Resource Based View Flashcards
What is the Resource Based View and what does it analyse?
(a) It “suggests that differences in firm performance are most fundamentally driven by differences in firm resources and capabilities” (Peng, 2014).
(b) Assesses the internal strengths and weaknesses of a business.
(c) “A basic proposition of the resource-based view is that a firm consists of a bundle of productive resources and capabilities; how firms bring together resources and capabilities is crucial”
Resources and Capabilities
(a) Resources are “the tangible and intangible assets a firm uses to choose and implement its strategies” (Peng, 2014).
(b) Capabilities relates to a “firms capacity to dynamically deploy resources” (Peng, 2014)
These can be either:
Tangible - “easy to observe and more easily quantified resources and capabilities e.g. financial, physical and technological R&C’s”.
Intangible - “hard to observe and difficult to codify e.g. HR, innovation and reputation R&C’s”
Sustained Competitive Advantage
A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy” (Barney, 1991:102).
VIRO framework
This is an extension of SWOT analysis, the VIRO framework focuses upon the value, imitability and organisational aspects of resources and capabilities (Peng, 2014:71).
The “question of value”
This asks, “does a firms resources and capabilities add value?”
(a) Principally, only value-adding resources can manufacture a competitive advantage.
(b) Firms attributes may have other characteristics e.g. rareness, imitability etc. but these only become resources when they exploit or neutralise opportunities and threats i.e. become valuable (Barney, 1991)
(c) “Whatever business you’re in, it’s going to commoditise over time, so you have to keep moving to a higher value and change” (Peng, 2014)
The “question of rarity”
This asks “how rare are resources and capabilities?” (Peng, 2014)
(a) “At best, valuable but common resources and capabilities will lead to competitive parity but not an advantage…valuable and rare resources and capabilities have the potential to provide some temporary competitive advantage” (Peng, 2014)
(b) “In general, as long as the number of firms that possess a particular valuable resource is less than the number of firms need to generate perfect competition dynamics in an industry, that resource has the potential of generating a competitive advantage” (Barney, 1991:107).
The “question of imitability”
This considers that “valuable and rare resources can only be a source of competitive advantage if competitors have a difficult time imitating them. “
3 reasons for imitability:
1) Unique historical conditions: RBV asserts firms are intrinsically historical and social entities and their ability to acquire and exploit resources depends upon their place in time and space. Once, this particular time in history passes, firms that do not possess space and time resources cannot obtain them. Thus, resources become imperfectly imitable’ (Barney, 1991)
2) Casual ambiguity i.e. the difficult of identifying the causal determinants of successful firm performance, make imitation difficult.
3) Social Complexity i.e. firms resources may be a very complex social phenomena and therefore hard to imitate (Barney, 1991) e.g. organisations are organised in socially complex ways; multinationals consist of thousands of people across many countries (Peng, 2014).
4) Substitutability i.e. there must be no strategically equivalent resources that are themselves either not rare nor imitable (Barney, 1991).
Crucially, what were resources in a previous industry setting, may be weaknesses or irrelevant in a new one” (Barney, 1991:103). Thus, only valuable, rare and hard-to-imitate resources and capabilities may potentially lead to sustained competitive advantage.
The “question of organisation”
This ask, “how can a firm be organised to develop and leverage the full potential of its resources and capabilities?” (Peng, 2014).
Key aspects:
(a) Complementary assets: “noncore assets that complement and support the value-adding activities of core assets”
Emerging markets illustrate the ambidexterity to manage both market and government forces simultaneously - complementary assets are crucial in harnessing both market based and non-market based to navigate the competitive waters.
Which is better Industry or Resource based views?
While industry-based studies have used more observable proxies such as entry barriers and concentration rations, resource-based studies have to confront the challenge of how to measure unobservable firm-specific capabilities. Therefore, there is good reason to believe that it is the combination of both industry specific and firm-specific attributes that collectively drive firm performance
