Organizational Competitive Advantage

Resource Based View (RBV)

Chapter # 5
Resource Base View (RBV)
Resource-Based Theory
• Resource-based theory examines performance differences of organizations based on
their resources (Peteraf & Barney, 2003).
• Two Assumptions (Barney, 1991)
1) Organizations within an industry may differ in their resources
2) these resources may not be perfectly mobile across organizations, so organizational
differences in resources can be very long lasting
• The theory seeks to explain how organizations maintain unique and sustainable
positions in competitive environments (Hoopes, Madsen, & Walker, 2003)
• It focuses on efficiency-based differences, instead of on other ways in which
organizations could be different, such as market power, collusion, or strategic
behaviors (Peteraf & Barney, 2003).
Resource Base View (RBV)
Resource-Based Theory
• The central idea in resource-based theory is that organizations compete against
others on the basis of their resources and capabilities (Barney, 1991;
Wernerfelt, 1984).
• An organization’s competitors can be identified by the similarity of their products,
resources, capabilities, and substitutes (Peteraf & Bergen, 2003).
• The theory assumes that organizational decisions to select and accumulate
resources are economically rational and subject to limited information, biases and
prejudices, and causal ambiguity (Oliver, 1997).
- Causal ambiguity means that it is not known exactly how a resource leads to
above-average performance for an organization
Resource Base View (RBV)
Resource-Based Theory
• A resource is defined as anything that could be thought of as a strength for an
organization (Wernerfelt, 1984).
• Resources include any tangible or intangible assets that are semi permanently tied
to the organization (Caves, 1980)
Examples of Resources brand names; employee knowledge, skills, and abilities;
machinery and technology; capital; contracts; and efficient procedures and processes
(Wernerfelt, 1984)
• An organization’s resources are seen as strengths that help the organization to
better compete and to accomplish its vision, mission, strategies, and goals (Porter,
1981)
Resource Base View (RBV)
Resource-Based Theory
Capabilities were originally seen as a type of resource, but later research has
separated the two concepts.
• The desirable position for an organization is to create a unique resource situation
that makes it more difficult for its rivals to compete (Wernerfelt, 1984).
• An organization’s competitive position relative to other organizations is based on
its collection of unique resources and relationships (Rumelt, 1974).
• An organization has a competitive advantage when it uses a profitable, value-
creating strategy that is not being used by competing organizations (Barney, 1991).
• If competing organizations are not able to learn about that strategy and copy it,
then an organization has a sustainable competitive advantage (SCA).
Resource Base View (RBV)
Resource-Based Theory
Organizational SCA derives from the resources and capabilities that an organization
controls that are valuable, rare, inimitable, and non-substitutable (VRIN) (Barney,
1991).
1) Resources are Valuable. when they help an organization create or implement
strategies that improve its efficiency and effectiveness
2) Resources are Rare. when more organizations want the resource than are able to
obtain it
3) Resources are inimitable and nonsubstitutable when they are immobile and
expensive to imitate or replicate. An organization must have the ability to absorb and
utilize its resources in order to obtain a sustainable competitive advantage.
(Barney & Clark, 2007; Conner, 1991)
Resource Base View (RBV)
Resource-Based Theory
The theory focuses on performance differences across firms. Performance
differences are viewed as earnings differentials attributable to resources having
different levels of efficiency (Barney, 1991; Peteraf, 1993).
- Superior resources enable an organization to produce better products and satisfy
customers more sufficiently than it would with inferior resources
- Organizational efficiency means that a firm has lower costs and can create greater
value and net benefits compared to inefficient firms
- Efficiency is measured in terms of net benefits, or the benefits to an organization
that are left after the firm’s costs are subtracted
Resource Base View (RBV)
Criticisms and Critiques of the Theory
1. Resource-based theory is elegantly simple its core ideas are appealing and are
easily taught and understood (Kraaijenbrink, Spender, & Groen, 2010).
2. The theory lacks managerial implications (Priem & Butler, 2001).
3. The theory merely tells managers to obtain VRIN resources, but does not tell
managers how to do this (Conner, 2002; Miller, 2003).
4. The theory also assumes that managers have total control over their resources or
can predict the value of resources in the future (Conner, 2002; Miller, 2003).
5. Many researchers have argued that the theory is essentially tautological
(needless repitition) (for example, Bromiley & Fleming, 2002; Lockett,
Thompson, & Morgenstern, 2009; Priem & Butler, 2001).
Resource Base View (RBV)
Criticisms and Critiques of the Theory
6. Resource-based theory defines, rather than hypothesizes, that sustainable
competitive advantages and performance are the result of variation in both resources
and capabilities across organizations (Hoopes, Madsen, & Walker, 2003).
8. A major criticism of the theory is that resources and capabilities are treated as
though they are all the same (Kraaijenbrink, Spender, & Groen, 2010)
9. Critics have argued that SCA is not achievable. For example, Fiol (2001) argued
that competitive advantages can be achieved only temporarily because the skills and
resources required to create strategic advantages are constantly changing
Resource Base View (RBV)
Criticisms and Critiques of the Theory

