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GROUNDING SUPPLY CHAIN MANAGEMENT INRESOURCE-ADVANTAGE THEORY: IN DEFENSE OF

A RESOURCE-BASED VIEW OF THE FIRM

SHELBY D. HUNT AND DONNA F. DAVISTexas Tech University

This article addresses the issues regarding the usefulness of the resource-advantage (R-A) theory of competition for supply chain managementresearch that are raised in commentaries by Barney (2012) and Priem andSwink (2012). In response, we expand the discussion initiated in Hunt andDavis (2008) that compares R-A theory with the resource-based view, drawsimilarities between R-A theory and the demand-side perspective, andfurther explicate the foundations of R-A theory. In doing so this article

provides a

way forward

for both SCM researchers and RBV theorists.

Keywords: procurement/purchasing strategy; supply chain management; competitiveadvantage; resource-based view; resource-advantage theory

INTRODUCTIONWe thank Professors Barney, Priem, and Swink for

their thoughtful, well reasoned commentaries on our

article, Grounding Supply Chain Management in

Resource-Advantage Theory (Hunt and Davis 2008).

It is gratifying to note that both commentaries agree

essentially with the underlying premise of our article,

which is that resource-advantage (R-A) theory can

provide an appropriate grounding for purchasing

strategy, in particular and supply chain management,

in general. Indeed, Priem and Swink (2012, p. 3)

find that they generally agree and are highly sympa-

thetic toward the overall argument set forth in Hunt

and Davis (2008). And they agree that several pre-

mises of R-A theory make it more suitable than

the RBV as a theoretical lens for SCM research

(p. 6). Furthermore, they agree with the suggested

improvements on the RBV forwarded by R-A theory(p. 12). Similarly, Barney (2012, p. 1) maintains that

the R-A, perspective has merit in its own right

and is worthy of deep reflection, and he, see[s]

the application of resource-advantage theory to the

question of competitive advantages stemming from

purchasing and/or supply chain management as a

completely legitimate alternative to the resource-

based approach outlined here (p. 3).

Nonetheless, both commentaries raise important

issues that should be addressed. These issues include

the following questions: (1) Is the demand-side

perspective recommended by Priem and Swink (2012)

consistent with R-A theory? (2) Does R-A theory sup-

port a system-level view of SCM competition? (3) Is R-

A theorys definition of resource too broad? (4) Is R-A

theory a noneconomic approach to competition? (5)

Is R-A competition a market imperfection? (6) Is the

resource-based view of the firm defensible? Before

addressing these questions, we provide a brief review of

the Hunt and Davis (2008) argument for grounding

supply chain management in R-A theory.

THE GROUNDING SCM IN R-A THEORYARGUMENT

As Barneys comment points out, the starting point

for the grounding argument was an article pub-

lished in this journal by Ramsay (2001, p. 41), in

which he concluded that There can be little doubt,

then, that many [RBV] authors reject the idea oforganizations gaining a sustainable competitive advan-

tage through their purchasing activities, [which]

looks profoundly depressing for the purchasing func-

tion. He then argues that there are four conditions

that must be present in real-world competition in

order for RBV theorists to argue cogently that purchas-

ing cannot contribute to sustainable competitive

advantage: (1) functional homogeneity, (2) perfect

competitor information, (3) perfect purchased

resource mobility, and (4) universal imitation attrac-

tiveness. His analysis indicates that, the four condi-

tions are routinely breached in real markets (p. 41).

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Therefore, there is a healthy prospect of generating

competitive advantage from purchasing activities

(p. 45) (Readers should note Ramsays emphasis on

real markets, not perfectly competitive markets).

Hunt and Davis (2008) agreed with Ramsay that

purchasing activities could potentially provide a com-

petitive advantage for firms. We then provided a pos-sible explanation as to why Ramsay could interpret

the works of prominent RBV theorists as implying a

depressing conclusion: many RBV theorists still

base many of their analyses on the neoclassical,

equilibrium economics research tradition. We then

suggested that Ramsays favorable conclusion con-

cerning purchasing strategy needed to be grounded

in a theory of competition that is based on a

research tradition that provides a clean break from

neoclassical economics. We pointed out that the

research tradition incorporating the resource-advan-

tage (R-A) theory of competition makes a cleanbreak from neoclassical, equilibrium economics and,

therefore, can provide a foundation for purchasing

strategy, in particular, and supply chain management,

in general. We then provided an overview of

resource-advantage theory including its nine foun-

dational premises and structure and showed how

Ramsays (2001) analysis is consistent with (can be

grounded in) R-A theory.

