See discussions, stats, and author profiles for this publication at: [Link]

net/publication/280246836

resource-based view

Chapter · January 2014

DOI: 10.1002/9781118785317.weom120134

CITATIONS READS

2 3,857

1 author:

John McGee
The University of Warwick
137 PUBLICATIONS   1,784 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Wiley Encyclopedia of Management - Vol 12 Strategic Management View project

individual research View project

All content following this page was uploaded by John McGee on 11 June 2018.

The user has requested enhancement of the downloaded file.

resource-based view common distribution channels), and experience
effects. Complementary activities require dissim-
John McGee ilar sets of strategic assets, which would then
require degrees of coordination (e.g., marketing
THE RESOURCE-BASED VIEW IN THEORY activities and production activities). The skills
of coordination and internal cooperation are, in
Economists see the firm as a bundle of produc- fact, high-level capabilities with considerable
tive resources where resources are defined as strategic significance.
inputs into the firm’s operations so as to produce In the real world of uncertainty and imperfect
goods and services. In this view, resources are information, the firm may have (and usually
generic and specific categories are not suggested. does have) considerable problems in knowing
However, typical examples include patents, which particular configurations of its strategic
capital equipment, and skilled and unskilled assets will maximize profits. Managers do not
human resources. Strategists go further and have perfect knowledge of future states of the
distinguish capabilities from resources. A capa- world, of alternative actions that could be taken,
bility is the ability to perform a task or activity nor of the payoffs from adopting various alter-
that involves complex patterns of coordination natives. Moreover, the way a manager chooses
and cooperation between people and other to allocate resources will be a function of past
resources. Capabilities would include research personal experience, the firm’s experience,
and development expertise, customer service, values, biases, and personality. Accordingly,
and high-quality manufacturing. Skills, by even if two managers were given identical
contrast, are more specific relating to narrowly bundles of resources, they would use them in
defined activities such as typing, machine different ways. The result is that a firm’s set
maintenance, and book-keeping. of resources and capabilities will diverge from
Strategists are interested in those resources those of its competitors over time. Managers
and capabilities that can earn rents (a surplus in competing firms in the same markets do
of revenue over cost). These collectively are not face the same sets of choices – rather they
known as strategic assets or core competences have different menus with different choices.
and are a subset of, but distinct from, those The future, as firms see it, is to a greater or
other resources and capabilities that do not lesser degree uncertain and unknowable and
distinctively support the competitive advantage. their capacities for addressing the unknow-
The strategic task for the firm is to sustain able are diverse. Furthermore, no amount of
these rent streams over time by creating and information gathering can resolve this funda-
protecting the competitive advantage and the mental uncertainty of what the future will hold.
strategic assets that together underpin them. Thus, strategy making is a long way from the
The inherent value of the strategic assets for simplistic assumptions of the economic model.
the firm depends on the ways in which the firm Strategies tend to be unique and idiosyncratic,
combines, coordinates, and deploys these assets and simplistic theories for success are usually
in concert the with other firm-specific and more “magic theories,” that is, theories that explain
generic resources and capabilities. everything but predict nothing. Nor are there
The internal economy of the firm can be seen simple rules for riches, that is, there are no
as sets of discrete activities (e.g., a product line), automatic rules that provide benefits in the
each of which leads to market positions and long run.
each of which is supported by asset of resources This means that strategic management is not
and capabilities. Similar activities (e.g., the captured in the form of a strategic theory of
Ford Mondeo and Ford Focus product lines) the firm in a way that enables equations to be
share some common strategic assets and some identified, data collected, analyzed, and simple
common generic assets. This sharing can lead rules be inferred. Strategic management is much
to economies of scale (if different components more eclectic and diverse. Contexts external and
share the same production line), to economies internal to the firm are highly idiosyncratic.
of scope (where products might go through This places a premium on the ability to diagnose

Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper.

