Implications for strategic IS research of the resource-based theory of the firm: A reflection

Abstract

This paper reviews key concepts from the resource-based theory (RBT) of the firm, including evidence of “empirical support” for RBT. However, the paper then turns the conventional logic of empirical testing of RBT on its head, and argues that all that empirical testing does is to show researchers’ success in identifying valuable, rare, inimitable, and non-substitutable (VRIN) resources. Examining the IS literature from this perspective, the paper identifies a number of resources that really do seem to have been sources of competitive advantage. It concludes with recommendations on how RBT should be used in future strategic IS research.

Introduction

In their twentieth-year “retrospective” on the development of the resource-based theory of the firm, Barney et al. (2011) argue that “resource-based theory has evolved from a nascent, upstart perspective to one of the most prominent and powerful theories for understanding organizations”. Supporting this claim, Kraaijenbrink et al. (2010, p. 350) say:

“The resource-based view (RBV) has become one of the most influential and cited theories in the history of management theorizing. It aspires to explain the internal sources of a firm’s sustained competitive advantage (SCA). Its central proposition is that if a firm is to achieve a state of SCA, it must acquire and control valuable, rare, inimitable, and nonsubstitutable (VRIN) resources and capabilities, plus have the organization (O) in place that can absorb and apply them (Barney, 1991a, 1994, 2002). This proposition is shared by several related analyses: core competences (Hamel and Prahalad, 1994), dynamic capabilities (Helfat and Peteraf, 2003, Teece et al., 1997), and the knowledge-based view Grant (1996b).”

Resource-based theory (RBT) provides an alternative explanation of the sources of a firm’s competitive advantage that complements Porter, 1979, Porter, 1996 “strategy as positioning” perspective (Rivard et al., 2006). Its focus on the rent-generating capability of key scarce resources, and its rapid rise to prominence in the strategic-management literature, has led many IS researchers to use RBT as the underpinning theory for their studies of a broad range of issues related to:

• the benefits of ICT use in organizations, including research into the impact on organizational performance of IT generally (Bharadwaj, 2000), IT-supported business processes (Melville et al., 2004), knowledge-management systems (Alavi and Leidner, 2001, Meso and Smith, 2000), enterprise systems (Beard and Sumner, 2004), and mobile devices (Sheng et al., 2005), and

• IT-management practices, such as the pursuit of complementarity between IT assets, organizational IT capabilities, and business strategy (Ross et al., 1996, Aral and Weill, 2007, Nevo and Wade, 2010), enterprise architecture (Bradley and Byrd, 2007), and project management (Tarafdar and Gordon 2007).

However, questions continue to be raised about whether ICT resources and/or capabilities can be a source of competitive advantage (Carr, 2003), and if they are, whether any such competitive advantage is sustainable. These are tough questions to answer. With these thoughts in mind, the research question addressed in this paper is as follows:

• What are the implications for strategic IS research of the Resource-based theory (RBT) of the firm?

To answer this question, the paper first reviews some key concepts from RBT, then explores empirical evidence of support for RBT as reported in the strategic-management literature. Support is found to be quite strong, though by no means unequivocal. However, a key contribution of the paper is that after presenting the summary outlined above, we then ask what it really means to say that empirical support for the RBT is “quite strong”. Our answer, which is seemingly at variance with literature-review papers such as Newbert, 2007, Crook et al., 2008 from the strategic-management literature, is that for resources such as an oil field in Brunei, RBT is incontrovertibly true! Any firm or country that controls a valuable, rare, inimitable, and non-substitutable (VRIN) resource such as an oil field clearly has a sustainable competitive advantage over the marginal producer (e.g., of shale oil or biofuel today). In short, as posited by the resource-based theory of the firm, there is no doubt that control of truly VRIN resources is a source of sustainable competitive advantage. Framed from this perspective, the “tests” of RBT reported by Newbert, 2007, Crook et al., 2008 are really tests of whether different types of resources that the researchers thought might be VRIN, were actually VRIN.

The second half of this paper examines from this perspective the IS literature on RBT and the use of ICT as a source of competitive advantage. The consensus view that emerges here is that it is not ICT resources, per se, that provide competitive advantage, but rather, that where such advantage exists it is the way that they are used or integrated (Nevo and Wade, 2010)—in combination with other resources in the organization—that provides such advantage. Further, as a way of summarizing key IS research on RBT, a table of ICT-enabled resources that IS researchers have found to contribute to competitive advantage is presented (Table 3).

The implications for strategic IS research of the perspective of RBT advocated in this paper are three. First, strategic IS researchers can contribute to the world’s stock of knowledge about RBT by attempting to assess the extent to which various types of ICT and ICT-enabled resources in different contexts actually produce competitive advantage. For example, it seems likely that digital-business capabilities (Kohli and Grover, 2008) including the capacity to envision and build them, are fruitful areas to study. Second, RBT may be used to justify claims that resources similar to those shown in past studies to be VRIN (e.g., see Table 3) are also likely to be sources of competitive advantage. In this second type of study, the evidential requirements for VRIN-ness, competitive advantage, and causality, are less onerous than for the first, because reliance can be placed, in part, on evidence from the prior studies. Third, in the least-demanding type of use of RBT, IS researchers may simply cite ICT-RBT studies (e.g., those in Table 3) to support claims that ICT resources sometimes contribute to organizational value.