Name:

Wilbert van Leeuwen Student number: S4163141 Course: MOR005 Project: Designing Research Professor: O. Furrer

The Resource Based Theory as a model for competitor analysis

No useful theory can rest on the assumption that everything is unique. (Thompson, 1967)

Preface
The Resource Based Theory is one of the most widely known theories in the field of management theories. The Theory is widely used to create a sustained competitive advantage for the focal firm. However, this paper examines whether the Resource Based Theory can be used as a tool for competitor analysis in order to create a sustained competitive advantage. This paper will derive within a certain structure. First it will describe the Resource Based Theory and discuss the questions that the Resource Based Theory may answer. To conclude this section there will follow a short notion in order to deliver an overview of some of the diverse discussions surrounding the Resource Based Theory. Second, the main question of this paper will be discussed and ultimately answered: Is it possible to use the Resource Based Theory as a tool for competitor analysis in order to create a sustained competitive advantage? At last, the results and answers will be summarized in a brief conclusion. The objective of this study is to explore the Resource Based Theory as a tool for competitor analysis in order to look at the Resource Based Theory from a different kind of perspective and in this manner come to a better understanding of the Resource Based Theory. Key words: Resource Based Theory, sustained competitive advantage, Focal firm, VRIN, Five competitive forces, Outside- in perspective, Inside- out perspective, Tangibles, Intangibles, MAP The Resource Based Theory, what is it? In this paper the term Resource Based Theory is preferred above Resource Based View. The article The Future of Resource-Based Theory: Revitalization or Decline? of Jay B. Barney contains a brief overview of the history of the Resource Based View and describes the shift that the Resource Based View has made in the last twenty years. According to Barney, the

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

Resource Based View has reached a phase of maturity in the last twenty years. One of the arguments that Barney evokes in support of this statement is the more and more used term of Resource Based Theory instead of the Resource Based View by scholars (Barney, Ketchen , & Wright , The Future of Resource-Based Theory : Revitalization or Decline?, 2011). In other words this article assumes that because the Resource Based View has reached the stage of maturity, the term Resource Based Theory is appropriate than Resource Based View. The most important conclusion that can be drawn from the Resource Based Theory is that an organization can achieve sustained competitive advantage by applying resources and capabilities that suffice the VRIN (valuable, rare, imperfectly imitable, and non-substitutable) necessities. The Resource Based Theory originates with the assumption that resources may be heterogeneous and immobile (Barney J. , 1991). Although, the Resource Based Theory is one of the most known theories by the professionals in the work field of strategy, the primary question, according to the article of D.G. Hoopes, T.L. Madsen and G. Walker, that is asked by the Resource Based Theory is a more scientific one: Why do firms in the same industry vary systematically in performance over time? (D.G. Hoopes, 2003). In order to give a more specific description of the Resource Based View it is it important to give a brief summarized overview of what it meant by the VRIN necessities (Barney J. , 1991): Valuable: a resource is only valuable when: 1) it empowers the focal firm with a strategy that increases the effectiveness and efficiency of the focal firm or 2) when it implements these strategies. a resource is rare when other companies dont possess the concerning resource. When other companies then the focal firm possess the resource, then the other companies can easily imitate the developments and strategies that are based on the concerning resource. Because other companies can imitate the strategy, this strategy will not result in sustained competitive advantage. At last, the requirement of rareness can also concern about a specific bundle of resources. In such an case the analysis can be followed.

Rare:

Imperfectly imitable: a resource is imperfectly imitable when it, beside rareness, is not easily obtainable by other companies then the focal firm. Barney has explained that there are three different grounds for the imperfectly imitability of a resource: 1) unique historical conditions, 2) causally ambiguous and 3) socially complex. In this paper there will be given no further attention to these three grounds for imperfectly imitability. To learn more about this particular part of the Resource Based View it is recommended to read the article of J.B. Barney: Firm Resources and Sustained Competitive Advantage. Non-substitutable: The requirement of non-substitutability is met by the resource when

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

there are no alternative resources available or easily to possess, witch may result in the same result as the concerning resource, for other companies then the focal firm. It is important to emphasize that the Resource Based View consist on the assumption that resources may be heterogeneous and immobile (Barney J. , 1991). The Resource Based View describes that when a resource met all the VRIN necessities, this resource will result in sustained competitive advantage. Discussions surrounding the Resource Based Theory