Copyright © 2014 John Wiley & Sons, Ltd.
2 resource-based view

Capabilities
Investment Positional Superior
Core
programs advantage value to
competences
customers
Resources

Financial Superior
capacity Stakeholder returns
value

Figure 1 Competitive advantage and core competence.

situations and formulate options. The specific in resource and capability terms. What many
routes to high performance are many and varied writers have also observed is that markets are
and not readily susceptible to simple general- changeable and even volatile, whereas it is quite
izations. This goes some way to explaining why difficult to get firms to change their internal
the resource-based view (RBV) is widely seen cultures and processes quickly enough to keep
as lacking specificity and definable concepts, pace with market changes.
and having no traceable connection to real Here we follow Grant’s (1991, 2011) lead in
performance improvements. using “resources” to describe inputs that can,
in general, be purchased on open markets and
THE LANGUAGE OF THE RBV: WHAT IS customized for use by the purchasers. Thus,
CORE COMPETENCE? production capacity might be generally avail-
able but will be configured for specific use by
We introduce the RBV with Figure 1. The top each purchaser. The activities of individual
line of the diagram shows how the firm’s invest- purchasers may lead to imperfections in supply
ment programs are directed toward the creation markets. For example, a company may seek
and development of resources and capabilities, to monopolize certain raw materials through
and that these underpin the positional advantage acquisition or maybe through offering long-
from which superior value can be delivered to term supply contracts. However, on their own,
customers. The bottom line shows the value few resources are immediately productive. By
and financial consequences in terms of the contrast, the “capabilities” described here are
capacity of the firm to finance its investment firm specific. They are developed internally
programs. The RBV focuses on the resources against the specific needs and ambitions of each
and capabilities of the firm, asserting that it is company. They often depend on tacit knowl-
the distinctiveness of these that enables sustain- edge, are path dependent in that they emerge
able positional advantages to be constructed. and develop over time, and are not in the form
The added element in this diagram is the pres- of assets that can be traded. These resources and
ence of core competences as representing those capabilities have individual characteristics, but a
resources and capabilities that are distinctive to large part of their value-in-use to a firm is related
the firm. As a result, competitive advantage is to their configuration and their coordination.
seen as the joint product of core competences Table 1 compares typical resources and typical
and positional advantage. What many writers capabilities. The distinctiveness of the firm’s
observe is that imperfections in the resource specific set of resources and capabilities is a
and capability markets are more in number and function of which resources to acquire and what
larger in size than those in product markets. capabilities to develop (the configuration issue),
This places the burden on firms to pay attention the way in which each of these is developed
to the underpinnings of competitive advantage (the firm-specificity issue), and the way in which
 resource-based view 3
Table 1 Resources and capabilities.

Resources Capabilities

Distribution coverage Specialized knowledge

Financial capacity Customer service orientation
Shared expertise with related businesses Design expertise
Low-cost manufacturing and distribution systems Application experience
Production capacity Trade relationships
Ownership of raw material sources Ability to utilize relevant technologies
Long-term supply contracts Systems design capability
Fast, flexible response capability

they are internally managed to create positional individual technologies and production skills
advantage (the coordination issue). that underlie a company’s product lines. Sony’s
core competence in miniaturization allows it
PRAHALAD AND HAMEL ON CORE to make everything from the Sony Walkman
COMPETENCE to video cameras and digital cameras. Honda’s
core competence in engines and powertrains
The language of assets, resources, and capa-
allows it compete from lawnmowers to racing
bilities can be confusing. The Grant (2011) cars. However, this latter example shows a
distinction between resources and capabilities is difficulty in their approach in that Honda’s
an easy distinction as any to maintain. However, dealer network would be invisible – because
it is laborious to keep referring to strategic of the focus on competences that lead directly
resources and capabilities as those that system- to products. A development of their idea is
atically and uniquely underpin the competitive contained in a Boston Consulting Group paper
advantage relative to those other resources and in 1992 on “capabilities-based” competition.
capabilities that do not. Thus, it is attractive This contained four basic principles:
to refer to these as CORE COMPETENCES, the
language popularized by Prahalad and Hamel 1. The building blocks of strategy are not
(1990) in the Harvard Business Review. They products and markets but business proce-
provide an unusual metaphor: sses.
2. Competitive success depends on trans-
The diversified corporation is a large tree. The forming these key processes into strategic
trunk and the major limbs are core products, the capabilities that consistently provide supe-
smaller branches are business units; the leaves,
rior value to the customer.
flowers, and fruit are end products. The root
3. Companies create these capabilities by
system that provides nourishment, sustenance,
and stability is the core competence. You can miss making strategic investments in a support
the strength of competitors by looking only at infrastructure that links together and
their end products, in the same way you miss the transcends traditional strategic business
strength of a tree if you look only at its leaves … units.
Core competences are the collective learning 4. Because capabilities necessarily cross func-
in the organization, especially how to coordinate tions, the champion of a capabilities-based
diverse production skills and integrate multiple strategy is the chief executive officer.
streams of technologies.
This approach has the real merit of focusing
BCG AND CAPABILITIES-BASED COMPETITION on business processes as the integrative glue
that binds together the various lower level
Prahalad and Hamel’s approach is to define ingredients and on the investments that are
core competence as the combination of required to make this effective. Unfortunately,
4 resource-based view
Table 2 Strategic resources and capabilities.