IS THE DEMAND-SIDE PERSPECTIVECONSISTENT WITH R-A THEORY?

Priem and Swink (2012, p. 12) recommend adopt-

ing a demand-side perspective for SCM strategy

research to provide new insights and a more com-

plete understanding of SCMs role in competition.

Research that takes a demand-side perspective supple-

ments work in the RBV tradition and offers the possi-

bility of developing integrated theories that consider

the demand side as well as the producer side to

explain and predict strategic decision making (Priem,

Li and Carr 2012). Priem and Swink (2012, p. 4) note

similarities in some premises it [the demand-side

perspective] shares with R-A theory. In response, we

propose that R-A theory shares at least three impor-tant affinities with the demand-side perspective.

First, R-A theory, at its core, combines heteroge-

neous demand theory with a resource-based view of

the organization (Hunt and Davis 2008, p. 12).

Indeed, the definition of a resource in R-A theory inex-

tricably links the demand side with the supply side:

Resources are defined as the tangible and intangible

entities available to the organization that enable it to

produce efficiently and/or effectively a market offering

that has value for some market segment (Hunt and

Davis 2008, p. 13). That is, entities available to the

firm are classified as resources only when they

enable a firm to produce a market offering that has

value as determined by the market. Similarly,

demand-side research looks downstream toward

product markets and consumers, to explain and

predict those managerial decisions that increase value

creation (Priem et al. 2012, p. 347). Consistent withthe demand-side perspective, the determination of the

value of a firms resources in R-A theory is located in

the firms product markets.

Second, R-A theory and the demand-side perspective

both recognize demand as heterogeneous and

dynamic. Consideration of the nature of demand as a

driver of competition is the first of nine foundational

premises of R-A theory: Demand is heterogeneous

across industries, heterogeneous within industries and

dynamic (Hunt and Davis 2008, p. 12). Building on

heterogeneous demand theory proposed by Chamber-

lin (1933/1962) and further developed in the market-ing literature in the 1950s and 1960s (e.g., Smith

1956; Alderson 1957, 1965; McCarthy 1960), R-A the-

ory accepts that demand in the overwhelming major-

ity of industries is substantially heterogeneous and

that such heterogeneity is natural (Hunt 2000, p. 52).

Similarly, the demand-side perspective recognizes het-

erogeneity of demand as a key contributor to differ-

ences in firm performance and assumes that demand

is dynamic, as customer preferences change over time

(Priem et al. 2012). Hence, R-A theory and the

demand-side perspective agree that recognizing the

heterogeneous, dynamic nature of demand is

fundamental to SCM strategy.

Third, R-A theory asserts that identifying suitable

market segments is central to competition (Hunt

2000). Given that demand is heterogeneous and

dynamic, firms are presented with significant opportu-

nities to appeal to targeted market segments by strate-

gically differentiating their market offerings in ways

that meet customer needs and wants. Thus, firms that

better understand the needs and wants of their target

markets, compared to rival firms in the same industry,

are likely to achieve superior financial performance.

This suggests that entrepreneurship and innovation

are critical tools for identifying profitable segments. Asnoted by Priem et al. (2012), collaborative innovation

with customers is used increasingly in demand-side

research to explain the phenomenon of demand-

pull innovations (versus producer-push innovations).

Such innovations are driven by the goals of either

satisfying current consumer needs in an entirely new

way or identifying and satisfying new needs (Priem

et al. 2012, p. 350). Similar to R-A theory, the

demand-side perspective proposes the identification of

needs of specific market segments as a key component

of strategy.

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DOES R-A THEORY SUPPORT ASYSTEM-LEVEL VIEW OF SCM

COMPETITION?Priem and Swink (2012, p. 8) propose that R-A

theory may be more useful to SCM if it is applied to

value creation by the entire value system rather than

to value capture by a specific firm. The system-level

view of competition opens the way to investigating

not only how firm performance is influenced by

supply chain dynamics, but also how firm behaviors

influence the performance of the supply chain. In

response, we agree with Priem and Swink that R-A

theory can be usefully applied in SCM research that

adopts a system-level view of competition.

