70.440 Barney Resource-Based View

8/6/2019 70.440 Barney Resource-Based View

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Barney: Evaluating Firms

Strengths and Weaknesses: The

Resource-Based View of the Firm

Carnegie Mellon University in Qatar

70.440 Business Policy and StrategyModule 3


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Why not just Environment

Analysis? Environment view fails to explain two

situations:

Some firms earn above-normal return incompetitively difficult industries, i.e.many threats, few opportunities

Some firms earn below-normal return inindustries with relatively few threats andenormous opportunities


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Resourced-based View

The unit of analysis: idiosyncratic,costly-to-copy resources controlled by a

firm, not industry A framework to analyzing a firms

strengths and weaknesses


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RBV: Assumptions

Assumption 1: Resource heterogeneity

Firms are bundles of productive resources anddifferent firms possess different bundles of theseresources

Assumption 2: Resource immobility

Resources are used to exploit opportunities or

neutralize threats Resources are owned by a small number of

competing firms

Resources are costly to copy or inelastic insupply


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Four Kinds ofResources

Financial capital

Ph

ysical capital Human capital

Organizational capital


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Financial Capital

External Sources

Venture Capitalists, Angel Investors

Equity holders

Bond holders

Banks, Capital Markets

Internal Sources Retained earningsinternal source


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Physical Capital

Physical technology

e.g. Information technology

Plant and equipment

Geographical location

e.g.Wal-Mart: rural markets---high

returns Access to raw materials


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Human Capital

Training, experience, judgment,intelligence, relationships, and insight of

individual managers and workers Not just limited to entrepreneurs or

senior managers


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Organizational Capital

A firms formal organization structure

A firms formal and informal planning,

controlling, and coordinating systems

A firms Culture and reputation

A firms informal relations/structure


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VRIO Framework: Four

Questions The question ofvalue

The question ofrareness

The question ofimitability

The question oforganization


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The Question of Value

Do a firms resources and capabilitiesenable the firm to respond to

environmental threats or opportunities? Do a firms resources and capabilities link

internal analyses of strengths &weaknesses with external analyses ofthreats and opportunities


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Changes in Resource Value

Resource value is more than just price

Accounting value

Net present value Market value

When changes in customer tastes, industrystructure, or technology alter resource value, a

firm faces two choices: Develop new and valuable resources and

capabilities

Apply traditional strengths in new ways


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Valuable Resources and

Performance A firms resources and capabilities are

valuable if, and only if, they reduce a

firms costs or increase its revenues Time horizon?


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The Question ofRareness

How many competing firms alreadypossess particular valuable resources and

capabilities? Valuable + rare = temporary competitive

advantage

Valuable +not rare = competitive parity


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The Question of Imitability

Do firms without a particular resource orcapability face a cost disadvantage in

obtaining it compared to firms thatalready possess it?


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Forms of Imitation

Direct Duplication

Substitution


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Sources of Imperfect

Imitability1. Unique Historical Conditions

2. Causal Ambiguity

3. Social Complexity

4. Patents


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Unique Historical Conditions

First mover advantages: the first in anindustry to recognize and exploit an

opportunity Path dependence: events early in the

evolution of a process have significanteffects on subsequent events.


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Causal Ambiguity

Managers cannot fully understand therelationship between the resources andcapabilities they control and competitive

advantage Managers are often unaware of these

relationships or take them for granted

Managers are often unable to distinguish

between multiple competing hypotheses orexplanations

Managers often discount theinterconnectedness or complex network effectsof many of their actions, e.g. adopting bestpractices


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Social Complexity

Interpersonal relations

Culture

Reputation

Physical resources + Social Complexity

>>> difficult to imitate


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Patents

Patents make it costly for competitors toimitate a firms products in some

industries Patents can also decrease the costs of

imitation by revealing information abouta firms product


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The Question of Organization

Is a firm organized to exploit the fullcompetitive potential of its resources and

capabilities? Complementary resources and

capabilities

Incentives decentralization

clearly defined goals


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The VRIO Framework

Is a resource or capability.Valuable Rare Costly to

imitate

Exploited by

the

organization

Competitive

Implications

Economic

Performance

No No No No Competitive

disadvantage

Below Normal

Yes No No No Competitive

Parity

Normal

Yes Yes No No Temporary

Competitive

Advantage

Above Normal

Yes Yes Yes Yes Sustained

Competitive

Advantage

Above Normal


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Limitation I: Schumpeterian

Revolutions

CA is easier to sustain when

Environment remains relatively stable

Environmental factors are predictable The rule of the game in an industry remains

relatively fixed

Competitive advantage is difficult to sustain ,

especially during Sch

umpeterian revolutions,i.e. where the environment changes rapidly andunpredictably and resource values change

rather than get competed or imitated away.


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Limitation II: Managerial

Influence Imitability Paradox: Managers have a

limited ability to create sustained

competitive advantages Not all firms will be able to gain

sustained competitive advantages


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Limitation III: the unit of

analysis Broader theories have better access to

information.

InR

BV, th

e unit of analysis is firm resourceswhich

are intra-organizational and thus, hard to access

can only be analyzed one resource at a time

are difficult to describe and often intangible and may or may not generate sustained

competitive advantages

Documents

70.440 Barney Resource-Based View