Strategically distinctive resources (Barney)

The resource-based view looks inside the firm for differences in resources and capabilities that can create sustained advantage, complementing strategy approaches centred on external industry position.

When to use it

• Apply VRIN in corporate or business strategy to determine which resources are genuinely strategic and merit investment and protection.

Origins

Edith Penrose’s mid-twentieth-century theory of firm growth helped establish the idea that the resources available to management shape productive opportunity. Jay Barney later provided one of the resource-based view’s pivotal frameworks, arguing that sustained advantage depends on resource heterogeneity, limited mobility and four empirical attributes: value, rarity, imperfect imitability and non-substitutability.

What it is

Time may be precious, as Steve Jobs observed, but a strategist must identify which resources are precious to the firm’s competitive position. Barney’s VRIN questions are:

Valuable – Does the resource enable the firm to exploit an opportunity, reduce a threat, improve customer value or strengthen its competitive position?

Rare – Is the resource controlled by few current or potential competitors? A useful capability held widely may create competitive parity rather than advantage.

Inimitable – Is it difficult or costly for competitors to reproduce? Barriers can include:

Distinctive location – physical conditions that cannot be moved or replicated readily, such as the particular environment associated with San Daniele del Friuli’s dark, sweet prosciutto crudo.

Path dependency – the resource emerged from the firm’s distinctive history and accumulated experience.

Causal ambiguity – competitors cannot confidently identify which resource, combination or practice produces the result. Virgin’s varied businesses have sometimes presented this problem to rivals.

Social complexity – value arises from intricate interactions among managers and staff or between the firm and customers, suppliers and other stakeholders.

Non-substitutable – No strategically equivalent alternative can perform the same function more readily. An inimitable resource loses pricing power when customers can obtain the same outcome through a substitute.

VRIN resources

Strategically distinctive resources

Barney’s model treats the attributes as a combined test. A resource missing any one may still be useful, but it is less likely to sustain advantage on its own.

How to use it

Combine VRIN with Grant’s The resource and capability strengths/importance matrix (Grant):

Identify the resources and capabilities that could be strategically distinctive.

Test each against value, rarity, imitability and substitutability.

Assess relative strategic importance.

Assess the firm’s strength relative to competitors.

Bring importance and strength into one appraisal.

Define the strategic implications: invest, protect, combine, improve, acquire or stop overestimating the resource.

Invest in VRIN resources where the external market evidence supports the value claim, and monitor whether technology, customer preference or competitor action changes any part of the test.

Top practical tip

Test resources as combinations as well as individually. Advantage often comes from a system of assets, routines and relationships that competitors cannot reproduce as a whole.

Top pitfall

Avoid circular reasoning: a resource is not “valuable” merely because the firm performs well. Specify the customer, market mechanism and evidence that connect the resource with value.

Further reading

• Barney, J.B. (nineteen ninety-one). “Firm Resources and Sustained Competitive Advantage.” Journal of Management.
• Peteraf, M.A. (nineteen ninety-three). “The Cornerstones of Competitive Advantage: A Resource-Based View.” Strategic Management Journal.