Theories of competition that focus primarily on

firm-level analyses look inside the firm to explain and

predict performance. In contrast, R-A theory intrinsi-

cally considers factors beyond the firm. That is, the

concept of a resource-advantage requires compari-son of the firms resources to other firms, which

necessitates looking beyond the firm to determine

comparative advantages.

In addition, R-A theorys expanded, richer view of

resources extends the concept of capital to intangi-

ble resources such as relational resources and organi-

zational resources, which can be productive launching

points for SCM research that adopts a system-level

perspective (Hunt 2000, p. 186). Relational resources

include relational ties with stakeholders such as

customers, suppliers, competitors, government agen-

cies and unions. Variation in relational resources is anatural outcome of supply chain competition. Supply

chains with rich relational resources may be posi-

tioned to achieve higher levels of cooperation and

coordination which, in turn, improve value creation

across the supply chain (Uzzi 1996).

Organizational resources include policies, culture and

competences (Hunt 2000). Similar to differences in

firms, supply chains vary in critical competences such

as their ability to learn (e.g., McFarland, Bloodgood

and Payan 2008), to innovate (e.g., Ahuja 2000), or to

respond quickly to new market conditions (Mersch-

mann and Thonemann 2011). Differences in organiza-

tional resources can explain why some supply chainsoutperform competitors. Thus, the competition for

comparative advantage is not limited to firms, but

readily extends to the system level of analysis.

Expanding the scope of research to the system level

is undoubtedly a challenge for SCM researchers.

Recent work tackles this challenge through a variety of

means including qualitative data gathered in multi-tier

case studies (e.g., Williams, Maull and Ellis 2002), tri-

adic data collected in surveys (Wathne and Heide

2004), and archival data to support social network

analysis (e.g., Carter, Ellram and Tate 2007). Under-

standing and explaining supply chain phenomena at

the system level will likely continue to require

employing multiple methods and a theoretical frame-

work that supports methods diversity, such as R-A

theory.

IS R-A THEORY'S DEFINITION OFRESOURCE TOO BROAD?

Priem and Swink (2012, p. 7) suggest that R-A the-

ory has adopted a broad and imprecise definition of

resource. They argue for a narrower and more specific

definition of resources, such as those exemplified by

dynamic capabilities, in order to avoid tautology

and post-hoc thinking. In response, it is true that if

one defines resources as those entities that generate

a competitive advantage and then defines competitive

advantage as that which results from resources, this

invites tautology. However, readers should note thatR-A theorys definition of resources does not invite

tautology.

Specifically, R-A theory defines resources as the

tangible and intangible entities available to the firm

that enable it to produce efficiently and/or effectively

a market offering that has value for some market seg-

ment(s) (Hunt 2000, p. 128). Therefore, the defini-

tion of resources does not tie the existence of a

resource to the existence of advantage. Rather, it ties

the existence of a resource to its contribution to pro-

ducing a market offering (or product) that has

value, as perceived by particular market segments.

Note that the definition uses the word entities,

instead of a value-infused word such as assets. Also,

note that, for R-A theory, entities are firm resources

only contingently. That is, an entity may be a resource

for one firm at a particular point in time and in a

particular context, but not a resource for another firm

in a different context, or even the same firm at a differ-

ent time or context.

Also, R-A theory identifies seven major categories of

resources: financial, physical, legal, human, organiza-

tional, informational and relational. For R-A theory,

the dynamic capability advocated by Priem and

Swink would be a kind of organizational competence,which would be a resource if it contributed to the

firms ability to efficiently or effectively produce a

market offering that has value for some market seg-

ments. Specifically, competences are viewed as higher

order resources that are socially complex, intercon-

nected, combinations of tangible basic resources

(e.g., specific machinery) and intangible basic

resources (e.g., specific organizational policies and

procedures and the skills and knowledge of specific

employees) that fit coherently together in a synergistic

manner (Hunt 2000, p. 144).

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Finally, we agree that many writers blur the distinc-

tion between comparative advantages in resources and

marketplace positions of competitive advantage.

