Expanding resource-based theory

Additional empirical work and reformulating resource-based theory in mathematical terms are almost inevitable extensions of resource-based theory over the next several years. Possible expansions of resource-based theory, that is, efforts to take the theory where it has yet to go, are more speculative in nature. However, in this speculative vein, several possi- ble expansions of the theory are possible. Some of these are discussed here.


Resource-based theory takes the existence of heterogeneous firm resources and capabilities as given and examines the impact of these resources for the ability of firms to gain and sustain competitive advantages. The question about where resources come from is only addressed in resource-based the- ory to the extent that this process may have an impact on the ability of other firms to imitate a particular firm’s resources and capabilities. Thus, history, in general, and path dependence, in particular, are important attributes of resources that can have an impact on how costly they are to imitate.

But in another sense, observing that a particular resource was developed in a path dependent way is really just a label for our ignorance about the micro-dynamics of resource development. Why a particular path in a path dependent process was taken; why (or why not) this path is irreversible and inimitable; the impact of paths not taken; and how the decisions made by boundedly rational managers, leaders, and consumers affect the evolution of a path dependent process are all issues we know relatively little about. And what we know often takes the form of interesting stories— organizational autobiographies—that are difficult, at best, to generalize, if only because we can only tell such stories about the paths taken, and not about the paths not taken.

Ultimately, a complete resource-based theory of firm performance would have to include a more general theory of this resource-development process. Such a general theory would acknowledge the role of luck in the development of resources (Barney 1986a), but would also recognize the important role of managers taking advantage of their good luck to extend their resource-based advantages.

One area of research that confronts a similar class of problems is entre- preneurship (Barney 2001b). Entrepreneurship scholars are beginning to confront the question of how do entrepreneurs assemble a set of resources to exploit market opportunities when the nature of those opportunities, and thus which resources are required to exploit them, may not be known (Alvarez and Barney 2005). How firms are organized in this setting, how property and decision rights are all assigned, and economic profits—if they exist at all—are allocated, are all important questions in this context (Alvarez and Barney 2004, 2005).

Some of these scholars suggest that there may be two fundamen- tally different ways of solving this central entrepreneurial problem. Some entrepreneurship scholars adopt the assumption that opportunities for competitive advantage exist as objective phenomena, just waiting to be discovered by unusually insightful individuals (Shane and Venkataraman 2000; Shane 2004). Other scholars suggest that opportunities do not exist as objective phenomena, just waiting to be discovered, but instead are created by the actions of boundedly rational individuals just trying to improve their current situation as much as possible (Baker and Nelson 2005).

Of these two theories, the latter—creation theory—seems to be more amenable to helping explain where resources come from, if only because the former—discovery theory—adopts assumptions and an approach that are closely aligned with traditional economic theory. Traditional economic logic, of which resource-based theory is clearly a part, is good at examining what should be done to exploit opportunities that are reasonably well understood. It is less good at examining what should be done to exploit opportunities that do not yet exist. In such settings theories of muddling through (Lindbolm 1959), effectuation (Sarasvathy 2001a), and bricolage (Baker and Nelson 2005) provide an alternative to economic logic that resource-based theorists might be able to borrow in developing a theory of where resources come from.


A second possible expansion of resource-based theories might be to develop truly dynamic resource-based models. Currently, the core theo- retical assertions of resource-based theory are not dynamic: Firms with certain kinds of resources will be able to gain sustained competitive advan- tages. While the theory focuses on a variety of dynamic processes that are created by these resources and the advantages they create, for example, the dynamics of imitation, the assumption of much of the current theory is that the resources and capabilities that give a firm a competitive advantage are relatively fixed in nature.

Ironically, even dynamic capabilities versions of resource-based theory are static in this sense. That is, the ability of dynamic capabilities to enable firms to develop new capabilities is also assumed to be fixed. While the capabilities a firm develops with its dynamic capabilities may be new, the ability to create new capabilities is assumed to remain constant, and thus dynamic capabilities resource-based models are actually no more dynamic than other versions of this theory.

That resource-based theory is not terribly dynamic in its construction should not be too large a surprise. After all, resource-based theory was originally developed as an alternative (or complement, depending on your point of view) to Porter’s positioning theory, and positioning theory is also not very dynamic in its characterization of the competitive process. Yes, the threat of entry is central to positioning theory, just as the threat of imitation is central to resource-based theory. But barriers to entry—because they are attributes of industry—are not assumed to vary much over time. This stability makes the model tractable, both to guide research and teaching. But it is obviously the case that just because rivalry, substitutes, new entry, and so forth generate an attractive industry now does not mean that these are fixed attributes of an industry, that attractiveness is an unchanging attribute of an industry. And so it is with resource-based logic: That a resource is currently valuable, rare, and costly to imitate does not mean that it will always be valuable or rare or costly to imitate.

