Sillypott --
The "resource based view" of strategy is based on concepts of
"economic rent" or "economic value-added" that make the firm "unique."
The RBV approach attempts to explain how certain firms arrive at a
strategic competitive advantage. Repeated studies have shown that
certain firms with an industry continually show higher returns than
others -- though classical theories would predict that returns for
comparable companies should be similar.
In addition, the recognition of "first mover" advantages in new
markets has lent credence to value being created within the firm -- as
many 'markets' didn't exist until an innovator like Google or
Amazon.com appeared.
While some people praise it for its look at a company's core
competency -- and believe that it's especially useful in fast-changing
technology environments -- one of the prime weaknesses is
consideration of competitive situations.
WHAT IS RESOURCE BASED VIEW?
===============================
This is a good, short summary of RBV, contrasting it specifically with
Porter's 5 Forces model. Porter concentrates on the external
environment, while RBV advocates say the critical aspect is the
company's internal structure for building a sustainable competitive
advantage. Many feel that Porter is especially weak in considering
internal company dynamics:
1000Ventures.com
"New Paradigm: Resource Based Theory" (undated)
http://www.1000ventures.com/business_guide/mgmt_stategic_resource-based.html
This Fahy & Smithee paper is interesting because it tracks the history
of RBV and contrasts it with SWOT
(Strength/Weakness/Opportunity/Threat) models that have been widely
used by management consulting firms for 40 years. They (and others)
note that Birger Wernerfelt's 1984 article in Strategic Management
Journal, "A resource-based view of the firm" might be considered the
catalyst for RBV theory.
Clearly RBV is valuable in explaining how segmentation of markets
works to give certain companies a sustainable competitive advantage,
with different international markets known to behave quite
differently. But as Fahy and Smithee note, there are at least three
problems with it in the section of the paper titled "Some Conceptual
and Empirical Issues":
? country or cultural issues that change competitive landscape.
? RBV is a static view of a dynamic process. (Though this is a
common critique of all strategic planning models, including SWOT and
Porter's 5 Forces.)
? hard numeric verification of RBV planning concepts have yet to be developed.
? A precise definition of what the "resources" are that a company uses
to differentiate itself.
Academy of Marketing Science Review
"Strategic Marketing and the Resource-Based View of the Firm" (Fahy &
Smithee, October, 1999)
http://www.vancouver.wsu.edu/amsrev/theory/fahy10-99.html
Two papers are generally recognized as synthesizing the current views
on RBV, the most-recent being Margaret A. Peterof's 1993 article, "The
Cornerstones of Competitive Advantage." Your library probably has it
online via Infotrac or Expanded Academic ASAP but here's a summary:
Stanford University
Summary of "The Cornerstones of Competitive Advantage" (undated)
http://www.stanford.edu/~jchong/articles/msande371/Peteraf%20-%20The%20Cornerstones%20of%20Competitive%20Advantage.doc
Peterof argues in the paper that there are 4 conditions for competitive advantage:
1. superior resources
2. pre-conditions limiting competitive entry
3. imperfect resource mobility
4. limits to competitive entry being sustained
Note that the link between limits to competition and profitability is
also one of the factors that Michael Porter uses in his 5 Forces
theory:
QuickMBA
"Porter's 5 Forces" (undated)
http://www.quickmba.com/strategy/porter.shtml
The earlier article is Jay B. Barney's 1991 article from the Journal
of Management, "Firm Resources and Sustained Competitive Advantage."
Abstract: "Firm Resources and Sustained Competitive Advantage"
http://www.agsm.unsw.edu.au/~timdev/readings/READ04.PDF
Barney, who teaches at Ohio State, argues that the firm's resources
must meet 4 conditions:
1. they must be valuable
2. they must be impossible to replicate
3. they must be rare among competitors -- and potential competitors
4. there can't be substitute resources
CRITIQUES OF RESOURCE BASED VIEW
===================================
One of the best overviews -- with key citations and an excellent
critique -- is Nikolai Foss' year-old Powerpoint presentation on the
topic for the Copenhagen Business School. It is graphic, with core
information on the foundation of RBV, and it hits the high points of
the critique:
Copenhagen Business School
"The Resource-Based View: Historical Roots, Basic Analysis,
Extensions, Criticisms and Future Development" (Foss, Feb. 24, 2003)
http://www.cbs.dk/staff/nicolai-foss/Bocconi-2.ppt
Foss and co-author Thorbjorn Knudsen did a paper in last summer for
the Journal of Managerial and Decision Economics with an extensive
critique of RBV. This is an earlier draft of the article from 2000:
Danish Research Unit for Industrial Dynamics
"The Resource-Based Tangle: Towards a Sustainable Explanation of
Competitive Advantage" (Foss & Knudsen, February 2000)
http://www.druid.dk/summer2000/Gallery/foss&tknudsen.pdf
See also:
Wiley Interscience
Abstract (Foss & Knudsen, June 4, 2003)
http://www3.interscience.wiley.com/cgi-bin/abstract/104537187/ABSTRACT
Foss cites 10 different critiques in his classroom presentation (Powerpoint) above:
1. implicit assumptions about competition, markets and how returns are earned
2. the competitive environment
3. that firms may be less unique than supposed, both in oligopolies
and in new markets
4. the interaction among "resources" may be critical
5. there are issues with resource application
6. the theory doesn't explain how new resources are created or made valuable
7. the theory doesn't represent shareholder interests in the firm
8. the observation of successful firms may have some errors
9. there may be unobservable factors not accounted for
10. company managers have an interest in believing that they're the
linchpin of creating economic value. Foss notes that this is a
particular problem, as managers will tend to hire consultants sharing
the view -- which might not be in the best interests of shareholders.
