A Resource-Based View of the Firm

Authors: Birger Wernerfelt
Institution: University of Michigan
Published on: 01 Apr 1984
Journal: Strategic Management Journal
Volume: 5, Issue: 2, Pages: 171-180

TL;DR

In this paper, the authors explore the usefulness of analyzing firms from the resource side rather than from the product side, suggesting concepts like resource position barriers and resource-product matrices.

Abstract

The paper explores the usefulness of analysing firms from the resource side rather than from the product side. In analogy to entry barriers and growth-share matrices, the concepts of resource position barrier and resource-product matrices are suggested. These tools are then used to highlight the new strategic options which naturally emerge from the resource perspective.

Introduction

For the firm, resources and products are two sides of the same coin. Most products require the services of several resources and most resources can be used in several products. By specifying the size of the firm's activity in different product markets, it is possible to infer the minimum necessary resource commitments. Conversely, by specifying a resource profile for a firm, it is possible to find the optimal product-market activities.

Both perspectives on the firm are reflected in the literature on strategic management. The traditional concept of strategy is phrased in terms of the resource position (strengths and weaknesses) of the firm, whereas most of our formal economic tools operate on the product-market side. The purpose of this paper is to develop some simple economic tools for analysing a firm's resource position and to look at some strategic options suggested by this analysis.

Resources and Profitability

By a resource is meant anything which could be thought of as a strength or weakness of a given firm. More formally, a firm's resources at a given time could be defined as those (tangible and intangible) assets which are tied semipermanently to the firm. Examples of resources are: brand names, in-house knowledge of technology, employment of skilled personnel, trade contacts, machinery, efficient procedures, capital, etc. In this section, we will ask the question: 'Under what circumstances will a resource lead to high returns over longer periods of time?'

Key Propositions

1. Looking at firms in terms of their resources leads to different immediate insights than the traditional product perspective.
2. One can identify types of resources which can lead to high profits.
3. Strategy for a bigger firm involves striking a balance between the exploitation of existing resources and the development of new ones.
4. An acquisition can be seen as a purchase of a bundle of resources in a highly imperfect market.

The analysis is confined to a particular type of resource and strategies for managing a firm's resource position over time will be looked at.