Strategic Management

Assignment
Abdul Ahad Ali

17U00445

Section A1

Barney 1991 Article Summary:

This article is written by Barney, who in came up with the research in 1991 to specify the
conditions under which firm’s resources can be a source of sustained competitive advantage for a
firm. He sheds light on how the firms within an industry are similar in nature of resources and
strategies they hold and differences, if created, within an industry will be short lived because the
resources used to implement those strategies are highly mobile. This article thereby is considered
as a steppingstone for strategic management concepts.

Barney came up with two assumptions respectively; (i) firms within an industry may be diverse
in terms of the strategic resources that they control. (ii) Resources may not be perfectly mobile
across all firms and thus diversity can be long lasting. Through these assumptions, Barney uses
the resource based logic to analyze the sources of sustained competitive advantage. The
resources that he talks about include the assets, capabilities, organizational processes, firm
attributes and knowledge that a firm uses to implement strategies which would allow it to be
efficient and effective, thus enabling them to an upper hand in the market.

These resources are then categorized into three different subheadings:

Physical capital resources: includes the physical resources of the for example its own
plant/factory, its geographical location, and its ability to control its raw materials.

Human capital resources: includes matters related to the workforce of the firm, from the
training and experience of its workforce to its judgment, intelligence, and its ability to gather
inside information from managers and workers within the organization.
Organization capital resources: These revolve around the formal structure of the organization,
planning, controlling and coordinating systems of the organization. They also include formal and
informal reporting and planning systems, as well as informal relation among groups with the
organization and between external organizations in the competitive environment.

Competitive Advantage: A firm is believed to have a competitive advantage if it is

implementing a value creating strategy that is not simultaneously being implemented by another
potential or currently competing firm in the industry.

Sustained Competitive Advantage: A firm is believed to have a sustained competitive

advantage when it implements a value creating strategy that is not being used up by another firm
and when the firm is also unable to produce the benefits of such strategy.

Attributes of firm resources that lead to a sustained competitive advantage:

1. It must be valuable in the sense that it provides opportunities or neutralizes threats to

the organization's environment;
2. It must be rare among an organization's current and potential competitors;
3. It must be imperfectly imitable;
a. Unique Historical Conditions
b. Casual Ambiguity
c. Social Complexity
4. It must be non-substitutable – there cannot be a strategic equivalent substitute for the
resource that is valuable but neither rare nor imperfectly imitable.
a) An organization may be able to substitute a similar resource that enables it to
conceive and use up the same strategy.
b) Very unique firm resources that can be strategic substitutes.