Understanding The Resource Based View Concept Business Essay
Resource-based view (RBV) is a modern and promising concept that provides insights on both strategic and organisational matter. It is a manner of viewing the organisation and in turn of approaching strategy (Powell, 2007). Sustainable competitive advantages happen when a firm is executing a value-creating strategy that is not being executed by rivals and when these rivals are unable to replicate the benefits of this strategy (Henry, 2008). The achievement of sustainable competitive advantage can be anticipated to lead to higher performance measured in terms such as market-share and profitability (Sheehan and Foss, 2007). Thus, the main purpose of this critique is to determine whether resource based view analysis has a strong relationship with firm’s performance in attaining a sustainable competitive advantage. It is also to discuss the merits and demerits of RBV as the best strategy route in the development of a firm’s strategy and strengths and weaknesses of the RBV analysis in achieving competitive advantage and the contribution to firm-level value creation.
In the dynamic environment faced by several firms, market positioning can become obsolete quickly because of new innovations, process enhancement and competitive environments. To compete successfully in these markets, it is said that organisations need to constantly craft new sources of competitive advantage (Powell and Thomas, n.d.) In order to achieve sustainable competitive advantage and good performance, it is said that resource based view theory is essential (Klein, 2011). RBV underlines the internal capabilities of an organisation in creating strategy to attain sustainable competitive advantage in its market and industries (Henry, 2008). RBV claims that organisations achieve and sustain competitive advantages by deploying valuable capabilities and resources that are inelastic in supply (Ray, Barney and Muhanna, 2004).
Competitive advantage happens only in a situation of resource heterogeneity, diverse resources across organisations and resource immobility, the incapability of competing organisations to gain resources from other firms (Madhani, P.M., 2009). Given that competitive advantage occurs in a situation of resource heterogeneity, organisations should have some basic threshold resources in order to battle in the market (Andersen, J., 2011). A division should to be made between capabilities (resources or competences) that are at a threshold level and those that might assist the firms to achieve competitive advantage and higher performance. Threshold resources are significant but it does not of themselves generate competitive advantage or the source of higher performance. These are dependent on a firm having distinctive capabilities that rivals will find it complicated to replicate (Johnson, Scholes and Whittington, 2008). It is held that RBV can be used to discover if the organisation have any strategic resources which can be utilised to base the firm’s strategy on. However, according to RBV, not each and every resources of an organisation will be strategic resources. If managers can recognise these resources, it permits them to cherish it. Besides that, managers in low performing organisation may exploit the RBV to discover resources that are deficient and inspect if it can be alternate or replicate these resources (Sheehan and Foss, 2007). Strategic assets offer the organisation with a source of stable stream of rents so that it achieves a sustained competitive advantage over its competitors. Barney proposes that such advantages depend “in a critical way, on the resource endowments controlled by the firm”. Hence, it is the stock of strategic assets that are significant in determining the organisation profitability level. Moreover, managers should highlight on the utilisation of already controlled resources to attain economic rents for the organisation (Kochhar, 1997).
2.2 Comparison of RBV and Porter’s analysis
RBV is constantly seen as a substitute to Porter’s five forces framework. Porter’s framework generally emphasises on the external impact on strategy execution and it assist organisation to examine the five forces in an industry. The core disagreement is that the theory deals with the success of the industries instead of individual organisation. Hence, it does not assist firms to achieve sustainable competitive advantages. In contrast, RBV implies that organisations must place their self deliberately based on their unique, valuable and matchless resources and capabilities. Resources and capabilities are more lasting compared to markets and goods. Thus, resources and capabilities can be considered as a platform for an organisation to develop diverse goods for diverse market. So, leveraging capabilities and resources across many markets and goods becomes the strategic driver instead of targeting particular products for particular markets as in Porter’s analysis (Trainmor-knowmore, 2008)
2.3 Merits and demerits of RBV as the best strategy development of a firm’s strategy
According to Connor (2002), RBV is an important, crucial and an inside-out management theory that is functional in developing victorious strategy. One of the merits of RBV as the best strategy route in development of an organisation’s strategy is RBV strategy recognises and highlights on the importance of resources in achieving sustainable competitive advantage. It focuses on the capability and efficiency of internal resources. Tangible and intangible resources are integrated with RBV. The RBV of strategy also crafts a framework for the management to think about their strength and weakness, understand marketing problems that aids to improve organisation’s performance (Falkenreck, 2010). RBV is also useful in understanding the nature of internal resources and their optimal exploitation (Connor, 2002).
Although there are merits of RBV, it is not without demerits. The general demerit of RBV is RBV does not address the vital issues of how resources can created and change over time. Some researchers also have argued that RBV of strategy lacks in detail hence it is quite difficult to implement in an organisation (Henry, 2008).
2.4 Why do some firms outperform and maintain their competitive advantages over others?
Advancement in strategy basically relies on how good the field responds to the question ‘Why do a number of firms outperform others?” and other corollary questions like, “How do organisations penetrate into a spot where they can outperform others?” and “How can organisation uphold this spot?” The RBV is a brilliant means for explaining why some firms outperform others (Sheehan and Foss, 2007). It suggests primary approach on why organisations with valuable, rare, inimitable, and well structured resources may benefit from high performance (Barney, 1995).