Resource-based theory does acknowledge this limitation. Barney (1991a) for example argued that resource-based propositions hold only as long as there are no Schumpeterian shocks in an industry (Schumpeter 1934). Such shocks can take what had been valuable, rare, and costly to imitate resources and make them either not valuable, or not rare, or not costly to imitate. However, identifying such Schumpeterian shocks as a boundary condition in resource-based theory hardly qualifies as a dynamic expansion of the theory. Again, it is more a label for our ignorance about these dynamics than an analysis of them.

In this sense, the dynamics of competition among resources is a tem- poral extension of the first expansion of resource-based theory discussed here: Where do resources come from? However, instead asking about the source of resources, dynamic resource-based models will ask: Where are a firm’s resources going next? In this sense, current resource-based theory answers only the middle of the three existential questions asked in moral philosophy: Where do we come from, why are we here, and where are we going? Given resource heterogeneity, resource-based theory can explain why some firms are currently able to outperform others. As to the genesis or ultimate fate of these resources, resource-based theory has little to say.

However, it may well be the case that the theories that use entrepreneur- ial actions to explain where resources come from may also help explain how resources evolve in the future. This is a highly speculative suggestion. However, since at one point the present was yesterday’s future, it might be possible to take insights about how the past became the present to under- stand how the present could become the future. Of course, the business of predicting the next Schumpeterian shock is really the business of fortune- tellers and futurists—and sometimes it is hard to tell the difference. But, it may be possible to predict who is most likely to generate this shock, how incumbent firms with incumbent resources are likely to respond, and when new entrants will overtake incumbents. In this sense, Christensen’s work (Christensen 1997; Christensen, Anthony, and Roth 2004) on the inno- vator’s dilemma and using theoretical models to anticipate the evolution of industries—and the value, rarity, and imitability of resources in those industries—are early exemplars.


In the mid-1960s, it seemed inconceivable that finance scholars would one day make contributions sufficiently important to the field of eco- nomics so that they would be awarded the Nobel Prize in economics.

This happened the first time in 1985, when Modiglianni won the prize. It happened again in 1990 when Markowitz, Miller, and Sharpe shared the prize, and in 1997 when Merton and Scholes shared the prize. In this sense, finance is an example of a field, originally dominated by practitioners and largely atheoretical in nature, that matured to the point that it began to make fundamental contributions to its discipline of origin, namely economics.

It may seem inconceivable now that strategic management scholars would ever be taken seriously enough by the field of economics that they would be considered for the Nobel Prize in economics. However, this was just as inconceivable for finance in the mid-1960s as it is for strategic man- agement in 2006. Of course, it is not being suggested that strategic man- agement, in general, and resource-based theorists, in particular, should adopt ‘winning a Nobel Prize in economics’ as a realistic or worthy goal. However, efforts to have strategic management research, generally, and resource-based theories, in particular, taken more seriously by economics would almost certainly have a positive impact on the expansion of both the field and of this theory.

To facilitate this link between resource-based theory and economics, sev- eral things must occur. Some of these are already occurring. For example, mathematical exposition of the theory is likely to make it more attractive to mainstream economists. Publishing theoretical (e.g. Adner and Zemsky 2005) and empirical (e.g. Henderson and Cockburn 1994, 1996) resource- based articles in mainstream economics journals will also facilitate this interaction.

One way that resource-based theory will probably need to expand if it is to begin to have implications for broader discussions in economics concerns the role of social welfare. Historically, strategy scholars have not discussed social welfare at all (Barney and Hesterly 2005). This may have been a matter of personal taste—after all, our major applied audience was firms, not society at large. However, more fundamentally, the once dominant paradigm in the field of strategic management—the position- ing perspective—was derived from economic theory in such a way that engaging in strategies to generate competitive advantages could generally be expected to reduce social welfare. When client firms are taking actions to reduce rivalry, tacitly collude, and to erect artificial barriers to entry to retain their high profits, it is difficult for strategy scholars to contribute much to broader conversations about how to maximize social welfare. Indeed, in this context, a good way to maximize social welfare may have been to do away with the field of strategic management!

However, building on Demsetz’s observations (1973) about efficiency explanations of heterogeneous firm performance, resource-based theories have always held the potential for developing a theory of heterogeneous firm performance that was also consistent with maximizing social wel- fare. Such a theory could have a variety of important policy implications, including implications for antitrust policy, patent protection policy, and employment policy—to name just a few. Only a couple of efforts have been published in these areas, and these efforts are tentative at best (Barney 2001; Ellig 2001).

However, it does not seem unreasonable to suggest that this is a poten- tial stream in resource-based theory that could be developed to a sig- nificant degree. To the extent that proposed resource-based social poli- cies differed significantly from policies derived from current economic theory, these efforts might actually highlight the link between resource- based theory to the broader economic and social policy issues of the day. Such a linkage might benefit both the fields of strategic management and economics.

Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.

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