Resource-based View

The Resource-Based View (RBV) is a managerial framework used to determine the strategic resources with the potential to deliver comparative advantage to a firm. These resources can be exploited by the firm in order to achieve sustainable competitive advantage.

Barney's 1991 article "Firm Resources and Sustained Competitive Advantage," is widely cited as a pivotal work in the emergence of the resource-based view. However, some scholars argue that there was evidence for a fragmentary resource-based theory from the 1930s. RBV proposes that firms are heterogeneous because they possess heterogeneous resources, meaning firms can have different strategies because they have different resource mixes.

The RBV focuses managerial attention on the firm's internal resources in an effort to identify those assets, capabilities and competencies with the potential to deliver superior competitive advantages.

Origins and background

During the 1990s, the resource-based view (also known as the resource-advantage theory) of the firm became the dominant paradigm in strategic planning. RBV can be seen as a reaction against the positioning school and its somewhat prescriptive approach which focused managerial attention on external considerations, notably industry structure. The so-called positioning school had dominated the discipline throughout the 1980s. In constrast, the emergent resource-based view argued that the source of sustainable advantage derives from doing things in a superior manner; by developing superior capabilities and resources. Jay Barney's article, "Firm Resources and Sustained Competitive Advantage," (1991) is seen as pivotal in the emergence of the resource-based view. [1] However, some scholars point out that a fragmentary resource-based perspective was evident from the 1930s, and also point to Barney having been influenced by Wernerfelt's earlier work which introduced the idea of resource position barriers being roughly analogous to entry barriers in the positioning school.[2]

The RBV is an inter-disciplinary approach that represents a substantial shift in thinking.[3] It focuses attention on an organisation's internal resources as a means of organising processes and obtaining a competitive advantage. Barney stated that for resources to hold potential as sources of sustainable competitive advantage, they should be valuable, rare and imperfectly imitable (now generally known as VRIN criteria). [4] The resource-based view suggests that organisations must develop unique, firm-specific core competencies that will allow them to outperform competitors by doing things differently.[5]

Although the literature presents many different ideas around the concept of the resource-advantage perspective, at its heart, the common theme is that the firm's resources are financial, legal, human, organisational, informational and relational; resources are heterogeneous and imperfectly mobile and that management's key task is to understand and organise resources for sustainable competitive advantage [6] Key theorists who have contributed to the development of a coherent body of literature include: Jay B. Barney, George S. Day, Gary Hamel, Shelby D. Hunt, G. Hooley and C.K. Prahalad.

Concept

A key insight arising from the resource-based view is that not all resources are of equal importance, nor possess the potential to become a source of sustainable competitive advantage. [7] The sustainability of any competitive advantage depends on the extent to which resources can be imitated or substituted.[8] Barney and others point out that understanding the causal relationship between the sources of advantage and successful strategies can be very difficult in practice. [9] Thus, a great deal of managerial effort must be invested in identifying, understanding and classifying core competencies. In addition, management must invest in organisational learning to develop, nuture and maintain key resources and competencies.

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation. [10]

The key managerial tasks are:

1) Identify the firm's potential key resources.

2) Evaluate whether these resources fulfill the following (VRIN) criteria:[11]

  • Valuable - they enable a firm to implement strategies that improve its efficiency and effectiveness.
  • Rare - not available to other competitors.
  • Imperfectly imitable - not easily implemented by others.
  • Non-substitutable - not able to be replaced by some other non-rare resource.

3) Develop and nuture protect resources that pass these evaluations.

Definitions

What constitutes a "resource"?

Barney defines firm resources as: "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" [12]

Classification of resources

Firm-based resources may be tangible or intangible.

Tangible resources include: physical assets such as financial resources and human resources including real estate, raw materials machinery, plant, inventory, brands, patents and trademarks and cash.[13]
Intangible resources may be embedded in organisational routines or practices such as an organization's reputation, culture, knowledge or know-how, accumulated experience, relationships with customers, suppliers or other key stakeholders. [14]

What constitutes "competitive advantage"?

Barney defined a competitive advantage "when [a firm] is able to implement a "value creating strategy not simultaneously being implemented by any current or potential competitors."[15]


RBV and strategy formulation

Firms in possession of a resource, or mix of resources that are rare among competitors, are said to have a comparative advantage. This comparative advantage enables firms to produce marketing offerings that are either (a) perceived as having superior value or (b) can be produced at lower costs. Therefore, a comparative advantage in resources can lead to a competitive advantage in market position. [16]

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation. Hooley et al., suggest the following classification of competitive positions: [17]

  • Price positioning
  • Quality positioning
  • Innovation positioning
  • Service positioning
  • Benefit positioning
  • Tailored positioning (one-to-one marketing)

Criticisms

Priem and Butler's (2001) criticisms are widely cited [18], and are as follows:

  • The RBV is tautological
  • Different resource configurations can generate the same value for firms and thus would not be competitive advantage
  • The role of product markets is underdeveloped in the argument
  • The theory has limited prescriptive implications [19]

Other criticisms include:

  • The failure to consider factors surrounding resources; that is, an assumption that they simply exist, rather than a crtical investigation of how key capabilities are acquired or developed. [20]
  • It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's VRIN criterion.
  • An assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources does not always hold true. It ignores external factors concerning the industry as a whole; Porter's Industry Structure Analysis ought also be considered. [21]

