Resource-based View - Criticism

Criticism

Priem and Butler (2001) raised four key points of criticism:

• The RBV is tautological, or self-verifying. Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are, among other characteristics, valuable (1991, p106). This reasoning is circular and therefore operationally invalid (Priem and Butler, 2001a, p31). For more info on the tautology, see also Collis, 1994
• Different resource configurations can generate the same value for firms and thus would not be competitive advantage
• The role of product markets is underdeveloped in the argument
• The theory has limited prescriptive implications

However, Barney (2001) provided counter-arguments to these points of criticism.

Further criticisms are:

• It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's VRIN criteria.
• There is the assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources, but this may not necessarily be the case. It ignores external factors concerning the industry as a whole; a firm should also consider Porter’s Industry Structure Analysis (Porter's Five Forces).
• Long-term implications that flow from its premises: A prominent source of sustainable competitive advantages is causal ambiguity (Lippman & Rumelt, 1982, p420). While this is undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource it does not know exists, even if a changing environment requires this (Lippman & Rumelt, 1982, p420). Through such an external change, the initial sustainable competitive advantage could be nullified or even transformed into a weakness (Priem and Butler, 2001a, p33; Peteraf, 1993, p187; Rumelt, 1984, p566).
• Premise of efficient markets: Much research hinges on the premise that markets in general or factor markets are efficient, and that firms are capable of precisely pricing in the exact future value of any value-creating strategy that could flow from the resource (Barney, 1986a, p1232). Dierickx and Cool argue that purchasable assets cannot be sources of sustained competitive advantage, just because they can be purchased. Either the price of the resource will increase to the point that it equals the future above-average return, or other competitors will purchase the resource as well and use it in a value-increasing strategy that diminishes rents to zero (Peteraf, 1993, p185; Conner, 1991, p137).
• The concept of rarity is obsolete: Although prominently present in Wernerfelt’s original articulation of the resource-based view (1984) and Barney’s subsequent framework (1991), the concept that resources need to be rare to be able to function as a possible source of a sustained competitive advantage is unnecessary (Hoopes, Madsen and Walker, 2003, p890). Because of the implications of the other concepts (e.g. valuable, inimitable and nonsubstitutability) any resource that follows from the previous characteristics is inherently rare.
• Sustainable: The lack of an exact definition of sustainability makes its premise difficult to test empirically. Barney’s statement (: p102-103) that the competitive advantage is sustained if current and future rivals have ceased their imitative efforts is versatile from the point of view of developing a theoretical framework, but is a disadvantage from a more practical point of view, as there is no explicit end-goal.

The relational view is an extension of the resource-based view for considering networks and dyads of firms as the unit of analysis to explain relational rents, i.e., superior individual firm performance generated within that network/dyad.