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 ?
For instance, despite the theoretical refinement of the resource-based theory of the firm (Barney, 1991), the fragile empirical support (Newbert, 2007) for it raises questions about the validity of its main arguments (Priem & Butler, 2001).
Internalization theory is connected with both economics and strategy through finks to transaction cost economics and the resource-based theory of the firm. It is distinctive in several ways, however.
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., 2009).
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.
A broad tenet of the resource-based theory of the firm (Barney, 1991) is that resources that are well protected from imitation are an ongoing source of competitive advantage.
We have emphasized Penrose's contribution to the resource-based theory of the firm. Some of her ideas are consistent with the dynamic capabilities framework; yet until two decades ago when strategy scholars picked up on this work (Teece 1982), Penrose's emphasis on fungible resources had not received much attention in either the economics or the strategic management literature.
Second, I raise concerns about building a resource-based theory of the firm that assumes away the problems of opportunistic behavior.
1996 'A resource-based theory of the firm: Knowledge versus opportunism'.
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).
For a recent review of the resource-based theory of the firm and its compatibility with evolutionary economics, see Montgomery (1995).

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