The Resource-Based View of the Firm: Building Advantage Through Capabilities and Human Capital

Most corporate annual reports describe the company's people as its most important asset. Jay Barney and Patrick Wright opened a 1998 paper on the HR function by noting that many organizational decisions do not reflect the statement: when costs have to be cut, training, wages, and headcount are the first place firms look. Part of the reason, they suggested, is that few HR executives can explain in economic terms how a firm's people produce an advantage that lasts.

The resource-based view of the firm (RBV) supplies those terms. Applied to a workforce, its tests are harder to pass than the annual-report sentence implies, and the point at which a workforce fails them tells a manager where to act. This article follows the idea from Edith Penrose to Jay Barney, examines when employee knowledge and skill can meet Barney's tests, and then takes two objections seriously: people can leave, and the theory's central claim may be true by definition.

The RBV traces its ancestry to a book that was not about competitive advantage. In The Theory of the Growth of the Firm (1959), the economist Edith Penrose asked what determines how fast, and in which directions, a firm can grow. Her answer needed a fuller picture of the firm than the production unit of standard price theory: an administrative organization and "a collection of productive resources" whose use is decided administratively (Penrose, 1959, p. 24).

Two of her distinctions carry into later strategy research. The first separates resources from the services they render. What enters production is not the machine or the chemist but the service the firm draws from them, and the same resource can yield different services depending on how it is used and combined (pp. 24-25). The influence runs both ways. In a passage Kor and Mahoney (2004) quote, Penrose wrote that "the services that resources will yield depend on the capacities of the men using them, but the development of the capacities of men is partly shaped by the resources men deal with" (pp. 78-79).

The second concerns management. New managers need time to gain experience of one another and of the firm before they work well as a group, so the existing team limits how much growth can be absorbed at once, a constraint often called the Penrose effect. Kor and Mahoney (2004) summarize her position as making top managerial and technical talent the bottleneck on a firm's growth rate. As experience accumulates, capacity is released, and unused productive services become "a challenge to innovate, an incentive to expand, and a source of competitive advantage" (Penrose, 1959, p. 85, as quoted in Kor & Mahoney, 2004). Her theory of growth is at its centre a theory about what people know and how slowly that can be enlarged. The same idea returns decades later in the argument that firm-specific human capital is hard to copy.

How direct is the line? Birger Wernerfelt, whose 1984 article "A Resource-Based View of the Firm" gave the approach its name, wrote that the idea of looking at firms as a broader set of resources "goes back to the seminal work of Penrose (1959)" (p. 171). Alan Rugman and Alain Verbeke (2002) object that this misreads her: Penrose "never aimed to provide useful strategy prescriptions for managers to create a sustainable stream of rents," and in her theory rents were generally assumed not to occur. Yasemin Kor and Joseph Mahoney (2004) replied that she contributed both directly and indirectly, pointing to mechanisms in the book that protect an advantage, such as managers' firm-specific knowledge and their shared experience as a team. A fair reading is that Penrose supplied the RBV's picture of the firm and several of its mechanisms, while the question that drives the RBV, why some advantages survive rivals' attempts to copy them, was not the one she set out to answer.

Jay Barney's "Firm Resources and Sustained Competitive Advantage" (Journal of Management, 1991) turned these ideas into a framework that could be applied to one resource at a time. He set it against the environmental models associated with Michael Porter, the industry analysis discussed in Article 06. Those models, he argued, had implicitly assumed that firms in an industry hold identical strategic resources, and that any differences are short-lived because resources can be bought and sold. The RBV assumes instead that resources may be heterogeneous across firms and imperfectly mobile, so differences can last (pp. 100-101).

Firm resources, in Barney's definition, include "all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness" (p. 101). Human capital resources are "the training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm" (p. 101). The italics are Barney's, and the word matters later, because individuals can leave.

A competitive advantage, for Barney, means implementing a value-creating strategy that no current or potential competitor is implementing at the same time. It is sustained when those firms also "are unable to duplicate the benefits of this strategy" (p. 102). He was explicit that this is not a matter of calendar time. An advantage is sustained if it survives competitors' efforts to copy it, although a structural change in the industry can still make the underlying resource irrelevant (p. 103).

