Resource-Based View

The increased attention that businesses and researchers have towards CSR has led to the development of different theories and approaches that have the scope of understanding how CSR can effectively contribute to the creation of successful strategies. One of the most common of these approaches is represented by the RBV of the firm. As a matter of fact, in today’s world, businesses face increasing pressures pushing them to actively promote CSR initiatives and recognize their responsibilities toward society; as a consequence, a growing interest arose questioning how the adoption by firms of CSR strategies can support the creation of competitive advantages and superior performances.

Page 33 of 107 The discussion of the RBV was initiated by Edith Penrose (1959), that suggested to view the firm as “a pool of resources”. According to Penrose (1959), a firm can be defined as the sum of productive resources which are combined in different manners with the purpose of producing and selling goods and services. A specific combination of resources identifies a firm as unique. Moreover, the firm represents a learning environment, so that resources are continuously improved leading to expansion and growth possibilities. Possibilities of growth can be limited due to unuse or misuse of resources, and lack of managerial capabilities. In this frame, Wernerfelt (1984) asserts that within a firm products and resources represent two sides of the same coin that characterize a firm for a relatively long period of time. In order to create a sustainable competitive advantage vis-à-vis rivals, a firm’s resources have to be combined in a manner that makes it difficult for the competitors to catch up. Wernerfelt (1984) wanted to provide an alternative perspective to Porter’s CBV and, thus, he is the first one to use the term “RBV”. According to Grant (1991) resources are not productive on their own, but rather represent inputs to the production process. Consequently, resources have to be combined together through capabilities, which represent a firm’s ability to combine and exploit its resources. Therefore, an effective link between resources and capabilities is necessary in order to ensure the creation of a sustainable competitive advantage. Due to the different abilities of firms to combine and exploit resources, some firms outperform the competition. (Grant, 1991).

Barney (1991) defines resources as strengths which are utilized by firms to formulate and implement strategy that ultimately improve firms’ performance and profitability. Barney further argues that resources are heterogeneous, meaning that they can be used in different combinations for different purposes, and the value of the resources may differ depending on the combination. Moreover, resources are imperfectly mobile, meaning that firms have

Page 34 of 107 idiosyncratic differences in resources that allow them to create and capture value.

Resources generally fall into one of the following three categories (Barney J. , 1991):

• Human capital resources: the acumen and experience of the firm’s managers and workers.

• Physical capital resources: physical technology utilized by a firm, its equipment, plant, the geographic location and access to raw materials.

• Organizational capital resources: the reporting structure of a firm, its formal and informal planning and informal relations among groups within the firm.

Not all aspects of a firm’s physical, human and organizational capital resources represent resources that have a strategic relevance. In fact, some of these attributes may reduce the effectiveness and efficiency of valuable strategies (Barney J. , 1991). In order to advantage the most a firm’s strategy, resources have to be valuable, rare, difficult to imitate and the firm has to be organized to capture the resources’ value. Barney (1995) has categorized the four different characteristics into the so-called VRIO framework (Figure 5):

• Valuable? One of the most important responsibilities that managers have is to ensure that resources respond to external opportunities by adding value. The fact that resources have been valuable in the past, does not ensure that they are valuable today; therefore, the value has to be reassessed every time when a change in the competitive environment occurs.

• Rare? Valuable resources can represent a source of competitive advantage only if there are not several firms that own such resources. Therefore, before the formulation of a strategy, managers should investigate how many competing firms already possess similar valuable resources.

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• Difficult to imitate? A firm that has valuable and rare resources has a temporary competitive advantage. To sustain such advantage, the firm has to ensure that the competitors do not have these resources and that they would face cost disadvantages at creating them.

• Is the firm organized to capture value? A firm may have valuable, rare, and difficult to imitate resources; however, the firm must be organized in a manner that allows the exploitation of the full competitive potential of its resources. The components of a firm required to answer this question are called “complementary resources”, as they do not generate a competitive advantage on their own, they include for example compensation policies and management control systems.

When the four criteria of the VRIO framework are met, resources and capabilities become

“core competencies”. (Hitt, Ireland, & Hoskisson, 2007). Depending on the attributes that are met, a resource can be a competitive disadvantage, competitive parity, temporary competitive advantage, sustained or sustainable competitive advantage, as it can be observed in the figure below (Rockwell, 2018):

Figure 5: VRIO Framework (Rockwell, 2018)

Page 36 of 107 The RBV theory is advantageous when investigating the field of CSR: as Porter & Kramer (2011) suggest, it is important to leverage firm’s resources when selecting social, environmental and economic issues to address. Moreover, the RBV will also provide insights regarding the benefits of strategic CSR, e.g. in relation to the creation of new resources and capabilities. RBV presents an internal perspective within the strategic management field, allowing to identify Ørsted’s internal resources that promote the furtherance of CSR, and thus answering the third sub-research question. The RBV and CSR are closely connected:

a strategic approach to CSR allows to utilize a firm’s resources and capabilities to gain a sustainable competitive advantage. (Branco & Rodrigues, 2006).

3.2.3.1 Critique of Resource-Based View

Due to its immediate face validity, the RBV’s core message is easy to teach, understand and apply. However, the RBV has also been widely criticized for its limitations. One of the main critiques is that the RBV lacks “operational validity”: the theory tells managers to develop and obtain core competencies, but it is silent regarding how the process should be done. Another common critique is that RBV implies an infinite regress. In fact, according to RBV, a firm that has superior capabilities to develop structures that can better innovate products will overtake the firms that have the best product innovation capabilities today. As these second-order capabilities will in due course be more valuable than today’s existing first-order capabilities, the RBV suggests firms to strive in obtaining second-order capabilities. This characteristic leads firms to an endless search for ever better capabilities.

(Kraaijenbrink, Spender, & Groen, 2010).

Connor (2002) further affirms that RBV’s applicability is too limited. He argues that the RBV applies only to large firms, as smaller firms cannot base their competitive advantages on their static resources. As a consequence, the RBV applies solely to firms striving to obtain

Page 37 of 107 competitive advantages, while the theory does not bring much insight for firms that are satisfied with the competitive advantages they already have. (Connor, 2002). Jensen (2012) highlights that the VRIO framework is predominantly centered on matters of protection and exploitation of resources that the firm already has. Nonetheless, today’s business organizations have to adapt to a dynamic world in which new resources have to be continuously created, since the “boundaries of the firms become more permeable”. (Jensen, 2012).