Resource Based View in Business Management
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Published: Tue, 02 Jan 2018
The resource-based view is defined as a business management tool utilized to know the strategic resources available to firm. The basic principle of the resource based value is that the basis for a competitive advantage of a company lies primarily in the application of the group of valuable resources at the firm’s disposal. In order to change a short-run competitive advantage into a maintained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile. In other words, this will change into valuable resources that either perfectly imitable or substitutable without great effort. If these conditions are remained, the company’s group of resources can help the firm sustaining above average returns.
The recent dominant view of corporate strategy – resource-based theory or resource-based view (RBV) of company – is based on the theory of economic rent and the view of the company as a collection of capabilities. This view of strategy has a coherence and integrative role that puts it well ahead of other mechanisms of strategic decision making.
The olden strategy models such as Michael Porter’s five forces model concentrates on the firm’s external competitive environment. Most of them do not try to look inside the firm. Instead, the resource-based perspective shows the need for a fit among the external market context in which a firm works and its internal capabilities.
In contrast to the Input / Output Model (I/O model), the resource-based view is grounded in the perspective that a company’s internal environment, in terms of its resources and capabilities, is more crucial to the determination of strategic action compared to the external environment. The resource based view suggest that a company’s rare resources and capabilities give the basis for a strategy instead of concentrating on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment (I/O model). The business strategy chosen should enable the company to best use its core competencies relative to chances in the external environment.”
The resource-based view of the firm might be useful to the field of strategic management. The big benefit of this theory was it motivated a dialogue between scholars from a lot of perspectives, which they described as “good conversation.” From then onwards, the strengths and weaknesses of the resource based view have been vigorously argued in strategic management and other management disciplines.
There are lesser discussions regarding the resource based view done in the field of information systems. The resource based view is used in the information system field on a few occasions, yet there is no effort up to date to comprehensive evaluates their weaknesses and strengths.
The resource-based view also stands that companies possess resources, a subset which allows them to reach competitive advantage and later on giving them long term superior performance. Many studies of performance from company using the resource based view have found differences within the industries. This recommends that the effects of individual, firm-specific resources on performance can be crucial.
Valuable and rare resources and whose benefits can be sorted by the owning (or controlling) company giving it with a temporary competitive advantage. That strength can be maintained over longer time periods to the extent that the company can protect against resource imitation, transfer, or substitution. In other words, empirical studies using the theory have strongly supported the resource-based view.
One of the key challenges of resource based view related is to understand the meaning of resource. Many people are interested in the resource based view and utilized a few different concepts to speak about a company’s resources. This includes assets, stocks, competencies and skills. Such proliferation of terms is a problem for research utilizing resource based view because it is usually not clear what the researchers mean by key terminology. To make things simple, it is better to clarify the terms in a relevant way. Together, assets and capabilities define the set of resources available to the firm.
Assets mean anything intangible or tangible that the firm can utilize for producing and creating in its process to a market. Assets can be taken as a input or output of a process. It can also be tangible and intangible. In other words, capabilities change inputs into outputs of greater worth. Capabilities includes processes and skills.
Since years ago, there are big collections of contributions in the areas of strategic management and economics which find to change the term of resource based view or utilize it as a framework to solve empirical questions. Meanwhile, the basic propositions of resource based view have increased explained. In summary, the initial contribution of the RBV of the company to date has been as a concept of competitive advantage. The start is with an assumption which the wanted outcome of managerial effort within the company is sustainable competitive advantage. Achieving such a level enables the company to earn economic rents instead. This also concentrates on how the company achieve and maintain advantages. The resource based view argues that the answer to such question stays in the possession of important resources which have certain characteristics like barriers to duplication and value. A SCA can be achieved if the company effectively uses the resources in its product markets. Resource based view focuses the strategic choice, charging the company’s management with the crucial tasks of developing, identifying and utilizing important resources to maximize returns. The resource based view will be discussed later in the following paragraphs and also followed by a conclusion.
Article 1 Corporate Social Responsibility: A Resource-Based View of the Firm
Mehdi Taghian, Deakin University
This section reviews the application of the corporate social responsibility (CSR) as an intangible dynamic resource, its application in the formulation of marketing strategies and its association with business performance, using the theoretical framework of resource-based view of the firm (RBV).
CSR focuses on what is termed the triple bottom line – people, planet, profit (Capaldi, 2005). Supporters of CSR believe that it is compatible with the traditional goals of a business and in fact can enhance a business. These supporters assert that CSR must become an integral part of the wealth creation process. Therefore, if CSR is managed properly, it should enhance business competitiveness and maximize wealth creation value to society. Also, when the economy is facing challenging times like now, there is greater not lesser need to practice CSR. The benefits of CSR will be discussed in detail in subsequent paragraphs.