Distinctive competencies are one of the traits of an organisation that permit it to practice a strategy more effectively and efficiently than other organisations (Barney and Arikan, 2001). However, a firm’s competence is merely distinctive when they emanate from traits which others do not have. For it to be sustainable, the traits must continue over time. One of the distinctive competencies is general management competence. General managers can have a major impact on the strategies an organisation choose and on the capability of the organisation to execute the strategies it created. It is argued that naturally organisations that comprise of good quality general managers will generally outperform organisations that comprise of low quality general managers. Thus, choosing and training good quality general managers is the essential strategic option for an organisation (Barney and Arikan, 2001). Organisations with distinctive competencies have power that may facilitate them to get hold of high performance and leaders as creative thinker and organisation builders instead of a decision makers and administrators. These would be the important source for a firm to outperform others (Selznick, 1957). A firm’s ability to innovate fruitfully is also a form of distinctive competencies which is sustainable and appropriable. For example, a firm can produce innovative products such as Apple with i-tunes and i-pod. In a survey to discover 50 most innovative companies around the world, it is revealed that Apple got the third place. Apple’s unrivalled innovation in product function and design is verifying that it is hard for competitors to chase. Both these competencies allows firm to outperform others (Henry, 2008).
Besides that, core competence is also a trait for organisation that permits it to outperform and maintain competitive advantage over others (Barney and Arikan, 2001). Core competencies is known as the combined learning of the organisation, particularly how to synchronize various production ability and assimilate numerous streams of technology (Zubac, Hubbard and Johnson, 2010). A core competence should offer broad access to variety of markets, create important contribution to the perceived customer benefits of the end products and should be hard for rivals to imitate (Henry, A., 2008). Organisation that has core competencies will regularly realise that it is less complex to achieve competitive advantages. Thus, if an organisation wants to achieve high performance, its managers need to consider the activities that the organisation desires to engage into and the kinds of resources the organisation needs to exploit to permit those activities to take place as well as the assets and capabilities that an organisation’s managers have to manage (Barney and Arikan, 2001). Toyota is able to outperform other competitors because of its core competence. Its core competence develops from its capability to combine core competencies across the whole organisation. Toyota is delighted with its victory of its Prius, an electric-and-petrol hybrid car that has sold well in America. Its rivals such as General Motors, BMW and Ford are trying hard to produce their own hybrid car. However, Toyota believes that with practice they can master the fuel-saving technologies faster than its competitors. While the competitors try to integrate hybrid engines in their cars, Toyota is trying to cut the price of the engines in half to make it harder for the competitor (Henry, 2008).
2.5 Strengths and weaknesses of RBV analysis in achieving competitive advantage and the contribution to firm-level value creation
For organisation’s resources to achieve sustained competitive advantage, it is stated that the resources need to be valuable, rare, inimitable, and non-substitutable (Powell and Thomas, n.d.) Thus, if an organisation’s resources possess these characteristics, it allows the organisation to enter into new market and add value to the customers such as Toyota’s hybrid car and Apple’s I-pod (Henry, 2008). This is one of the strengths of RBV analysis in achieving competitive advantage and the contribution to firm-level value creation. Furthermore, firms focusing on RBV have potential that permit them to produce at lower cost which will lead them to the benefit of focusing on cost-leadership strategy or create a better goods or service at standard cost compared to other firms with lower capabilities which leads them to focus on differentiation strategy (Johnson, Scholes and Whittington, 2008).
The main critique of the RBV is that though it offers a theory of sustainability, it is not a concept of value creation. If it is true, the usefulness of RBV as a strategic tool will be challenged (Sheehan and Foss, 2007).The RBV is mainly recognition of the uniqueness that resources have to generate rents in balance. This somewhat leave out the concern with process of crafting strategic resources through innovation and similar creative act or restoring such resources (Matthews, 2006). How should resources be pooled, in which proportions, quantity, sequence, etc. to yield value? These are vital implementation matters that are not considered in RBV (Sheehan and Foss, 2007).
In conclusion, the existence of strategic resources is adequate to establish the potential for competitive advantage. Therefore, there is a strong relationship between resources and performance. The important elements of RBV of an organisation are the organisation's main resources and the responsibility of management in changing these resources into situation of sustainable competitive advantage leads to superior performance in the marketplace (Sheehan and Foss, 2007). It is stated that RBV suits the best in a static or predictable context (Zubac, Hubbard and Johnson, 2010). Some research revealed that the RBV can be used at the level of the strategic group and the industry as well as the organisation (Fahy, 2000). RBV definitely has vast potential for assisting managers and organisations to improve their practices and performance (Klein, 2011). The flexibility of this framework makes it fairly adaptable to specific organisation or industry’s situations (Stephane, 2007). Industries such as financial services are example of where sustainable advantages are hard to achieve and competitive moves are replicated quickly (Fahy and Smithee, 1999). As organisation’s industry environments have become unstable, thus the internal resources and capabilities have been suggested as a securer base for crafting strategy instead of external market focus (Grant, 2005).
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