Resource-Based Theories in Strategic Management

The article by Conner, 1991 titled “A historical comparison of resource-based theory and five schools of thought within industrial organization economics: Do we have a new theory of the firm?” is an empirical study on resource-based theories. The article first highlights the five main theories of the firm from industrial organization economics. The first theory is the neoclassical perfect competition theory, whereby firms are viewed as combiners of inputs.

In this theory, the author highlights that a firm combines its resources to produce an end product. Apart from that, the next theory highlighted is the bain-type industrial organization economics, whereby the author suggests that firms are as output restrainers. Conner suggests that the firm restrains productive input thru power monopolization or thru colluding with other firms. The third theory highlighted is Schumpeter’s response, a focus on dynamics with firms as seekers of new ways of competing. In this point, the author summarizes Schumpeter’s point that the purpose of the firm is to seize competitive opportunities by creating or adopting innovations that make rival positions obsolete. The next theory highlighted is the Chicago response, a renaissance price theory, with firms as seekers of production and distribution efficiencies.

The author highlights that this theory explains some practices offered in the bain type theory of monopolization whereby in this theory, as the author explains, the size and scope of the firm is viewed by its efficiency. In the last theory of Coase/Williamson transaction cost economics, firms as avoiders of the costs of market exchange; the author highlights that this theory suggests that firms exist to avoid the costs of using the market price mechanism. As a conclusion, the author suggests further research on resource-based theories and elaborates on the following, levels of which inputs are defined, acceptable empirical proxies for firm resources, as well as the relationship between the resource-based perspective and the new IO’s game-theoretic approach.

Hansen & Wernefelt’s “Determinants of firm performance, the relative importance of economic and organizational factors (1989)” are based on more theory-based research. They highlight the economic model of firm performance, which is divided into three main points which are the economic model, the organizational model, and the integrated model. The economic model explains about three classes which are the industry variables, variables relating the firm to its competitors, and the firm variables.

Industry variable’s importance is beyond dispute when put as a whole. Apart from that, variables relating the firm to its competitors are viewed as a proxy for some firm-specific relative competitive advantage. Other than that, firm variables are viewed as a source of organizational costs or inefficiencies. The organizational model is focused more on capturing the multidimensional aspect of significant organizational occurrence and its effects.

The findings of the research explained the following points as performance measures, economic variables, and organizational variables. The results of its study concluded the following; in the economic model, there was an insignificant relative market share variable, whereas, for the organizational model, the results showed that its highly significant with its coefficients in an expected positive direction.

However, in the integrated model, the variables show a positive and significant outcome which indicates that the firm’s market share is relative to its major competitors. The research lacked data from firms which was important to get accurate results. The authors also suggest that further researchers get more accurate and actual data from firms in order to get more accurate figures. Apart from that, the authors also suggest that economists and organization theorists should do more research in this area as they can benefit from its findings and improve on firm efficiencies.

Peteraf’s study on “The cornerstones of competitive advantage: a resource-based view” is an empirical study based on resource-based theories, which was done in 1993. This article highlights the model of competitive advantage. The author highlights that there are four main advantages. The first is the heterogeneity, where the author suggests that firms of varying capabilities are able to compete in the marketplace and at least break even.

The author also highlights two types of arguments which are the Ricardian rents and the Monopoly rents. Apart from that, the author also explains the ex-post limits to competition. In this article, the author highlights that the two critical factors which limit competition; imperfect imitability and imperfect substitutability. Next, the author highlights the imperfect mobility point, which states that imperfectly mobile resources will remain available to the firm and that the rents will be shared by the firm. The last point that the author highlights is the ex-ante limits to competition. Apart from the above, the author also highlights the applications of the resource-based models.

Peteraf suggests that in a single business strategy, the model may help its managers to differentiate between the important and less important resources. Apart from that, in corporate strategy, this is explained as the internal accumulation of assets with transaction costs. The author also concludes by stating that this is a crucial mark of a robust theory of diversification. Apart from that, there is also a testable hypothesis at the end for future research. The hypothesis suggested is this is the only theory of corporate scope that is capable of explaining the range of diversification in all its richness from related constrained to the conglomerate form.

Priem & Butler’s “Is the resource-based view a useful perspective for strategic management research?” is a theory-based paper done in 2001. The article mainly focuses on examining the “Resource-based view” (RBV) as a theory. The article starts by defining the resource-based view. One of the views stated is ” For the firm, resources and products are two sides of the same coin.” (Wernerfelt, 1984) Next, the article examines the RBV as a theory.

Among the three points highlighted were generalized conditionals, the empirical content, and the exhibit nomic necessity. In the first part, the author explains the lawlike generalizations in the RBV; the author concludes that some of the statements must be lawlike in that they are generalized conditionals, have empirical content, and exhibit nomic necessity. For the first point, the author concludes that an RBV contains statements such as the “if/then” statements.

Apart from that, in the empirical content point, the author suggests that there are analytical statements that are true by definition, which indicates that the definition of RBV as a lawlike generalization is not true. In the third point, which is the nomic necessity, the author states that even if the statements are true at the time when they were made, it is easy for anyone to counterfactual conditions that could easily falsify them.

Apart from that, the author explains further the logic of the RBV. The author suggests that the statements could be examined for their logical consistency. Apart from that, the author also suggests that there are elements of the fallacy of the RBV. Besides the above, the author also questions whether or not the RBV is suitable for strategy research and then highlights some of the boundaries faced. Thus, the author suggests that one should formalize the RBV, answer the how questions, and incorporate the temporal content.

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