This paper integrates the resource-based view (RBV) with concepts from the literature on managerial cognition and organizational slack to show how shifts in resource constraints can lead to shifts in firm performance and even industry structure over time. Using a process-based method, we show that a shift in constraints of resources, under the moderating impact of heterogeneous mental models and resource structure, shift resource allocations. In turn, this creates and sustains resource heterogeneity, leading to differential performance. Previously developed propositions are tested using simulation in two strategic business units from a leading player in the UK insurance industry. The conclusion highlights implications for research methods, strategy theory and managerial practice.