Resource based view of the firm [lockett, morgenstern and thompson, international journal of management reviews (2009)]

International Journal of Management Reviews (2009)
doi: 10.1111/j.1468-2370.2008.00252.x

The development of
ORIGINAL Journal of Ltdthe firm
International ARTICLE
XX
The resource-based view of 2008
XXX UK Publishing Management Reviews
© Blackwell
1468-2370
1460-8545
IJMR
Oxford,
Blackwell Publishing Ltd

the resource-based view
of the firm: A critical
appraisal
Andy Lockett,1 Steve Thompson and
Uta Morgenstern

Over the last 20 years, the resource-based view (RBV) has reached a pre-eminent position
among theories in the field of strategy, but debate continues as to its precise nature. This
paper contributes to the debate by critically reviewing the development of the RBV to date.
The critical appraisal examines the development of the RBV in terms of theory, method,
empirical evidence and practical insights. It is contended that the permeable and eclectic
nature of the RBV stems from its being a theory about what firms are and how they
function, and that its popularity is due to an absence of limiting behavioural assumptions.
Finally, the authors provide their own subjective views on where they think RBV scholars
should focus their efforts in the future.

terms of competitive advantage or performance
Introduction
(e.g. Barney 1986, 1991; Collis 1994; Dierickx
In this paper we examine the body of theoret- and Cool 1989; Peteraf 1993; Rumelt 1984;
ical and empirical work that encompasses the Wernerfelt 1984).
resource-based view of the firm (henceforth The RBV views the firm as a historically
the RBV). Over the last 20 years, the RBV determined collection of assets or resources
has risen to a pre-eminent position in strategy which are tied ‘semi-permanently’ to the firm
research. Although the relative weight attri- (Wernerfelt 1984). Some users of the RBV
buted to different scholars’ contributions may distinguish resources which are fully appro-
be subject to debate, it is clear that, over time, priable by the firm, such as physical capital or
a series of papers have laid the intellectual brand names, from less tangible assets, such
foundations for a body of thought relating to as organizational routines and capabilities
the relationship between the opportunity set (Teece et al. 1997). Similarly, distinctions may
facing the firm, the strategic behaviour to be be drawn between static and dynamic resources.
implemented by managers and the outcome in The former are those that, once in place, may
© 2009 The Authors
Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management. Published by Blackwell Publishing Ltd,
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International Journal of Management Reviews Volume 11 Issue 1 pp. 9–28 9

The resource-based view of the firm

be considered to represent a stock of assets to reflection on the state of health of the RBV
be used as appropriate over a finite life (e.g. research. Our intention is not to provide an
Barney 1986, 1991; Peteraf 1993; Rumelt exhaustive interpretation of all papers that
1984). Dynamic resources may reside in have been written about the RBV; rather, we
capabilities, such as an organization’s capacity reflect on how the core elements of the theory
for learning, which generate additional and its application have developed over time,
opportunities over time (e.g. Collis 1994; to explain how we have arrived at the position
Teece et al. 1997). Here, we follow Combs we have today. In doing so, we examine five
and Ketchen (1999) in noting that the crucial interrelated facets of the RBV: (i) theory, (ii)
requirements of the RBV are that the relevant method, (iii) empirical evidence, (iv) practical
resources, whatever their nature (i.e. resources, insights and (v) the RBV looking forward.
capabilities or dynamic capabilities), are The paper unfolds by examining each of the
specific to the firm and not capable of easy facets in turn.
imitation by rivals (Barney 1991). Therefore,
such resources constitute the source of
The Resource-based View: Theory
Ricardian rents that comprise a firm’s com-
petitive advantage and, to the extent that their In this section we examine the theoretical
replication by others is problematic, imply a development of the RBV. The central tenets of
sustainable advantage over the longer term. the RBV are path dependence and firm heter-
Because each firm’s resource bundle is unique, ogeneity (Lockett 2005; Lockett and Thompson
being the consequence of its past managerial 2001). The RBV is a theory about the nature
decisions and subsequent experience, it follows of firms, as opposed to theories such as trans-
that so is each firm’s opportunity set. action cost economics which seeks to explain
As empirical evidence relating to the decom- why firms exist (see Coase 1937). As such,
position of firm performance (e.g. McGahan the RBV requires minimal limiting assump-
and Porter 1997) typically finds that firm-specific tions about the nature of strategic behaviour.
effects are at least as important as industry In effect, the RBV is a statement about how
characteristics, the RBV offers an obvious firms actually operate. The minimalistic nature
framework for analysing inter-firm variations of the RBV’s assumptions (i.e. its two central
in performance. As such, it acts as a natural tenets) makes formalization difficult. Ultimately,
complement to the external, market-based the RBV’s message that firms’ performance
approach to competitive advantage that is differs because of different resource endow-
grounded in industrial organization economics ments is probably incapable of falsification.
(IO) and synthesized in, for example, the work However, theoretical insights have been developed
of Porter (1980). from these central tenets. Below, we provide
The prominence of the RBV as a core theory an overview of the main theoretical insights,
in the area of management suggests that employing the game of poker (where relevant)
the time is right to reflect on its development. as an illustration.
Given that a number of reviews on the RBV
have already been published, which have
Resources and Performance: Sustainable
either been focused towards descriptive ac-
Competitive Advantage
counts of the development of the RBV (e.g.
Ambrosini 2007; Barney 1995; Barney 2001b; The sustainable competitive advantage (SCA)
Barney and Arikan 2001; Barney et al. 2001) approach to the RBV is exemplified by the
or have provided a summary of empirical work of Barney (1986, 1991), Peteraf (1993)
approaches and evidence on the RBV (e.g. and Rumelt (1984). Employing the resource
Armstrong and Shimizu 2007; Newbert 2007), as the unit of analysis the theory seeks to
we focus our attention on providing a critical explain the extent to which a firm may be able

10 © 2009 The Authors
Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management