Speed: The ability to respond quickly to customer or market demands and to incorporate
new ideas and technologies quickly into products
Consistency: The ability to produce a product that unfailingly satisfies customers’ expectations
Acuity: The ability to see the competitive environment clearly and thus, to anticipate and
respond to customers’ evolving needs and wants
Agility: The ability to adapt simultaneously to many different business environments
Innovativeness: The ability to generate new ideas and to combine existing elements to create new
sources of value
Source: Stalk, Evans, and Shulman (1992).

the continued use of capabilities makes for some the set of difficult to trade and imitate, scarce,
confusion. The essence of the idea here is that appropriable and specialised resources and capa-
these business processes should connect to real bilities that (underpin) the firm’s competitive
advantage.
customer needs. Things are only strategic when
they begin and end with the customer because
that is where value is sensed and created. Table 2 In practice, it is difficult to draw clear distinc-
summarizes the five dimensions on which a tions between the core competences of Prahalad
company’s strategic resources and capabilities and Hamel, the capabilities-based competition
should aim to outperform the competition. of Boston Consulting Group, and the strategic
assets of Amit and Schoemaker. They all convey
Boston Consulting Group presents this
the sense of firm-specific assets that are typically
discussion in the language of strategic capabilities
process and information based and intangible in
in an attempt to avoid an overuse of compe-
character.
tences, which is a feature of the Prahalad and
There are other assets and activities in the
Hamel approach.
value chain, notable, complementary assets that
AMIT AND SCHOEMAKER ON STRATEGIC when linked to strategic assets (core compe-
ASSETS tences) are necessary for the existence of a
competitive advantage. Thus, a research-based
A similar approach can be seen in another pharmaceuticals company such as Merck or
classic paper from the same era. Amit and SmithKlineGlaxo would identify research
Schoemaker (1993) build on the resource expertise as a core competence but management
and capability language to create “strategic of government regulations as a complementary
assets.” By resources they mean stocks of asset, essential but not unique. Many other
available factors of production that are owned assets and activities in the firm can be classified
and controlled by the firm. Capabilities refer as “make-or-buy,” that is, the firm makes a
to the firm’s capacity to deploy resources, financial calculation as to make or buy. Figure 2
usually in combination, using organizational distinguishes “strategic assets” from “comple-
processes to affect a desired end. They are mentary” assets and “make-or-buy” assets.
information-based, tangible, and intangible Strategic assets are those that are truly distinc-
processes that are firm specific and are developed tive and unique to the firm and provide the
over time through complex interactions with underpinning of positional advantage in product
each other and with the firm’s resources. Unlike markets. Complementary assets are those assets
resources, capabilities are based on developing, that are jointly required with the strategic assets
sharing, and exchanging information through to produce and deliver the product or service.
the firm’s human capital – as information-based Thus, product development might be a strategic
assets they are often called invisible assets. The asset, but production capacity is required for
authors describe “strategic assets” as product trials and for product adaptations, even
 resource-based view 5
assets = resources = capabilities

Strategic
(‘‘distinctive’’)
assets

Complementary
assets

Make-or-buy assets

Figure 2 The asset triangle.

