Firm Resources and Sustained Competitive Advantage

1. Firm Resources and Sustained Competitive Advantage Author: Jay Barney Journal of Management (1991), Vol. 17, No. 1, 99-120 Presented by: Bradley Skousen

2. Purpose • According to Barney, “the purpose of this article is to specify the conditions under which firm resources can be a source of sustained competitive advantage for a firm.” • To build his argument, Barney indicates that previous research on competitive advantage has assumed (1) that firms within an industry are homogenous in terms of resources and strategies, and( 2) heterogeneity, if developed, within an industry will be short lived because resources used to implement strategies are highly mobile. • Under the resource-based view these assumptions are relaxed.

3. New Assumptions • Assumption 1: Firms within an industry (or group) may be heterogeneous with respect to the strategic resources they control. • Assumption 2: Resources may not be perfectly mobile (resource immobility) across firms, and thus heterogeneity can be long lasting. • Under these assumptions, the author uses the resource-based view/logic to analyze the sources of sustained competitive advantage.

4. Key Definitions • Firm Resources: include 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. • Physical Capital Resources: Include the physical technology used in a firm, a firm’s plant and equipment, its geographic location, and its access to raw materials. • Human Capital Resources: Include the training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm. • Organization Capital Resources: Include a firm’s formal reporting structure, its formal and informal planning, controlling, and coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment.

5. Key Definitions, Continued • Competitive Advantage: A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. • Sustained Competitive Advantage: A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

6. Competition with Homogeneous and Perfectly Mobile Resources • Under conditions of resource homogeneity and mobility, firms cannot achieve a competitive advantage. • Barney, asserts that first-mover advantages are the result of heterogeneity. • Barney, further asserts that barriers to entry exist under conditions of heterogeneity but not homogeneity. • As a result, Barney suggests that in order to analyze the sources of sustained competitive advantage we must assume that firm resources may be heterogeneous and immobile.

7. Attributes of Firm Resources that lead to a Sustained Competitive Advantage • Resource attributes that have the potential to lead to a sustained competitive advantage: • 1) Valuable • 2) Rare • 3) Imperfectly Imitable • 4) Non-substitutable • According to Barney, these attributes of firm resources can be thought of as empirical indicators of how heterogeneous and immobile a firm’s resources are and thus how useful these resources are for generating sustained competitive advantages.

8. Valuable and Rare Resources • Resources are valuable when they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness. • A Resource is rare if the resource is not possessed by large numbers of firms.

9. Imperfectly Imitable Resources • Resources are imperfectly imitable if other firms that do not possess them cannot obtain them. • Barney identifies three reasons for imperfectly imitable resources: • 1) Unique Historical Conditions • 2) Causal Ambiguity • 3) Social Complexity

10. Substitutability of Resources • Two valuable firm resources are strategically equivalent when they each can be exploited separately to implement the same strategies. • Substitutability can take at least two different forms: • 1) A firm may be able to substitute a similar resource that enables it to conceive of and implement the same strategies. • 2) Very different firm resources can be strategic substitutes. For example, good strategic planning procedures may be able to substitute for a charismatic leader.

11. Framework • Barney argues that by analyzing the attributes of the firm’s resources one can gain a better understanding of the sources of sustained competitive advantage.

12. Conclusion • Barney applies the framework (i.e. information processing, positive reputations, etc.) to illustrate how his framework adds value to understanding the sources of sustainable competitive advantage. • Barney illustrates how the resource-based view complements and extends traditional economic social welfare theory, organization theory, and our understanding of firm endowments in relation to sustained competitive advantage. • In sum, this paper has sought to link the attributes of firm resources to sustainable competitive advantage.