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What is the big deal about firm heterogeneity of resources and capabilities?
To understand the importance of firm resource and capability heterogeneity, one must first understand the resource-based view and how uniqueness contributes to competitive advantage. In the basic model, RBV focuses on those tangible and intangible resources that must be both heterogeneous and immobile whose attributes provide competitive advantage. Within the global marketplace, the likelihood that an organization operates within a pure monopoly is exceedingly unlikely – bordering on impossible. Businesses operate within shared vertical markets, with competitors who share similar resources and provide similar products and services. Yet within the assumed homogony of resources, the firm’s outputs and internal methods used to create them are not identical. Porter’s (1980) research held that organizational competitive advantage was the product of an evaluation of the internal capabilities of the firm and the external business environment it operated within. By analyzing five external competitive forces, firms could predict the effectiveness of their business model by categorizing their approach into one of three generic strategies: “cost leadership, differentiation, and focus” (p. 35). When properly applied to a given market these strategies would afford competitive advantage, defined as “one that is not simultaneously being implemented by any current competitor” (Barney, 1991, p.202).
From the RBV, the importance of heterogeneity (uniqueness) and immobility (ability to be duplicated) serve as the primary antecedents to competitive advantage. Therefore, determining potential sources for the emergence of resources and capabilities – and specifically those that are heterogenetic, provide “a source of performance differences across firms” (Ahuja & Katila, 2004. P. 887). However, while a “resource (or capability) may have tremendous potential value, it can only be realized when it is combined with a corresponding capability (or resource)” (Newbert, 2008, p. 748). From this perspective, the interdependent concepts of resources and capabilities are inherently linked for three reasons. First, an unleveraged resource that has not been strategically coupled with a given capability is valueless. Second, the pairing of heterogenic combinations of resources and capabilities may create unique sources of competitive advantage beyond the initial inputs. Finally, as resource/capability combinations exist in a lifecycle, they can potentially be renewed through modifications, redeployment, or transference (Helfat & Peteraf, 2003). To exemplify these models, consider the premise for the television show Chopped. In it, competitors are provided an identical set of raw ingredients, cooking appliances, and time constraints to produce an appetizer, entrée, and dessert. At a glance, the resources appear homogenous and are clearly not a source of competitive advantage. However, when coupled with capability (each chef’s knowledge skills and abilities) and the combination of ingredients (resources) and method of preparation (processes), the products can be unique, affording short-term competitive advantage within the competition (Lippman & Rumelt, 2003). This approach is similar to the example provided by Porter (MIP, 2014). Thus, while similarities drive consumers to the market, differentiation is what pushes them towards firm-specific product or service selection.
2. Is it ever possible for a firm to have a sustained competitive advantage? Why is a sustained competitive advantage important?
Without question, sustained competitive advantage (SCA) is achievable today (Newbert, 2008), though Barney’s (1991) definition creates theoretical challenges for long-term maintenance. In it, he abandons previous SCA classifications that are time-dependent or utilize a minimum period of calendar time as a measure of the term sustained. Instead, he posits that SCA is only achieved “if it sustained after efforts to duplicate that advantage have ceased” (Barney, 1991, p. 102). From this expanded view, Barney (1991) notes Porter’s “Five Forces Model” (1980, p. 143) only served to detect temporary competitive advantage (TCA) due to two distinct assumptions made in external environment analysis. First, the existing model accepted that firms are “identical in terms of the strategically relevant resources they control and the strategies they pursue” (Porter, 1981, p. 612). Next, the model assumed that businesses within the same industry, regardless of their market penetration or maturity, would push towards homogony due to their shared resource dependence. Contemporary researchers disagree (Ahuja & Karila, 2004; Lippman & Rumelt, 2003; Newbert, 2008), postulating that external resources are not as mobile as Porter (1981) assumed and “thus heterogeneity can be long lasting” (Barney, 1991, p. 101). These studies validate that durable, sustained competitive advantage (SCA) was possible, even with competitors operating in seemingly identical markets. This led the modern definition of SCA that includes the same value and rarity components of Porter’s (1980), but limits its characterization to strategies that are costly to imitate or substitute (1991).