The article The Resource-Based View: A Review and Assessment of Its Critiques of J.
Kraaijenbrink, J.C. Spender and A. J. Groen (Kraaijenbrink, Spender, & Groen, 2009), is a brief overview concerning the broad discussion and critiques that are established since the development of the Resource Based View. J. Kraaijenbrink et al. describe eight different main categories. Three of these categories are more problematic then the others. This article will provide you with a brief overview of these three categories without value judgments in any form. For a more complete description of all eight categories it is recommended to consult the work of J J. Kraaijenbrink et al.. 1) VRIN is neither necessary Nor sufficient for sustained Competitive Advantage The first critique that is more problematic to the Resource Based Theory is the critique that the VRIN would be not sufficient and not necessary in order to reach sustained competitive advantage. J. Kraaijenbrink et al. mention three dissimilar arguments: 1) there is a lack of empirical evidence that could support the Resource Based View and the VRIN necessities (Newbert, 2007) (Armstrong & Shimizu, 2007). 2) Besides the methodological objections, several scholars has emphasized that the possession of a resource isnt sufficient to create sustained competitive advantage. In order to create sustained competitive advantage this resource must be deployed. In the article of Peteraf & Barney (2003) The Resource Based View is unraveled of its tangle, mostly by giving a more concrete definition of sustained competitive advantage and by linking sustained competitive advantage to value creation. 3) The last objection states that the VRIN is not necessary to explain sustained competitive advantage. One alternative explanation states that uncertainty and immobility are the primary conditions for sustained competitive advantage (Foss & Knudsen, 2000). The second critique that shouldnt be dismissed too lightly is one about the conceptualization of value within the

2) The Value of a Resource Is Too Indeterminate to

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

Provide for Useful Theory Resource Based Theory. The current definition of value is an unlimited one. Everything can be value, even scholars dont agree at one definition for value. The objection is that the Resource Based View is tautological. An example of a tautological fragment of Jay B. Barney does appear from the following citations:

1) 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. (Barney J. , 1991, p. 101) 2) Resources are valuable when they enable a firm to conceive of or implement strategies that improve its efficiency or effectiveness. (Barney J. , 1991, p. 105) In the article of Peteraf & Barney (2003) it is stated that this tautology is settled by loosing the tight connection between resources and performance outcomes. According to J. Kraaijenbrink et al. the value need to be defined in a more subjective and creative way. The third important critique that is described by J. Kraaijenbrink et al. exist out of three objections. 1) The definition of resources is inclusive. In other words the definition of resources is taking a great deal of everything within its scope. 2) The first problem that arise from this inclusiveness is that the definition fails to separate the resource that are input from the resource that enable the focal firm to gain and deploy these input resources. There are several kinds of distinctions that have been made by scholars (Kraaijenbrink, Spender, & Groen, 2009). 3) The second problem that arises is that there is no distinction between the different kinds of contribution that a resource can add.

3) The Definition of Resource Is Unworkable

In another article of J.B. Barney (2001), the discussion that surrounds the Resource Based Theory is entirely different from the critique of J. Kraaijenbrink et al.. Barney is discussing whether he used the best traditional theory as a relative to the Resource Based Theory. In this article Barney states that three different traditional theories could be used. The article is mostly concerned with applying the two traditional theories that Barney didnt used in his paper of 1991; neo-classical microeconomics, and evolutionary economics. These to theories are the center of barneys article (2001), wherein he used these theories as relative to the Resource Based Theory and wherein he describes some of the implications. In the end, Barney concludes, that he did use the right traditional theory (SCP-based Theories) without saying that the other alternatives are wrong. Ultimately Barney states that when he had used one of the other traditional theories, then the Resource Based Theory would perhaps