However, as detailed specifically in Figures 1 and 2 in

Hunt and Davis (2008), R-A theory carefully distin-

guishes between (1) firms having a comparative

advantage in specific resources and (2) firms having amarketplace position of competitive advantage. It is

true that, for R-A theory, many different entities may

be firm resources. However, it is also true that in the

real world of competition, many different entities con-

tribute to firms abilities to produce valued market

offerings. Whether or not an entity is a firm resource

in the real world is not a definitional issue, it is an

empirical issue. So it is in the real world; so it is in

R-A theory. SCM researchers may be confident that

grounding supply chain management in R-A theory

does not invite tautology.

IS R-A THEORY A NONECONOMICAPPROACH TO COMPETITION?

Barney (2012, p. 3, 4) suggests that R-A theory has

merit in its own right, but that this begs the ques-

tion about whether or not resource-advantage theory

is truly noneconomic in character. In response, it is

curious that Barney would characterize R-A theory as

a noneconomic theory. Given that it is a theory of

competition, R-A theory is clearly an economic theory.

Why, then, would he characterize it as non-

economic?

Readers are reminded that our original article started

with a discussion of the importance of research tradi-

tions. Within the discipline of economics, there are

numerous research traditions, including the neoclassi-

cal (static equilibrium), evolutionary, historical,

Austrian, Keynesian and Marxist traditions. Although

R-A theory has affinities with several research tradi-

tions, it is firmly within the evolutionary and Austrian

traditions. Indeed, an article in the Journal of Economic

Issues, which is published by the Association for Evo-

lutionary Economics, argues that R-A constitutes an

evolutionary theory of competition (Hunt 1997b),

and an article in an Austrian economics volumeargues that R-A theory provides the starting point for

an Austrian theory of competition (Hunt 2002).

Sometimes research traditions become so firmly

ensconced in a discipline that they totally frame the

discussion of all issues, which makes it difficult for

researchers in one tradition to communicate with

researchers in another tradition. Nelson and Winter

(1982) argue that the neoclassical, equilibrium tradi-

tion has become so dominant in economics that it

now constitutes a dysfunctional orthodoxy. We

hope that there is another reason that Barney

described R-A theory as a noneconomic theory, but

the only reason we can find is the orthodoxy that

Nelson and Winter (1982) argue against: it appears

that, for Barney, a theory is economic only if it is in

the neoclassical, equilibrium economics tradition. Any

theory that is evolutionary or Austrian is non-

economic. In any respect, readers should note thatwe are not offering a noneconomic alternative to

resource-based theory. Indeed, as discussed later, we

defend the resource-based view of the firm.

IS R-A COMPETITION A MARKETIMPERFECTION?

The R-A theory is a theory of competition, and R-A

competition is the type of competition that R-A

theorizes about. Barney (2012, p. 1) begins his analy-

sis by pointing out that strategic factor markets are

not always perfectly competitive. Indeed, he arguesthat purchasing can be strategic by creating the imper-

fectly competitive strategic factor markets (p. 2).

Readers should recognize that the perfect in per-

fect competition is used in two ways in the neoclassi-

cal research tradition. First, it is used simply as a label

to describe a particular form of competition. More

important, it is commonly used to describe a form of

competition that is, or would be if it existed, a state

of perfection. This is because, if all industries in an

economy are perfectly competitive, then at this

point of general equilibrium position every firm has

the optimum sized plant and operates it at the point

of minimum cost, every resource or factor

employed is allocated to its most productive use and

receives the value of its marginal product, the dis-

tribution of products produced is (Pareto) optimal

because the price of each product (reflecting what

consumers are willing to pay for an additional unit)

and its marginal cost (the extra resource cost society

must pay for an additional unit) will be exactly equal

(Hunt and Morgan 1995, p. 3). Therefore, the adjec-

tive perfect in perfect competition is customarily

taken as a normative ideal in the neoclassical, equilib-

rium tradition.

Barney provides no indication whether he uses per-fect as simply a label or as a normative ideal. For

several reasons, however, R-A theory rejects (1) the

view that perfect competition is a normative ideal and

(2) R-A competition is an imperfection. One reason

is that R-A competition is conducive to increases in

societal-level productivity and economic growth.