March 2009

to sustain a position of competitive advantage. by the resource inputs, non-zero Πj (i.e. a
Sustainable competitive advantage is based competitive advantage) in the face of com-
on the ownership of firm-specific resource(s) petitive rivalry in the market for j indicates
that, following Barney (1991), has the follow- that our firm has access to at least one resource
ing attributes: (1) it must be valuable; (2) it input on more favourable terms than its rivals.
must be rare; (3) it must be inimitable; (4) it If it is also the case that Πj > 0 persists in the
must be non-substitutable. These conditions longer term (i.e. that a competitive advantage
are what Barney (1991) terms VRIN – valuable, is sustainable), this resource advantage must
rare, inimitable and non-substitutable. Valu- also persist over time. Viewed in this light, any
able resources can be used to exploit opportu- SCA is simply a rent conferred by one or more
nities and/or neutralize threats in a firm’s imperfections in the resource market that pre-
environment. Rare resources are those that are vents at least one input being available on equal
limited in supply and not equally distributed terms to all actual or would-be competitors.
across a firm’s current and potential competi- Thus, the RBV at its most basic offers an
tion. Inimitability refers to the extent to which interpretation of the existence of profits in
resources are difficult to replicate by other equilibrium based on firm heterogeneity.
firms, which may be due to factors such as If that were all it offered, it would be essentially
social complexity (Dierickx and Cool 1989), trivial. It would amount to a statement that
causal ambiguity and specific historical firms differ in performance because they dif-
circumstances (Barney 1991). Non-substitutability fer in attributes. True but hardly informative!
of resources implies that one resource cannot It is scarcely surprising that critics of the RBV
be simply replaced (or substituted) by another (e.g. Priem and Butler 2001a,b) have accused
one. its proponents of tautological reasoning by
Other authors writing on this issue have attributing the generation of competitive
highlighted the importance of limits to com- advantage to possession of those resources
petition – both ex ante and ex post – in whose own value reflects these scarcity rents.
resource markets as a necessary condition for However, contributors to the RBV literature
SCA (see Peteraf 1993), and the importance of have sought to generate testable hypotheses con-
isolating mechanisms as a necessary condition cerning those characteristics of such inputs
for SCA (see Rumelt 1984). that are likely to render them strategic resources
The RBV is in essence a theory of rents in the sense of being a source of sustainable
based upon resource market imperfections rents. Barney’s (1991) VRIN framework,
(Amit and Schoemaker 1993). At one level it outlined above, sets out the broad conditions
may be considered both tautological and even necessary for a resource’s comparative scarcity
trivial. Consider a firm earning to elevate it to strategic significance. Peteraf
and Barney (2003), among others, begin with
Πj = PjQj – Σpijrij the assumption of resource heterogeneity and
then consider which (if any) of a given collec-
Where Πj, the profit of the firm on product j, tion of resources satisfy the VRIN conditions
is defined as the difference between the revenue outlined above. They point out that resources
received (price of product j [Pj] multiplied by differ in their impact on the firm’s ability to
the quantity of product j [Qj]) and the sum of generate cost or differentiation advantages, and
the resource inputs consumed in producing hence performance. Moreover, if the cost of a
product j [rij] multiplied by their actual or resource reflects the full potential rents it may
shadow prices [pij]. generate, it cannot, by definition, be a source
If we assume for simplicity that there is of a competitive advantage.
either no product differentiation or, equivalently, A resource market imperfection may be
that differentiation is completely determined exogenous, in the sense that it results from the

© 2009 The Authors 11


firm’s possession of some superior physical, resource base, and hence the opportunity set,
organizational or intangible resource that has can be shifted.
been accumulated as a result of the firm’s
unique historical evolution. Alternatively, it
Resources and the Role of Managers
may be endogenous, in the sense that it results
from a conscious strategic decision by the Viewing the RBV as we have outlined above
firm’s managers. Such a decision might apply enables us to gain a better understanding of
to the acquisition of a resource to facilitate how managers may be able to exploit market
the firm’s own production and/or to secure its imperfections, in both resource and product
advantage over a rival. For example, a depart- markets, to advance firm performance. Not
ment store corporation’s decision to become merely does it cede a substantial role to
the ‘anchor’ for a new shopping mall complex managers, but it also links the internal and
is both a move to secure a resource (market external environments in which they operate.
access) for the firm and a means of pre-empting In this way, it also distinguishes the academic
a rival. This parallels the distinction between study of strategic management from that of
structure and conduct in the SCP paradigm in industrial organization economics. The latter
industrial economics. Here market structure has made considerable progress in analysing
has been traditionally treated as exogenously the firm’s optimal response to its external
determined by the underlying industry charac- environment, including the behaviour of its
teristics. Firm conduct, on the other hand, is rivals, but it tends to retain its traditional
the endogenous outcome of managerial decision- characterization of the firm’s internal workings
taking, albeit within bounds set by structural as a ‘black box’ beyond scrutiny. Moreover,
characteristics. Thus, collusion, for example, managers are largely treated as optimizing
which is usually considered to be facilitated by algorithms. Under the RBV, managerial
high concentration, is imperfectly predictable responsibilities include the need to reposition
without further modelling. the firm as opportunities change and its
In acknowledging that resources are tied resource set evolves. By contrast, industrial
‘semi-permanently’ to the firm, in the phrase organization economics sees the managers’ role
of Wernerfelt (1984), the RBV recognizes that, as responsive. Thus, managers in the RBV
in the short run, the resource set confronting are both adaptive and proactive, i.e. they are
particular managers is largely exogenously ‘enactors’ (Lado and Wilson 1994), while
determined. However, it also concedes a role their counterparts in industrial organization
for the manager in perceiving opportunities, economics have a role analogous to that of
matching these to the available resources and, managers in a regulated utility, whose decisions
within limits, augmenting the latter with such largely concern marginal adjustments to output
additional resources as are necessary to imple- and input levels.
ment its strategy. Thus, the role of a manager in It is the sources of market imperfections,
the RBV is akin to that of a card player. The allied to the roles managers play, which
player is provided with a dealt hand of cards, makes the RBV an interesting theory. Managers,
with the value of each card being broadly through the decisions they make, change the
determined ex ante by the rules of the game. nature of competition in markets. The deci-
Success depends upon the relative skill with sions that managers take are inextricably
which that hand, augmented by any cards linked to their perceptions about the internal
subsequently acquired, is played in competition characteristics of their own firms and also of
against rivals. However, whereas each hand the external environment in which they com-
of cards starts out with a completely new pete (Penrose 1959). Managerial perceptions
deal, managers are typically engaged in an become important in relation to three central
evolving game in which over time the elements of the RBV: resource functionality,


