resource-based view

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The resource-based view of the firm and strategy, in contrast to the product, or positional, view. This view of the firm started with the seminal work of Penrose (1959), was touched on by Selznik (1957) with his notion of distinctive competencies, defined by Wernerfelt (1984), and elaborated on by Barney in several works (1986a, 1986b, 1991, 2001). The RBV combines the internal analysis of phenomena within companies (a preoccupation of the 'distinctive"" and 'core competency' group) with the external analysis of the industry and the competitive environment (a focus of the industrial organization group.

Basic description of the resource-based view (Newbert, 2008) --
To fully appreciate this theory, it is necessary to understand the terms used.

  • competitive advantage -- is generally conceptualized as the implementation of a strategy not currently being implemented by other firms that facilitates the (1) reduction of costs, (2) the exploitation of market opportunities, and/or (3) the neutralization of competitive threats (Barney, 1991).
  • performance -- is generally conceptualized as rents (economic profits) a firm accrues as a result of the implementation of its strategies (Rummelt, Schendel, and Teece, 1994).
  • resources -- consist of a bundle of potential services ...[T]he services yielded by resources are a function of the way in which they are used (Penrose, 1959, p 25)
  • capabilities -- are a firm's capacity to deploy resources (Amit and Schoemaker, 1993, p 35). A firm must have access to the appropriate capabilities to effectively use, or exploit, a resource.
  • competitive advantage -- results from the deployed combination of resources and capabilities (Penrose, 1959).
  • performance results from the deployment of resource-capability combinations to produce advantage (Powell, 2001).

A firm that has attained a competitive advantage has created economic value (the difference between the perceived benefits of a resource-capability combination and the economic cost to exploit them) than its competitors. Economic value is generally created by producing products and/or services with either greater benefits at the same cost compared to competitors (i.e. differentiation-based competitive advantage) or the same benefits at lower cost compared to competitors (i.e. efficiency-based competitive advantage) (Peteraf and Barney, 2003).

Because superior benefits tend to enhance customer loyalty and perceived quality (Zou, Fang, and Zhao, 2003), a firm that can exploit its resource-capability combinations to effectively attain a differentiation-based competitive advantage should be able to improve its performance compared to competitors by selling more units at the same margin (i.e., parity price) or by selling the same number of units at a greater margin (i.e., premium price).

Furthermore, because a superior cost structure enables greater pricing flexibility as well as the ability to increase available surplus (Barua et al., 2004; Porter and Millar, 1985; Zou et al., 2003), a firm that can exploit its resource-capability combinations to effectively attain an efficiency-based competitive advantage should be able to improve its performance compared to competitors by selling more units at the same margin (i.e., low price) or by selling the same number of units at a greater margin (i.e., parity price). In either case, it is logical to assume that a firm that attains a competitive advantage, whether in the form of greater benefits at the same cost or the same benefits at lower cost, will be able to improve its performance in ways that its competitors cannot.

Practitioner implications --
Given that (1) performance advantage results when valuable and rare combinations of resources and capabilities are applied to reduce costs, exploit market opportunities, and/or neutralize competitive threats, (2) firms of all sizes can achieve advantage, and (3) with novelty one can produce rare and valuable (unique) combinations of resources and capabilities from even common resources and capabilities -- the pursuit of novelty to develop a truly unique basis for advantage is conceivably within the reach of all firms. Distinctive competency (Selznick, 1957) and its renewal is an essential pursuit in the evolution of the firm.

Competitively valuable resources (Collis and Montgomery, 1995) --
A resource-capability combination (for expediency, 'resource' in this section) value is due to its deployment towards competitive advantage: (1) reduction of costs, (2) the exploitation of market opportunities, and/or (3) the neutralization of competitive threats. The 'test' of the strategic value of a resource five-fold, connecting the internal and external factors related to a resource:

  • inimitability -- is the resource hard to copy?
  • durability -- how quickly does the resource depreciate?
  • appropriability -- who captures the value the resource creates?
  • substitutability -- can the resource be trumped by another resource?
  • competitive superiority -- whose resource is really better?

Further points...
See organizational economics and industrial organization. These terms descibe the broad areas of knowledge relating to the positional view of strategy and the resource view of strategy.

The ""resource view"", contends that a firm's internal resources and capabilities are the best source of competitive advantage over other firms. An approach to strategy with this view then seeks to find or develop distinctive competencies and resources, applying them to produce superior value. To the extent that these competencies can be kept unique to the firm, they can be used to develop a competitive advantage.

Competitive advantage -- (Barney, 1991) The resource-based view focuses on internal resources, the firm's strengths and weaknesses, in contrast to the positional or environmental models of competitive advantage which focuses on opportunities and threats.

Assumptions -- (Barney, 1991) The resource-based model assumes that firms within an industry (or group) may be heterogeneous with respect to the strategic resources they control. Second, this model assumes that these resources may not be perfectly mobile across firms, thus heterogeneity may can be long lasting.

Resource based theory --
Resource based theory sees the firm as a collection of assets, or capabilities. In the modern economy, most of these assets and capabilities are intangible. The success of corporations is based on those of their capabilities that are distinctive. Companies with distinctive capabilities have attributes which others cannot replicate, and which others cannot replicate even after they realise the benefit they offer to the company which originally possesses them.

Business strategy involves identifying a firm's capabilities: putting together a collection of complementary assets and capabilities, and maximising and defending the economic rents which result. The concept of economic rent is central in linking the competitive advantage of the firm to conventional measures of performance.

John Kay,, April 7, 2007

Highly efficient resources, uniquely efficient, form a resource position barrier that is effective because of the lower expected returns on the same type of resources if acquired by a competitor. One's chance of maximizing market imperfections and perhaps getting a cheap resource buy would be greatest if one tried to build on one's most unusual resource or resource position. Looking at diversified firms as portfolios of resources rather than portfolios of products gives a different and perhaps richer perspective on their growth prospects (Wernerfelt, 1984).

Strategy for diversified firms (Wernerfelt, 1984) -- The resource perspective provides a basis for addressing some key issues in the formulation of strategy for diversified firms, such as:

  • On which of the firm's current resources should diversification be based?
  • Which resources should be developed through diversification?
  • In what sequence and into what markets should diversification take place?
  • What types of firms will be desirable for this particular firm to acquire?

""Strategy for a bigger firm involves striking a balance between the exploitation of existing resources and the development of new ones. In analogy to the growth-share matrix, this can be visualized in what we will call a resource-product matrix.""