Since the works of Romer (1986) and Lucas (1988),

studies of the drivers of economic growth have come

to embrace what is referred to as endogenous eco-

nomic growth theory. (See Grossman and Helpman

(1991), Barro and Sala-i-Martin (1995) and Romer

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(1994) for an introduction.) The works on endoge-

nous economic growth share the following premises:

(1) Certain aspects of the dynamic process of compe-

tition engender innovations at the firm level. (2)

These competition-induced innovations, through time,

result in both firm and industry-level technological

changes. (3) These technological changes, cumula-tively, result in increases in total factor productivity.

(4) This competition-induced technological progress,

through time, results in economic growth. (5) The

competition-induced technological progress that

results in economic growth is inconsistent with the

kind of competition that is described by the neoclassi-

cal, static equilibrium theory of perfect competition.

Therefore, R-A theory rejects the view that perfect

competition theory is an appropriate ideal. Further-

more, an article published in the Eastern Economic

Journal shows how R-A theory can provide a founda-

tion for modern, endogenous economic growthmodels (Hunt 1997a). R-A competition is not an

imperfect form of competition. Rather, it is the kind

of competition that results in economic growth.

IS A RESOURCE-BASED VIEW OF THE FIRMDEFENSIBLE?

Needless to say, the RBV has drawn numerous cri-

tiques, many of which are cited in Priem and Swink

(2012). We now defend a resource-based view of the

firm, and we start by reminding readers what a

resource-based view of the firm replaces.1 The domi-

nant view of the firm in contemporary economics and

business continues to be the neoclassical view that

firms are best described as combiners of homoge-

neous, perfectly mobile factors of production (or

resources) by means of a standardized production

function that is known to all firms in an industry.

Standardized production functions result from the

assumption of perfect firm information (i.e., no firm

in an industry has access to a technology, capability,

competence, or organizational form that is superior to

those available to other firms). In response to the

objection that this view does not realistically portray

firms or industries, the neoclassical defense is that it isclose enough (Friedman 1953).

In contrast, the resource-based view of the firm

maintains that firms are best described as combiners

of heterogeneous, imperfectly mobile resources in

industries in which information is imperfect.

Therefore, firms may have access to technologies,

capabilities, competences and/or organizational forms

that are superior to those available to other firms. R-A

theory adopts a resource-based view of the firm, as

previously defined, as well as (among other things)

the view that intra-industry demand is best viewed as

heterogeneous (see the nine foundational premises of

R-A theory in Hunt and Davis (2008)). R-A theory

maintains that its assumptions are closer toeconomic reality than those of neoclassical perfect

competition.

Firm diversity in financial performance provides an

area for directly testing the relative merits of R-A the-

ory versus neoclassical theory. If firms are best

viewed as combiners of homogeneous, mobile

resources by means of a standard production func-

tion and intra-industry demand is best viewed as

homogeneous, then most of the variance in financial

performance across firms and their business units

should be explainable by the neoclassical, structure-

conduct-performance model. Empirically, therefore,industry effects should explain most of the variance

in firm financial performance, and firm effects

should explain very little. In contrast, if firms are best

viewed as combiners of heterogeneous, imperfectly

mobile resources, and intra-industry demand is best

viewed as heterogeneous, then firm effects should

dominate industry effects. What, then, is the

evidence?

Schmalensee (1985) investigated the industry effects

versus firm effects issue using Federal Trade Commis-

sion line-of-business data for 1975. His results

showed industry effects accounting for 20 percent of

the variance in business unit return on assets and cor-

porate effects to be not significant. Rumelt (1991)

pointed out that Schmalensees use of only 1 years

data not only confounded stable industry effects with

transient annual fluctuations but also made it impos-

sible to separate overall corporation from business

unit effects. When Rumelt supplemented Schmalen-

sees 1975 data with FTC data for 1974, 1976, and

1977, he found that, whereas industry effects

explained only 8 percent of the variance, corporate

and business unit effects explained 2 percent and 44

percent, respectively. Supporting Rumelt, a follow-up

study by Roquebert, Phillips and Westfall (1996)found industry, corporate and business unit effects to

be 10 percent, 18 percent, and 37 percent, respectively

(resulting in total firm effects of 18 + 37 = 55 per-

cent). Notably, their sample was much larger (more

than 6,800 corporations), had a broader base (more

than 940 SIC, four-digit categories), and (unlike FTC

data) included both small and large corporations.

