Review: “Firm Resources and Sustained Competitive Advantage” – Barney (1991)

This review reviews and summarizes the main contents of famous article “Firm Resources and Sustained Competitive Advantage” of Barney, published in Journal of Management in 1991. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable over time, this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustainable competitive advantage, including value, rareness, imitability, and substitutability, are discussed by the author. Since, this VRIN model have been popularly applied by analyzing the potential of several firm resources for generating sustainable competitive advantages.

Concerning the research context, in the previous literature, “firms obtain sustained competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses” (Barney, 1991, p. 99). “As exemplified by research by Porter and his colleagues (Caves & Porter, 1977; Porter, 1980, 1985) this work has attempted to describe the environmental conditions that favor high levels of firm performance” (Barney, 1991, p. 100).

“To help focus the analysis of the impact of a firm’s environment on its competitive position, much of this type of strategic research has placed little emphasis on the impact of idiosyncratic firm attributes on a firm’s competitive position (Porter, 1990). Implicitly, this work adopted two simplifying assumptions. First, these environmental models of competitive advantage have assumed that firms within an industry (or firms within a strategic group) are identical in terms of the strategically relevant resources they control and the strategies they pursue (Porter, 1981; Rumelt, 1984; Scherer, 1980). Second, these models assume that should resource heterogeneity develop in an industry or group (perhaps through new entry) that this heterogeneity will be very short lived because the resources that firms use to implement their strategies are highly mobile (i.e., they can be bought and sold in factor markets)” (Barney, 1991, p. 100-101).

However, in the reality, firms within an industry or group may be heterogeneous with respect to the strategic resources they control. Also, these resources may not be perfectly mobile across firms, and thus heterogeneity can be long lasting. These ones are two assumptions of the resource-based view for the analysis of sources of sustained competitive advantage of the firm.

Defining Key Concepts

To avoid possible confusion, three concepts that are central to the perspective developed in this article are defined. Firstly, 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. In the language of traditional strategic analysis, firm resources are strengths that firms can use to conceive of and implement their strategies” (Barney, 1991, p. 101).

In this article, Barney distinguish three categories of resources. “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. Anh organizational 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” (Barney, 1991, p. 101).

Competitive Advantage and Sustained Competitive Advantage

Also, “in this article, by definition, 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. 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” (Barney, 1991, p. 102).

These two definitions require some discussion. “Firstly, they do not focus exclusively on a firm’s competitive position vis-a-vis firms that are already operating in its industry”. Secondly, “the definition of sustained competitive advantage adopted here does not depend upon the period of calendar time during which a firm enjoys a competitive advantage, and all so not “last forever”” (Barney, 1991, p. 102).

Competition with Homogeneous and Perfectly Mobile Resources

Resource Homogeneity and Mobility and Sustained Competitive Advantage

Armed with these definitions, it is now possible to explore the impact of resource heterogeneity and immobility on sustained competitive advantage of the firm.

“Imagine an industry where firms possess exactly the same resources. The question is posed that: Is there a strategy, that could be conceived of and implemented by any one of these firms, that could not also be conceived of, and implemented by all other firms in this industry? The answer to this question must be no. That one firm in an industry, populated by identical firms, has the resources to conceive of and implement a strategy means that these other firms, because they possess the same resources, can also conceive of and implement this strategy. Because these firms all implement the same strategies, they all will improve their efficiency and effectiveness in the same way, and to the same extent. Thus, in this kind of industry, it is not possible for firms to enjoy a sustained competitive advantage” (Barney, 1991, p. 103-104).

Resource Homogeneity and Mobility and First-Mover-Advantages

Concerning the First-Mover Advantages, in which first-moving firms may obtain a sustained competitive advantage, by gaining “access to distribution channels, developing goodwill with customers, or developing a positive reputation, all before firms that implement their strategies later. Thus, first-moving firms may obtain a sustained competitive advantage” (Barney, 1991, p. 104). But, “if competing firms are identical in the resources they control, it is not possible for any one firm to obtain a competitive advantage from first moving” (Barney, 1991, p. 104).

Resource Homogeneity and Mobility and Entry/Mobility Barriers

Concerning the existence of “barriers to entry”, or more generally, “mobility barriers”, it is being suggested that “these barriers only become sources of sustained competitive advantage, when firm resources are not homogeneously distributed across competing firms, and when these resources are not perfectly mobile” (Barney, 1991, p. 105). In contrast, firms cannot obtain competitive advantage from Entry or mobility Barriers.

In conclusion, “firms, in general, cannot expect to obtain sustained competitive advantages, when strategic resources are evenly distributed across all competing firms and highly mobile. This conclusion suggests that the search for sources of sustained competitive advantage must focus on firm resource heterogeneity and immobility” (Barney, 1991, p. 104).

Firm Resources and Sustained Competitive Advantage

As the arguments above, Barney state that, in order to have potential of sustained competitive advantages, a firm resource must have four attributes, that constitute the VRIN model.