However, the Foss-Knudsen paper boils these criticisms down to three:
1. partial assumptions in supporting the theory
2. confusion over conditions for strategic competitive advantage
3. poor links to economic theory
Though they're supporters of RBV as a concept, these two English
authors also note that support for RBV in economics literature is
scant. They explain it by saying that economists tend to look at
external markets rather than internal processes in a company.
I found the best part of the paper to be "Discussion and Suggestions
for Further Research" on page 29, which gets to some of the key
assumptions about markets being in disequilibrium that differ RBV
advocates from traditional theorists, who believe that markets are a
demonstration of equilibrium:
University of Nottingham
"The Resource-Based View and Economics" (Lockett & Thompson, 2001)
http://www.nottingham.ac.uk/business/2001-i.pdf
YET ANOTHER CRITIQUE
======================
Having done a number of analyses of investment and strategies, the
strategic analyses may suffer from myopia. For example, Eugene Fama
and Kenneth French wrote an influential article in 1992 called "The
Cross Section of Expected Stock Returns" which said that small cap and
value stocks had consistently outperformed the market (and by
inference that 'beta' or risk was irrelevant). It just happened that
the next six years after publication, the returns on small
capitalization stocks were significantly worse than for the S&P 500:
Google Answers
"Cross Section of Expected Stock Returns" (Omnivorous, Nov. 8, 2003)
http://answers.google.com/answers/threadview?id=273817
Unlike market analyses, where data is available over decades,
profit-in-market share (PIMS) and other management studies tend to be
over shorter periods, often with difficulties in comparing data.
Google search strategy:
"resource based view" turns up almost 13,000 links -- from which you
can (and probably have) picked various areas to research
Adding the search term critique may seem redundant in a discussion of
a topic like this but it does cut down the number of links:
"resource based view" + critique
Since this is a contentious area, with RBV being positioned directly
against SWOT or Porter analyses, using a search including either of
those terms gets you quickly to argument/counter-arguments:
"resource based view" + Porter + SWOT
RBV is a wide-ranging and still-developing area of strategy. As such
some of this may be a little unclear, so please don't hesitate to ask
for a clarification before rating this answer. Quite frankly, one of
the problems for this researcher was focusing on precisely which
resources were the best-available for assessing RBV -- and some core
papers aren't available via the public Internet (such as Peterof and
Barney).
Best regards,
Omnivorous-GA |
Clarification of Answer by
omnivorous-ga
on
04 Feb 2004 17:01 PST
Sillypott --
Indeed the issue of sorting the wheat from the chaff in this question
is critical. Being out of the academic realm for a few years, but
still being familiar with strategic management literature, I was
astounded at how much had been written about RBV.
Obviously one of the best techniques is to go with the handful of
articles that are the most-cited. It doesn't necessarily get you the
cutting-edge thinking but at least covers the seminal papers, such as
Peterof and Barney.
From there, there are a couple of issues:
-- how much historical background do you want to go into? Edith
Penrose's work is cited as an early influence. But it's so early that
it pre-dates most SWOT/Porter work.
-- is there a single issue or trend that's important to you? For
example, if you're a fan of Schumpeter, you may wish to pick up that
aspect of economic analysis.
-- I'd be interested in seeing what Porter's said or written directly
about RBV, since the advocates of resource based view put themselves
in direct conflict with Porter. I didn't see a lot in an Internet
search but your colleagues or professors may have some clues where to
look.
-- This is kind of an aside, but Wall Street analysts would have a
hard time with RBV. Though they understand that new markets develop,
they expect an industry to define itself -- then go through a
consolidation phase. At any point in any industry, much of the
discussion will be over common industry economics.
Two disparate examples:
1. the PC marketers or manufacturers -- they compare the business
models of Dell, H-P, and Gateway directly -- and Dell's development of
a low-cost sales & marketing model that allows it to be profitable
with gross margins of 20% is regarded to be the driver of the
industry. (See other Google Answers of mine for some specific
numbers.)
2. the U.S. movie theater business, where consolidation is driving
the publicly-owned companies into a handful of chains:
http://answers.google.com/answers/threadview?id=293150
If you have the time, write a first draft using the most-interesting
or most-relevant material. Then, if it's too short you'll have a
couple of days to fill out critical aspects. And if it's too long --
get a knowledgeable friend to edit it down!
Best regards,
Omnivorous-GA
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