Firm Resources and Sustained Competitive Advantage Barney, 1991 Journal of Management

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Firm Resources and Sustained Competitive
AdvantageBarney, 1991 Journal of Management

• Slides by Minjae Lee, BADM 545 Fall 2013

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Overview

• Since 1960s, a single organizing framework has
  been used to structure much of strategic
  management research.
• Isolating a firms opportunities and
  threats(Porter 1980, 1985)
• Describing firms strengths and
  weaknesses(Penrose 1959, and so on)
• Analyzing how theses are matched to choose
  strategies

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Overview

• Recent work has tended to focus primarily on
  analyzing a firms opportunities and threats in
  its competitive environment
• Environmental model of competitive advantage put
  little emphasis on the impact of idiosyncratic
  firm attributes on a firms competitive position.
• Assumption 1. firms within an industry(or a
  strategic group) are identical in terms of
  strategically relevant resources and strategies
• Assumption 2. If resource heterogeneity develop
  in an industry or group, this heterogeneity will
  be very short lived since resources are highly
  mobile (i.e. competitive factor market)
• Resource-based view
• Assumption 1. Firms within an industry (or group)
  may be heterogeneous with respect to the
  strategic resources
• Assumption 2..These resources may not be
  perfectly mobile across firms

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Defining key concept

• Firm resources
• All assets, capabilities, organizational
  processes, firm attributes, information
  knowledge, etc. controlled by a firm that enable
  firm to conceive of or implement strategies that
  improve its efficiency and effectiveness.
• Physical capital asset technology, plant
  equipment, geographic location, access to raw
  material
• Human capital resources training, experience,
  judgment, intelligence, relationships, insight of
  individual manager and workers
• Organizational capital resources formal
  reporting structure, formal and informal
  planning, controlling, coordinating systems, as
  well as informal relations among groups within a
  firm and between a firm and those in its
  environment

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Defining key concept

• Competitive advantage
• Implementing a value creating strategy not
  simultaneously being implemented by any current
  or potential competitors.
• Sustained competitive advantage (SCA)
• In addition to above, when these other firms are
  unable to duplicate the benefits of this
  strategy.
• Sustained does not refer to the period of
  calendar time, but what depends on the
  possibility of competitive duplication.
• Theoretically, equilibrium definition (but
  empirically, long period of time)
• Sustained does not imply that it will last
  forever.
• Schumpeterian shocks, or structural revolutions
  in an industry redefine which of a firms
  attribute are resources and which are not.

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Competition with Homogeneous and Perfectly
Mobile Resources

• Firms cannot expect to obtain SCAs when strategic
  resources are evenly distributed across all
  competing firms (homogeneous) and highly mobile.
• It is not possible for any one firm to obtain a
  competitive advantage from first
  moving(first-mover advantage) by definition
• The existence of first-mover means heterogeneous
  resources
• It is not possible for any one firm to obtain a
  competitive advantage from Entry/Mobility
  barriers by definition
• The existence of entry/mobile barriers means
  heterogeneous and immobile resources
• gt Thus, in order to understand sources of SCA,
  it is necessary assumption that firms resources
  may be heterogeneous and immobile.

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Firm Resources and Sustained Competitive
Advantage

• In order for firm resources to hold the potential
  of SCAs, a firm resource must have four
  attributes
• Valuable Enable a firm to conceive of or
  implement strategies that improve its efficiency
  and effectiveness
• Rare Even if it is valuable, if it is possessed
  by many firms, then each of these firms exploit
  that resource in the same way, implementing same
  strategy.
• However, valuable but common resources help
  ensure a firms survival
• Imperfectly Imitable makes sustained
  competitive resources
• Unique historical conditions
• Causal ambiguity
• Social complexity interpersonal relations among
  managers in a firm, a firms culture, a firms
  reputation among suppliers and customers
• Substitutability makes sustained competitive
  resources
• Two forms Similar or Very different

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Applying the Framework

• Formal strategic planning is not likely to be a
  source of SCAs by itself (since valuable but not
  rare and not imitable)
• Informal strategy making process could be a
  source of SCAs (valuable, rare, socially complex
  so imperfectly imitable) if formal planning is
  not substitute for informal strategy making.
• Information Processing Systems may hold the
  potential of SCAs (Relatively few firms creating
  close manager-computer interface and Socially
  complex system)
• In spite of close substitute (a close knit,
  highly experienced top management team) if that
  substitute is rare and socially complex.
• Positive Reputations may hold the potential of
  SCAs (rare, depends on historical event, informal
  social relations)
• If guarantee and long-term contract is not a
  substitute for them

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Conclusion

• In environmental model of competitive advantages,
  Social Welfare concerns were abandoned in favor
  of the creation of imperfectly competitive
  industries.
• RBV suggest that strategic management research is
  consistent with traditional social welfare
  concerns since a firm with resource advantages is
  behaving in an efficient and effective manner.
• Efficiency rents VS monopoly rents
• Unlike economic models of organizational
  phenomena, RBV suggest that Organization Theory
  and Behavior may be a rich source of findings and
  theories concerning SCAs
• RBV emphasizes the importance of Firm Resource
  Endowments in creating SCAs.
• Since implicit assumption in RBV is that managers
  are limited in their ability to manipulate all
  the attributes and characteristics of their firms