To have that potential, a resource must meet four conditions (pp. 105-106). It must be valuable, exploiting opportunities or neutralizing threats in the firm's environment. It must be rare among current and potential competitors, and imperfectly imitable. And there must be no strategically equivalent substitutes that are common or easy to imitate. The four are often abbreviated VRIN. Barney gave three reasons a resource may be hard to imitate (p. 107). It may depend on unique historical conditions. The link between resource and advantage may be causally ambiguous, poorly understood even by its owner. Or the resource may be socially complex, as relations among managers, a culture, or a reputation with suppliers and customers are.

The middle column paraphrases Barney (1991, pp. 105-111). The right-hand column is this article's illustration.

Barney also argued that physical technology "is by itself typically imitable," since what one firm can buy, others can too (p. 110). Several firms may own the same machines while only one has the social relations, culture, and traditions to exploit them fully. Much of the human-capital argument is already there: the machine can be copied, but the people and relationships that make it productive may not be.

Many textbooks present the framework as VRIO and attribute it to the 1991 article, which in fact sets out VRIN. Barney later recast the framework as four questions, on value, rareness, imitability, and organization, and his 1998 paper with Patrick Wright applies "the VRIO (value, rareness, imitability, and organization) framework" to human resources. The new question asks whether the firm is organized to exploit the resource. Substitutes no longer have a question of their own; this article treats substitution as one route to imitation, since reaching the same result another way removes the advantage as surely as copying does.

Barney and Wright used the questions to sort the possible outcomes. Human resources that add no value can only be a source of competitive disadvantage. Valuable but common ones give competitive parity, which still matters, because lacking them is a disadvantage. Valuable and rare but easily imitated resources give a temporary advantage. Valuable, rare, and hard-to-imitate resources can sustain an advantage, "but only if the firm is organized to capitalize on these resources."

Organization is where the HR function shows most plainly. Barney and Wright argued that because firms benchmark one another, "any individual effective practice is easily imitated," and gives an advantage only until competitors copy it. What is harder to copy is a set of selection, training, appraisal, and pay arrangements designed to work together. A firm that hires excellent engineers and then promotes on seniority alone, measures only billable hours, or gives its best people no influence over how work is done has the resource and lacks the organization to use it.

The case for human capital as a source of advantage starts from a plain observation: much of what Barney counts as hard to imitate is made of people. Social complexity is a matter of relations among people, causal ambiguity often arises from tacit know-how, and unique history is, in many firms, the accumulated experience of particular teams. Barney and Wright drew two conclusions from this.

The first concerns the kind of skill. General skills, as useful to other employers as to the current one, are needed for parity. But because they are equally valuable to every firm, Barney and Wright judged that seeking sustained advantage through them "would be futile" in even moderately efficient labour markets. Firm-specific skills are a better prospect: knowledge of the firm's own processes, systems, and clients that adds value here but is "not easily marketable by the employees who possess them." A skill worth less elsewhere gives the employee less reason to leave and a rival less to gain by hiring that person away.

The second concerns the unit of analysis. A visible high performer, a chief executive for example, will be approached by other firms, and in the bidding the individual "can claim most of the rents," so the returns go to the person, not the employer. Teams are different. Where joint output exceeds what members could produce separately, it is hard for anyone, competitors included, to identify where the advantage comes from. Teams and larger groups, "due to causal ambiguity and social complexity," therefore offer more potential than individuals.

For an HR director, the useful question is less "Do we have talented people?", which concerns inputs that rivals can also buy, than what the firm builds around them. Do people accumulate firm-specific knowledge? Do teams stay together long enough to develop working routines? Do selection, development, and reward reinforce one another? Penrose's managerial limit is the same idea seen from the other side. The experience that makes a team effective cannot be hired ready-made, which is why a rival cannot hire it either.

