Resource Based View

The purpose of this abstract is to summarize and evaluate the paper „Is the resource-based “view” a useful perspective for strategic management research “ written by RICHARD L. PRIEM and JOHN E. BUTLER.

I.Summarization

The authors try to clarify the fundamental theoretical statements of the resource based view (RBV) and specify its fundamental contributions to knowledge. PRIEM and BUTLER try to answer two basic questions:

1. Is the foundational and unembellished RBV actually a theory? 2. Is the RBV likely to be useful for building understanding in strategic management?

In order to approach these questions the authors firstly evaluate the diffusion of the RBV throughout strategy literature. In the following step they examine the basic RBV framework developed by BARNEY in order to check if it satisfies key requirements of a theoretical system. Next they examine RBV- driven research and finally develop suggestions from this analysis for future RB strategy research.

1. Is the foundational and unembellished RBV actually a theory? Earlier strategy- related research has put its emphasis on SWOT-analysis and later, after the publication of Porter´s “Competitive Strategy”, on external, industry- based competitive issues. It has been WERNERFELT´s article “A Resource- Based View of the Firm”(1984) that increased the awareness of the importance of resources for a firm´s competitive position. Among others RUMELT (1984), BARNEY(1986,1991), DIERICKX and COOL (1989) have contributed to the subsequent development of the RBV, making conceptual work to characterize firm resources that can be conducive to competitive advantage.

Some theorists have emphasized on how resources contribute to diversification, while others examined how or why resources contribute to the advantage of one firm over another in a particular market. This “business-level” question of how to compete is elemental and determining both the RBV´s theoretical basis and its potential contributions to strategic management. Thus PRIEM and BUTLER choose BARNEY`s fundamental definitions of a single-business RBV for their investigations because they offer the most detailed formal depiction of the resource- based perspective. Additionally to this the majority of RBV studies base upon BARNEY`s organizational frame.

The underlying axioms of BARNEY`s RBV are that resources are distributed heterogeneous over firms and that these resources are immobile. Based on that, the RBV has two fundamental assumptions: (1) Resources that are valuable and rare produce competitive advantage. (2) If at the same time these resources are not substitutable, not imitable and not transferable they can create sustainable competitive advantage.

The authors observe the “lawlike” generalizations in the RBV to figure out whether the RBV is a theory or not. To be considered a scientific theory, a system of statements has to contain some lawlike statements, meeting the following criterions: (1) To contain generalized conditionals, which can be recognized by their “if/then” form. Adding if and then to the above named fundamental arguments, they meet this criterion. (If a resource…,then it…, if it is additionally…,then it will…) (2) To have empirical content. This criterion helps to distinguish between analytical and synthetic statements.

Analytical statements are true because of their either/or form or the way terms are defined, while from synthetic statements we can only know if they are true after investigation. The authors exchange the concepts in BARNEY`s original statements with the definitions of these concepts and come to the conclusion that these revised statements are analytical statements, true by definition. Thus the elemental statement of the RBV is not a “lawlike” generalization and due to this not empirically testable. To meet this standard of being synthetic conceptual work is necessary.

The underlying problem about the main statement “rare and valuable resources produce competitive advantage” is that competitive advantage is defined with concepts of rarity and value and the characteristics of resources that cause competitive advantage are rarity and value. (3) Showing “nomic necessity”. If characterizations of the elementary RBV statement could be conceptualized leading to a synthetic statement this reformulation could be examined for this last criterion. Nomic necessity means that “the appearance of one phenomenon is linked with another”.

Another point PRIEM and BUTLER mention , is that if the formulations were more synthetic then value instead of rarity would be the fundamental element that determines the extent of competitive advantage. The authors argue that if one firm generates more value than another in the same industry it must have at least one rare resource but if one firm has a rare resource it doesn´t mean it will generate more value. Carrying on this argument, the authors observe the definition of a valuable resource in the RBV: “[…]when they exploit opportunities or neutralize threats in a firm´s environment”.

This definition shows that it is the environment that determines the level of value through its opportunities and threats. Opportunities and threats, however, are exogenous, they are sources outside the resource- based model. As an effect, the RBV holds customer and product factors constant, makes the implicit assumption that product markets are immobile and inhomogeneous. The environment-based model on the other hand has the underlying assumptions that the named factors are mobile and homogenous.

