Merits And Demerits Of Rbv Strategy Commerce Essay

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The resource based view (RBV) defines the term 'resources' broadly as tangible (eg., specialized equipment, geographic location), human (eg., technical expertise), organizational (eg., superior sales force, supply chain management), and intangible (eg., organizational culture) assets that can be used to confer value (Gibbert, 2006). Barney (1991) established that firms' resources should have the VRIN attributes which are being 'valuable', 'rare', 'imperfectly imitable' and '(non) substitutable'. However, in 2008, Barney & Westerly re-established the VRIN attributes to VRIO, changing the last attribute to 'whether the firm is organized to exploit these resources'. On the other hand, Andersen (2011) categorized the five criteria that needed to be fulfilled for the resources of a firm to result in high performance; fit with resources, management capability, marketing capability, firm appropriation of rent, and non-competitive advantages (abbreviated as FMMAD).

Since the RBV is also referred to as the 'inside-out' approach, it is obvious that the internal resources of the firm, competences and capabilities form its core. The strategic capability of the firm is the adequacy and suitability of the resources and competences the firm needs to obtain and maintain a sustainable competitive advantage (Clements, 2009). Based on Andersen (2011) and Clements (2009), every firm needs to have the basic threshold resources and competences in order to perform. Threshold resources and competences are defined as the minimum required resources and competences to perform in the industry (Clements, 2009). However, whether the firm achieves high performance or not, depends on the configuration of these basic threshold resources. The rarity, imperfect imitability and non-substitutable characteristic of a strategic resource may be independent of the firm but when the resources are distributed heterogeneously, the value of the particular resource may not necessarily be similar for all the firms (Andersen, 2011). Managerially, heterogeneity has been defined as "enduring and systematic performance differences among relatively close rivals" (Hoopes et al., 2003).Managers often find it difficult to identify with any clarity the strategic capability of their organisation. Too often they highlight capabilities not valued by customers but seen as important within the organisation, perhaps because they were valuable in the past. Or they highlight what are, in fact, critical success factors (product features particularly valued by customers) like 'good service' or 'reliable delivery', whereas strategic capability is about the resources, processes and activities that underpin the ability to meet such critical success factors. Or they could even identify capabilities at too generic a level (Cox et. al., 2004).

Furthermore, the possession of a resource or a capability of some kind does not necessarily mean

that the resource is actually utilized (Andersen, 2011). Based on the research done by DeSarbo et. al. (2007), to say that there is a relationship between capabilities and performance is not sufficient. However, their findings showed that the better performing firms seem to be able to exploit and utilize the capabilities they have better than other firms. Empirically, numerous studies have attempted to measure these attributes of a firm's resources and capabilities, and then to correlate them with a firm's performance. Examples of this work include Robins and Wiserma (1995), Henderson and Cockburn (1994), and Makadok (1999), among many others (Barney & Arikan, 2001). Overall, this work shows that firms that build their strategies on path dependent, causally ambiguous, socially complex, and intangible assets outperform firms that build their strategies only on tangible assets. These results are also generally consistent with expectations outlined Barney's 1991 article. Because this version of the resource-based view focuses mostly on how firms exploit their valuable, rare, and costly to imitate resources and capabilities to generate economic rents, Makadok (2001) calls these resource-based theories "resource picking" theories (Barney, 2001).

According to O'Riordan (2006), the VRIO approach can be used (with some variation) to assess the potential cost of perceived weaknesses in the firm and whether they are placing the firm itself at a disadvantage versus the competition. This approach could possibly represent a challenging exercise in a practical context due to the tautological issues with RBV. A critique that is widely resonating says that RBV is a tautology that fails to fulfill the criteria for a true theory (Kraaijenbrink et. al., 2010). The RBV stands on analytical statements that are tautological, true by definition, and is not able to be tested (Lockett et. al., 2009 and Priem & Butler, 2001a, 2001b as cited in Kraaijenbrink et. al., p.357). The tautological nature of the RBV can be seen in Barney (1991) where he stated 'Resources are valuable when they enable a firm to conceive of or implement strategies that improve its efficiency or effectiveness'. As observed from the statement, there is no way to pre-determine the value of the resources prior to the implementation of the firm's strategy. Only when the strategy is implemented and the results analyzed, the resource can be rightly determined as valuable to the firm.

In the development of a firm's strategy, the executives evaluate their current position with respect to the firm's mission, goals, and strategies. They then continue to scan the organization's internal and external environment to identify strategic factors that might need change. The internal and external events that occur may incur the need to redefine the mission or goals or to formulate new strategies at the different organizational levels (Daft, 2010).

Since Porter's FFM is also referred to as the 'outside-in' approach, where the firm evaluates the industry it wants to enter or it currently in before focusing on its internal processes, it is only natural that much research is done on the relationship of the RBV and the FFM. Most authors compare the resource based view with Porter's Five Forces Model (FFM) and the SWOT analysis because these two environmental models seek to indentify the firm's resources which can exploit opportunities and/or neutralize threats (Mahoney & Pandian, 1992; Barney, 2001; Verity, 2005; Madhani, 2009). Porter's FFM is one of the most popular and effective models for strategy formulation (Daft, 2010). In his model, Porter categorized the industry's underlying structure into five competitive forces that shaped competition which are the threat of new entrants, the threat of substitute products or services, the bargaining power of suppliers, the bargaining power of buyers and the rivalry among existing competitors (Porter, 2008). The resource based view, however, goes more in depth to suggest the additional characteristics these resources must have in order to achieve sustainable competitive advantage (Henry, 2008). The resource based view is often used interchangeably as the 'inside-out' approach where it focuses more on the resources, competencies and capabilities of the firm itself as to the market. The resource based strategy uses the firm's valuable and rare resources strengths and competitive capabilities to deliver value to customers in ways that rivals find it difficult to match (Thompson, Strickland & Gamble, 2010). This means that the firm's internal capabilities are the determinants of the strategic choices that the firm makes in competing in its external environment. There are situations where the firm's capabilities would create new markets and add value for its customers, such as Apple's iPad and Toyota's hybrid cars. In the case of Apple's iPad which is an innovative spin on catering for the bookish consumers, by providing easy access to eBook stores online, matching it with other fun aspects such as gaming, easy downloads for various applications, as well as serving as a communication device with its introduction of FaceTime. Integrating all these features into a single lightweight contraption awed millions of customers worldwide and

However, there are several shortcomings of the RBV. For instance, the VRIN/O criteria proposed by Barney (1991; 2008) have been subject to criticisms that they are neither sufficient nor necessary to explain sustainable competitive advantage (Kraaijenbrink et. al., 2010). This is due to the characteristic of RBV that does not take into consideration the way the management of the firm actually utilizes their resources.

RBV and Competitive Advantage and Value Creation