Barney's resource based theory and entrepreneurship
Jay Barney developed the Resource-Based View (RBV) of the firm, a strategic management theory designed to explain why some firms perform better than others even when they occupy a very similar business environment.
The RBV seeks to explain performance by looking to the firm's internal resources. This contrasts with earlier perspectives, such as Porter's Five Forces, which focus on the external environment as sources of threats and opportunities.
The Core Idea: Competitive Advantage
The core idea behind the resource-based view is that competitive advantage comes from a firm’s effective use of tangible and intangible assets.
- Tangible Assets: Plant, equipment, and human resources.
- Intangible Assets: Trade secrets, corporate reputation, and tacit knowledge.
The VRIO Framework
According to Barney (1991), resources are sources of sustained competitive advantage only if they meet specific criteria. When resources are bundled or combined, they can be mutually reinforcing.
[Image of VRIO framework diagram]To provide a competitive advantage, a resource must be:
- Valuable: Does it exploit an opportunity or neutralize a threat?
- Rare: Is it controlled by a small number of firms?
- Inimitable: Is it difficult for others to copy?
- Organized (or Non-Substitutable): Is the firm organized to capture the value?
Resources and Entrepreneurship
The theory has important implications for entrepreneurship research. Entrepreneurial opportunities can be expressed as an entrepreneur’s unique insight into the value of particular resources that established firms may not yet possess.
Discovery vs. Creation
Alvarez and Barney (2007) suggest a distinction based on resource control:
- If an entrepreneur HAS the resources: There is little need for "organizing," just coordinating and executing. This is akin to exploiting arbitrage opportunities.
- If an entrepreneur LACKS resources: Much more "entrepreneurial organizing" is needed to take advantage of the opportunity.
Resources that might be important for entrepreneurs include special information, leadership capabilities, education, and the experience (explicit and tacit knowledge) embodied in social networks.
Recent Updates: The Stakeholder Perspective
The resource-based perspective has been combined with the stakeholder perspective in recent writings by Barney (2018). This gives rise to a view of stakeholders as means to resources.
It suggests that entrepreneurs care more about the interests of stakeholders that control access to the resources comprising a firm's self-reinforcing VRIO resource bundle. Other stakeholders deserve only the minimal attention needed to attain competitive parity.
Video Overview: RBV and VRIO Explained
Sources
- Alvarez, S. A., and Barney, J. B. (2007). Discovery and creation: Alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal, 1(1‐2), 11-26.
- Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
- Barney, J. B. (2018). Why resource‐based theory's model of profit appropriation must incorporate a stakeholder perspective. Strategic Management Journal, 39(13), 3305-3325.