2. Is the RBV likely to be useful for building understanding in strategic management? According to MEYER`s study, PRIEM und BUTLER explore the usefulness of the RBV by checking its ability to develop management tools in the form of actionable prescriptions for practitioners. Regarding THOMAS` and THYMON`s definition, one can notice that even if the RBV was descriptively accurate containing prescriptions for practitioners it would not be “operational valid” unless it allows managers to manipulate the key independent variables. The prescription in the RBV does not allow this manipulation, simply advising to supply valuable and rare resources to produce competitive advantage and that these resources should also be hard to imitate and non-substitutable .

Additionally, criteria for the judgment of each resource are necessary for effective prescription but the criteria for value still remains in the causal “black box”, exogenous to the RBV. Another problem the authors mention is the identification of contexts in which one theory can be applicated. In most of scientific theories contexts are determined, but in the RBV research there are only two exceptions that tried to specify boundaries of its efficacy, MILLER and SHAMSIE´S and BRUSH and ARZT`s work.

Not finding contextual boundaries of the RBV could be one effect of its tendency to classify resources that are all-inclusive. Typical definitions say that virtually anything that can be associated with one firm may be a resource. Some resources however are nearly unmeasurable and especially unmanipulatable such as tacit knowledge. Even if recources are amenable to manipulation, RBV scholars have to become clearer concerning the level of practitioners. Another issue is the process black box. Barney says that resources should be valuable, but when where and who are the three basic questions he does not answer. MILLER and SHAMSIE`s work is raising and it starts to answer these important How- questions, the process black box in the strategy literature.

Last but not least PRIEM and BUTLER recognize that the sequence of arguments in most of the RBV literature is static, which resu lts in potential restrictions for the strategic management research. The authors deduce several restrictions about the present state of the single business RBV. (1) To fulfill the necessities of a theory, there is significant conceptual work missing. (2) The RBV makes implicit assumptions about product markets, just like the environmental model made implicit assumptions about resources.

(3) The fundamental “value” variable is exogenous to the RBV. (4) All-inclusive definitions hinder the discovering of contextual and descriptive boundaries. (5) Static, crosssectional approaches result in causal Hows and Whys and remain in a black box. PRIEM and BUTLER see the challenge in formalizing the RBV, answering the How- questions, including the temporal component, and in integrating the demand-heterogeneity model. The author´s conclusions are that continuing (1)conceptual work on clear definitions, relationships, interrelationships between specific concepts of the fundamental statement, (2)with attempts to answer How-questions,

(3) considering the temporal component for deep understanding of complex interaction between resources of a firm and the competitive environment and (4)integration of the RBV with demand heterogeneity models

will probably result in a clear, testable, and improved coherent RBV that fulfills the requirement of a theory.

II.Evaluation

From my point of view the authors did a great job examining the actual status of the RBV. In my opinion, one of the main weaknesses of the RBV is the concept “valuable” in BARNEY`s fundamental statement. A resource is “valuable” if it generates earnings, if there is a demand on the market. Thus, value is determined by the environment, which is not subject of the resource- based investigation. Drawing conclusions from the RBV managers have to be aware of these simplifications when making a resource-based analysis.

As the authors suggest, I think it is reasonable to combine the resource-based view (inside-out) and the market- based view (outside-in) to make a step towards an entire strategy model and to be useful for a firm that operates in a permanent changing market. In my opinion the main argument of the RBV doesn´t bring new insights and cannot be called a scientific finding, because is tautological.

Tautology means using different words to say the same, therefor tautological statements are true by definition, like the revised statement “resources that are valuable and rare produce competitive advantage”. Another point is that some resources are not measurable, thus it is very hard to identify which particular resource generates value in a particular market. Regarding the named weaknesses finally I conclude that the main problem is the implementation of the RBV, formulating a precise strategy based on a resource- based investigation.

References:
Priem, R.L. & Butler, J.E. 2001, Is the Resource- Based “View” a useful Perspective for Strategic Management Research? The Academy of Management review, 26(1):22-40