Because large-scale studies consistently find that firm

effects dominate industry effects, they strongly support

R-A theorys view that firms should be viewed as

combiners of heterogeneous, imperfectly mobile

resources, and intra-industry demand be viewed as

1Readers should note that we defend here a resource-based view

of the firm. Our purpose is not to defend a resource-based view

of strategy, which would have to compare resource-based strat-

egy with other theories of strategy.

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significantly heterogeneous. Furthermore, because

industry structure explains so little variance in finan-

cial performance, it implies that the structure-conduct-

performance view of competition is misguided.

CONCLUSIONWe again thank Professor Barney and Professors

Priem and Swink for their thoughtful, well-reasoned

commentaries on our article. They are exemplars of

good science, for they, in a fair and civil manner,

respect reason, respect evidence, and respect the appli-

cation of reason to evidence. For SCM researchers, the

import of our original article, as well as the commen-

taries and this reply, is clear: researchers are well

advised to ground their analyses in the dynamic,

resource-advantage theory of competition. For RBV

researchers, we argue that the import is also clear. In

a recent review of RBV, Kraaijenbrink, Spender andGroen (2010) identify RBVs major problem, and they

suggest a way forward. The major problem they

identify is:

We feel the RBV community has clung to an inap-

propriately narrow neoclassical economic rational-

ity and has thereby diminished its opportunities

for progress over the past decade or so. We feel the

sharpest yet most productive critiques have come

from writers embracing the non-mainstream eco-

nomic positions variously labeled Austrian, Knigh-

tian, evolutionary, or otherwise nonequilibrium.

From their point of view, the challenge is not todissolve or recapture these critiques in a neoclassi-

cal equilibrium framework but the very opposite.

So there is some irony in many RBV writers

assumption that Penrose is the RBVs godmother,

for her views were Austrian through and through.

(Kraaijenbrink et al. 2010, p. 367)

As to what should be done, they argue:

The way forward, we feel, is to move the RBVs

agenda into the inherently dynamic Austrian

framework by incorporating time, space and

uncertainty resolution into the RBVs axiomatic

base. Going back to Marshalls work, every indica-

tion is that all SCA [sustained competitive advan-

tage] in a reasonably well-run socioeconomy is

perishable unless continuously invigorated by

successful innovation. (Kraaijenbrink et al. 2010, p.

367)

Because R-A theory is a dynamic, process-oriented,

evolutionary theory of competition that has strong

affinities with the Austrian economics research tradi-

tion, it provides a vehicle for accommodating the

way forward suggested by Kraaijenbrink et al.

(2010).

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Shelby D. Hunt (Ph.D., Michigan State University)

is the Jerry S. Rawls and P. W. Horn Professor of Mar-

keting in the Rawls Business School at Texas Tech

University in Lubbock, Texas. A past editor of the Jour-

nal of Marketing (198587), he is the author of

numerous books including Marketing Theory: Founda-

tions, Controversy, Strategy, Resource-Advantage Theory

(2010) and A General Theory of Competition: Resources,

Competencies, Productivity, Economic Growth (2000). Dr.

Hunt is one of the most frequently cited researchers

in the areas of economics and business, according to

Thomson-Reuters ISI rankings, and has published

widely on competitive theory, strategy, macromarket-

ing, ethics, relationship marketing, channels of distri-

bution, marketing theory and the philosophy of

science. He is a member of the Advisory Board for the

Journal of Supply Chain Management.

Donna F. Davis (Ph.D., University of Tennessee-

Knoxville) is an Associate Professor in the Rawls Busi-

ness School at Texas Tech University in Lubbock,

Texas, where she holds the Georgie G. Snyder Profes-

sorship in Marketing. Her research interests include

supply chain management, brand management, and

demand forecasting. Dr. Davis has published articles

in a variety of academy and managerial periodicalsincluding the Journal of Business Logistics, the Interna-

tional Journal of Physical Distribution & Logistics Manage-

ment, the Journal of the Academy of Marketing Science,

the Journal of Business Forecasting, and the Journal of

Supply Chain Management. She also has presented her

research at numerous national and international con-

ferences and business forums. Dr. Davis is a member

of the Journal of Supply Chain Managements Editorial

Review Board.

Volume 48 Number 2

Journal of Supply Chain Management

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