Question
What does resource based view of the firm mean?
Answer
The Resource Based View (RBV) is a form of strategy assessment most notably developed by Barney (1991). It evaluates a firm’s competitive position from the basis of looking at the resources that it has available.
Barney used a four-part framework to assess this: VRIN. This is applied to a firm’s resource or capability to see if it offers a competitive advantage, it stands for:
Valuable, Rare, Inimitable, Non-substitutable.
The first two are self-explanatory, the second two mean, respectively, can it be imitated, and, can competitors use/do something else instead of it. Barney later (1995) changed the framework to VRIO, where ‘Non-substitutable’ became ‘Organisation’ which means is the company well organised to use the resource. A resource or capability can be any aspect of a firm, from a unique production machine, to knowledgeable staff, to control of high quality raw materials.
For a resource to offer sustainable competitive advantage it must satisfy all the requirements. If it is valuable but not Rare, then it is equal to competitors. If it can be imitated easily it will only be a short term advantage. If the company is not organised then they will not effectively use the potential advantage.