though that capacity is not unique to the firm. However, it also reflects the need to have a clear
These assets are sometimes called co-specialized concept on which to base strategic thinking. The
assets, in that they are complementary to the two building blocks of strategy identified so far
specialized assets and (lightly) customized to are competitive advantage and core competence.
interface with them. Make-or-buy assets are They are both intellectual constructs. Each
those that you choose to include in the assets relies on situational characteristics for their
portfolio solely on the basis of financial calcula- application in practice. Each provides a way of
tions. For example, the decision to own or lease thinking so that strategists can develop a “theory
company cars might be made solely on financial in use” that applies to their own situation. Hamel
criteria, because there are no strategic impli- (1994) has attempted to codify the idea of core
cations. In principle, if there are no strategic competence further. He offers the following
implications (which means that there is no need essential characteristics of a core competence:
to customize the assets for specific purposes),
then there will, in general, be a free outside 1. A competence is a bundle of constituent
market. This, in turn, generally means that the skills and technologies rather than a discrete
market is able to supply more cheaply than is skill or technology and, a core competence
possible internally. You can see from this that is the integration of a variety of individual
the pressure to outsource can be very high skills.
and depends critically on the characteristics of 2. A core competence is not an asset in the
supply markets. accounting sense of the word. A factory, a
The language of core competences is abstract distribution channel, or a brand cannot be a
and difficult to put into practice. This reflects core competence but an aptitude to manage
the idiosyncratic and unique nature of the that factory, that channel, or that brand may
strategic problems faced by individual firms. constitute a core competence.
6 resource-based view
3. A core competence must make a dispropor- Core competence is a fundamental concept in
tionate contribution to customer-perceived our understanding of what strategy making is.
value. The distinction between core and It is only through core competence that the firm
noncore competence thus rests on a attains competitive advantage and is, therefore,
distinction between the relative impacts the mainspring of sustainable distinctiveness.
on customer value. However, it is also the lens through which
4. A core competence must also be competi- the world is seen and interpreted. Different
tively unique. This means either that (i) a firms (and people) see different things in their
competence is held uniquely by one firm in environments and this is a function of the
the competitive set or that (ii) a competence inheritance and their experience. In the same
that is ubiquitous across an industry must way, firms (and people) differ in the way in
be held at a superior level in the firm (e.g., which they see themselves and, therefore, in
powertrains are ubiquitous in the auto- their understanding of what they might achieve.
mobile industry, but one could argue that In this way, we can see core competences as
Honda has unique strength in this area and the link between managerial cognition and
thus it is a core competence for Honda). the economics of the firm (Figure 3). The
5. From the corporate (multibusiness) key tasks of strategy analyst are interpreting
perspective, a core competence should the external environment, understanding the
provide an entrée into new markets. A dynamics of markets and of competition, and
particular competence may be core from the understanding the internal dynamics of one’s
perspective of an individual business, but own organization. Core competences provide
from a corporate perspective it will not be the links to these economic assessments through
core if there is no way of imagining an array a clarity of perception about the shared values
of new product-markets issuing from it. and beliefs in the firm (often explicit in the
mission statement), through tacit knowledge
The language of core competence has become and understandings (that are possibly unique
widespread. Core competence and competitive to the firm), and through flexible routines and
advantage together have become the central recipes that enable nonstandard challenges to be
conceptual terms in the analysis of competitive comprehended.
strategy. We define core competence quite
simply as WHAT DETERMINES THE VALUE OF A CORE
COMPETENCE?
the underlying capability that is the distinguishing
characteristic of the organization. Figure 4 summarizes the conditions that deter-
mine the value of a core competence (strategic
asset). The basic foundations of value are
• It is the way we do things.
imitability, durability, substitutability, and appro-
• It is how we organize the way we do things.
priability. The ability of competitors to imitate
• It is how we systematically communicate this
your assets is in part to do with physical unique-
knowledge and build on it.
ness. More subtle issues around inimitability are
• It is understanding the difference and
as follows:
building bridges between tangible and
intangible assets, tacit and explicit knowl-
edge, individual and team knowledge, and • path dependency – cumulative learning and
skill. experience over time, which is difficult to
replicate over short periods;
More formally, we define core competences as • causal ambiguity – not really knowing what it
is, that is the important element in a complex
the set of firm-specific skills and cognitive asset;
processes directed towards the attainment of • first mover advantage – the preemption
competitive advantage. of a market by being the first to create
(McGee and Segal-Horn, 1997) scale-efficient assets.
 resource-based view 7
Interpreting the external environment

Flexible
recipes and
routines

Core
competences

Shared values Tacit knowledge

and beliefs and understandings
Understanding Understanding
internal dynamics competitive dynamics

Figure 3 Core competences as the link between managerial cognition and the economics of the firm.