A machine stays put when a competitor makes a better offer, and an engineer may not. This is the strongest objection to treating human capital as a lasting advantage, and Barney anticipated part of it. Firms lacking a resource, he noted, can reduce their knowledge disadvantage "by hiring away well placed knowledgeable managers in a firm with a competitive advantage" (1991, p. 109). If the understanding a rival needs can be recruited, the ambiguity that protected the advantage is gone.

The best-known evidence on how much performance travels with people comes from Boris Groysberg, Linda-Eling Lee, and Ashish Nanda (2008), who studied star security analysts who changed employers. According to the study's abstract, the stars' performance fell immediately, and the decline persisted for at least five years. It was greatest for those who moved to firms with weaker capabilities or who moved alone, while those who moved to stronger firms, or with members of their team, showed no significant decline. Firms hiring stars from competitors with better capabilities also suffered more extreme negative stock-market reactions than firms hiring from comparable or weaker ones. The evidence comes from a single profession, and this article relies on the study's summary of its findings, not on its statistical tables.

The implication is that much of a star's measured performance depended on the firm and team around them, which is the part a poacher cannot take. A firm that loses a star may lose less than it fears, and a firm that hires one may gain less than it pays for. The departure of a whole team is the greater threat.

Mobility creates a quieter problem as well. Even where a workforce does produce an advantage, employees who know their skills are central can bargain for a larger share, through pay or the implied threat of leaving. This is Barney and Wright's point about rents in another form. A capability that genuinely sets a firm apart may therefore not show up in its profits. That is not necessarily a bad outcome for employees, but it makes profitability a poor test of whether a human-capital advantage exists.

The most serious academic objection to the RBV is that its central claim may be empty. Richard Priem and John Butler (2001) argued that the elemental RBV "is not currently a theoretical structure," that its proponents had "assumed stability in product markets and eschewed determining resources' values," and that its imprecise definitions hinder prescription. Jeroen Kraaijenbrink, J.-C. Spender, and Aard Groen (2010) later showed how the problem can be traced in Barney's own wording.

The circle is visible in the 1991 text. Resources are what enable a firm to implement strategies that improve its efficiency and effectiveness (p. 101). Resources are valuable "when they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness" (p. 106). A competitive advantage is a value-creating strategy that competitors are not implementing (p. 102). Put together, the claim that valuable and rare resources produce competitive advantage comes close to saying that whatever lets a firm create value others are not creating lets it create value others are not creating. In Kraaijenbrink and colleagues' terms, value and uniqueness appear on both sides of the explanation.

Barney (2001) replied that Priem and Butler's direct criticisms of the 1991 article were unfounded, while granting that they had reminded researchers of some important requirements of resource-based work. On one central point he agreed with them: a resource's value is determined outside the RBV, by the market in which the firm competes. The 1991 text had already said that firm attributes "only become resources when they exploit opportunities or neutralize threats in a firm's environment" (p. 106), and it treated environmental models as complements for that reason. For Priem and Butler, the concession is the difficulty. A framework that leaves value to be settled elsewhere cannot by itself tell a manager which resources will turn out to be valuable.

How much damage does the critique do? Of eight common critiques, Kraaijenbrink and colleagues judged five to be no serious threat and three to be serious: that the VRIN/O conditions are neither necessary nor sufficient for sustained advantage, that the value of a resource is too indeterminate to support useful theory, and that the definition of a resource is unworkable. The tautology complaint belongs to the second group. This article's assessment is that the critique damages the RBV as a general predictive theory far more than as a discipline for diagnosis. A manager who asks of one capability, in one market, whether customers pay for it, how many rivals have it, and what it would cost a rival to build it is making claims that can be checked and can prove false. The circle returns when value is read off success, as when a profitable firm's culture is declared valuable because the firm is profitable.

Bangladesh's software and IT-services firms make a useful test of these arguments, because their main assets are people whose skills are increasingly saleable across borders. Export Promotion Bureau data reported by The Business Standard put ICT service exports at $724.6 million in FY2024-25, up 7.7 percent, with computer services accounting for 87 percent (10 November 2025). The sector's measured size is uncertain, however. In July 2024 Prothom Alo set the official figures for FY2023-24 beside much higher estimates from the president of the industry association BASIS and from the state minister then responsible for ICT.

