Firm’s Resource-Based View & Competitive Advantage

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Introduction

The resource-based view of the firm is a theoretical framework that describes how organizations achieve and sustain competitive advantage over a long period of time and the strategy examines strategic competencies as a collection of internal resources that are vital for the creation of competitive advantage. The resource-based view uses two assumptions and one of the assumptions is that there is a heterogeneous distribution of resources within the firm (Penrose, 1959).

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The second assumption is that productive resources are not transferable from one firm to the other without costs being incurred. There are two components of the resource-based view of the firm which are resources and capabilities which have been documented as sources of competitive advantage for a company. Resources can be either tangible or intangible and one of the most important intangible resources of a firm is knowledge. Tangible resources include finance, technology, and human resources while capabilities are the dynamic routines that a firm acquires and they are related to the capacity of the firm to improve organizational effectiveness. This paper will provide a critique of the “Resource-Based View” that provides an assessment of its usefulness as an analytical tool for understanding and developing competitive analysis. The paper will review three scholarly journals and then make a scholarly critique and assessment of the resource-based view.

The resource-based view and value: The customer-based view of the firm

This journal focuses on how the resource-based view can create a competitive advantage by focusing on customer-related values to create unique products and services. To start with, for firms to develop and sustain a competitive advantage they must exploit valuable, rare, and non-imitable resources. Value, rarity, and the ability to remain imitable and un-substitutable are the key characteristics of the resources of any firm. What do these characteristics mean ideally? Value means that any credible resource must enable a company to create a valuable strategy especially strategies that will help it to perform better than the competition. These strategies should also take advantage of the strengths of a company and help it to reduce its weaknesses. The second characteristic of a firm’s resource is a rarity and this means that if a resource has to be valuable, it must be rare (Grant, 2010).

The resource must also be non-imitable meaning that competitors cannot control it. If only one firm can control a resource then it means that the resource will give the firm a competitive advantage and the firm can get a sustained competitive advantage if its rivals in the competitive market cannot replicate that resource. The resource must also be non-substitutable meaning that the competitors cannot get a substitute for those resources. This journal goes ahead to link the value of important resources that create competitive advantage and the value assessments made by customers. If a firm understands the resources its clients prefer, it can easily reorient and focus on those resources that add value to their customers to create customer-oriented value capabilities. The ability to create unique products and services that the competitors cannot offer will definitely attract and retain customers because these unique products and services provide additional value to the customers. This will definitely create a competitive advantage for a firm but the firm must ensure that it has resources that have the qualities that the resource-based view emphasizes.

A Resource-based View of Innovativeness in Small Firms

This journal focuses on the various types of resources and capabilities that can help a small firm to be more innovative and also reviews the various role of the resource-based view in a small business. In recent years, RBV of the firm has become a very effective concept especially because it tries to explain business processes such as strategic management, strategic marketing, financial planning, and accounts. To start with, the resource-based view of the firm is effective in describing corporate ventures especially the integration of resources and competencies in order to improve the performance of firms and help them to create corporate and internal ventures that will in the long run help a firm to achieve and sustain competitive advantage. Secondly, resource based view of the firm can also used to develop the human resources of a firm which are one of the most sources of competitive advantage for a firm. Firms use the RBV to develop a HR architecture using the internal development, acquisition and alliance modes and the human capital that comes out the skill development process aided by the resource based view is called the social architecture.

Knowledge of the research based view helps firms to understand the strategic importance of HR and this makes them to invest in human capital enhancement processes in order to achieve and sustain the much needed competitive advantage. Thirdly, RBV of the firm is used in portfolio management because if a firm has to improve its financial position firms usually divest businesses that are not related in the face of product market uncertainties but end up acquiring businesses that are not related when there is no threat of product market uncertainties and this a role played by the resource based view of the firm. The RBV of the firm also helps to explain the determinants of capital structure and according to this view, resources that are highly specific and opaque have adverse effects on the financial leverage of the firm while transparent strategies significantly impact on a firm’s financial leverage. The resource based view is also important in the aspect of innovation which is another resource and capability of a firm. It can also be used to explain international entry modes because a firm know how determines the collaborations a firm prefers when it is going global.

Sustainable Competitive Advantage through Information Technology Competence: Resource-Based View on Small and Medium Enterprises

In the resource based view, competitive advantage can be created using the strategies that create value (Pascal, 1992). Those strategies must be unique and inaccessible to current and future competitors. Competitive advantage becomes sustained competitive advantage when the rivals in the market fail completely to render the competitive advantage of a company redundant though there are other views that claim that sustained competitive advantage arises when a firm provides above average returns for a long period.

