THE RESOURCE-BASED VIEW (RBV) OF THE FIRM

An alternative perspective and a more recent entrant into the theoretical discussion of strategic management is the RBV of the firm. In essence, the RBV of the firm significantly differs from Porter's environmentally focused strategic management paradigm in that it emphasizes the firm's internal resources as the fundamental determinants of competitive advantage and performance. Thus, the RBV of competitive advantage is firm specific, whereas Porter's work had a decided industry-environment focus. With its historical roots in the organizational economics literature and the works of Ricardo, Schumpeter, and Penrose, one of the fundamental aspects of RBV is that the ultimate purpose of the firm is to maximize economic rent.20 This encourages corporations to continually extract resources from less-valuable legacy operations and steer them toward profitable innovation.21

The traditional business literature, which includes Porter's work, assumes that firms competing in the same industry are homogenous and that the firm's adaptation to the characteristics of its product market is the key determinant of a firm's performance and success.22 In stark contrast, the RBV of the firm is based on the notion that firms are unique and composed of distinct bundles of resources. Barney posits that a firm is regarded as a bundle of tangible and intangible resources and capabilities.23 Within a pure RBV framework, internal resources are considered the ultimate source of sustained competitive advantage. Thus, strategy is primarily concerned with obtaining an alignment, or fit, between the organization's internal resources and external opportunities.24

At its core, the RBV of the firm operates on two assumptions. First, it assumes that firms within an industry are heterogeneous with respect to the resources they control. Second, it assumes that resource heterogeneity persists over time since the resources required to implement a firm's strategies are not perfectly mobile over time. Therefore, resources uniqueness, or heterogeneity, is considered a necessary condition for the resources to contribute to a competitive advantage. This is reflected in Dierickx and Cool's argument in that if all firms in a market have the same resources, no strategy is available to one firm that would not also be available to all other firms in the market.25 As with the Chicago school tradition, the RBV of the firm presupposes an efficiency-based explanation for differences in a firm's performance.26

Critical to our understanding of the RBV of the firm is the definition of resources, competitive advantage, and sustained competitive advantage. First, Barney asserts that resources fall into three categories: physical-capital resources (e.g., a firm's plant, equipment, and geographical location), human-capital resources (e.g., experience, judgment, and intelligence of individuals), and organizational-capital resources (e.g., a firm's structure, planning, controlling, and coordinating systems).27 Second, in the RBV of the firm, these resources can potentially be sources of competitive advantages. However, Barney warns that competitive advantages can only occur in situations of firm resource heterogeneity (i.e., resources vary across firms) and firm resource immobility (i.e., the inability of competing firms to obtain resources from other firms or resource markets). This is in stark contrast with the environmentally focused strategy models, as espoused by Porter, where resources are deemed mobile and where resources can be purchased or created by competing rivals. Third, a sustained competitive advantage is different from a competitive advantage in that a sustained competitive advantage only exists when rival firms are incapable of duplicating the benefits of a competitive advantage.28

A competitive advantage cannot be viewed as a sustained competitive advantage until all efforts by competing rivals to duplicate the advantage have failed. In the RBV of the firm, a source of sustained competitive advantage must meet four criteria: they must add value to the firm, they must be rare (or unique), they must be imperfectly imitable, and the resource cannot be substitutable with another resource.29 In other words, when resources meet these criteria, they become potential sources of sustained competitive advantages. Barney and Wright add that whether or not such sustained competitive advantages are realized or not depends entirely on the extent to which a firm is organized to exploit them.30

 
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