Valuable Resources

Firstly, it must be valuable. “Resources are valuable, when they enable a firm to conceive of or implement strategies, that improve its efficiency and effectiveness” (Barney, 1991, p. 106). “Firm attributes may have the other characteristics, that could qualify them as sources of competitive advantage (eg., rareness, inimitability, non-substitutability), but these attributes only become resources, when they exploit opportunities or neutralize threats in a firm’s environment” (Barney, 1991, p. 106).

Rare Resources

Secondly, resources must be rare among a firm’s current and potential competition. “A firm enjoys a competitive advantage, when it is implementing a value-creating strategy not simultaneously implemented by large numbers of other firms” (Barney, 1991, p. 106). “If this particular bundle of firm resources is not rare, then large numbers of firms will be able to conceive of and implement the strategies in question, and these strategies will not be a source of competitive advantage, even though the resources in question may be valuable” (Barney, 1991, p. 106).

So, “the observation, that valuable and rare organizational resources can be a source of competitive advantage, is another way of describing first-mover advantages accruing to firms with resource advantages” (Barney, 1991, p. 107).

Imperfectly Imitable Resources

“However, valuable and rare organizational resources can only be sources of sustained competitive advantage, if firms that do not possess these resources cannot obtain them” (Barney, 1991, p. 107). So, thirdly, “firm resources can be imperfectly imitable for one or a combination of three reasons: (a) the ability of a firm to obtain a resource is dependent upon unique historical conditions, (b) the link between the resources possessed by a firm and a firm’s sustained competitive advantage is causally ambiguous, or (c) the resource generating a firm’s advantage is socially complex” (Barney, 1991, p. 107).

The unique historical conditions or path dependency mean that, the ability of a firm to acquire and exploit some resources depends upon their place in time and space; so in history passes. “If a firm obtains valuable and rare resources because of its unique path through history, it will be able to exploit those resources in implementing value-creating strategies, that cannot be duplicated by other firms” (Barney, 1991, p. 108); for example: their unique location, particulars scientists, unique and valuable organizational culture emerged in the early stages of a firm’s history.

The causal ambiguity concerns the link between the resources possessed by a firm and a firm’s sustained competitive advantage, that is causally ambiguous. “Under conditions of causal ambiguity, it is not clear that, the resources, that can be described, are the same resources that generate a sustained competitive advantage, or whether that advantage reflects some other non-described firm resource” (Barney, 1991, p. 109). “The resources controlled by a firm are very complex and interdependent. Often, they are implicit, taken for granted by managers, rather than being subject to explicit analysis” (Barney, 1991, p. 110), so not simply by hiring some managers.

Also, the resource generating a firm’s advantage is socially complex, beyond the ability of firms to systematically manage and influence, for example, the interpersonal relations among managers in a firm, a firm’s culture, a firm’s reputation among suppliers and customers. “To the extent that socially complex firm resources are not subject to such direct management of the firm, these resources are imperfectly imitable” (Barney, 1991, p. 110). In particular, we emphasize that the complex physical technology is not included in this category of sources of imperfectly imitable, because the other firm can buy it.

Substitutability

“The last requirement for a firm resource to be a source of sustained competitive advantage is that, there must be no strategically equivalent valuable resources that are themselves either not rare or imitable. Two valuable firm resources are strategically equivalent, when they each can be exploited separately to implement the same strategies. Suppose that one of these valuable firm resources is rare and imperfectly imitable, but the other is not. Firms with this first resource will be able to conceive of and implement certain strategies. If there were no strategically equivalent firm resources, these strategies would generate a sustained competitive advantage, because the resources used to conceive and implement them are valuable, rare, and imperfectly imitable. However, that there are strategically equivalent resources suggests that other current or potentially competing firms can implement the same strategies, but in a different way, using different resources. If these alternative resources are either not rare or imitable, then numerous firms will be able to conceive of and implement the strategies in question, and those strategies will not generate a sustained competitive advantage. This will be the case even though one approach to implementing these strategies exploits valuable, rare, and imperfectly imitable firm resources.

Substitutability can take at least two forms. First, though it may not be possible for a firm to imitate another firm’s resources exactly, it may be able to substitute a similar resource that enables it to conceive of and implement the same strategies. For example, a firm seeking to duplicate the competitive advantages of another firm by imitating that other firm’s high-quality top management team will often be unable to copy that team exactly. However, it may be possible for this firm to develop its own unique top management team. Though these two teams will be different, then a high-quality top management team is not a source of sustained competitive advantage, even though a particular management team of a particular firm is valuable, rare and imperfectly imitable.

Second, very different firm resources can also be strategic substitutes. For example, managers in one firm may have a very clear vision of the future of their company because of a charismatic leader in their firm. Managers in competing firms may also have a very clear vision of the future of their companies, but this common vision may reflect these firms’ systematic, company-wide strategic planning process. From the point of view of managers having a clear vision of the future of their company, the firm resource of a charismatic leader and the firm resource of a formal planning system may be strategically equivalent, and thus substitutes for one another. If large numbers of competing firms have a formal planning system that generates this common vision, or if such a formal planning is highly imitable; then firms with such a vision derived from a charismatic leader will not have a sustained competitive advantage, even though the firm resource of a charismatic leader is probably rare and imperfectly imitable.