CSR initiatives can be in many forms, depending on the company. Some focus solely on environmental issues but there is a move towards community-based development projects (Tench et al, 2007). These projects perform a variety of functions for people in rural areas such as providing education for children and equipping adults with job skills. Other CSR initiatives occur in the form of providing healthcare and awareness of diseases such as AIDS and malaria. Based on these companies’ annual reports and other publications, such initiatives seem to be successful (Vernon and Mackenzie, 2008). Therefore, companies are encouraged to embrace CSR to fulfil their roles as good corporate citizens.
Even though governments have not enacted legislature compelling businesses to embrace CSR, the accounting fraternity has taken the lead by instituting accounting standards and guidelines that compel MNCs to adopt some aspects of CSR. The guidelines are on environmental and sustainable reporting and demonstrate how acting ‘green’ can be incorporated into a company’s accounting system (O’Dwyer, 2003). Some of the more notable guidelines and standards promoting CSR are AccountAbility’s AA1000 standard, Social Accountability International’s SA8000 standard, ISO14000 Environmental Management Standard and Global Reporting Initiative’s Sustainable Reporting Guidelines. These standards and others have increased the awareness among accountants for the need for good CSR and sustainable reporting.
The stakeholder theory considers the impact of expectations of the different stakeholder groups to determine CSR. This is expressed by Drucker in his views on business ethics in that management is ultimately responsible to itself and society at large. These sentiments were re-echoed later by Freeman (1984, cited in Enquist et al, 2006) who said it was not just a matter of social responsibility or business ethics, but ultimately the very survival of the company hinges on it. Stakeholders are ‘groups from whom the organization has voluntarily accepted benefits, and to whom the organization has therefore incurred obligations of fairness’ (Galbreath, 2009). A firm’s traditional stakeholders are its shareholders, employees, creditors, customers and the government. However, the scope has been expanded in recent years to include non-governmental organizations and the community as a whole.
CSR is utilized as a management tool for managing the information needs of the various powerful stakeholder groups and managers use CSR to manage or influence the most powerful stakeholders in order to gain their support which is vital for survival (Freeman et al, 200, cited in Gyves and O’Higgins, 2008). The key issue here is identifying the concerns of the various stakeholder groups which are often different, and how to satisfy them. Hence, the corporation is driven to act in a more ethical manner to avoid antagonizing powerful stakeholders. Scholars have cited five major strategic responses to institutional pressure for CSR, which range from the timid to the hostile. The first strategy is to acquiesce, which is to accept CSR values, norms and rules for the organization. The second approach is to compromise by partially conforming to CSR requirements while modifying it to suit organizational needs. The third strategy is to avoid or resist all CSR initiatives while the fourth method is a more active form of resistance to CSR initiatives through outright defiance. The final approach is by manipulation, which is by attempting to change global CSR standards. As can be expected, the last approach can only be employed by the largest and most powerful corporations.
Furthermore, a CSR strategy can be considered as a core intangible dynamic resource within the resource-based view of the firm (RVB). It can provide a general framework for decisions regarding the design and adoption of other organisational resources that collectively characterise their marketing approach and direction.
Article 2 The resource-based view of the firm: Ten years after 1991.(Technical)
Ten years ago, Jay Barney edited a special forum in this journal on the Resource-Based View of the Firm (Barney, 1991). In his article in the special issue, Barney argued that sustained competitive advantage derives from the resources and capabilities a firm controls that are valuable, rare, imperfectly imitable, and not substitutable. These resources and capabilities can be viewed as bundles of tangible and intangible assets, including a firm’s management skills, its organizational processes and routines, and the information and knowledge it controls. In the intervening decade, the diffusion of the resource-based view (RBV) in strategic management and related disciplines has been both dramatic and controversial and has involved considerable theoretical development and empirical testing. As such, it seemed timely to organize a new special issue that attempts to assess the past contributions of the RBV as well as presenting forward-looking extensions.
Barney’s 1991 article was positioned relative to the structure-conduct-performance (SCP) paradigm in economics. Revisiting this article, Barney (2001a) discusses the implications of linking the RBV to the neoclassical microeconomics and evolutionary economics literatures. Situating the RBV in relation to neoclassical microeconomics would have helped address issues concerning whether or not equilibrium analysis can be applied in resource-based analyses, whether the RBV is tautological, and identification of attributes of resources and capabilities that lead them to be inelastic in supply. Positioning the RBV against evolutionary economics would have helped develop arguments concerning how routines and capabilities change over time. Barney points out that all three perspectives have been developed over the last decade and provide a body of related yet distinct resource-based theoretical tools that can be applied in different ways in different contexts.
