This VRIO framework suggests the kinds of questions that need to be addressed in order to understand whether a particular firm resource is a source of sustained competitive advantage: Is that resource valuable?, Is it rare?, Is it imperfectly imitable?, and Is the firm organized to exploit this resource? This framework is applied to understand the competitive implications of a variety of firm resources—in Part II of this book—and specific strategies—in Part III of this book. However, before examining these applications of the theory, it is appropriate to note some of the broader implications of resource-based logic and the VRIO framework.
1. SUSTAINED COMPETITIVE ADVANTAGE AND SOCIAL WELFARE
The resource-based model presented here addresses important social wel- fare issues linked with strategic management research. Most authors agree that the original purpose of the structure-conduct-performance paradigm in industrial organization economics was to isolate violations of the per- fectly competitive model and to address these violations in order to restore the social welfare benefits of perfectly competitive industries (Porter 1981; Barney 1986c). As applied by strategy theorists focusing on environmental determinants of firm performance, social welfare concerns were aban- doned in favor of the creation of imperfectly competitive industries within which a particular firm could gain a competitive advantage (Porter 1980). At best, this approach to strategic analysis ignores social welfare concerns. At worst, this approach focuses on activities that firms can engage in that will almost certainly reduce social welfare.
The resource-based model developed here suggests that, in fact, strategic management research can be perfectly consistent with traditional social welfare concerns of economists. Beginning with the assumptions that firm resources are heterogeneous and immobile, it follows that a firm that exploits its resource advantages is simply behaving in an efficient and effec- tive manner (Demsetz 1973). To fail to exploit these resource advantages is inefficient and does not maximize social welfare. In this sense, the higher levels of performance that accrue to a firm with resource advantages are due to the efficiency of these firms in exploiting those advantages, rather than to the efforts of firms to create imperfectly competitive conditions in a way that fails to maximize social welfare. These profits, in a sense, can be thought of as ‘efficiency rents’ (Demsetz 1973) as opposed to ‘monopoly rents’ (Scherer 1980).
2. SUSTAINED COMPETITIVE ADVANTAGE AND ORGANIZATION THEORY AND BEHAVIOR
A variety of authors have suggested that economic models of organi- zational phenomena fundamentally contradict models of organizations based in organization theory or organizational behavior (Perrow 1986; Donaldson 1990a, 1990b). This assertion is fundamentally contradicted by the resource-based model of sustained competitive advantage (Barney 1990). This model suggests that sources of sustained competitive advan- tage are firm resources that are valuable, rare, imperfectly imitable, and exploited by the organization. These resources include a broad range of organizational, social, and individual phenomena within firms that are the subject of a great deal of research in organization theory and organiza- tional behavior (Daft 1983). Rather than being contradictory, the resource- based model of strategic management suggests that organization theory and organizational behavior may be a rich source of findings and theories concerning rare, nonimitable, and exploitable resources in firms. Indeed, a resource-based model of sustained competitive advantage anticipates a more intimate integration of the organizational and the economic factors as a way to study sustained competitive advantage.
3. FIRM ENDOWMENTS AND SUSTAINED COMPETITIVE ADVANTAGE
Finally, the model presented here emphasizes the importance of what might be called firm resource endowments in creating sustained competi- tive advantages. Implicit in this model is the assumption that managers are limited in their ability to manipulate all the attributes and characteristics of their firms (Barney and Tyler 1991). It is this limitation that makes some firm resources imperfectly imitable, and thus potentially sources of sustained competitive advantage. Thus, the study of sustained competitive advantage depends, in a critical way, on the resource endowments con- trolled by a firm.
That the study of sources of sustained competitive advantage focuses on valuable, rare, imperfectly imitable, and exploitable resource endow- ments does not suggest—as some population ecologists would have it (e.g. Hannan and Freeman 1977)—that managers are irrelevant in the study of such advantages. In fact, managers are important in this model, for it is managers that are able to understand and describe the economic performance potential of a firm’s endowments. Without such managerial analyses, sustained competitive advantage is not likely. This is the case even though the skills needed to describe the rare, imperfectly imitable, and exploitable resources of a firm may themselves not be rare, imperfectly imitable, or exploitable.
Indeed, it may be the case that a manager or a managerial team is a firm resource that has the potential for generating sustained competitive advantages. The conditions under which this will be the case can be out- lined using the VRIO framework. However, in the end, what becomes clear is that firms cannot expect to ‘purchase’ sustained competitive advan- tages on open markets (Barney 1986a, 1988; Wernerfelt 1989). Rather, such advantages must be found in the rare, imperfectly imitable, and exploitable resources already controlled by a firm (Dierickx and Cool 1989).
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.