The importance of SCA cannot be understated. The speed of the marketplaces and their associated business cycles move faster than it has at any point in human history. Additionally, the economy has widened due to globalization and on-line resources that have allowed invisibles market entry without significant capital investment. Business segments are also more transparent, with real-time accessibility to an increasing number of service and product providers. Firms must be agile and use challenging idiosyncratic situations as a potential source of SCA, fed from the “creation of unique science and geography search paths that lead to the creation of heterogeneous resources” (Ahuja, & Karila, 2004, p. 903). The development of those resources, whether tangible or intangible, present a myriad of SCA opportunities within the firm’s capability lifecycle (Helfat & Peteraf, 2002).
3. How does Newbert's (2008) article in particular contribute so powerfully to the RBV literature?
Prior to Newbert (2008), Porter’s (1991) resource-based view of the firm was largely theoretical, hypothetically illustrating the relationship between resources, competitive advantage, and performance. However, through the use of a newly developed scale model measuring value, rareness, and competitive advantage, Newbert (2008) was able to provide empirical evidence that “the more valuable and rare a firm’s resource-capability combinations, the more likely it will attain a competitive advantage” (p. 760). Academically, this study validated that value and rareness are far more important indicators of performance than the resources and capabilities themselves. While this has historically been accepted via intuitive cognition, Newbert’s (2008) statistical correlation of performance determinants provides added tangible validity and reliability to existing RBV research. From a practitioner perspective, Newbert (2008) confirmed Lippman and Rumelt’s (2003) attribution of competitive advantage (CA) via “the combination of valuable, rare resources, and capabilities” (p. 761). For context, foundational research (Barney, 1991; Porter, 1980) focused on the value of resources in isolation, and not the interconnected value of heterogeneous resources and capabilities. Yet Newbert (2008) concluded that firms no longer need to solely look at the external environment to draw competitive advantage. Instead, performance improvements could be achieved simply by refreshing, combining, and uniquely applying the resources and capabilities the firm already possesses.
From a strategic vantage, Newbert’s (2008) research is most likely reflective of a shift due to maturation of the global economic framework (Bartlett & Ghoshal, 2002; Rudawska, 2010; Huang, Dyerson, Wu, & Harindranath, 2015). Consider that competitive advantage in the early 90’s was focused on segmentation and unique marketing positioning due to the expansion of technology and networked services. In short, sustaining competitive advantage was focused on defending isolated resources. As technological accessibility bred parity, firms shifted towards resource-based strategies as the basis for competitive advantage. This emphasis was furthered by the impact of the ethical and economic crises through 2010 wherein the how business is conducted became as importance as what the company produced. Therefore, market position and fixed resources alone can no longer afford CA, and must be coupled with resources and accumulated capabilities for future success (Huang, Dyerson, Wu, & Harindranath, 2015).
Newbert’s (2008) research, both academically and practically, allowed researchers to examine other opportunities where the combinative resource approach may be employed. For example, Rudawska (2010) hypothesizes that future sources of CA durability will be the stability of business relationships and economic exchanges. This dynamic view of competitive advantage requires firms include all strategic business partners within their supply chain as part of their internal analysis. This collective picture can then be held against the external environment to determine how isolating mechanisms may impact the system holistically. To Rudawska (2010), future CA analysis may be a social exercise lying “within the mutual trust and commitment of alliance partners” (p. 9), a perspective supported by Duad (2013). The complexity of organizational interdependence, the scarcity of strategic partners, and the inability to divide resources all point to a rise in the value of relationships and interconnectedness as the future of long-term CA. This view is also consistent with Huang et al. (2015), who view sustained competitive advantage (SCA) as interconnectedness via a flexible mixture of temporary competitive advantages (TCA) as originally defined by Porter (Barney, 1991).