resource-based theory of the firm

resource-based theory of the firm

a THEORY OF THE FIRM developed by business strategists that presents an alternative portrayal of‘the firm’ to that presented in conventional microeconomic theory In conventional (static) theory, all firms in a market are assumed to be the same in terms of the resources they possess and their production functions and cost structures. The resource-based theory in contrast, postulates that all firms are different, to a greater or lesser degree -in essence, such a firm consists of a ‘unique bundle of resources and capabilities’, which can give them COMPETITIVE ADVANTAGES over rival suppliers. If a firm is to develop a sustainable competitive advantage, it must be underpinned by resources and capabilities that are scarce and imperfectly mobile, otherwise its advantages could be quickly replicated by other firms. Thus, firm-specific assets such as patents, brand names, human assets and systems that arise from a firm's experience become the basis of long-term competitive advantage.

It must be emphasised that the two theories are not contradictory. The ‘representative’ firm in conventional theory is an expository device to explain resource allocation processes at the level of the market; in contrast, the resource-based theory places the focus on the firm itself as it seeks to become a ‘competitive winner’ by meeting and beating rival suppliers. However, the resource-based theory is useful insofar as it allows economists to address important features of markets not explicable by conventional theory. For example, if all firms are equal, how is it that some firms decline and fail while others thrive and increase their market shares, thus leading to an increase in MARKET CONCENTRATION? The resource-based theory suggests that, looking at market processes dynamically, some firms may be more efficient than others because they possess better resources and capabilities than rivals; for example, their internal organizations may be ‘leaner and fitter’ and better able to adapt to changes in customer demands; they may possess superior production methods and techniques; and their ability to create and market new products may be greater than that of rivals.

References in periodicals archive ?
Internalization theory is connected with both economics and strategy through finks to transaction cost economics and the resource-based theory of the firm.
The link between SHRM and innovation can be traced back to the resource-based theory of the firm, which is a theory conceived in the strategic management literature (Lengnick-Hall et al.
Linking this premise back to the resource-based theory of the firm, knowledge is viewed as a strategic resource crucial to the achievement of organizational competitive advantage as it fulfils the requirement of being rare, valuable, inimitable, and unsubstitutable (de Pablos, 2004).
The model draws on the resource-based theory of the firm, the process theory of internationalization, network theory, entrepreneurship theory, and international new venture theory.
We have emphasized Penrose's contribution to the resource-based theory of the firm.
Second, I raise concerns about building a resource-based theory of the firm that assumes away the problems of opportunistic behavior.
Concerns are raised about building a resource-based theory of the firm that assumes away the problems of opportunistic behavior.
We believe, that the "capabilities approach to strategy" and the underlying resource-based theory of the firm have, at least, implicitly influenced recent work in strategic logistics (see, for instance, the Michigan State University's Global Logistics Research Team's 1995 report).
Historical origins: Porter's models and the birth of the resource-based theory of the firm
Discussed in this journal by Mehra (1994), the resource-based theory of the firm traces to Penrose (1959).
He introduces business models, describes a unique resource-based theory of the firm, and analyzes organizational business dynamics and information technology governance.
They provide an overview of topics including Porter's Five Forces model, resource-based theory of the firm, globally competitive markets, and strategy execution.

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