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

have been disregarded. In the article The resource-based view of the firm: Ten years after 1991 (Barney, Wright, & Ketchen, Jr., 2001) react to the critique that competitive advantage only can subsist in a dynamic market because of an organizations capability to change, and to the critique that there is no sustained competitive advantage probable in these dynamic markets. Barney et al. argued that the Resource Based Theory, as describe in the article of 1991, is in fact applicable to both: dynamic and static markets. Danny Miller (2003) gives another critique on the sustainability of competitive advantage. He states that it is too difficult to attain sustainability of competitive advantage for it is difficult to identify resources and capabilities. In his article An Asymmetry-Based View of Advantage: Towards an Attainable Sustainability Miller is giving an overview of his research to organizations that were able to overcome these difficulties. In his conclusion Miller explain that for an organization it is more attainable to achieve sustained competitive advantage when the organization discover asymmetries and subsequently transform them into resources and capabilities. Is it possible to use the Resource Based Theory as a tool for competitor analysis in order to create a sustained competitive advantage? As described in the previous pages, the most important conclusion that can be drawn from the Resource Based Theory is that an organization can achieve sustained competitive advantage by applying resources and capabilities that suffice the VRIN necessities. From this point of view the Resource Based Theory is used as a theory that is focussed on the focal firm itself. In the book Strategy Process, Content, Context An International Perspective (De Wit & Meyer, 2010, pp. 254-259) you can find a description of to different perspectives toward business level strategy: 1) the outside- in perspective, 2) the inside- out perspective. The basic question that divides these perspectives is whether an organization should attempt to adapt itself to its environment or whether an organization should try to adapt its environment to itself. In other words: should the environment change organizations or should organizations change environments? The Resource Based Theory, as it is described in the previous pages, comes from a more inside- out perspective then an outside- in perspective (De Wit & Meyer, 2010, p. 262). For example the Resource Based Theory seeks to achieve sustained competitive advantage by the possession and deployment op resources and capabilities that fit all VRIN necessities. So, the Resource Based Theory is creating value in the form of sustained competitive advantage by using primarily build upon intrinsic characteristics. The question in this part of this article is whether the Resource Based Theory could also be used from an outside- in perspective. More concrete, can the Resource Based Theory be used to analyse a part the environment (the part of competitors) of an organization so that this organization can adapt itself toward this part of its environment. A second and more important question is whether this practice could help in the achievement of sustained competitive advantage? Other tools for competitive analysis The five competitive forces of Porter (Porter, The Five Competitive Forces That Shape Strategy, 2007) is approximately the most known and used tool for competitive analysis. The

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

five competitive forces model (Figure 1) of Porter is highly focussed on the external environment of organizations, contrary to the Resource Based Theory. It indeed is need to be because it is otherwise impossible to analyse the environment of the focal firm. Within the theory of the five competitive forces model there are five forces distinguished that shape competition. However, only three of them are real competitors. These two competitors are the direct and the more indirect competitors. The direct competitors, see figure 1, are represented by the circle in the centre (Rivalry Among Existing Competitors). The indirect competitors are represented by the highest and the lowest squares (H: Threat of new entrants, L: Threat of substitute products Figure 1 This p icture is copied from the article (Porter, The Five Competitive Forces That Shape Strategy, 2007) or services). These indirect competitors could be distinguished by arguing that the competitor as a substitute already exists and the competitor as a new entrant does not exist at this time. This article is only concerned with the direct competitors. So, if you read competitors or another variation to this word for example rivals, you should remember that only the direct competitors are intended. Now the question arises whether the Resource Based Theory could be useful as a tool in competitor analysis. Or more specific; is it possible to analyse the existing competitors with the use of the Resource Based Theory. What are the implications and the advantages of using the Resource Based Theory as a tool for competitive analysis? De Wit et al. (2010, pp. 247-250) states that, if you want to determine your relative strength in terms of resources and capabilities, you need to know not only your own resources and capabilities but also that of your competitors. And that exactly that is the part that seems to be impossible. Perhaps it would be possible to determine the tangible resources and capabilities, but it becomes much more difficult when you attempt to determine the intangible resources and capabilities of your rivals. And when you think about how tough it is to determine your own intangible resources and capabilities the hope seems to disappear. Although it seems impossible to determine the tangible and intangible resources and capabilities of your competitors, you cant exclude the possibility that it is possible. The article Making Intangibles Tangible in Tests of Resource-Based Theory: A Multidisciplinary Construct Validation Approach (Molloy, Chadwick, Ployhart, & Golden, 2011) introduces a tool to make intangible resources and capabilities tangible. Molloy et al. called it the

