Assessing the Critiques of the RBV

11 March 2010 at 7:15 am Nicolai Foss 11 comments

| Nicolai Foss |

There is little doubt that the resource-based view, in its various guises and manifestations (e.g., see Gavetti & Levinthal’s distinction between “high church” and “low church” approaches to the RBV), is the dominant perspective in strategic management research. Naturally, all dominant approaches attract critique like flies. This is amplified by the fact that the RBV is still evolving; many things have been unclear (e.g., what exactly is assumed about managerial rationality, the game forms that describe strategic factor markets, the interaction (if any) between factor market and product market behaviors, etc.), and those things that have been reasonably clear (e.g., the RBV’s reliance on competitive equilibrium models) have been controversial. Some of the critiques of the RBV are fairly well-known, for example, the Priem and Butler tautology charge, while other critiques are less generally known.

Given that many of the critiques have basically been around for two decades or more, it is surprising that the first comprehensive treatment of the many critiques of the RBV has just been published — namely Kraaijenbrink, Spender, and Groen’s “The Resource-based View: A Review and Assessment of Its Critiques.”

In this well-written paper, the authors identify eight important and recurring critiques of the RBV. They conclude that only three of these seriously “threathen the RBV’s status as a core theory.” These have to do with the meanings of resource (definitions are all-inclusive) and value (e.g., the tautology charge) and with the explanation of sustained competitive advantage (dynamics is lacking). In the authors’ opinion, much of what is problematic in the RBV boils down to the (high-church) RBV’s reliance on basic neoclassical price theory. They suggest various remedies, notably adopting a more consistent emphasis on “subjectivism, knowledge creation and entrepreneurial judgment” (p. 364) — a proposition that I am not one to take issue with! ;-)

I am not sure I agree with everything in Kraaijenbrink, Spender, and Groen’s paper, but it is well written and thoughtful, and it is, I think, the first synoptic treatment of the many critiques of the RBV in the literature. A most worthy contribution!

Here is the abstract:

The resource-based view (RBV) of the firm has been around for over 20 years—during which time it has been both widely taken up and subjected to considerable criticism. The authors review and assess the principal critiques evident in the literature, arguing they fall into eight categories. They conclude the RBV’s core message can withstand criticism from five of these quite well provided the RBV’s variables, boundaries, and applicability are adequately specified. Three critiques that cannot be readily dismissed call for further theorizing and research. They arise from the indeterminate nature of two of the RBV’s basic concepts — resource and value — and the narrow conceptualization of a firm’s competitive advantage. As their suggestions for this work indicate, the authors feel the RBV community has clung to an inappropriately narrow neoclassical economic rationality, thereby diminishing its opportunities for progress. The authors’ suggestions may assist with developing the RBV into a more viable theory of competitive advantage, especially if it is moved into a genuinely dynamic framework.

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11 Comments Add your own

1. mtkennedy | 11 March 2010 at 3:34 pm

Thanks for the tip; I read and enjoyed the paper. To me, the critique most worth addressing–and I do think the RBV is worth this effort!–is #7, the tautological think that all too easily finds its way into RBV-based arguments. About that, why not just drop the “V”? While the idea that vaulable resources create value strikes many like me, as Kraaijenbrink et al. also argue, unmistakably tautological, the idea that this would be true of resources that are rare, inimitable or non-substitutable is quite sound. Also, I like Rich’s idea of looking at the difference between resources as things acquired, pursued and capabilities as the realization of these things.

While I’m not sure the real estate metaphor for competition should be dead or that we oughtn’t continue to pay attention to differential rates of change and therefore where different styles of competition might obtain, but as one who likes to teach the RBV and use it to inform arguments about social structure, I do agree with the authors that the RBV deserves the serious attention they calling for.
2. David Hoopes | 12 March 2010 at 1:03 am

I think the intense focus on the RBV is misguided. It’s obviously useful because so many scholars use it. Aside from that, I think undue attention is paid to slicing and dicing a few old papers and that is less useful. Further I think everyone forgets that a lot of the momentum in the RBV direction in the late 80s and very early 90s came from Winter, HBS operations stuff, and Teece (esp Teece, Pisano, and Shuen’s early working paper–that was EVERYwhere 89-91), and of course Rumelt 1984 and Lippman and Rumelt. Soon thereafter most of that is left to the side. I’ve tried to politely point out the practical side of looking at the capabilities literature elsewhere recently.That paper reflects that many important observations later attributed to the RBV were made by Nelson and Winter, Teece in JEBO, and the incredible stuff from Kim Clark and friends (Henderson, Fujimoto, Iansiti, Khanna) in W. Abernathy’s wake. That’s my story and I’m sticking to it.
3. David Hoopes | 12 March 2010 at 3:53 pm

PS I think the paper your post is about is quite nicely done.
4. JC | 13 March 2010 at 9:22 am

Of course you are right David, the attention to the RBV is wildly overdone. That’s the point! That is what needs explaining. Why has the RBV become so prevalent and praised when its underpinnings are wobbly at best?

The project which Jeroen, Aard and I took on was to see precisely how the RBV could be criticized and opened up so that one could see its entrails, given its inherently closed and dogmatic nature. It took us over four years and several accepted Academy papers to shake the points into their current shape. Kind comments notwithstanding – thank you – it is still not right.