March 2009

resource recombination and resource creation, 1984). Resources may have a number of
which we discuss next. different functions, which may enable them
to be employed across a number of different
markets over time. An important role for
Resource Functionality
managers is to determine the most profitable
The issue of resource functionality has a long usage for the resources at their disposal.
tradition in the RBV literature. Penrose Consequently, resource usage is influenced by
(1959) proposed that the size of a firm’s pro- the subjective perceptions of managers. Further-
ductive opportunity set imposes a limit on its more, resource usage shapes the competitive
growth. She defined the productive opportunity landscape. It is the managers of firms who
set of the firm as ‘all of the productive employ their resources in similar ways to their
possibilities that its “entrepreneurs” see and competitors that determine the boundaries of
can take advantage of ’ (Penrose 1959, 31, our industry membership. If we take the example
italics). That is, the effective set of productive of the manager (landlord) of a public house,
opportunity is determined by both managerial he/she will view their premises as a key
perceptions and the resources at their disposal. resource for the retailing of their drinks and
Penrose further suggested that the search for other consumables. The building, however,
novel uses of existing resources may expand could have multiple uses. For example, the
the firm’s opportunity set. Where a firm’s building could be used as a pet shop. It is how
resources are incompletely used and there is the resource is used that determines the industry
always some slack, there is a potential oppor- to which the business belongs.
tunity for firm growth. In order for any excess As outlined above, an important role of
capacity of existing resources to be exploited, mangers is the search for the most profitable
the resources may need to be combined with use of the resources at their disposal. A bundle
other available resources in order to generate of resources will have different values accord-
productive services; we return to this issue ing to their usage across different markets.
below. Penrose also highlights that firms Revisiting our analogy of the game of poker,
attempt to discover more about the potential this makes the rules of the game much more
uses of their existing resource via research and permissive and hence the game much more
other types of proactive searches. She represents complex. If we permit resources to be employed
this by arguing that managers frequently across a range of different markets, this is
reflect: ‘there ought to be some way in which akin to a poker player being able to take his
I can use that’ (Penrose 1959, 77). Penrose, in hand of cards and play across a number of
effect, raises the issue about what the func- different games on different tables. The rules
tionality of a resource is. of the game will vary between tables, and so
The issue of what resources actually do was the value of the poker players’ cards will vary
revisited by Wernerfelt (1984), who employed accordingly. The role of the poker player is
the concept of duality to discuss the relation- quickly to assess which games he/she wants
ship between resources and the products and to play in, i.e. to assess where their cards can
services that result from their usage. Accord- be deployed most effectively.
ing to Wernerfelt, firms can be defined either The problem facing managers, therefore, is
in terms of products/services or in terms of how to understand the functionality of the
resources. The two are the different sides of the resources that are under their control, and also
same coin. to understand those that are under the control
It is not the resource type per se that of other firms. This will aid managers in not
matters, it is the functionality of the resource only detecting present competitors but also
and how the resource is employed (Penrose in anticipating future competitors. Peteraf
1959; Peteraf and Bergen 2003; Wernerfelt and Bergen (2003, 1029), however, argue that



managers may be poor at understanding the simultaneous deployment of resources
the range of potential functions from their and factors of production (Teece et al. 1997).
resource-bases for a number of reasons. These The literature on dynamic capabilities should
include: a lack of time and attention; bounded be viewed as a complement to the RBV
rationality (e.g. Williamson 1975); cognitive (Ambrosini and Bowman 2009; Wang and
biases; and framing limitations (Amit and Ahmed 2007).
Schoemaker 1993). The limitation of managers In addition to the productive opportunity
to perceive competition from outside their set of the firm being influenced by resource
narrowly defined industries dates back to usage, Penrose (1959) argues that the
the work of Levitt (1960) and the problems opportunity set is also influenced by the way
associated with managers’ myopia. in which managers are able to combine
Not only must managers understand the resources to produce productive services (or
functionality of their resources, they must also capabilities). At any given point the known
comprehend the capacity for usage their productive services arising from a given bundle
resources permit. Some resources may have of resources are unlikely to exhaust its full
multiple functions, and also a capacity that potential. There is always the potential for firm
enables them to be used in a number of different expansion. Based on the discovery of changes
ways simultaneously. That is, a resource may in customer preferences and innovation, man-
have a high capacity for usage so that its use agers choose to engage in the recombination
on one market does not preclude it from of existing resources to satisfy this perceived
being used in another market. In the case of demand. Hence, opportunities for expansion
intangible resources, especially in the form of are limited to the extent to which the managers
knowledge, there is no real limit to the extent of a firm perceive there to be opportunities,
to which the resource can be shared. Conversely, are willing to act on them and are able to
physical resources may be easily exhausted, capitalize on them with their own resources
as their use on one market precludes it being (Penrose 1959, 84). Thus, the growth of the
used in another. firm involves discovering new market opportu-
nities and changing and using existing
resources to match these opportunities.
Resource Recombinations
Sirmon et al. (2007) offer a more detailed
Penrose (1959) argues that resources are seldom conceptualization of resource recombination,
valuable in isolation. In effect, it is unlikely focusing on the nature of resource recombina-
that we can attribute the success of a firm tions and their effect on capabilities. In doing
(and hence SCA) to one specific resource. so, they draw a distinction between the activities
Consequently, it may be more fruitful to of stabilizing, enriching and pioneering.
consider combinations of resources. By com- Stabilizing involves making minor incremental
bining resources firms may be able to add improvements in existing capabilities through
value if they are: complementary (Harrison minor improvements to existing resources.
et al. 1991), related (Dierickx and Cool 1989) A strategy of stabilizing may be a way of
or co-specialized (Lippman and Rumelt 2003) maintaining a current position of competitive
in nature. The concepts of complementarity, advantage in conditions of low environmental
relatedness and co-specialization all speak to uncertainty. Enriching involves extending and
the issue as to how resource combinations elaborating current capabilities through activities
can create value. The idea of resource com- such as learning or adding a complementary
binations (and recombinations) is central to resource. Pioneering is a more advanced process
the literature on capabilities. A capability is of resource recombination which entails ‘the
defined as the firm’s ability to undertake a integration of completely new resources that
productive activity, which is created through were recently acquired ... and added to the