10. Critics have argued that VRIN resources are neither necessary nor sufficient to achieve SCA
Armstrong & Shimizu, 2007; Newbert, 2007). This means that factors in addition to VRIN resources
must also be responsible for firms’ obtaining SCA or not.

References
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.
Barney, J. B., & Clark, D. N. (2007). Resource-based theory: Creatingand sustaining competitive advantage. New
York: Oxford University Press.
Barney, J. B., Wright, M., & Ketchen, D. J., Jr. (2001). The resourcebased view of the firm: Ten years after 1991.
Journal of Management, 27, 625–641.
Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management
Journal, 14, 179–191.
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171–180.
Resource Base View (RBV)
Implications of the Theory for Managers
Resource-based theory posits that an organization can achieve sustainable
competitive advantage by controlling resources that are valuable, rare, imperfectly
imitable, and nonsubstitutable.
1) Help your organization use resources more effectively and efficiently than your
competition over time.
2) Help your organization understand how and why its resources are better or worse
than those of its main competitors.
3) Explore ways that you can help make your company’s current resources better,
more efficient, and more cost-effective
Resource Base View (RBV)
Resource-Based Theory
According to Prahalad, C. K., & Hamel, G.
•Positioning Approach
•Internal characteristics of the firm claiming that competitive advantage arises from a unique asset or competencies
Assets or Resources
•Things that a firm has like reputation, access to a particular raw material or a customers database, a Factory.
•Assets are rare and may quality as Strategic Assets
•An Assets or Resources is Strategic if it fulfills the VRIN Criteria;
Valuable. A resource must enable a firm to employ a value creating strategy, by either out performing its competitors. E.g.
Reputation, customers database, Factory etc.
Rare. To be a value, a resource must be rare by definition. Patents belonging to a Pharmaceutical company Glaxo smith or
Diamond Mines owned by a company such as De Beers
In-imitable If a valuable resource is controlled by only one firm it could be a source of a competitive advantage, This
advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly.
Non-substitutable Even the resource is rare, potentially value-creating and imperfectly imitable, an equally important aspect is
lack of sustainability.
If competitors are able to counter the firm’s value-creating strategy with a substitute, prices are down
Resource Base View (RBV)
Resource Base View (RBV)
Resource-Based Theory
According to Prahalad, C. K., & Hamel, G.

Capabilities
Things that a firm has learned to do with its assets that is service orientation, ability to quickly learn or adopt, ability to
cut cost, create amazing products.
For example. Two organization with same resources and one succeed in making popular and well-designed products
with the other does not
•Threshold Capabilities
Minimum capabilities needed for organization to compete or survive
Firm that has only threshold capabilities is just surviving for the present and will probably not have a long-term
existence.
•Strategic Capabilities
To have a safer longer-term existence an organization needs strategic capabilities (threshold capabilities plus capabilities
for competitive advantages.)
Resource Base View (RBV)
Resource-Based Theory
According to Prahalad, C. K., & Hamel, G.

Competencies
A deeper seated aversion of capabilities, represented by a routine that has been build up overtime. For example. A deep
understanding of a particular type of specialized technology.
Organizational Culture >> Google
Innovation and R&D >> Apple
Reliability >> Dell
•Core Competencies
•Capable to create more value
•Core competencies surround around individuals working in the organization
•Competencies are enhanced and share across the organization
•Competencies act like glue which bind businesses together as well as pave the way for new business development
Resource Base View (RBV)
Resource-Based Theory
According to Prahalad, C. K., & Hamel, G.
Competencies
•Threshold Competencies
•Activities and processes needed to meet customers’ minimum requirement.
•Will change over times. Therefore critical to continuously assess and review just to stay in
business.
•Identify the threshold competencies and pay attention to them
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