Further reading

  • Peteraf, M. A. (1993), "The Cornerstones of Competitive Advantage: A Resource-based View," Strategic Management Journal, Vol. 14, No. 3, pp. 179-191
  • Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, NY: Free Press
  • Teece, D., Pisano, G. and Shuen, A. (1997), "Dynamic Capabilities and Strategic Management". Strategic Management Journal, Vol. 18, No. 7, pp. 509-533
  • Wernerfelt, B. (1984), "A Resource-based View of the Firm," Strategic Management Journal, Vol.5, pp.171-180

See also


References

  1. ^ Prahalad, C. K. and Hamel, G., "The Core Competence of the Corporation," Harvard Business Review, Vol. 68, No. 3, pp. 79-91
  2. ^ Priem, R. L., Butler, J. "Is the Resource-Based 'View' a Useful Perspective for Strategic Management Research?" Academy of Management Review, Vol. 26, No 1, pp 20-40
  3. ^ Fahy, J. and Smithee, "Strategic Marketing and the Resource Based View of the Firm," Academy of Marketing Science Review, Vol. 1999 No. 10, 1999, Online: http://www.amsreview.org/articles/fahy10-1999.pdf
  4. ^ Barney, J. B., "Firm Resources and Sustained Competitive Advantage." Journal of Management, Vol. 17, No. 1, 1991, pp. 99-120
  5. ^ Prahalad, C. K. and Hamel, G., "The Core Competence of the Corporation," Harvard Business Review, Vol. 68, No. 3, pp. 79-91
  6. ^ Makadok, R., "Toward a Synthesis of the Resource-Based View and Dynamic-Capability Views of Rent Creation," Strategic Management Journal, Vol. 22, 2001, pp 387-401; Hunt, D. S. and Derozier, C., "The Normative Imperatives of Business and Marketing Strategy: Grounding Strategy in Resource-Advantage View," Journal of Business and Industrial Marketing, Vol. 19, No. 1, 2004, pp. 5-22
  7. ^ Fahy, J. and Smithee, "Strategic Marketing and the Resource Based View of the Firm," Academy of Marketing Science Review, Vol. 1999 No. 10, 1999, Online: http://www.amsreview.org/articles/fahy10-1999.pdf
  8. ^ Lowson, R., "The Nature of Operations Strategy: Combining Strategic Decisions from an Operations and Market based Perspective," Management Decision, Vol. 41, No, 6, pp. 538-49
  9. ^ Barney, J. B., "Firm Resources and Sustained Competitive Advantage," Journal of Management, Vol. 17, No. 1, 1991, pp. 108-09; Barney uses the term "causally ambiguous" which he describes as a situation when "the link between the resources controlled by the firm and the firm's sustained competitive advantage is not understood or understood only very imperfectly."
  10. ^ Day, G.S. and Wensley, R., "Assessing Advantage: A Framework for Diagnosing Competitive Superiority," Journal of Marketing, vol. 52, April, 1988, pp. 1-26; Day, G. S., "The Capabilities of Market-Driven Organizations," Journal of Marketing, Vol. 58, October, 1994, pp. 37-52; Hooley, G. J., Greenley, G. E., Fahy, J. and Cadogan, J. W. "Market-focused Resources, Competitive Positioning and Firm Performance" Journal of Marketing Management, Vol. 17, No. 5-6, 2001, pp. 503-520
  11. ^ Prahalad, C. K. and Hamel, G., "The Core Competence of the Corporation," Harvard Business Review, Vol. 68, No. 3, pp. 79-91; Barney, J. B., "Firm Resources and Sustained Competitive Advantage," Journal of Management, Vol. 17, No. 1, 1991, pp. 99-120
  12. ^ Barney, J.B., "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?" Academy of Management Review, Vol. 26, No. 1, 2001, p. 101, doi: 10.5465/AMR.2001.4011938
  13. ^ Andriessen, D., Making Sense of Intellectual Capital: Designing a Method for the Valuation of Intangibles, Elsevier Butterworth-Heinemann, Burlington, 2004
  14. ^ Lev, B., Intangibles: Management, Measurement, and Reporting, Brookings Institution Press, Washington,, 2001
  15. ^ Barney, J.B., "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?" Academy of Management Review, Vol. 26, No. 1, 2001, p. 102, doi: 10.5465/AMR.2001.4011938
  16. ^ Hunt, S.D. and Morgan, R.M., "The Comparative Advantage of the Firm," Journal of Marketing, Vol. 59, April, 1995, pp 1-15
  17. ^ Hooley, G., Broderick, A. and Moller, K., "Competitive Positioning and the Resource-Based View of the Firm," Journal of Strategic Marketing, Vol. 6, 1998, pp. 97-115
  18. ^ Barney, J.B., "Is the Resource-Based "View" a Useful Perspective for Strategic Management Research?" Academy of Management Review, Vol. 26, No. 1, 2001, pp 41-56, doi: 10.5465/AMR.2001.4011938
  19. ^ Priem, R. L., Butler, J. "Is the Resource-Based 'View' a Useful Perspective for Strategic Management Research?" Academy of Management Review, Vol. 26, No 1, pp 20-40
  20. ^ Stinchcombe, A.L., "On Equilibrium, Organizational Form, and Competitive Strategy, in Joel A.C. Baum, Frank Dobbin (eds), Economics Meets Sociology in Strategic Management (Advances in Strategic Management), Volume 17, Emerald Group Publishing Limited, pp 271 - 284
  21. ^ Rumelt, R. P., "How Much does Industry Matter?" Strategic Management Journal, Vol. 12, No. 3, 1991, pp. 167-185

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