KNOW THYSELF

Strategic Management: Know Thyself



Strategic Management: Know Thyself

Resource Based View

The founding base of RBV is given by Penrose (1959) when she describes a firm as a collection of resources and goes on arguing that it is the heterogeneity of the services available from resources that gives each firm its unique character. She adopts a broad definition of resources to include managerial skills as well as entrepreneurial skills. Later on, Wernerfelt (1984) defines firm's resources as tangible and intangible assets which are tied semi-permanently to the firm and posits that it is possible to develop a theory of competitive advantage based on the resources that a firm controls in accordance with the dualistic reasoning of economics. The implication of his thought is that competition for resources and among firms based on their resource profiles can have an important implication for the ability of the firms to gain competitive advantage in implementing the product-market strategy. Following his work, numbers of researchers have been trying to build a normative theory of RBV to explain the logic of rent generation. Rumelt (1984) in his paper also views firms as a bundle of resources and asserts that economic values of resources vary depending on the context in which they are used and introduces the concept of 'isolating mechanism' for inimitability of resources. As opposed to the Porter's (1980) view of superior firm performance as a result of entering and operating in an attractive industry, Barney (1986) argued that if the factor market of resources are perfectly competitive, it is not possible for a firm to get economic rent even if it is successful in creating an imperfect product market because the price paid to such resources will be equal to its value that the resource will create in the product-market.

There is an imperfection in the factor-market which is result of luck or insights of the firm. An extended view of Barney's concept is reflected in Diericx and Cool's (1989) paper where the authors show how a resource, already in the possession of a firm, can create rent. According to them, if a resource is causally ambiguous, characterized by interconnected asset stocks or asset mass efficiencies and are subject to time compression diseconomies, it is less likely that the resource would be affected by the factor-market competition. The framework offered by RBV is appealing for firms seeking sustained competitive advantage. However, the requirements for firm resources limit the number of resources with the potential to create a sustained competitive advantage. Olsen, West, and Tse (1998) offer some insights into identification of firm resources capable of generating a competitive advantage. Among these ...