1. A Resource-based View of the Firm Birger Wernerfelt (1984)
Strategic Management Journal. 5:
BADM 545: Foundations of Strategy Research; Fall 2009
Marleen Rust

2. Objectives Products / services Firms Resources
Analyzes firms from the resource side rather than from the product side (In particular, diversified firms)
Identify types of resources which can lead to high profits, using resource position barrier
Pursue a balance between the exploitation of existing resources and the development of new ones, using resource-product matrix
See an acquisition as a purchase of a bundle of resources in a highly imperfect market

3. Resources and Profitability
Firm’s resource – intangible and tangible assets which are tied semi-permanently to a firm (Caves, 1980)
Brand names, in-house knowledge of technology, employment of skilled personnel, trade contacts, efficient procedures, machinery etc.
Under what circumstances will a resource lead to high economic returns over longer periods of time?

4. Usefulness of Resource Perspective
Resource perspective provides a basis for addressing some key issues, in the formulation of strategy for diversified firms, such as:
On which of the firm's current resources should diversification be based?
Which resources should be developed through diversification?
In what sequence and into what markets should diversification take place?
What types of firms will it be desirable for this particular firm to acquire?
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5. General Effects (The bargaining power of supplies/buyers and threat of substitutes)
If the production of a resource itself or of one of its critical inputs is controlled by a monopolistic group, it will, ceteris paribus, diminish the returns available to the users of the resource
Patent holder appropriates profit to license holder
Equally bad situation is If the products resulting from use of the resource can be sold only in monopolist markets
Subcontract makes a machine suitable for one customer only
The availability of substitute resources will likely depress returns to the holders of a given resource.
New skills that replace old

6. First-Mover Advantage
Resource position barrier – someone already has the resource which affects the costs and/or revenues of those that follow
Similar to entry barriers, resource position barriers indicate potential for high returns since one competitor has the advantage
However an entry barrier without a resource position leaves the firm vulnerable to diversifying entrants, whereas a resource position without an entry barrier leaves the firm unable to exploit the barrier.

7. Attractive Resources
It is possible to identify classes of resources for which resource position barriers can be built up
Machine Capacity
Customer Loyalty
Production experience
Technological leads
Firm’s goal is to create a situation where its own resource position directly or indirectly makes it more difficult for others to catch up
Machine Capacity: it can be irrational for entrants to buy the resource necessary to compete in a market where excess capacity would lead to cut-throat competition and low returns. Resource position barrier operates through lower expected revenues for prospective acquirers.
Customer Loyalty: The nature of the market for the resource generates the resource position barrier
Production experience: may not patent an idea so it cant leak from first mover to follower
Technological Leads: Can keep better people with a technical lead and enable these people to advance new ideas

8. Mergers and Acquisitions
Mergers and acquisitions provide an opportunity to trade otherwise non-marketable resources and to buy or sell resources in bundles
Resource-based set of acquisition strategies (Salter and Weinhold, 1980)
Related supplementary (more of what you have)
Related complementary (those that combine effectively with what you have)
Chance of maximizing market imperfects and getting a cheap buy would be greatest if tried to build on one’s most usual resource or resource position (less competition)

9. Dynamic Resource Management
So far we have examined situations in which a firm could get higher returns from individual resources
In general, a first mover advantage in an attractive resource should yield high returns in the markets where the resource in question is dominating
Next, Wernerfelt (1984) applies this theory to a particular type of resource, the experience type, produced jointly with products

10. The analysis will be conducted with this resource-product matrix
The analysis will be conducted with this resource-product matrix. The checked entries indicate the importance of a resource in a product and vice versa
Wernerfelt introduces us to the Resource-product matrix which is a close cousin to the growth-share matrix.
This is it in its simplest form. This could be more informative if numbers were used to show the relative importance of resources in products or vice versa but it gives us our first visual of the relationship between the two….
Information on the growth-share Matrix
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.
Cash cows are units with high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.
Dogs, or more charitably called pets, are units with low market share in a mature, slow-growing industry. These units typically "break even", generating barely enough cash to maintain the business's market share. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off.
Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.
Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom.[citation needed]
As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.
The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell. Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the cash cows to fund the stars and, possibly, the question marks. As the BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has:
stars whose high share and high growth assure the future;
cash cows that supply funds for that future growth; and
question marks to be converted into stars with the added funds.

