In the development of resource-based theory, a variety of issues have been raised and addressed. While many of these questions have been important in the refinement of this theory, and, in fact, are reflected in the summary of resource-based theory presented in this book, in our view, some of these questions are very unlikely to generate additional insights. Four of these questions are discussed here.
1. ARE RESOURCES, CAPABILITIES, DYNAMIC CAPABILITIES, AND SO FORTH DIFFERENT, AND DOES IT MATTER?
The definitions of resources provided in Wernerfelt (1984) and Barney (1991a) are very broad—Wernerfelt talks of anything in a firm that could be thought of as a strength, Barney includes anything controlled by a firm that can enable it to implement strategies. These definitions were broad for several reasons. First, these broad definitions made it clear that resource- based theory was a broadly applicable theory, not just a ‘theory of the middle range’ (Merton 1957). In this sense, both Wernerfelt and Barney were trying to show that resource-based theory was at the same level of generality as Porter’s positioning theory.
Second, a short list of ‘essential resources and capabilities that all firms must possess to gain competitive advantages’ could easily have been mis- interpreted as suggesting a ‘rules for riches’. Rather than focusing on the ability of specific resources to generate competitive advantages, Barney (1991a), Dierickx and Cool (1989), and Peteraf (1993) focused on the attributes that a firm’s resources and capabilities must have to be a source of sustained competitive advantage.
Finally, since at the time, very little empirical work on the relation- ship between firm resources and performance had been conducted, it was difficult to know which among all of the resources and capabilities con- trolled by a firm might ultimately turn out to generate sustained compet- itive advantages. Again, the theory described the kinds of attributes these resources and capabilities would have—they would be, for example, path dependent, causally ambiguous, and/or socially complex—but it did not specify which specific resources a firm might control would be sources of sustained competitive advantage.
While these broad definitions had their purpose, they were limited in their ability to provide guidance for empirical research. They also made it difficult to teach resource-based theory. In response, a variety of resource typologies were introduced into the literature. Barney (1991a), for exam- ple, suggested that firm resources might be physical capital, human capital, or organization capital. Stalk, Evans, and Shulman (1992) distinguished between resources and capabilities.
Note that the essential predictions of resource-based theory did not change with the introduction of these typologies. That is, whether the resources in question are labeled ‘resources’, ‘capabilities’, ‘organizational capital’, and so on, the theory predicted that these firm assets were only likely to be a source of sustained competitive advantage when they enabled a firm to implement a strategy that increased the willingness of its cus- tomers to pay and/or reduced its costs while simultaneously being path- dependent, causally ambiguous, or socially complex in nature. All these different labels did was parse the very large and unorganized space created by the term ‘resources’ into a more organized space that could facilitate empirical work and teaching. These labels, by themselves, did not change the central propositions of resource-based theory.
Since these early efforts, there has been a proliferation of labels for the resources controlled by a firm. Some of this proliferation has been helpful. For example, Teece, Pisano, and Shuen (1997) labeled one kind of firm resource ‘dynamic capabilities’ to focus attention on the ability of firms to develop new capabilities as a source of sustained competitive advantage. Several other authors have used the term ‘routine’ to refer to resources. This helped draw an important connection between resource-based theory and the evolutionary theory of the firm (Nelson and Winter 1982).
However, changing the label of the independent variable of a theory does not change the central assumptions and assertions of that theory. Thus, what makes resources a potential source of sustained competitive advantage are the same as what make capabilities, dynamic capabilities, routines, and so forth potential sources of sustained competitive advan- tage. In this sense, resource-based theory is not really about resources, per se, but about the attributes that resources must possess if they are to be a source of sustained competitive advantage. That this theory is called ‘Resource-based’ is something of an historical accident.1 It could just as easily have been called ‘capability-based’ or ‘competence-based’—the underlying theory would have remained the same.
One of the unfortunate consequences of this proliferation of labels of the independent variables of this theory is that some have concluded that changing the label means that the theory, itself, is changed, and thus requires a new name. Thus, when knowledge is the independent variable in the theory, the theory is called the ‘knowledge-based view’, when dynamic capabilities is the independent variable in the theory, the theory is called the ‘dynamic capabilities view’, and so forth.
Renaming the theory this way, even though the underlying causal linkages between the independent variable in question and sustained competitive advantage remains the same, is roughly equivalent to label- ing transactions cost research that examines the relationship between transaction-specific investment and governance as the ‘specific investments view’ and transactions cost research that examines the relationship between behavioral uncertainty and governance as the ‘uncertainty view’. These new names fail to recognize that both of these ‘views’ apply the same underlying logic about the relationship between opportunism and governance devel- oped by Williamson (1975, 1985) and others. If the causal mechanisms remain unchanged, the theory remains unchanged, even if the specific independent variables change labels.
So, in our view, there likely are differences between resources, capa- bilities, dynamic capabilities, routines, knowledge assets, and other labels that have been used to describe the independent variables in this class of theories. These fine distinctions may help in empirical tests of the theory. They also can help in teaching. However, unless these different indepen- dent variables change the nature of the logic that links a firm’s assets with sustained competitive advantage, they are not actually new theories, but rather, a manifestation of a more general theory. In this book, we have called this theory ‘resource-based theory’—not because this is somehow the ‘best’ label that could have been chosen, but because it was the first. Additional names for this theory—including the knowledge-based view or dynamic capabilities view—are only appropriate if these perspectives develop and apply an alternative logic that links a firm’s assets and its sustained competitive advantage.