For the RBV, the labour market matters more than the export totals. In July 2017 the Oxford Internet Institute found that 16 percent of the online workers observed on four large freelancing platforms were located in Bangladesh, second only to India at 24 percent, while cautioning that its method probably under-represents non-English-speaking countries (Lehdonvirta, 2017). A later edition of its index, covering more platforms, put Bangladesh's share at 10 percent in 2017 and 15 percent in 2021. Either way, general software skills can be sold to foreign clients without emigrating, which makes them highly mobile. In December 2022 The Daily Star reported that an exodus of talented workers, remote work opportunities, and a mismatch between supply and demand had worsened IT firms' shortage of skilled staff, and quoted the chief executive of Dream71 Bangladesh: "Getting skilled programmers and engineers is the biggest struggle for me." The constructed case below asks what, in a firm operating in this market, could meet Barney's tests.

VRIO assessment of Karnaphuli's resources. The judgments in each cell are this article's analysis of a constructed case.

The analysis places any lasting advantage in the last row, and it reframes the resignations. That the general skills proved mobile is what the theory predicts. The real loss is the two team leads, who took with them client context that was never fully written down. Two risks remain. The know-how is valuable only while clients keep their bespoke systems, and a move to standard customs software would be the kind of structural change that Barney (1991, p. 103) says can make a resource irrelevant. Deepening firm-specificity also narrows engineers' outside options, which they will notice.

What the case is designed to show. The options differ less in generosity than in which resource they protect. Options A and C act on individuals and leave the source of advantage untouched. Option B strengthens the capability the analysis identified and accepts the costs of firm-specificity, while Option D gives it up for flexibility. A strong board discussion would begin by asking what clients actually pay for, which is exactly the external question the RBV leaves to be answered elsewhere.

The framework does not tell an HR function what to do, but it changes what HR should claim and where it should look. The points below are this article's synthesis, not findings from a single study.

1. Separate parity from advantage. Competitive pay, compliance, and standard training mostly secure parity. They are necessary, but presenting them to a board as sources of advantage invites justified scepticism.
2. Measure what protects the capability. Overall turnover hides the departures that matter. Team tenure, and whether critical client or process knowledge is held by more than one person, say more about a capability's health.
3. Design systems, not single practices. Individual practices are copied quickly. Selection, development, appraisal, and reward that reinforce one another are much harder to reproduce.
4. Share the returns to firm-specific skill. Specific skills narrow employees' outside options. If the firm keeps all the gains, capable people will reasonably avoid specializing.
5. Do not infer value from success. A capability earns the label when its contribution can be traced in what customers pay for.

The RBV's account of human capital rests on a tension that the theory describes but does not resolve. What makes a workforce hard to imitate, firm-specific knowledge and capabilities embedded in teams, also makes employees' skills worth less elsewhere and can make the firm slow to adapt when its market changes. A firm seeking advantage through people is asking them to invest in skills whose value depends on the firm. Whether that bargain is fair, and whether it holds where general skills can be sold abroad without leaving home, is a question for HR strategy as much as for strategy theory.

The tautology debate leaves a related obligation. Because the RBV takes the value of resources as given by the environment, a VRIO assessment is only as good as the external analysis behind it. Without evidence on what customers pay for and what rivals can do, it describes the firm's self-image. Article 09 turns to the tools for that external analysis.

Select an organization you know well, or can research in depth, and identify one capability that its managers claim as a source of competitive advantage and that depends substantially on its people. You may disguise the organization's name.

Prepare a report of 2,500 to 3,000 words that:

1. describes the capability precisely, separating the human capital involved (individual knowledge and skill) from the organizational arrangements around it (teams, routines, systems);
2. applies Barney's four conditions and the question of organization to the capability, using evidence for each judgment and stating where evidence is unavailable;
3. assesses the capability's exposure to employee mobility and to bargaining by key individuals, distinguishing general from firm-specific skills;
4. addresses the tautology critique directly, explaining how your assessment of value avoids inferring it from the organization's success; and
5. recommends HR actions to strengthen or, if your analysis warrants it, to stop investing in the capability, with their costs, risks, and effects on employees.