March 2009

firm’s resource portfolio’ (Sirmon et al. 2007, will generate an excess capacity in their
282). This process involves creativity and resource-bases. It is the excess capacity in a
exploratory learning in order to create novel resource base that presents the basis for firm
capabilities. expansion. The activities of the firm will lead
If managers are able to recombine their to the development of resources over time.
resources in a range of different ways, they The firm’s resources, therefore, will be directly
may be able to produce new outputs for the related to the past activities of the firm, i.e. the
firm. For example, revisiting our pub landlord resource base of the firm will be path dependent.
above, we find out that in addition to owning Although Penrose highlighted that resources
a public house he/she also owns a pet shop. In may be created through the process of
order to attract people into the pet shop, the competing in markets, little attention has
manager buys a large snake, which he/she can been focused on the issue of resource creation
also sell if required. The snake, however, is (Bowman and Collier 2006). A notable excep-
only employed in the pet shop during the tion is the Management Science paper of
opening hours of 9 to 5 Monday to Saturday. Dierickx and Cool (1989).
As the snake does not have to work hard for Dierickx and Cool (1989) attempted to
its keep, and given that it is under-utilized summarize the growth and decay processes
outside the shop opening hours, the manager affecting those intangible assets that form the
starts to think how he/she can make a more core of the RBV. Barney (1991) examined the
profitable use of the resource. The manager consequences of firm heterogeneity (for a
then has an idea of combining the snake, with given set of resources), whereas Dierickx and
one of the bar maids, and hey presto a resource Cool (1989) examined the causes of firm
recombination leads to the creation of an heterogeneity. The genesis of Dierickx and
exotic dancer to perform during the evenings Cool’s (1989) argument is that, given that factor
and/or on Sundays. The manager of the pub has markets for intangible assets are incomplete,
diversified into offering entertainment through critical resources are accumulated rather than
a resource recombination. acquired in ‘strategic factor markets’. Further-
Invoking our poker analogy again, the issue more, they argue that the immobility of a
of resource recombination, like the issue of resource position is linked to the characteristics
usage, makes the rules of the game more of the asset accumulation process. Their
permissive. By recombining a bundle of cards, terminology has been widely followed, and
a person may be able to make a series of their typology of asset accumulation may be
different hands that can be played in different summarized briefly thus:
games. Furthermore, if we relax the assumption Asset mass efficiency describes Dierickx and
that the recombined cards have to be controlled Cool’s (1989) proposition that the marginal
by one player only, we open up the potential cost of specific asset accumulation falls with
for players to collaborate in recombining the size of the existing relevant asset base.
their cards. The potential for collaboration This is seen most clearly where activities such
substantially increases the number of potential as R&D exhibit (at least locally) increasing
recombinations that may be possible. returns with obvious benefit to established
research-intensive companies.
Time compression diseconomies relate to
Resource Creation and Decay
the observed tendency of the costs of asset
The issue of resource creation was first dealt accumulation to rise within a given time inter-
with by Penrose (1959) through her attempts val. The more a firm tries to reduce the time
to theorize the growth process in firms. She horizon associated with asset accumulation,
argued that firms develop resources through ceteris paribus, the more costly the process
their productive activities and, over time, firms will be. Again, R&D is a good example where



there is a well-established trade-off between
The Resource-based View:
the time and cost associated with accelerating
Methodological and Practical Difficulties
the rate of problem-solving.
Causal ambiguity, as described by Barney The RBV has developed as a series of related
(1991), relates to the difficulty faced by out- propositions that seek to explain the relation-
siders – and perhaps even insiders – in isolating ship between a firm’s resource endowment
the particular factors responsible for a firm’s and its performance and growth. However,
competitive advantage. it has not generated clear unambiguous
Asset interconnectedness implies that the hypotheses in the manner of more narrowly
cost of adding an increment of resource A to conceived theories of firm behaviour or even
the firm’s stock may be related to its existing transaction cost economics (TCE), an approach
stock of resource B. Dierickx and Cool’s with which the RBV is frequently compared
(1989) own example is of a manufacturer whose (e.g. by Newbert 2007). For example, TCE
product development costs are lowered by contends that transaction costs rise with certain
feedback benefits derived from the same (relatively) well-defined market attributes,
firm’s customer service department. especially asset specificity, and that vertical
Asset erosion refers to the shrinkage of the integration dominates outsourcing where
firm’s stock of intangible assets, as these are transaction costs are sufficiently high. Together,
destroyed by exhaustion, obsolescence and these hypotheses have suggested a simple
rivals’ innovation. It is the intangible asset reduced form equation test: namely, that
equivalent of balance sheet depreciation for vertical integration will increase with asset
tangible assets. It both afflicts the firm in specificity. Variants of such an equation have
isolation and arises through the actions of been estimated by many researchers. By con-
its rivals. In effect, the firm is a bundle of trast, the RBV has a number of methodological
resources whose value is in constant flux. and practical difficulties that limit the generation
The work of Dierickx and Cool (1989) has and testing of direct hypotheses.
important parallels with Barney’s (1986) bad First, and perhaps most fundamental, is the
news message, which was that, if resource issue of tautology. Perhaps unsurprisingly,
markets are perfect, the costs of acquiring for an approach that ultimately ascribes
resources will be approximately equal to the differences in firm performance to intrinsic
value of those resources once they are used differences in the firms themselves, the RBV
to implement product market strategies. is certainly prone to circular reasoning. Priem
Consequently, if a firm acquires resources, and Butler (2001a,b) in an exchange with
and continues to use them in the same way Barney (2001a), debate this point at length.
that they were previously employed, SCA will Priem and Butler (2001a,b) reduce the RBV
be difficult achieve in the absence of resource to the following statement: ‘only valuable and
market imperfections. Denrell et al. (2003) rare resources can be a source of competitive
provide a more nuanced understanding of advantage’, where rarity and value in turn
resource acquisition, which is consistent with depend upon the use to which such resources
the work of Dierickx and Cool (1989), by may be put. More generally, they argue that
outlining two conditions under which SCA the problem of tautology lies in the relationship
may be possible. First, you may be lucky and between the general and the specific in the
acquire the resources below their full market RBV. Competitive advantage is considered to
value because of a seller’s ignorance. Second, be rooted in firm-specific circumstances that
you may own, or have access to, other idio- are themselves, at least in part, imperfectly
syncratic resources that are not available observable.
to other firms and which augment the value Second, if one assumes (as does Barney
of the resources. 2001a) that the RBV may be specified in a