Mahoney (2001) revisits Conner’s (1991) paper to provide an alternative perspective on the similarities and distinctions between RBV and transaction cost economics (TCE), questioning Conner’s argument that the fundamental difference is that the former focuses on the deployment and combination of specific inputs while the latter focuses on the avoidance of opportunism. Mahoney argues that to continue to develop the RBV with the assumption of no opportunism ignores key issues. With opportunism, the presence of the firm facilitates superior knowledge transplantation relative to the market because of superior coding, better control of opportunistic behavior due to the authority relationship and superior information. RBV and TCE are viewed as complementary because the former is a theory of firm rents whereas the latter is a theory of the existence of the firm. The set of market frictions that explain sustainable firm-level rents would be sufficient market frictions to explain the existence of the firm. The problem of opportunism, however, has also been closely associated with recent literature on corporate restructuring, to which we return below.
Revisiting their managerial rents model, Castanias and Helfat (2001) present an expanded classification of managerial resources and explain how it relates to (1) other classifications of managerial abilities such as those dealing with leadership qualities or functional area experience and (2) the fundamental resource-based characteristics of scarcity, immobility, and inimitability. The implications of this model for firm performance, appropriability of rents from managerial resources, and incentives for managers to generate rents are then analyzed. The authors argue that managerial resources, which cannot be imitated quickly or which may have imperfect substitutes, do not by definition generate rents, especially if effort and motivation are lacking or misdirected. They also suggest that the nature of managerial resources may need to change with the life-cycle of the firm and the industry for rents to be generated.
Out of the many theories of organizational behavior, one aligns itself well with the human capital view of people within an organization. This theory, called the Resource Based View (RBV), suggests that the method in which resources are applied within a firm can create a competitive advantage (Barney, 1991; Mata, Fuerst, & Barney, 1995; Peteraf, 1993; Wernerfert, 1984). The resource based view of firms is based on two main assumptions: resource diversity and resource immobility (Barney, 1991; Mata et al., 1995). According to Mata et al. (1995), these assumptions are defined as:
Resource diversity (also called resource heterogeneity) pertains to whether a firm owns a resource or capability that is also owned by numerous other competing firms, then that resource cannot provide a competitive advantage.
As an example of resource diversity, consider the following: a firm is trying to decide whether to implement a new IT product. This new product might provide a competitive advantage to the firm if no other competitors have the same functionality. If competing firms have similar functionality, then this new IT product doesn’t pass the ‘resource diversity’ test and therefore doesn’t provide a competitive advantage.
Resource immobility refers to a resource that is difficult to obtain by competitors because the cost of developing, acquiring or using that resource is too high.
As an example of resource immobility, consider the following: a firm is trying to decide whether they should buy an ‘off-the-shelf’ inventory control system or have one built specifically for their needs. If they buy an off-the-shelf system, they will have no competitive advantage over others in the market because their competition can implement the same system. If they pay for a customized solution that provides specific functionality that only they implement, then they will have a competitive advantage, assuming the same functionality isn’t available in other products.
These two assumptions can be used to determine whether an organization is able to create a sustainable competitive advantage by providing a framework for determining whether a process or technology provides a real advantage over the marketplace.
The resource based view of the firm suggests that an organization’s human capital management practices can contribute significantly to sustaining competitive advantage by creating specific knowledge, skills and culture within the firm that are difficult to imitate (Afiouni, 2007; Mata et al., 1995). In other words, by creating resource diversity (increasing knowledge and skills) and/or resource immobility (a culture that people want to work in), sustainable competitive advantage can be created and maintained.
In order to create human capital resource diversity and immobility, an organization must have adequate human capital management practices, organizational processes, knowledge management practices and systems, educational opportunity (both formal and informal) and social interaction (i.e., community building) practices in place
Based on the empirical writings stated above RBV provides us the understanding that certain unique existing resources will result in superior performance and ultimately build a competitive advantage. Sustainability of such advantage will be determined by the ability of competitors to imitate such resources. However, the existing resources of a firm may not be adequate to facilitate the future market requirement due to volatility of the contemporary markets. There is a vital need to modify and develop resources in order to encounter the future market competition. An organisation should exploit existing business opportunities using the present resources while generating and developing a new set of resources to sustain its competitiveness in the future market environments, hence an organisation should be engaged in resource management and resource development. Their writings explain that in order to sustain the competitive advantage, it’s crucial to develop resources that will strengthen their ability to continue the superior performance. Any industry or market reflects high uncertainty and in order to survive and stay ahead of competition new resources becomes highly necessary. Morgan agrees stating that, need to update resources is a major management task since all business environments reflect highly unpredictable market and environmental conditions. The existing winning edge needed to be developed since various market dynamics may make existing value creating resources obsolete.
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