Barney’s resource based theory and entrepreneurship

What is the resource based theory of entrepreneurship?

Jay Barney developed the resource based view of the firm, which is a strategic management theory designed to explain why some firms perform better than others even when they occupy a very similar business environment.

The resource-based view seeks to explain why some firms perform better than others by looking to the firms’ 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 behind the resource-based view is that competitive advantage comes from a firm’s effective use of tangible and intangible resources or assets. Tangible assets include plant, equipment and even human resources, whereas intangible assets include things like trade secrets and corporate reputation.

VRIO

Resources that are valuable, rare, and difficult to imitate or substitute are considered to be sources of sustained competitive advantage (Barney, 1991). When such resources are bundled or combined, they can be mutually reinforcing, further differentiating the firm’s capabilities.

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. This perspective places emphasis on striving for uniqueness rather than trying to be the best company across all metrics.

Alvarez and Barney (2007) suggest that if an entrepreneur has all the resources needed to take advantage of an opportunity, then there is little need for organizing, just coordinating and executing. They consider this situation to be akin to exploiting arbitrage opportunities created by changes in the environment. By contrast, much more entrepreneurial organizing is needed to take advantage of an arbitrage opportunity when the entrepreneur is lacking one or more key resources.

Resources that might be important for entrepreneurs include: special information, leadership capabilities, education and experience (explicit and tacit knowledge) embodied in the entrepreneurs or their social networks, all of which may help to make their ventures difficult to imitate.

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 minimal attention need to attain competitive parity.n found to affect strategy and performance of new ventures.

Because the upper echelons theory posits that the characteristics of individuals and teams influence their decision-making, it is viewed as a counter-balance to population ecology and institutional perspectives that tend to view individuals as unimportant.

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