March 2009

testable form, any empirical assessment of its effects of specific resources. Birger Wernerfelt
predictions requires the identification and recently argued that, if you take a firm like
measurement of relevant resources. Unfortu- Wal-Mart, there are probably 10,000 little
nately, this has often proved problematic, ideas there that each might be worth $100,000
because the resources of central concern are or less in annual profits. Therefore, the
often those associated with organizational complexity of the organization means that a
learning etc. and are commonly unobservable whole range of small initiatives may influence
(see Ambrosini and Bowman 2001; Godfrey the performance of the firm, but each in a
and Hill 1995; Rouse and Daellenbach 1999). very small way (Lockett et al. 2008). Moreover,
Resources which can easily be identified and Barney’s (1991) argument that causal ambiguity
measured are unlikely to be of great interest to sustains competitive advantage, by restricting
RBV researchers. Such resources, however, rivals’ ability to isolate and hence replicate
are commonly the focus of empirical studies rent-generating resources, itself suggests
largely because they can be measured, not limited potential for empirical work. If rivals,
because they are necessarily important. i.e. competitors within the same strategic
Consequently, a significant body of empirical group, cannot fathom a firm’s key resources it
research on the RBV has parallels with the appears unlikely that models using externally
proverbial drunk looking under the street light measurable variables will achieve strong
for his keys. When asked where he had lost explanatory power, particularly since these are
his keys he responded, ‘somewhere over there often estimated across broad industries to
in the dark, but can’t see a thing over there so allow viable sample sizes.
I’m looking under the light instead.’ A further Fifth, not merely is agreement on a working
consequence of the resource identification definition of ‘competitive advantage’ itself
problem is that researchers have used an controversial (Foss and Knudsen 2003; Powell
extremely varied set of proxies for key 2001), but such a concept is directly unobserv-
capabilities and resources, making systematic able so that empirical tests normally involve
comparisons across the empirical literature seeking to explain inter-firm differences in
more difficult. performance (see Peteraf and Barney 2003)
Third, firm heterogeneity creates problems with respect to observable differences in the
for researchers who are interested in generat- firms’ identifiable resource endowments.
ing a homogeneous sample of firms for testing Equating performance and competitive
specific RBV hypotheses. Recall that the advantage in this way strictly tests the joint
central thrust of the RBV is that any firm’s hypothesis that resources and not other factors
competitive advantage is rooted in its unique (see Ray et al. 2003) generate a competitive
attribute set. If each firm is unique, any sample advantage, and that the firm is effectively
of firms is heterogeneous by definition. This managed to harvest this competitive advantage.
clearly makes it difficult to derive meaningful Sixth, the logic of the RBV does not predict
inferences about the causes of competitive a universal relationship between firm per-
advantage across the sample. To reduce formance and any particular resource. On the
sample heterogeneity, some researchers have contrary, the value of a resource to the firm will
focused on single-industry studies, often using depend upon the specifics of its use, including
exogenous changes in the industry environment, the deployment of co-specialized assets.
e.g. deregulation (see Ingham and Thompson Therefore, even at the industry level, there may
1995), as ‘natural experiments’. be no discernible relationship between firm
Fourth, identifying and explaining causal performance and the possession of resource
relationships in large firms is problematic. X. For example, within the airline industry,
The sheer complexity of large organizations full service carriers and low-costs operate very
makes it very difficult to isolate the performance different business models which presumably



require differing resource bundles such that a into an observable performance advantage.
performance–resource model indiscriminately Furthermore, where this resource bundle is
estimated across airlines is unlikely to yield imperfectly imitable the competitive advantage
strong results. is sustainable in at least the medium term.
Finally, best practice firm-level empirical Testing this relationship presents difficulties,
work now generally uses first-differenced some of which have been outlined in the pre-
panel data sets, usually unbalanced to minimize vious section. Among these are problems in both
selection/survivor biases. However, in empirical specifying testable hypotheses and measuring
work on the RBV it is the fixed effects, dependent and explanatory variables.
discarded in differencing, that contain most In the case of the dependent variable, it is
of the interest. It follows that much empirical noted above that difficulties in defining
work in the field still tends to use the (otherwise and measuring comparative advantage have
discredited) single equation, cross-sectional ensured that a variety of performance variables
design. This raises inevitable problems of have been used in the literature. These have
causality. For example, if a study of pharma- included both accounting and stock market-
ceutical companies reports a positive corre- based measures. The choice of resource measures
lation between performance and R&D spend, as explanatory variables is necessarily even
the researcher cannot, without further tests, wider. This is not simply a reflection of the
rule out the possibility that R&D depends availability of data to particular researchers; it
upon performance rather than the reverse. also reflects the specific nature of any hypoth-
Furthermore, multicollinearity of explanatory esized link between resources and competitive
variables, often size related, is common in advantage. However, an overall consequence
cross-sectional firm-level work. This reduces of the diversity of the available empirical
the efficiency of estimates, leading to what literature on the RBV and the range of variables
Swann (2006) terms the noise–signal ratio. Many it uses is that formal meta-analyses are pre-
cross-sectional studies do not address these cluded, and even summary statistics are difficult
difficulties. to compute.
The most comprehensive treatment of the
RBV performance literature is that of Newbert
The Resource-based View: Empirical
(2007), who performed a semi-quantitative
Evidence
analysis of the studies identified via a formal
Empirical testing of elements of the RBV has search procedure. Newbert (2007) used a key
focused on two main issues. First, scholars word search across the management literature
have examined the relationship between firm to identify papers appearing to offer a test of
performance and the possession of identifiable the resource–performance linkage. After the
and imperfectly imitable resources/capabilities/ application of relevance criteria, he was left
competences. Second, researchers have with 55 studies from which he generated the
examined whether the prior possession of such following conclusions: First, only 53% of the
resources shapes the subsequent development papers he examined offered positive support
of the firm in ways the RBV predicts. for the link between resources (broadly defined)
and performance. This figure, he suggests,
is broadly consistent with other theories of
Resources and Firm Performance
strategic management such as transaction
As suggested above, the overarching proposition cost economics (see David and Han 2004).
of the RBV suggests that a firm’s possession Second, he found evidence that resource
of specialized resources may permit it to combinations, and/or capabilities/competences,
enjoy a competitive advantage over its rivals are more likely to explain performance differ-
which, given suitable management, is converted ences rather than single resources in isolation.