As you know, I think the history of ideas revealing and worth debating. Your story about the history of the RBV would stand against that offered in:

Barney, J. B. (2005). Where Does Inequality Come From? The Personal and Intellectual Roots of Resource-Based Theory. In K. G. Smith & M. Hitt (Eds.), Great Minds in Management: The Process of Theory Development (pp. 280-303). Oxford: Oxford University Press.

In this story Jay suggests that in spite of being at Yale while both Nelson and Winter were there, it was not their ideas that influenced his thinking.

We have also got the matter of dates. I was at UCLA with Jay in 1982 and writing about the same issues – we (see Jay’s list of those involved) were all talking about them – on the one hand reacting to Porter’s Competitive Strategy (1980) and on the other attending doctoral seminars in the UCLA economics department with Klein and Demsetz and methodology seminars with Kaplan. Dick Rumelt was part of these conversations and very influential. Nelson & Winter’s 1982 book was not, nor was Penrose 1959, largely because our discourse was closer to mainstream microeconomics. Porter and the huge success of his 5-force analysis was our target.

Broadly speaking, we proposed the notion of heterogenous resources (which presupposed inequalities generated by some less-than-completely-efficient means of resource distribution) against Porter’s notion of less-than-completely-efficient markets as the core of an explanation of a firm’s competitive advantage.

Both Jay and I were writing about corporate culture and the value of distinguishing between what we might now call tangible and intangible resources as possible sources of competitive advantage.

In this way the idea-map of market-based explanation versus resource based explanation – and tangible resources versus intangible resources was more or less settled for our little community by 1982 and remains more or less unchanged today. An additional dimension – static versus dynamic – leads on to the dynamic capabilities literature. Whether that is really an extension and whether or not it works is a discussion for another day.
5. Nicolai Foss | 13 March 2010 at 9:54 am

I discuss some of the historical issue that JC talk about here in this 13 yrs old paper: http://ideas.repec.org/p/aal/abbswp/97-10.html
6. JC | 13 March 2010 at 11:11 am

My goodness Nicolai, if only Jeroen and I had had this paper to hand when we were working on the RBV critique. It is great – and should be widely read.

I did not mention the Alchian influence only because it would have sounded like too many OK names. Of course his work was part of the stew,

The more general point is that, in spite of the comments by Jay that you note in your paper, the UCLA economics department and our part of the BSchool (not yet the Anderson School) were interacting intellectually and very fruitfully in a project to critique Porter’s work. Such intellectual ferment is VERY unusual, though I did not know that at the time. Though, given that it was happening, that UCLA failed to become the place that made its mark by fulfilling this project’s promise is another story.

Your paper shows the great value of paying attention to the history of ideas if one wants to get a sense of where to go next. As you show, RBP1 (static and equilibrium variety) is fruitless and barren. RBP2 remains un-theorized – rich pickings for a younger generation of scholars i.e. those who come to understand that academic progress – as Kant reminds us – comes only through mounting critiques and not from merely repeating the inanities of their elders.
7. David Hoopes | 13 March 2010 at 12:41 pm

I consider it most unfortunate that I missed you and Jay at UCLA. Though I did benefit from “trickle down” effect since some students took a while to graduate and what you and Jay had been working on was frequently brought up in doctoral-student discussions. I think your paper is very good and in fact quite important because it is pretty easy to sit on the sidelines and say what the RBV isn’t. And, of course there are some serious problems with the RBV and putting the critiques side-by-side makes sorting through all of this quite helpful.
8. JC | 13 March 2010 at 2:24 pm

Which leads on to a more general question about critiquing the current bevy of ‘theories of the firm’.

We have the RBV, TCE, principal-agent theory, Alchian & Demsetz’s ‘team’ theory, Grossman & Hart, and so on. But if these really are theories of the same thing – and they may not be – then what is the relationship between their critiques?

By critiquing the RBV do we learn something essential about critiquing the others – and thereby where those theorizing the firm might best look next?
9. Bo | 21 March 2010 at 6:47 pm

Great piece and great discussion. So, why has the RBV become so prevalent in comtemporary “research” given its poor underpinnings? Well, two answers come to mind:

First, RBV is taken for granted as a valid theory at the firm level. How many reviewers dare question the underlying logic of RBV when used in a study to build arguments for firm-level advantage? More to the point, what alternative (firm-level) theories exist that may better explain why some firms enjoy advantages while others do not? RBV constitutes an “easy out” for many researchers in their pursuit of theoretically “valid”arguments for firm-level antecedents of performance. (Though I have also seen studies that invoke RBV at the national level…)

Second, the RBV seems to be easy to understand for researchers and business people alike. The idea that firms must possess some kind of resources that are VRIO…in order to be successful in competing with others is trivially appealing. As with Porter’s 5 forces, the simple and intuitive nature of the RBV makes it a candidate for overuse…
10. David Hoopes | 22 March 2010 at 2:41 am

Is there an RBV without VRIO?
11. Richard Makadok | 26 March 2010 at 8:08 pm

The main problem with RBV is that, as a theory of total firm performance, it is woefully incomplete. It only envisions one way to earn a profit — competitive advantage. There are at least three other ways to earn a profit, plus many combinations to consider. Look for an expanded version of this point in the upcoming JOM special issue on the 20th anniversary of RBV.

A secondary problem with RBV is that, although it explains competitive advantage, it doesn’t necessarily explain strategic behavior.

My two cents.

Cheers,
Rich