Extending resource-based theory

While resource-based theory has been developed and extended broadly, there may still be further opportunities to extend the theory in some mean- ingful and important ways. Several of these possible extensions are noted here. However, how resource-based theory can be extended ultimately depends on scholarly creativity and innovativeness. What turns out to be the most important extensions of the theory may not even be mentioned here.


The most obvious extensions of resource-based theory will take place through additional empirical tests of the theory. Particularly fruitful tests are likely to have one or more of the following characteristics.2

First, future tests of this theory are likely to apply the quantitative case study approach. Since the value of a firm’s resources depends so much on the specific industry context within which a firm is operating, studies of samples of firms in a single industry, perhaps over time, are most likely to generate insights about how particular sets of resources generate sustained competitive advantages or not. There is already an emerging tradition of this kind of scholarship in strategic management. This trend seems likely to continue into the future.

This does not mean that large cross-sectional research will have no future impact on resource-based theory. For example, the variance decom- position research summarized in Chapter 11 uses such data. However, on balance, it seems more likely that quantitative case studies of firms in a single industry over time have more potential to generate insights about resource-based theory than large sample, cross-sectional work.

Second, future tests of the theory area are likely to involve comparing the predictions of resource-based theory and other theories in strategic man- agement. Indeed, this kind of comparative work has already been done. While the variance decomposition stream of work did not generate explicit hypotheses to be tested, it nevertheless did pit the explanatory power of resource-based theory against the explanatory power of positioning the- ory. Overall, firm effects seem to explain more of the variance in firm performance than industry effects, although industry effects continue to exist.

A similar approach has been adopted in research on the theory of the firm. Poppo and Zenger (1998), Leiblein and Miller (2003), Leiblein (2003), and Folta (1998) each derive some theory of the firm hypotheses from several different theories, including resource-based theory and trans- actions cost economics. Sometimes these theories are rivals, sometimes they are complements. There is little doubt that this kind of research model is likely to generate important insights, both for resource-based theory and for other theories in strategic management.

Finally, there are some early indications that Bayesian methods may be particularly useful in testing resource-based theory (Hansen, Perry, and Reese 2004). Traditional statistical methods focus on estimating mean effects—the average relationship between variables A and B. Resource- based theory is not about the mean, it is about the unusual, the outlier. Indeed, standard statistical practice suggests throwing outliers out of a sample to generate more efficient mean-based statistics. Resource-based theory suggests that, rather than throwing outliers out of a sample, we should study them!

Properly applied, Bayesian statistics enable a researcher to not only estimate mean effects, but also to estimate firm-specific coefficients that describe how two variables are related for a particular firm (Hansen, Perry, and Reese 2004; Mackey 2006). One study of the relationship between diversification strategy and firm performance using Bayesian statistics was able to show that sometimes related diversification adds value to a firm, sometimes it destroys value; that unrelated diversification adds value to a firm, sometimes it destroys value (Mackey 2006). This study was also able to show why the coefficient that linked diversification strategy with firm performance varied by firm. The results are consistent with resource-based theory.

Currently, the number of strategy scholars who understand and can apply Bayesian methods is quite limited. However, this may be one area where there are significant opportunities to extend empirical tests of resource-based theory.


Virtually all social science theory is originally explicated using words and language. This language-based approach can last for some time and gen- erate a significant amount of empirical research. However, despite the many advantages of this type of theory—not the least of which is that it is accessible to anyone who can read—language-based social science theories have one enormous limitation: They are insufficiently precise.

Language is a rich and textured medium. In skilled hands, its subtly and nuance can be used to communicate rich meaning, sometimes com- municating many more than a single meaning all at once. When Julius Caesar, in Shakespeare’s play of the same name, says, ‘Yond Cassius has a lean and hungry look,’ he is not actually commenting on Cassius’ phys- ical appearance—though Cassius may, in fact, be lean and hungry. He is saying much more about Cassius’ ambitions and how those ambitions can manifest themselves in a person’s appearance. He is also talking about himself, for he too is ‘lean and hungry’, even if in fact he is neither lean nor hungry, and maybe a bit afraid—of Cassius, surely, but of himself as well, and what he is becoming. He also is commenting on the state of ancient Rome, where political civility has almost been replaced by the politics of violence, where the traditional contest of wills has almost been superseded by the contest of brute strength—thus the emphasis on Cassius’ physical state and its looming presence. All this meaning, and more, in eight simple words.

But this subtly and nuance is a problem for science. Science requires precision, not subtly and interpretation and nuance. Many of the con- troversies surrounding social science theories, including resource-based theory, are due to the imprecision and multiple interpretations of language. As the limits of our language are reached, it becomes important to restate our theories, including resource-based theory, in rigorous mathematical terms.

Of course, this is already beginning to occur. Important parts of resource-based theory have already been translated into mathematical models (e.g. Adner and Levinthal 2001; Makadok 2001; Makadok and Barney 2001; Adner 2002; Adner and Levinthan 2002; Adner and Helfat 2003; Adner and Zemsky 2005, 2006). This trend is likely to accelerate.

However, this mathematical exposition of the theory is not a simple restatement. The increased precision with which the theory can be stated has several effects, one of which is to generate insights that could not be generated with the verbal theory alone. These insights suggest empirical implications of the theory worthy of further detailed analysis.

The great risk in trading verbal theory for mathematical theory is that developing elegant models becomes a means unto itself. This is a wide- spread problem in economics, a problem that even many economists agree has adversely affected the field (Debreu 1991). However, with respect to resource-based theory, we are a long way away from this concern. A great deal of progress can still be made in the theory by a greater reliance on mathematical formulations.

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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