Management & Organizations

Resource Based View is one of the prominent theories of the firm. It is one of the often used lenses in strategic management research. However, to many who are new to strategy research, RBV (as it is better known) equates to Barney (1991). Yes, Barney (1991) summarized this idea better, but the theory has a longer history than that. Here is an earnest attempt to track the evolution of the RBV. If I had missed out any important article in this tradition, it simply could be due to my lack of awareness. So please feel free to add your thoughts.

Penrose, in 1959, was the first to propose the idea that resources play a vital role in the competitive position of the firm. Her argument was that the way firms employed their resources determined the success of the firm in both its organic growth and inorganic growth. Rubin (1973) formalized Penrose’s proposition by arguing that it is not resource per se that helped firm achieve competitiveness, but the ability to process such raw resources that actually mattered. These two works laid the foundation for Wernerfelt’s formalization of the resource-based view in his1984 paper titled “A resource based view of the firm.” He argued that the success of a firm in its product market was a result of its advantages in the factor market (or resource). The rent the firms generate through its operations depends on the superiority of its resources. Prahalad and Hamel (1990) gave a practical approach to the resource-based view, by calling them the ‘core competence of the corporation’. They also clarified that to add value to the firm, resources must be inimitable. Although the core competence approach gained significant impact among practitioners (Newbert, 2007), it was after the publication of Barney’s influential 1991 article – ‘Firm resources and sustained competitive advantages’- that the research community started seriously looking at the resource-based view of the firm. He argued that the resources are distributed heterogeneously among firms and they are imperfectly mobile. Barney (1991) was heavily influence by Dierickx and Cool (1989) who in criticism of one of Barney’s earlier works on the RBV said that in order for a firm to sustain its competitive advantages over time, its resource shouldn’t just be rare and valuable but they should also be inimitable and non-substitutable. Hence, Barney (1991) identified four characteristics of resources that would be required to generate sustainable competitive advantage to firms – resources must be valuable, rare, inimitable and non-substitutable. However, Barney (1991) did not discuss the ability to put their resource to better use as a key factor in determining the sustainability of competitive advantages. Mahoney and Pandian (1992) aptly pointed this out. They essentially emphasized the importance of the process of resource utilization. This new emphasis on process led to the development of the concept of ‘dynamic capabilities’ put forth by Teese, Pisano and Shuen (1997). They defined the firm’s ‘ability to integrate, build and reconfigure [its] internal and external competences to address rapidly changing environments’ as the firms ‘dynamic capability’. Dynamic capability is a concept that is in line with Winter an colleagues works (Nelson & Winter, 1982; Winter, 1995, etc.) on organizational routines. Winter (1995) argued that firms should possess and be able to replicate ‘routines’ or webs of relationships by which resources can be coordinated and /or deployed. Formalizing this linkage between capabilities and resources, Eisenhardt and Martin (2000) argued that dynamic capabilities are those organizational meta-routines, which enable firms to achieve the requisite resource configuration that the situation demands.

I am sure there are a number of recent articles that have advanced this stream of research, but as the title goes, this post is to be viewed as ”RBV for dummies”.