Inimitability
Physical uniqueness
Durability
Path dependency
Technical life
Causal ambiguity
Economic life
First mover advantage
Time compression

Value of a
strategic
asset
Substitutability
Competitive Can a unique resource
superiority be trumped by a
different resource?

Appropriability
Who captures the value
that the resource creates?
Labor and other factor
market structures

Figure 4 Value of a core competence. Source: Peteraf (1993).

Substitutability is often unknown in that it is not clear which standard will prevail.
new technologies can emerge that very quickly Appropriability is an important but subtle issue.
outdate older solutions. For example, the battle A central question about a strategic asset is:
between satellite and cable television systems Who can capture the value that is created? Is
is still raging – substitutability is high but it the firm? Could it be the skilled technicians?
 8 resource-based view
Might it be patent owners? Perhaps there are management. Strategic Management Journal, 15 (5),
long-term supply contracts? 363–380.
Makadok, R. (2001) Toward a synthesis of the resource-
based view and dynamic-capability views of rent
Bibliography creation. Strategic Management Journal, 22 (5),
387–401.
McGee, J. and Segal-Horn, S. (1997) Global competences
Amit, R. and Schoemaker, P.J. (1993) Strategic assets and
in service multinationals, in Strategic Discovery:
organisational rent. Strategic Management Journal, 14,
Competing in New Arenas (eds H. Thomas and
33–46.
D.J. O’Neal), John Wiley & Sons, Inc., New York,
Barney, J.B. (2001) Is the resource-based theory a useful
pp. 49–77.
perspective for strategic management research? Yes.
McGee, J., Wilson, D. and Thomas, H. (2010) Strategy:
Academy of Management Review, 26 (1), 41–56.
Analysis and Practice, 2nd edn, McGraw-Hill, Maid-
Collis, D.J. and Montgomery, C.A. (1995) Competing on
enhead.
resources: Strategy in the 1990s. Harvard Business
Penrose, E.T. (1959) The Theory of the Growth of the Firm,
Review, 73, 119–128.
John Wiley & Sons, Inc., New York.
Grant, R.M. (1991) The resource-based theory of
Peteraf, M.A. (1993) The cornerstones of competitive
competitive advantage: implications for strategy
advantage: a resource-based view. Strategic Manage-
formulation. California Management Review, 33 (3),
ment Journal, 14 (2), 179–191.
114–135.
Prahalad, C.K. and Hamel, G. (1990) The core compe-
Grant, R.M. (2011) Contemporary Strategy Analysis, 7th
tence of the corporation. Harvard Business Review
edn, Basil Blackwell, Cambridge, MA.
May-June, 68 (3), 79–91.
Hamel, G. (1994) The concept of core competence,
Selznick, P. (1957) Leadership and Administration, Univer-
in Competence Based Competition, The Strategic
sity of California Press, Berkeley.
Management Series (eds G. Hamel and A. Heene),
John Wiley & Sons, Ltd, Chichester, pp. 11–33. Sirmon, D.G., Hitt, M.A. and Ireland, R.D. (2007)
Managing firm resources in dynamic environments to
Hoopes, D.G., Madsen, T.L. and Walker, G. (2003) Guest
create value: looking inside the black box. Academy of
editors’ introduction to the special issue: why is there
Management Review, 32 (1), 273–292.
a resource-based view? Toward a theory of competi-
tive heterogeneity. Strategic Management Journal, 24, Stalk, G., Evans, P. and Shulman, L.E. (1992) Competing
889–902. on capabilities: the new rules of corporate strategy.
Harvard Business Review, 70 (2), 57–69.
Mahoney, J.T. and Pandian, J.R. (1992) The resource-
based view within the conversation of strategic

View publication stats