March 2009

As with the drunk looking for his keys under
Product/Service Market Diversification
the light, many RBV scholars (including
the authors) have focused on resources that One of the most explicit and implicit empiri-
can be easily measured, e.g. simple measures cal application of the RBV has been in the
of human capital. literature examining patterns of diversification
Given the methodological problems in via new market entry. Econometric studies by
designing general tests of the resource– Lemelin (1982), MacDonald (1985), Mont-
performance relationship, discussed above, the gomery and Hariharan (1991) and Ingham
relatively modest empirical support revealed by and Thompson (1995) have shown that diver-
Newbert’s survey is generally unsurprising. sification is not a purely random process,
Perhaps more worrying for those of us work- driven by idiosyncratic managerial decisions,
ing in the field is that even this level of but instead follows a pattern consistent with
support is probably inflated by publication the exploitation of existing identifiable resources
bias: that is the tendency of journal editors to (see Montgomery 1994, for a review). Lemelin
disproportionately reject insignificant findings. (1982) found that diversification tended to occur
across industries using similar resources.
MacDonald (1985) and Montgomery and
Resources and Firm Development
Hariharan (1991) used US firm-level data
As noted above, an important strand of the to demonstrate a similar outcome, whereas
RBV literature, going back to the pioneering Montgomery and Wernerfelt (1988) identified
work of Penrose (1959), is concerned with the that specific resources may only be transferred
way in which the firm’s current resource into a small number of industries and that
bundle shapes its future development. This firms with more specific resources could
work implicitly assumes that in a competitive generate higher rents with less diversification.
environment decisions concerning the firm’s Ingham and Thompson (1995) used financial
activity set will reflect managers’ attempts to services deregulation in the UK as a ‘natural
use the resources at their disposal in the experiment’ to show that diversification into
interest of advancing the firm’s performance. previously prohibited, but nonetheless related,
This leads to predictions about shifts in the financial product markets followed the firms’
boundaries of the firm conditional upon its resource endowments at the time of deregulation.
current resource set. Among boundary decisions While the RBV has been explicitly and
analysed in this way are issues concerning implicitly used in analysing firms’ diversify-
diversification, modes of entry to new markets ing expansions into new product markets, the
and refocusing. The diversity of these issues firm’s decision to expand its operation by pro-
has thus far precluded any quantitative survey ducing its existing products in new regions or
of which we are aware. The literature review national markets involves directly analogous
that follows is based on an updating of that in reasoning. Here the dominant internalization
Lockett and Thompson (2001). We depart paradigm (see Caves 1996, for a survey) used
from David and Han (2004), Newbert (2007) to explain the internationalization of business,
and Armstrong and Shimizu (2007) in our suggests that firms choose to become multi-
approach to reviewing the empirical literature, national when the specific assets they possess
which employs a keyword search for RBV are more economically transferred across
papers, because we feel that such an approach international boundaries within the firm rather
omits empirical studies that may be RBV in than by using markets. Internalization theory’s
nature, but do not explicitly mention the RBV. focus is upon the role of comparative levels of
Our survey includes papers that test hypotheses transactions costs in determining the optimal
congruent with the RBV, even if they do not form of expansion, and therefore, it might be
explicitly mention it.2 considered an application of TCE. However,



since the transactions costs usually considered determine their subsequent development and
to drive this decision are those attached to specialization. Thompson (2007) reaches a
intangible assets and firm-specific attributes, similar conclusion with respect to entrants to
where replication is also problematic, there is the digital camera business, while Mitchell
an obvious relevance for the RBV. Non-specific (1991) and Carroll et al. (1996) report com-
resources pose far fewer problems for market parable results from the diagnostic imaging
contracting but, conversely, since activities and early US car industry, respectively.
depending upon them alone can be easily Scott Morton (1999) shows that, among the
replicated, offer little opportunity for sustaining set of generic pharmaceutical producers,
a competitive advantage. prior technological, scientific and marketing
The evidence on foreign direct investment, experiences determine which new product
at industry and firm levels, is generally con- markets, created by compound discovery or
sistent with the internalization perspective patent lapse, individual firms choose to enter.
(see Caves 1996). It points to concentrations Thus, prior expertise with a particular class of
of multinational activity in R&D-intensive compounds, delivery mechanism or disease
industries (where proprietary technology is treatment market will increase the probability
important) and advertising-intensive industries, of entry. Interestingly, she notes how different
where marketing and brand name issues are firm resources, the result of divergent
important. Of particular relevance to the RBV experiences, assist the industry by preventing
is the firm-level evidence (e.g. Caves 1996; the simultaneous entry of large numbers of
Grubaugh 1987) that confirms the effect of producers with inevitable widespread losses
proprietary assets and relative R&D and (Scott Morton 1999, 436). This confirms the
advertising outlays on the probability of a large classic argument of Richardson (1972) on the
firm having multinational operations. importance of firm heterogeneity in the orderly
Inter-industry differences in firm organiza- diffusion of innovations.
tion constitute a potential difficulty for
firm-level work in this field. In consequence,
Mode of Market entry (Product and
single-industry studies generally allow a more
Geographic)
detailed specification of relevant resource vari-
ables than would be possible in inter-industry Firms seeking to extend their profitable
work. Recent examples include case studies of activities typically require assets to com-
the US TV receiver industry by Klepper and plement their existing resource bundles and
Simons (2000), Internet service providers frequently need to obtain these from existing
(ISPs) by Greenstein (2000), and the generic firms. Mergers and acquisitions, joint ventures
pharmaceutical industry by Scott Morton and other collaborative associations have been
(1999). Klepper and Simons (2000) show that analysed quite extensively as alternative mecha-
prior experience in radio technology was a nisms for the acquisition of complementary
major determinant of success among entrants assets for domestic and foreign expansions
to the rapidly expanding TV receiver market alike. In some instances, for example, in obtain-
from the 1950s to the 1970s. Furthermore, the ing access to specific assets in countries
advantage conferred by radio experience con- with poorly developed capital markets or with
tinued to exert a statistically significant effect, restrictions on private and/or foreign ownership,
even after 1965 when colour TV began to the costs associated with acquisition may be
dominate the market. Greenstein (2000) prohibitive. In others, joint venturing with the
demonstrates that, although entrants to the desired party may turn out to be simply
ISP sector have come to a completely new unattainable. However, a growing body of
industry, their prior experience, commercial research suggests that, where a choice exists,
background and local market characteristics joint venturing tends to be associated with a lack


