Joshua Downs
9/20/2015
Firm Resources and
Sustained Competitive
Advantage
JAY BARNEY
Journal of Management, 1991
Main Points
Argues for deeper analysis than extant discussion of environmentally
derived advantage at industry level and critiques assumptions of
homogeneity and mobility at firm level
Introduces VRIN Framework for determining whether idiosyncratic
resources under firm control have the potential to facilitate sustainable
value creating strategies over current and potential competitors
◦ Competitive advantage only sustainable in presence of resource heterogeneity
and immobility
◦ Sustainable competitive advantage CANNOT BE PURCHASED ON OPEN MARKETS
◦ Schumpeterian shocks influence transformation of attributes to resources & vice
versa
Addresses issues of:
◦ Social welfare with efficiency rents argument
◦ Organization Theory and Behavior by discussing resource-based model as
bridging agent
Competing Theories of
Sustained Advantage
External Environmental Model
◦ Opportunities and Threats
◦ Porter’s Five Forces
Assumptions
◦ Firms are identical in terms of the
strategically relevant resources
they control and strategies pursued
◦ Internal firm assets are highly
mobile
Objections to competitive
advantage under these
assumptions
◦ First mover advantage requires
superior knowledge regarding
opportunities
◦ Entry barriers requires
heterogeneous strategies among
incumbents and entrants
Key Concepts
Firm Resources
◦ All assets, capabilities, organizational processes, firm attributes, information,
knowledge, etc. controlled by a firm that enable the firm to conceive of and
implement strategies that improve its efficiency and effectiveness (Daft, 1983)
◦ Physical Capital Resources (Williamson, 1975)
◦ Human Capital Resources (Becker, 1964)
◦ Organizational Capital Resources (Tomer, 1987)
◦ Differs from attributes that can constrain firm efficiency and effectiveness
Competitive Advantage
◦ Value creating strategy not simultaneously being implemented by current or
potential competitor
Sustained Competitive Advantage
◦ Strategy that continues to create value after competitive efforts to duplicate have
been exhausted
◦ Not dependent on calendar time
◦ Can be undone by Schumpeterian Shocks rendering resources into attributes
Sustained Competitive
Advantage
To hold the potential to provide competitive
advantage, firm resources must be
◦ Valuable
◦ Enable the firm to conceive of or implement strategies that
improve efficiency and effectiveness
◦ Exploit opportunities and neutralize threats in external
environment
◦ Rare
◦ Number of firms possessing less than the number needed for
perfect competition dynamics in an industry (Hirshleifer, 1980)
◦ Non-rare exploited for competitive parity and economic survival
To hold the potential to provide sustained
competitive advantage, resources must ALSO be
◦ Inimitable
◦ Dependent on unique historical conditions (Path
Dependency), causal ambiguity for both firm and
competitors, and social complexity beyond systematic
influence
◦ Non-substitutable
◦ No common or imitable strategically equivalent resources
Examples
Strategic Planning
◦ Formal: Not rare, unlikely to be a source of sustained competitive advantage by itself
◦ Can lead to recognition of potential of other possessed resource
◦ Informal: Some firms actively constrain, thus likelier to be rarer
◦ Socially complex, but could be substituted by formal planning in the right setting
Information Processing Systems
◦ Computers/Machines: Generally mobile, unlikely to be a source of sustained competitive
advantage
◦ Deeply embedded systems: Manager-computer interface mirrors social complexity
◦ Potential substitutes (Management teams) must include: Efficient information flow & processing as well as rarity
&/or inimitability
Positive Reputations
◦ Can be rare, difficult to duplicate historically, varying social complexity between firm &
stakeholders
◦ Contractual measures as substitutes?
Discussion
How could the sustained competitive advantage endowed by the three
resource examples be undone by Schumpeterian Shocks?
Can you think of some examples of attributes transformed into
resources?
Where does risk enter the discussion? Is risk tolerance a type of
resource?
How can resources help determine the assignment of residual control
rights?