2. CAN RESOURCES REALLY BE MEASURED?
Over the years, many students and faculty alike have asked the question: How do I measure firm resources? Of course, what they are really asking is: How do I measure firm resources easily? The answer to this second question is: You don’t.
With regard to measurement, we have much better theories about how not to measure resources than we do about how to measure resources. As suggested by Godfrey and Hill (1995), the essential measurement task is to insure that the independent variables in this theory are not measured by the dependent variable, that is, that the value, rarity, and imitability of a firm’s resource is not measured by a firm’s high level of performance.
Several critics of resource-based theory have suggested that this is a common way this theory has been tested (e.g. Porter 1991; Priem and Butler 2001). While examples of this tautological form of measurement can be found, mostly in the popular business literature (e.g. Peters and Waterman 1982), no high-quality research journal would publish this kind of work. Even if there are some examples of this approach in the scholarly literature—and we have not found them yet—it is clearly the case that the vast majority (indeed, all) of the research reviewed in Chapter 11 has not applied this tautological approach. Instead, it has developed independent measures of resources and their capabilities and correlated them with inde- pendent measures of performance.
This experience in testing resource-based theory suggests some lessons about how to measure resources and their attributes. Many of these were highlighted in Chapter 11. Despite the difficulties in measuring resources and their attributes, the efforts of hundreds of scholars, summarized in Chapter 11, suggest both that resources can be measured, and can be done while avoiding tautological problems.
3. HOW IS SUSTAINED COMPETITIVE ADVANTAGE DEFINED?
Over the years, several different definitions of competitive advantage and sustained competitive advantage have been published. However, after fifteen years, a single set of definitions seems to be emerging. These def-initions were presented in Chapter 1 of this book. The consensus now seems to be that competitive advantage is said to exist when the economic value created by a firm in an industry is greater than the economic value created by the marginal firm in that industry (Peteraf and Barney 2003). Economic value is defined by the difference between the willing- ness of a firm’s customer to pay and that firm’s costs. Sustained com- petitive advantage is simply a competitive advantage that lasts a long period.
There is little doubt that these general definitions will have to be modi- fied to be applied in particular empirical settings. Specific theoretical devel- opments in resource-based theory, for example, game theoretic extensions, may also require some modifications to these definitions. It may even be the case that additional modifications of these general definitions may be forthcoming (Postrel 2004; Lippman and Rumelt 2005a, 2005b). However, to date, this approach to defining competitive advantage and sustained competitive advantage seems to address many of the theoretical limitations of prior definitions, and does so in a way that is amenable to empirical test.
Interestingly, debates about how these two concepts should be defined has not only led to clearer distinctions in resource-based theory, but has also had an impact on the entire field of strategic management. In this sense, not only are these two definitions applicable in resource-based the- ory, they seem to be equally applicable to other strategic management theories trying to understand why some firms are outperforming others.
4. IS RESOURCE-BASED THEORY TAUTOLOGICAL?
As Barney (2001) argued, it is always possible to restate any theory as if it is tautological by failing to incorporate the parameterizations of the independent and dependent variables of that theory in its restatement. Thus, restatements of resource-based theory that fail to incorporate the essential parameterization of this theory say nothing about whether the theory is, at its heart, tautological (Priem and Butler 2001). Indeed, a full statement of resource-based theory makes it clear that the theory is not tautological—an assertion that seems to be supported by the numerous empirical tests of implications of the theory summarized in Chapter 11. This is especially the case since some of these tests generate results that are inconsistent with some of the implications of the theory.
In its most general form, resource-based theory suggests that firms with certain kinds of assets with identifiable attributes can generate sus- tained competitive advantages. To give these assertions empirical content, resource-based theory asserts that the kinds of assets in question are assets that enable a firm to increase the willingness of its customers to pay for its products and/or reduce its costs to a greater extent than at least some other firms in this firm’s industry; that the attributes of these assets include their path dependent, causally ambiguous, and/or socially complex nature; and that a firm has a sustained competitive advantage when it is able to increase the willingness of its customers to pay and/or reduce its costs to a greater extent than at least some other firms in this firm’s industry and for a relatively long period.
Note that the definition of competitive advantage (to increase the will- ingness of its customers to pay and/or reduce its costs to a greater extent than at least some other firms in this firm’s industry) is both in the independent and dependent variables of resource-based theory. This leads some to suggest that the theory is tautological. However, since competitive advantage is on both sides of this theoretical equation, the only non- tautological empirical assertions that are part of resource-based theory focus on the attributes of resources (path dependent, causally ambiguous, and/or socially complex) and the length of time a firm is able to sustain a competitive advantage. This is why Barney (2001b) asserted that the question of value is exogenous to resource-based theory, and that the theory’s predictions focus on the relationship between certain attributes of resources and how long a firm is able to maintain its competitive advan- tages.
Can resource-based theory be stated as if it was tautological? Yes. Is resource-based theory tautological? No.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.