March 2009

of specific expertise (of markets, technology, large firms. First, a large number of managers,
cultures, etc.) on the part of the firm con- perhaps acting on incorrect suppositions of
cerned. Singh and Kogut (1989) using foreign internal capital market superiority may have
entrants to the US, Hennart and Reddy (1997) simply got it wrong. In the RBV, as in Austrian
for Japanese entrants to the US, and Thompson economics (see below), there appears to be no
(1999) using domestic and foreign expansions necessary presumption that managers always
by diversifying UK utility companies, all report make correct decisions. Second, it is possible
that having controlled for size, prior market that previously optimally organized firms
experience encourages expansion by acquisi- found themselves over-diversified because
tion rather than joint venture. Such a result is the comparative advantage of the M-form had
supportive of the RBV in that it confirms that declined. This has been alternatively attributed
outsiders with incomplete resources need to to capital market innovations and a reduction
secure specific resources via cooperation with in transaction costs (Hoskisson and Turk 1990)
the insider. The experienced entrant is able to and a decline in scarcity rents to the resource
purchase the relevant resources by acquiring a of general management (Goold and Luchs
suitable company. Of course, this does not pre- 1993). Since these changes coincided with
clude joint venturing having other advantages.3 the internationalization and deregulation of
capital markets in the 1980s, the reversal of
corporate diversification also dates from this
Corporate Refocusing (Market Exit)
time (Haynes et al. 2003).
The reversal of diversification is refocusing. It By contrast, the AT hypothesis attributes
is reasonably well established (see Haynes over-diversification to the diversion of free
et al. 2003; Markides 1995, and references cash flow into preferred (sometimes negative
therein) that, in the USA and UK, there was a net present value) investments by managers
continuing increase in diversification among insulated from capital market discipline by
larger firms until the early 1980s. Thereafter, weak corporate governance arrangements
there has been a discernible trend towards cor- (Jensen 1986). The widespread subsequent
porate refocusing, defined here as the disposal reversal of this process is again attributed to
of peripheral activities and the renewed con- capital market changes, particularly the rise in
centration upon core businesses. In the past, hostile and debt-financed takeovers in the
this has frequently involved the divestment of 1980s that tended to pressurize managers into
unrelated activities acquired in the conglomerate a return towards value-maximizing behaviour
merger boom of the 1960s and 1970s (Shleifer (Jensen 1986, 1993).
and Vishny 1991). This reversal of the trend A growing volume of empirical studies of
towards diversification suggests a number of corporate refocusing provides support for
interesting questions for researchers. First, both strategy and governance hypotheses in
why did so many firms engage in apparently explaining the phenomenon (Johnson 1996).
unsuccessful diversification, especially unre- Markides (1992) found that refocusing firms
lated diversification, in the 1960s and 1970s? were highly diversified and suffered from
Second, what caused this policy to be reversed? poor performance relative to their industry
And third, why did this reversal occur in the counterparts. He also found that the higher the
1980s? R&D intensity of the core business, the lower
Both the RBV and Agency Theory (AT) the likelihood that the firm would refocus.4
provide insights into these questions which Haynes et al. (2003), using a panel of large
are, at least in part, both substitutes and com- UK firms, include strategic and governance
plements. From the perspective of the RBV, variables in an analysis of divestment activity.
there are at least two contending explanations They find that divestment, variously measured,
for widespread over-diversification among increases with size, diversification and market



share in the firm’s core business, while falling ‘complexity’, measured as the interaction of
with performance. However, they also report a size and the level of diversification, and
significant positive coefficient for leverage, reports that the benefits of divestment are
in line with Jensen’s (1993) free cash flow substantially greater for ‘complex’ firms. In
reasoning and, tellingly, a large and highly brief, the refocusing literature tends to reinforce
significant increase in divestment in the year the conclusion from that on corporate diversi-
following the publication of a bid rumour. They fication, in many respects its opposite, about
find some support for strategy–governance the importance of relatedness in successful
interaction effects. For example, firms with firm growth.
‘strong’ governance regimes, defined in terms
of management equity ownership and the
Practical Insights from the
existence of substantial ‘blockholders’, ex-
Resource-based View
perience a much larger sensitivity to poor
performance. In contrast to Johnson (1996), As academics working in Business and
who finds internal and external antecedents to Management Schools, we are increasingly
corporate refocusing in the US, Haynes et al. encouraged to make prescriptive statements
(2003) do not find a significant role for senior on the basis of existing management knowledge.
management changes. The use of case studies in strategy teaching
While the RBV does not unambiguously illustrates this dilemma. On the one hand, the
support the superiority of related diversification suitably selected case can illustrate neatly
over unrelated diversification (see Chatterjee the successful or unsuccessful past attempt
and Wernerfelt 1991), there is a presumption of some managers to achieve a winning fit
in much of the refocusing literature that between resources and strategy. Such teaching
divesting peripheral activities to concentrate aids both reinforce the analysis we are offer-
upon those more closely related to one another ing and capture the attention of the class by
should raise performance. This is reinforced grounding the subject in a relevant business
by arguments, dating back at least to Penrose context. One the other hand, the subject also
(1959), that suggest the costs of management emphasizes the importance of the unknown in
rise with size and complexity and, unless these the specifics of individual cases. Indeed, as
are offset by comparable benefits, as prom- noted above, the inevitable ignorance of the
ised, for example, by the M-form hypothesis, outsider confronted by causal ambiguity is
performance may be enhanced by decoupling. both an important device to sustain com-
These conjectures have been supported by a petitive advantage and a partial blindfold to
number of studies of the effects of divestiture any would-be case analyst. The user of cases
on corporate performance. Montgomery and must resist the misplaced certainty of ex post
Thomas (1988), John and Ofek (1995) and rationalizations. Analyses offering 20:20
Hoskisson and Johnson (1992) all reported an hindsight do not merely disguise the complexity
improvement in ROA following corporate of the decision-taking they cover but are also
asset sales. Markides (1995) found a large and unfalsifiable. Under imperfect information, ex
statistically significant increase in profitability ante optimal decisions can have unpleasant
following reductions in diversification, although outcomes while ex ante mistakes can yield
his results also suggest that the gains were fortuitous mistakes. As Donald Rumsfeld
larger for the earlier cases of refocusing in his opined about the problems facing US military
sample. Haynes et al. (2002), in a dynamic operations in Afghanistan:
panel study of firm profitability, report statis-
tically significant positive shocks following Reports that say that something hasn’t happened
divestment for up to four years after the are always interesting to me, because as we know,
event. This study also explores the effect of there are known knowns; there are things we know