Use at least five academic sources, including at least three from this article's reference list. Every factual claim about the organization should be traceable to a document, record, or interview you could produce if asked. Do not invent data: where information is unavailable, say so and explain how the gap limits your conclusions.

Assessment rubric (100 marks)

1. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
2. Barney, J. B. (2001). Is the resource-based "view" a useful perspective for strategic management research? Yes. Academy of Management Review, 26(1), 41–56. https://doi.org/10.5465/amr.2001.4011938
3. Barney, J. B., & Wright, P. M. (1998). On becoming a strategic partner: The role of human resources in gaining competitive advantage. Human Resource Management, 37(1), 31–46. https://doi.org/10.1002/(SICI)1099-050X(199821)37:1<31::AID-HRM4>3.0.CO;2-W (Quotations in this article are from the Cornell CAHRS working-paper version, WP 97-09: https://ecommons.cornell.edu/handle/1813/77005)
4. Groysberg, B., Lee, L.-E., & Nanda, A. (2008). Can they take it with them? The portability of star knowledge workers' performance. Management Science, 54(7), 1213–1230. https://doi.org/10.1287/mnsc.1070.0809
5. Kor, Y. Y., & Mahoney, J. T. (2004). Edith Penrose's (1959) contributions to the resource-based view of strategic management. Journal of Management Studies, 41(1), 183–191. https://doi.org/10.1111/j.1467-6486.2004.00427.x
6. Kraaijenbrink, J., Spender, J.-C., & Groen, A. J. (2010). The resource-based view: A review and assessment of its critiques. Journal of Management, 36(1), 349–372. https://doi.org/10.1177/0149206309350775
7. Penrose, E. T. (1959). The theory of the growth of the firm. Basil Blackwell; John Wiley & Sons. (Later editions: 3rd ed., Oxford University Press, 1995; Oxford University Press, 2009, with an introduction by C. N. Pitelis. Page numbers cited refer to the 1959 edition.)
8. Priem, R. L., & Butler, J. E. (2001). Is the resource-based "view" a useful perspective for strategic management research? Academy of Management Review, 26(1), 22–40. https://doi.org/10.5465/amr.2001.4011928
9. Rugman, A. M., & Verbeke, A. (2002). Edith Penrose's contribution to the resource-based view of strategic management. Strategic Management Journal, 23(8), 769–780. https://doi.org/10.1002/smj.240
10. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. https://doi.org/10.1002/smj.4250050207

Sources for the Bangladesh context

• "$5b ICT export target missed by huge margin. Here's why." The Business Standard, 10 November 2025. https://www.tbsnews.net/economy/5b-ict-export-target-missed-huge-margin-heres-why-1281591
• "ICT sector: Different figures over actual export revenue." Prothom Alo (English), 16 July 2024. https://en.prothomalo.com/bangladesh/5vx753abk9
• Lehdonvirta, V. (2017, 11 July). Where are online workers located? The international division of digital gig work. Oxford Internet Institute, iLabour project. https://ilabour.oii.ox.ac.uk/where-are-online-workers-located-the-international-division-of-digital-gig-work/
• Stephany, F., Kässi, O., Rani, U., & Lehdonvirta, V. (2021). Online Labour Index 2020: New ways to measure the world's remote freelancing market. arXiv:2105.09148. https://arxiv.org/abs/2105.09148
• "IT firms grapple with unskilled labour force." The Daily Star, 9 December 2022. https://www.thedailystar.net/business/economy/news/it-firms-grapple-unskilled-labour-force-3191381

Karnaphuli Softworks, the VRIO tables applied to a workforce and to the case, the diagnostic, and the HR implications are original teaching material for this series, not findings reported by the sources above.

Next in The Human Capital MBA series, Article 09: Strategic Analysis in Practice: Applying PESTEL, SWOT, Porter's Five Forces, and the Balanced Scorecard.