Of course, the strategic substitutability of firm resources is always a matter of degree. It is the case, however, that substitute firm resources need not have exactly the same implications for an organization in order for those resources to be equivalent from the point of view of the strategies that firms can conceive of and implement. If enough firms have these valuable substitute resources, for example they are not rare; or if enough firms can acquire them, for example they are imitable; then none of these firms, including firms whose resources are being substituted for, can expect to obtain a sustained competitive advantage” (Barney, 1991, p. 111-112).

Applying the Framework

The relationship between resource heterogeneity and immobility; value, rareness, imitability, and substitutability; and sustained competitive advantage is summarized in this Figure.

Source: Barney (1991, p.112)

This framework can be applied in analyzing the potential of a broad range of firm resources, to be sources of sustained competitive advantage. These analyses not only specify the theoretical conditions under which sustained competitive advantage might exist, they also suggest specific empirical questions that need to be addressed, before the relationship between a particular firm resource and sustained competitive advantage can be understood. Three brief examples of how this framework might be applied are presented below.

Strategic Planning and Sustained Competitive Advantage

“It seems reasonable to expect that formal strategic planning systems are unlikely by themselves to be a source of sustained competitive advantage” (Barney, 1991, p. 112). Because “any firm interested in engaging in formal planning can certainly learn how to do so, and thus formal planning seems likely to be highly imitable” (Barney, 1991, p. 113), so not likely to be a source of sustained competitive advantage.

However, several authors appreciate the informal, emergent, and autonomous processes, “by which firms choose their strategies. To the extent that, these processes suggest valuable strategies for firms, they can be thought of as firm resources, and their potential for generating sustained competitive advantage can be evaluated by considering how rare, imperfectly imitable, and substitutable they are” (Barney, 1991, p. 113).

“Those who study these informal strategy-making processes tend to agree about their rareness and imitability”. “Moreover, because these processes are socially complex, they are also likely to be imperfectly imitable”. Also, “there is less agreement concerning possible substitutes for these informal strategy-making processes” (Barney, 1991, p. 113).

Information Processing Systems and Sustained Competitive Advantage

“There is also a growing literature that focuses on information processing systems and sustained competitive advantage” (Barney, 1991, p. 114). We can see that, it is unlikely that computers by themselves, can be a source of sustained competitive advantage. Machines, be they computers or other types of machines, are part of the physical technology of a firm, and usually can be purchased across markets. In contrast, an information processing system that is deeply embedded in a firm’s informal and formal management decision-making process, may hold the potential of sustained competitive advantage. This is also a socially complex system, and thus will probably be imperfectly imitable. So, “an embedded information-processing system may be a source of sustained competitive advantage, even if a close substitute for such a processing system (a close knit, highly experienced top management team) exists” (Barney, 1991, p. 115-116).

Positive Reputations and Sustained Competitive Advantages

“Positive reputations of firms among customers and suppliers have also been cited as sources of competitive advantage in the literature” (Barney, 1991, p. 115). An application of the framework presented in the Figure, again, suggests the conditions under which a firm’s positive reputation can be a source of sustained competitive advantage. If only a few competing firms have such reputations, then they are rare. In general, the development of a positive reputation usually depends upon specific, difficult-to-duplicate historical settings. To the extent that a particular firm’s positive reputation depends upon such historical incidents, it may be imperfectly imitable. In addition, positive firm reputations can be thought of as informal social relations between firms and key stakeholders. Such informal relations are likely to be socially complex, and thus imperfectly imitable.

“The question of substitutes for a positive reputation is, again, more complicated. Some authors have suggested that rather than developing a positive reputation, firms may reassure their customers or suppliers through the use of guarantees and other long-term contracts. Thus, these guarantees substitute for a firm’s reputation. However, it is not clear that the implicit psychological contract between a firm and its stakeholders when a firm has a positive reputation is the same as the implicit psychological contract between a firm and its stakeholders when a firm uses guarantees for reassurance If, in fact, reputation and guarantees are substitutes, why is it that some firms invest both in a positive reputation and guarantees? If these two firm resources are not substitutes, then a reputation may be a source of sustained competitive advantage” (Barney, 1991, p. 115).

Discussion

The resource-based view of sustained competitive advantage has a variety of implications for the relationship between strategic management theory and other business disciplines. Some of these implications are considered, such as Social Welfare, Organization Theory and Behavior, and Firm Endowments. For further information, please see the full article.

 

Source: Barney Jay (1991), “Firm Resources and Sustained Competitive Advantage”, Journal of Management, 17 (March), p. 99-120. https://doi.org/10.1177/014920639101700108

3 thoughts on “Review: “Firm Resources and Sustained Competitive Advantage” – Barney (1991)

  1. zovre lioptor says:

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  2. zovre lioptor says:

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