11. Dynamic Resource Management
Now we are naming the resources (i.e. production skills) and the market (i.e. domestic)
Sequential Entry- when it may be better to develop your resource in one market and then enter other markets from a position of strength. Domestic example is BIC (pens  lighters  razors). Int’l a firm can develop production skills at home before going abroad.
The example here is best demonstrated where a firm may develop its production skills well in the domestic market and then go international.

12. Pushing the example of figure 2 a little further, we can see a fifth resource ‘domestic contacts” as supporting the build up of the first ‘production skills’ through joint cost effects. This could in turn be used to support the acquisition of international contacts.
The close analogy to the product portfolio theory (Henderson, 1970) where strong products in a firm’s growth-share matrix supply weak ones with cash, again underscores the duality between the product and the resource perspectives on the firm. Since one often would expect businesses to be related in more ways than financially, the joint cost subsidy from resource relation may be a more potent tool than product to product cash subsidy. <see slide comment>
Optimal management of a resource portfolio is in theory the same as optimal management of a product portfolio, but the two frameworks may highlight different growth avenues.
Looking at the diversified firm as portfolios of resources rather than portfolios of products gives us a different and richer perspective on their growth prospects

13. Dynamic Resource Management
In the management of resource portfolio, candidates for product or resource diversification must evaluate in terms of their short – term balance effects and also in terms of their long-term capacity to function as stepping stones to further expansion.
The example in figure 4 is telling us that to enter the computer industry, it is necessary to first develop related skills in chips, an industry into which the Japanese could enter more easily, since they already possessed some of the required skills.

14. Dynamic Resource Management
Sequential Entry
Diversification pattern: the use of a single resource in several businesses
Better to develop the resource in one market and then to enter other markets from a position of strength rather than simultaneous entries in several markets.
Exploit and Develop
Looking at diversified firms as portfolios of resources rather than portfolios of products gives a different and richer perspective on their growth prospects
Candidates for diversification can be evaluated in terms of their short-term balance effects (as in the product portfolio) and also in terms of their long-term capacity to function as stepping stones to further expansion
Optimal growth of the firm: a balance between exploitation of existing resources and development of new ones
It’s very similar to the growth share matrix developed by BCG.
A company’s business units can be classified into four categories (cash cow, star, question marks, and dogs) based on combinations of market growth and market share relative to the largest competitor. Hence the name “growth-share’.
the checked entries indicate the importance of a resource in a product, they might be numbers.
For example, in this figure, a firm uses a resource of mass assemble technology in both of chips and stereosets markets
And he argues that quite often, it is better to develop the resource in one market and then to enter other
markets from a position of strength rather than simultaneous entries in several markets.
Several different patterns of resource development
For example, This ingenious strategy was attributed to the Japanese by Business Week (1981). Briefly, the idea is, that to enter the computer industry, it is necessary to first develop related skills in chips, an industry into which the Japanese could enter more easily, since they already possessed some of the required skills. Figure 4 illustrates this pattern.
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15. Conclusions
This paper looks at firms in terms of resources rather than just products especially those with diversified firms
It is important to note that the theory discussed here considered only resources of the type which are produced jointly with products
The paper is meant to be a first cut at a huge can of worms
Apart from the obvious need to look at
growth strategies for other types of resources,
much more research is needed to understand
how to implement these strategies suggested

16. Conclusions The usefulness of “Resource-based view”
It give a different light on strategic options, especially those open to diversified firms
With resource position barriers, one can sketch a picture of firms as trying to develop such barriers
Resource product matrix allows us to consider different growth paths
Some further research can focus on:
The theory here considered only resources of the type that are produced jointly with products. Other types of resources have yet to be developed.
Practical difficulties involved in identifying resources (products are relatively easy to identify)
To what extent one in practice can combine capabilities across operating divisions.
How one can set up a structure and systems that can help a firm implement these strategies?