and to compete with television, studios had to react to the new environment
and adapt to keep the attention of moviegoers. Miller cites Mast (1992) and Stuart
(1982), suggesting that this was achieved by differentiating their productions from
television by making grander and more lavish productions. To do so they began to
adopt modern techniques. Thus miller concludes that the technical and creative
skills of studios became ever more important additionally cycles of popularity
became shorter as a result studios began to reduce their hold of property, such as
long-term contracts and reduce their distribution networks. Thus the knowledgebased resource was much more imperative to maintain a competitive advantage.
Derived from this change in environments millers second two hypotheses are:
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Discrete (3) (and) Systematic (4) Knowledge-based resources produce a
superior financial performance in uncertain environments but will not do so in
predictable Environments.
Miller examines imperial evidence from the given industry and time and his
hypotheses hold up. He stresses however that an environmental change can have
drastic effects on the value of a resource (property in the case of the studios circa
1950).
The issue of placing a value on a resource is again noted in Priem and Butlers 2001
Academy of Management Review article Is The Resource-Bases View A Useful
Perspective For Strategic Management Research? where they criticize Barneys
(1991) article.
Priem and Butlers first bone of contention is regarding Barneys definitions
throughout his 1991 article, stating that the theoretical statements are simply true
by definition and are hence tautological in nature and as a result cannot be a theory
as it cannot be empirically tested. They continue to recommend use of a different
more widely accepted definitions of competitive advantage. Priem and Butler move
on to examine the definition of value with regards to firm resources determining
that it is the market environment, though opportunities and threats, that
determines the degree of the value held by each firm resource in the RBV (resource
based view) and thus, resource value is determined from a source exogenous to
the RBV. They hypothesise that a synthesis of the resource and environmentbased perspectives might be an important next step toward a more complete
strategy theory.
Priem and Butler bring into question whether a resourced-based view is suitable for
research noting an interviewee from Mayers study stating that research questions
are inherently uninteresting or trivial unless they included an explicated linkage to
performance
They conclude that RBV does not presently appear to meet the empirical content
criterion required of theoretical systems though they accept that, in the future,
RBV may achieve theory status their concern is however that the elemental
strategy concept of value remains outside the RBV.
Barney refuted this claim in an article in the same publication stating that although
they are able to restate parts of the 1991 argument in ways that make it
tautological is not the same thing as demonstrating that the argument is, in fact,
tautological, further more Barney illustrates how this same tactic can be applied to
other strategic management theories. Barney does accept that resource base
theories may require additional work regarding the value of resources under
specific market conditions.
He argues that, as he accepts that the value of a resource is exogenous, it should
be of no surprise that the conditions of what is and is not valuable is not fully
specified. However, he suggest that a resources value should be determined by
models of the competitive environment. Barney lists several authors whom have

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made progress relating to resource value including two sources cited by Priem and
Butler.
Barney concludes his rebuttal providing an answer the question posed by Priem and
Bulter, whether or not more research of the resource base view is useful, with a
resounding yes. Throughout Priem and Bulter highlight, throughout their article,
various aspects of resource based theory that require further development and
refinement. Barney suggests, were he re-writing his 1991 article he would spend
more time on the question of value and how to parameterize is and how value is
related to market structure. Finally Barney notes he would link the argument
much more closely to other economic traditions, including Ricardian economics as
see in Mahoneys 1995 article.
Flore Bridouxs (2004) article speaks about how a frim can obtain resources, she
extrapolates that if a resource can be simply obtained though markets it cannot be
a source of a (firms) distinctive competitive advantage. Bridoux cites Mathews
(2003) identifying; search, acquisition and absorption as the process of strategic
acquisition. Mathews asserts that the final stage absorption as the most
challenging as a firms existing capabilities will determine if a resource can be
integrated. Likewise she states that for a resource to be a source of competitive
advantage, it must generate rents that the firm can appropriate. From this a firms
bargaining power and/or greater information can result in a competitive advantage.
The result of this can lead a firm to favor a tactic of internal resource building.
Secondly she, stresses the process on achieving imperfect imitability of a given
resource without which sooner or later competitors . . . wonder about the source
(of the advantage). She notes that a firms recourses or bundles of resources . . .
must be protected by barriers to imitation or isolating mechanisms. Some of
these mechanisms or barriers are created through ambiguity, historical
circumstances and legal restrictions (patents, copyrights and trademarks). Bridoux
also recognise that early mover advantage are isolating mechanisms and even
reputations and the cost of switching can result in imitation a costly venture. Finally
Bridoux asserts that all isolating mechanisms erode over time, (hence) the firm
must invest to maintain the barriers. . .
Bridoux introduces a link between competition and resources, attaching the idea
there exists a competition in the resource markets as well as first to market
competition and imitative completion which can lead firms to adopt competitive
behaviours including: increasing efficiency, damaging competitors, fostering
collusion, leveraging resources to hurt competitors, lobbying government in
influence regulations and using resources to affect market prices decreasing a
competitors profitability. Bridoux finally recommends a greater examination of the
relationship between resources and competition

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Conclusion
The standing theory of a firms resources being capable of providing a structure
and/or framework to achieve a sustainable competitive advantage is not completely
unfounded. Each of the elements outlined in Barneys 1991 article do stand up to
testing when examined, as seen in Millers 1996 examination of the Hollywood film
studios. The limitations of the theory should not be overlooked. It is my opinion that
a key factor in assessing a firms resources must be subsequent to an examination of
the environment within which the firm resides. Furthermore in an ever changing
environment one must consider how any competitive advantage can be entirely
sustainable. Taking from Mahoneys article it will be more and more imperative that
a firm is engaged in learning and development to be adept at assessing current and
future trends and be able to acquire, enhance and/or develop their resources to
maintain a competitive advantage.
Additionally the more imperfectly imitable a resource is or is able to be maintained
as will provide a circumstance to attain a level of sustainable competitive
advantage. Additionally, in a global economy where greater homogeneity in
resources and logistics exists, managerial and socially complex cultures will become
a greater force for a firms individuality and imitability resulting in a sustained
competitive advantage. However, taking from Bridoux, the ability to keep this as an
imitable resource will be the key to sustaining advantage. Inversely a firms ability
to acquire and integrate the resource though imitation or a form of substitution,
may very well be key to achieving an advantage and gaining sustainability. In the
latter case it will be the firms ability to exceed the original firms advantage to
achieve sustainability. Perhaps integration with a firms inherent resources will allow
this to occur.
It is my opinion that this field of research is not complete and that a greater depth
of research combining the resource-based approach with environmental, economic
and/or learning theories will enable this theory to be fully rounded and applicable to
a variety of firms and circumstances.

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Priem, R.L. & Butler, J.E. 2001, "Is the Resource-Based "View" a Useful Perspective for Strategic
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Stuart, F. (1951). The effects of television on the motion picture industry

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Winter, Sidney G. Knowledge and Competence as Strategic Assets in The

Competitive Challenge. David J. Teece, ed., Ballinger, Cambridge, MA. 1987.
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