Essay: Strengths of using RBV and IBV combined

Throughout the history of organisation theory, while some theories have appeared to be complementary to each other, some others have proposed conflicting perspectives. For instance, RBV of the firm and institutional theory appear to have opposing perspectives on the value of differentiation. RBV mainly deals with a firm’s bundle of tangible and intangible resources and how these resources can be a source of sustained competitive advantage (Mahoney & Pendian, 1992). Thus, differentiation is the key strategy for organisations, which seeks for overall sustained competitive advantage. However, institution theory mainly deals with how conformity through isomorphism rather than differentiation can be a source of legitimacy for organisations (Oliver, 1997). Both approaches have their own strengths and weaknesses. In other words, there is an apparent trade-off between differentiation and conformity in many industries. For instance, strong conformity may lead to inferior performance; moderate differentiation is generally associated with improved performance; extreme differentiation appears to damage organisational performance.
In an attempt to reconcile the apparent trade-offs between RBV and IBV, more recent studies have tried to combine these two perspectives. For instance, in her seminal piece, Oliver (1997) argues that a firm can achieve sustainable competitive advantage if it can manage both its internal resources and external environment effectively. In other words, she points out that more macro focus along with micro perspective is of crucial importance for companies who want to have a sustainable competitive advantage. She further argues that such simultaneous focus paves the way for firm heterogeneity and legitimacy, which are the core premises of RBV and IBV respectively. Thus, this paper clearly demonstrates that firms can refrain from one-sided view and achieve their full potential by combining RBV with IBV.
In addition, in a similar study, Peng et al., (2009) criticises that the existing industry-based and resource-based views, the two dominant theoretical lenses in strategic management field, lack contextual elements. Instead, according to Peng et al. (2009), these perspectives provide a narrow focus which lead companies to assess their external resources in an incomplete way. However, they argue that institutions, organisations, and strategic choices have a dynamic relationship. Therefore, they propose that integrating institution-based view into traditional strategy research can be an effective remedy for the aforementioned problem.
Drawing on the existing literature, this paper takes a positive stance on the combination of these two perspectives. Thus, this study aims to provide a fresh insight on utilising the strengths of both theoretical approaches. Accordingly, the following Figure 1 illustrates both RBV and IBV, with their distinct perspectives on differentiation and performance. The intersection area represents the integration of RBV and IBV. As can be seen, empirical studies clearly support that companies should not only focus on their resources and too much differentiation, but also on their legitimacy within their respective industries. In other words, they are, like the current paper, in favour of balance rather than edges. In so doing, they can reach a sustainable competitive advantage without being a sheep in a herd.
Figure 1.
Note: Drawing on the existing literature, the author created this figure.
Recommendations & Implications
This paper also provides some recommendations and implications for practice. First, companies should consider not only differentiation but also their legitimacy. Second, manager should recognise the distinctive features of their industries so that they can implement appropriate strategies. Third, they should also pay particular attention to not only their internal settings but also their external environments. Fourth, managers should consider the dynamic relationship among institutions, organisations, and strategic choices. Fifth, they should bear in mind that being too much different or too much the same is a double-edged sword. They can dance with this sword by just acknowledging this very fact and acting accordingly. Last but not least, from a theoretical perspective, scholars from the seemingly eclectic strategic management field should be aware of their privilege that they can capitalise on different theoretical lenses and conduct research accordingly.