A theory of firm performance that explains competitive advantage by the possession and strategic deployment of internal resources and capabilities that are heterogeneously distributed across firms and imperfectly mobile between them.

Principle

When a firm controls resources that are valuable, rare, imperfectly imitable and non‑substitutable, and organizes them effectively, those resources can generate sustained above‑average returns relative to competitors.

Demonstration

Illustrative scenario → A mid‑sized manufacturer develops a proprietary production process that lowers unit cost and cannot be replicated from publicly available information. Recognition → Managers identify the process as a strategically unique capability. Action → The firm protects, integrates and aligns complementary assets (distribution, brand, training). Consequence → The firm sustains higher margins and deters entry while competitors struggle to match performance without access to the same resource bundle.

Misapplication

Treating any scarce input (e.g., capital or labor) as a strategic resource without assessing whether it is firm‑specific, hard to copy, and organized for competitive use; this conflates ordinary inputs with strategic resources and overstates expected advantage.

Consequence

Directs strategy toward resource audits, capability development and internal organization; influences investment in protection, integration, and routines that convert heterogeneous assets into firm‑level advantage.

Reversal

In environments with rapid technological turnover or when resource mobility increases (e.g., through licensing, rapid imitation, or regulation), resource heterogeneity may not translate into sustained advantage and RBV predictions weaken.

Boundary

Within: firm‑level analysis of internal assets and capabilities used for strategy. Near edge: attributing performance primarily to firm resources when industry structure, demand shocks, or luck also play major roles. Outside: explanations that rely solely on external industry structure (e.g., pure Industrial Organization/Porter‑style accounts) without reference to internal heterogeneity.

Semantic Tension

Internal heterogeneity and path‑dependent resources ↔ External industry structure and competitive forces; both constrain plausible causal attributions for performance.

Synthesis

RBV reframes strategy analysis from asking what industry permits firms to do to asking what unique, hard‑to‑transfer internal assets a firm can marshal and organize—making path‑dependence and organizational design central to explaining durable advantage.