March 2009

we know. We also know there are known unknowns; paper in 1984 was a disagreement with Porter’s
that is to say we know there are some things we do work on industry analysis and generic com-
not know. But there are also unknown unknowns – petition, which abstracted away from inter-firm
the ones we don’t know we don’t know. differences (Lockett et al. 2008). Wernerfelt’s
view was that opportunities and threats cannot
Clearly there are resources – known knowns – be exploited solely through the external posi-
whose potential to impact on a firm’s future tioning of businesses. The firm’s distinctive
growth is appreciated. Similarly, there are internal characteristics are central to any
factors – known unknowns – whose causal discussion of strategy formulation. Strategy
direction is understood but whose impact should encapsulate what the firm is distinctively
can only be evaluated ex post. Finally, there good at, and also seek to address the potential
are the unknown unknowns, the products of weaknesses of the firm. A rare example of
unfolding market, technological or other events, authors who have focused on the problems
whose manifestation cannot be anticipated associated with firm weaknesses are West and
and incorporated in even the most careful DeCastro (2001) or Powell’s (2001) considera-
scenario planning. For example, firm managers tion of competitive disadvantage.
may know that their firm is outperforming its Second, the resource base of the firm is
rivals but are unable to explain why this is the path dependent, i.e. history matters. Firm
case, i.e. the causal ambiguity problem. An resources are developed through competition
example of known unknowns would be the in markets, and so the markets in which
future value of a firm’s resources as markets the firm competes today, and the way in which
evolve. We know the value of the resources it competes, will be the most important
will change over time but not how. We may determinants of that firm’s resource base
not be on our own in not being able to under- tomorrow. In effect, any learning by the firm
stand the notion of unknown unknowns. will be, ceteris paribus, closed in to its existing
Known knowns are unlikely to enable a operations.
firm to outperform its rivals in the medium to Third, managers need to be able to under-
long run unless there are market impediments stand the functionality of their resources.
that prevent competition for the underlying Resources are defined by their usage. For
resources (this is the genesis of Barney’s 1991 example, a building may be used for a number
paper). Known unknowns, however, are much of different purposes, but its current usage
more interesting from an RBV perspective. may blinker managers from fully appreciating
The role of managers is to try and make sense the full range of potential functions the
of known unknowns and to manage the building could be used for. This idea links
ambiguity surrounding them. As for unknown back to Levitt’s (1960) marketing concept, in
unknowns, what can we do about them if we that customers are not interested in the resources
do not ever know about them, even ex post? of a firm, rather they are interested in how
The approach adopted in this paper is to firm resources may satisfy their wants and
treat the RBV not as a theory of firm behaviour needs. Two firms may be able to satisfy similar
but, primarily as a theory that offers insights wants and needs of a customer but by using
about the decision-making behaviour of different resources. In the area of information
managers. Below, we have outlined some of and communication technology, high degrees
the main practical insights of the RBV, which of technological change have led to a blurring
are presented as an illustrative rather than of market boundaries. Companies from com-
exhaustive list. puting, telecommunications, software, consumer
First, managers need to understand what electronics are now all competing against one
are the strengths and weaknesses of a firm. another in similar markets but with histori-
Wernerfelt’s motivation for writing his seminal cally very different backgrounds.



Fourth, the resource base of the firm is con- attention needs to be devoted to the theoretical
tinuously subject to the processes of resource issue of the causes of firm heterogeneity. All
creation and decay. As markets evolve, the RBV work begins with the explicit or implicit
underlying value of a firm’s resource base assumption of firm heterogeneity. Even
changes over time. Changing technology and Dierickx and Cool’s (1989) arguments about
consumer tastes, allied to the competitive the causes of competitive advantage focus on
process, will tend to erode the value of many how differences between firms may become
resources over time. In general, the resources amplified over time. If the RBV is to develop
that may hold the key for a firm’s position of as a theory, it is important that we understand
competitive advantage in one period may the origins of firm heterogeneity. In a recent
merely become a necessary resource to earn interview Birger Wernerfelt has posed the
normal returns. Consequently, firms should question as to whether or not it is possible to
continuously seek to manage their resource start with a model of homogeneous firms or
bases, investing in decaying resources and homogeneous people, or at least randomly
also seeking to develop new resources. distributed people, and generate significant
Fifth, acquiring competitive advantage in a heterogeneities between firms (Lockett et al.
resource market is not possible in the absence 2008). We feel that, by providing insights into
of asymmetric information and/or co-specialized the origins of firm heterogeneity, we may be
resources with which you are going to aug- able to understand better how managers can
ment the new resources (Denrell et al. 2003). generate and manage their firm’s distinctive
Therefore, it is likely that any position of differences.
competitive advantage will have to be internally Second, more scholarly attention needs to
developed (Barney 1986). be focused on the neglected theoretical issue
of resource functionality. Evidence of this
neglect can be identified in the burgeoning
The Resource-based View Looking
literature on dynamic capabilities (see
Forward
Ambrosini and Bowman 2009). Scholars of
Where is the RBV going, and where should it dynamic capabilities have focused on the role of
be going? The RBV, owing to its permeable resource creation/decay and resource recom-
and eclectic nature, has become something of bination, but have not addressed the issue of
a broad church (Hoskisson et al. 1999). In this resource functionality. Any discussion that
paper, we have focused on the core essence of products and resources are two sides of the
the RBV, but many sub-fields have developed same coin, and that resource usage may
as areas of study, including the study of determine how we perceive the functionality
knowledge (as a specialized firm resource), of a resource is largely absent from the RBV
capabilities (created by bringing together literature. We feel that this is a fundamental
bundles of resources) and dynamic capabilities weakness of the RBV literature to date. It is
(the ability to continuously adapt and re- important, therefore, that more scholarly effort
configure a resource and capability base). We is invested in trying to understand resource
cannot predict where future developments will functionality and how this relates to the potential
take the RBV. Instead, we conclude by offering product/service market space a firm may
a subjective view on where we think scholars compete in. There are obvious links that may
should focus their efforts in the future. We be made here to cognitive psychology and
focus on theory and method as we feel that decision framing.
empirical evidence and practical insights will Third, as the RBV is a theory about what
follow logically in time. firms are, and does not require a host of
First, rather than focusing on the conse- limiting assumptions, it can be deployed with
quences of firm heterogeneity, more scholarly other theories to explain strategic behaviour.


March 2009

This is a huge advantage of the RBV, as com- 3 It can avoid some of the management/digestion
plex relationships can seldom be understood problems associated with the acquisition of
through a single theoretical lens (Gray and diversified firms (see Kay 1997). An expanding
Wood 1991). To date the RBV has been linked firm entering a joint venture can target the
resources it requires without having to acquire
to theories of the firm, such as AT and trans-
and subsequently dispose of (see Ravenscraft and
action cost economics. For example, RBV Scherer 1987) the unwanted remainder. Similarly,
provides insights into the issue of value the lower level of sunk commitment associated with
creation within firms, whereas TCE provides joint venturing may reduce risk by comparison
insights into economic organization (Madhok with a full acquisition (see Balakrishna and Korza
2002). We urge scholars to embrace the 1993).
permeable, eclectic and permissive nature of 4 A result that suggests that diversification is bene-
the RBV to generate new insights into firm ficial in capturing the spillover effects of R&D.
behaviour.
Finally, scholars need to reflect on their References
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Notes
32, 1231–1241.
1 Address for correspondence: Andy Lockett, Profes- Barney, J. (1991). Firm resources and sustained com-
sor of Strategy and Entrepreneurship, Nottingham petitive advantage. Journal of Management, 17,
University Business School, Jubilee Campus, 99–120.
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Tel.: +44 (0) 115 9515268; Fax: +44 (0)115 8466667; advantage. Academy of Management Executive,
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