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

Multidisciplinary Assessment Process (MAP). This tool is based on a theory that is described in the article of Molloy et al. (2011) and therefor it is highly recommended to consult this article. Barney et al. (2011, p. 1311) states in their article that they are looking forward to how scholars will apply the MAP in order to identify intangible resources and capabilities. Assuming that it is indeed possible to make intangible resources and capabilities tangible, it should also be possible to use the Resource Based Theory as a tool for competitive analyses. Furthermore, when you are able to identify the resources and capabilities of your competitors, you should be able to realize a better strategy witch could result in sustained competitive advantaged. Another way to identify the resources and capabilities of your competitors is perhaps by looking for asymmetries. As described in the previous pages, Miller (2003) is arguing that is too difficult to attain sustainability of competitive advantage for it is difficult to identify resources and capabilities. To solve this sustainability- attainability dilemma, Miller indicates that it will be easier to identify asymmetries and subsequently transform them into resources and capabilities. Ultimately, it is necessary to make a short notion about time and costs to use the Resource Based Theory as a tool for competitive analysis. In the end, it is not irresponsible that state that the use of the Resource Based Theory as a tool for competitive analysis is, at this moment, very time consuming and therefor very expensive. It does not matter whether you apply the approach of Miller (2003) or Molloy et al. (2011), at this time it will cost a lot to bring this theory in practice in such a manner. Beside the high costs it is relatively unsure how much these approaches will yield in the sense of sustained competitive advantage. Conclusion: Of course, the most important question of this paper should be whether it is useful to apply the Resource Based Theory as a tool for competitor analysis? Although I have now answer to this question, it is, in the end, clear that it might be useful to apply the Resource Based Theory as a tool for competitor analysis. Because when you succeed in mapping the resources and capabilities of you competitors it will for sure help you by improving you strategic decisions. However, there are a lot of uncertainties. On the one hand, no one can forecast the future. On the other hand, like one of my former professors said: who forgets to prepare, prepares to be forgotten by Herman de Gelder. So ultimately we can conclude this it is not most unlikely that you could analyze your opponents resources and capabilities. It is even possible that the Resource Based Theory will evolve and that the approaches the identify resources and capabilities will evolve. And perhaps it will, someday, be possible to use the Resource Based Theory as a tool for c in a useful way.

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

Bibliography Armstrong, C. E., & Shimizu, K. (2007, November 29). A Review of Approaches to Empirical Research on the Resource-Based View of the Firm? Journal of Management , 959-986. Barney, J. B. (2001, September 20). Resource-based theories of competitive advantage: A ten- year retrospective on the resource-based view . Journal of Management , 643-650. Barney, J. B., Wright, M., & Ketchen, Jr., D. J. (2001). The resource-based view of the firm: Ten years after 1991. Journal of Management , 27 (6), 625-641. Barney, J. (1991, March 1). Firm Resources and Sustained Competitive Advantage. Journal of Management , 99-120. Barney, J. (2011, March 10). The Future of Resource-Based Theory : Revitalization or Decline? Journal of Management , 1299-1315. Barney, J., Ketchen , D. J., & Wright , M. (2011). The Future of Resource-Based Theory : Revitalization or Decline? Journal of Management , 37 (5), 1299-1315. D.G. Hoopes, T. M. (2003). GUEST EDITORS INTRODUCTION TO THE SPECIAL ISSUE: WHY IS THERE A RESOURCE-BASED VIEW? TOWARD A THEORY OF . Strategic Management Journal (889), 889-902. De Wit, B., & Meyer, R. (2010). Strategy Process, Content, Context An International Perspective. South Western Cengagae Learning. Foss, N. J., & Knudsen, T. (2000, February 21). The Resource-Based Tangle: Towards a Sustainable Explanation of Competitive Advantage. Institut for Industrikonomi og Virksomhedsstrategi , 1-41. Kraaijenbrink, J., Spender, J. C., & Groen, A. J. (2009, December 28). The Resource-Based View: A Review and Assessment of Its Critiques. Journal of Management , 349-372. Newbert, S. L. (2007). EMPIRICAL RESEARCH ON THE RESOURCE-BASED VIEW OF THE FIRM: AN ASSESSMENT AND SUGGESTIONS FOR FUTURE RESEARCH. Strategic Management Journal , 121-146. Miller, D. (2003). An Asymmetry-Based View of Advantage: Towards an Attainable Sustainability. Strategic Management Journal , 24 (10), 961-976. Molloy, J. C., Chadwick, C., Ployhart, R. E., & Golden, S. J. (2011). Making Intangibles ''Tangible'' in Tests of Resource-Based Theory : A Multidisciplinary Construct Validation Approach . Journal of Management , 37 (5), 1496-1518. Peteraf, M. A., & Barney, J. B. (2003). Unraveling The Resource-Based Tangle. MANAGERIAL AND DECISION ECONOMICS , 309-323.

Nijmegen school of Management The Resource Based Theory as a model for competitor analysis

Porter, M. E. (2007). HBRs Must-Reads on Strategy . Harvard Business Review , 1-143. Porter, M. E. (2007). The Five Competitive Forces That Shape Strategy. Harvard Business Review , 23-41. Thompson, J. (1967). Organizations in action. New Yersey: Transaction Publishers.