Rethinking research methods for the resource-based perspective

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Rethinking research methods for the resource-based perspective: Isolating sources of sustainable competitive advantage
Michael J Rouse, Urs S Daellenbach. Strategic Management Journal. Chichester: May 1999. Vol. 20, Iss. 5; pg. 487


Abstract (Summary) An exploration of traditional perspectives and contemporary propositions regarding sustainable competitive advantage points to the conclusion that the locus of advantage if located specifically within organizational effects. The key issue emerges that research investigating sources of sustainable competitive advantage must be done not only on organizations but also in organizations.
The fallout from this conclusion, however, that the research methodologies traditionally used in strategy research will not unambiguously uncover these sources of sustainable advantage. Using organizational culture as an example of a possible source of sustainable advantage within a resource-based paradigm, a four-step research framework is suggested for isolating these organizational effects.



FIRM PERFORMANCE, ORGANIZATIONAL FACTORS AND SUSTAINED COMPETITIVE ADVANTAGE
Competitive advantage continues to provide the central agenda in strategy research. The industrial organization model, contingency theories and most recently, the RBV-in a move from external factors, to 'fit' perspectives, to internal elements-highlight the range of factors important to superior performance. Despite evidence that study of valuable resources is needed, few, if any, have been studied in detail from a sustainable competitive advantage perspective. Rumelt's (1991) study, partitioning the variation in performance between industry, corporate, and business unit effects, emphasizes that research seeking to explain an important portion of the observed dispersion in business unit profit rates must use the business unit as the unit of analysis and must focus on the sources of heterogeneity within industries. Similarly, Hansen and Wernerfelt (1989) attribute over 30 per cent of the total variation in 5-year average of return on assets to organizational factors, with industry-level factors explaining a substantially lower percentage. The most recent study of this kind, McGahan and Porter (1997), corroborates that there are signifi cant stable business segment-specific effects (32% vs. 19% stable industry effects on firm profitability defined as ratio of operating income to identifiable assets). While these studies provide a broad direction for future research, they do not indicate or identify the specific organizational factors that account for the major variations of firm performance.
The focus of research in the RBV is probably best restricted to those differences between firms that competitors cannot (or do not) duplicate for whatever reason, or that competitors cannot duplicate closely enough to eliminate the advantage. Even with such a restricted focus, measurement of any competitive advantage remains problematic. As a result, the presence of competitive advantage is normally inferred from sustained periods of above-average performance. It is to firms with performance that is consistently above the industry average (Reed and DeFillippi, 1990) that strategists and scholars must look for the sources of sustainable competitive advantage. This selection criterion will, by definition, severely restrict sample sizes, which goes against the trend of mainstream strategy research.1 Yet, as we shall argue below, this is precisely what must occur if researchers are to isolate the sources of sustainable advantage that are theoretically predicted by the RBV.
The strategic management literature has recently addressed the issue of competitive advantage by attempting to explain variation in firm performance by proposing a broad set of organizational factors that are intangible (Hall, 1993). Such factors are, by definition, difficult to assess. Furthermore, when the organizational factors considered by different researchers have closely matched the rent-generating resources and capabilities as described in the RBV, the studies have often not simultaneously accounted for the effects of strategy, industry, environment, or time that may interact with the complex of organization factors (e.g., Lawless, Bergh, and Wilsted, 1989; Powell, 1992a, 1992b). Indeed, the variety of conjectures, methods, and empirically tested models makes aggregation across studies difficult. The few studies that have drawn directly on the resource-based perspective have also tended to apply the prevalent research designs, measures, and methods.
Studies of competitive advantage using the RBV require a different approach. Firstly, since only firms with unique resources and competencies are assumed to have the potential for competitive advantages, the use of large-sample, cross-sectional analyses is unlikely to be able to disentangle the variety of effects associated with time, industry, environment, strategy, and the resource/capability of interest. Secondly, systematic methods for obtaining information are generally available to all competitors and new techniques diffuse rapidly (Barney, 1986a). Hence, most competitors are likely to react quickly to actions/resources/competencies discernible from secondary sources (annual reports, 10Ks, proxy statements, industry association newsletters, trade journals, etc.) and these could not form the basis of sustained advantage. Valuable but commonly held resources and capabilities are sources merely of competitive parity (Barney, 1995).

In summary, while strategic management research during the last two decades has shifted from a focus on environmental factors to intangible resource-based factors in the search for sources of sustainable superior performance, the dominant research approach has not changed significantly. It is unlikely that any conclusive findings on competitive advantage will emerge from large-sample studies that indiscriminately include low and typically average-performing firms which the competitive advantage literature and RBV of the firm suggest do not have any sustainable advantage. Other approaches are needed to isolate sustained sources of advantage.