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It is impossible to talk about resource based view without reflecting on competitive advantage (Oliver, 1997). The resources that the firm has at its disposal help it to achieve and sustain a competitive advantage and since the resource based view is all about how firms can utilise their resources to improve their performance in the competitive market, RBV can therefore be used help firms achieve competitive advantage. The major issue in the resource base view is the ability of a firm to combine resources that competitors cannot access or possess and the strength of a company’s competitive advantage depends on the inability of its competitors to access similar resources, their inability to provide substitutes or their inability to duplicate those resources.

The resource based view has managed to perfectly explain the sustainability of competitive advantage using the unique traits of the resources that a company or a firm has at its disposal. To achieve competitive advantage there are three conditions that a set of resources must meet in order to generate greater returns and more value than the shareholders expect. These conditions are value uncertainty, resource uniqueness and firm level innovation because profitable firms combine and develop resources during times of uncertainty (Grant, 2010). According to this journal, ICT is one of the contemporary resources that can help a firm to create and sustain competitive advantage because this resource helps a firm to improve its efficiency and effectiveness. However, ICT as a resource lacks some of the qualities that make a resource a source of competitive advantage because it can be easily accessed and imitated by competitors. ICT is highly tradable though the resource can still generate sustainable competitive advantage if a firm employs a highly ICT literate workforce because the skills of human capital are non imitable. However, it is hard for Small and Medium enterprises to achieve and sustain competitive advantage using ICT because the cost of ICT is highly prohibitive for these entrepreneurs.

Advantages and disadvantages of the three journals

The first journal focuses on creating competitive advantage using customer oriented values and capabilities. The main advantage of the perspective of this journal is the inclusion of the customer because the customer is the backbone of every business. Understanding the needs of the customers and creating resources that respond to their needs can create a competitive advantage for any firm. However, this journal focuses much on the customers at the expense of other stakeholders in the form like the owner of the business and the external stakeholders. Quality competitive advantage can only be created if a firm uses a value that responds to the needs of all the stakeholders in a firm.

The second journal focuses on how the resource based view can help firms to create competitive advantage through innovation. The main advantage of this journal is that it can help managers and business owners to manage different levels of resources and capabilities to create innovative strategies that can help the businesses to achieve competitive advantage (Nelson, 1982). It also highlights the role of RBV in helping businesses to understand how they can operate and perform better in competitive markets. However, the journal has one disadvantage ; it does not clarify how firms can generate resources and create capabilities. Its perspective does not integrate vital business concepts because one theory is not enough to explain business relationships which are valuable competitive strategies.

The third journal focuses on the on how resources can be used to create competitive advantage in a firm and it pays close attention to the role of technology. The advantage of this journal is that it focuses on one of the most important contemporary resource that any firm must have to remain competitive. The Journal realises that the modern day business environment is driven by information meaning that ICT is an indispensable resource. The main disadvantage of the journal is that the resource it focuses on does not have some of the qualities that provide competitive advantage because ICT is highly tradable and duplicable. Still, the journal does not explain how small and medium enterprises in emerging economies can succeed in the globalised market through the use of ICT as a competitive resource.

Conclusion

This paper has therefore given a scholarly overview of three journals dealing with the resource based view of a firm. The paper has also examined three conditions that a set of resources must meet in order to generate greater returns and more value than the shareholders expect. These conditions are value uncertainty, resource uniqueness and firm level innovation because profitable firms combine and develop resources during times of uncertainty. Finally , the paper has also analysed some of the areas that the resource based views can be applied to improve organisational performance and to ensure that the resources of any firm are effectively managed to ensure maximum returns.

References

Grant, R. M. (2010). Contemporary Strategy Analysis. Oxford: Blackwell.

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Nelson, R. (1982). An Evolutionary Theory of Economic Change. Cambridge. MA: Belcamp Press.

Oliver, C. (1997). Sustainable competitive advantage: Combining institutional and resource-based views. NY: Willey.

Pascal, R. (1982). The Art of Japanese Management. London: Allen Lane.

Penrose, E. (1959). The Theory of Growth of the Firm. Oxford: Blackwell.

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BusinessEssay. (2021) 'Firm's Resource-Based View & Competitive Advantage'. 1 December.

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BusinessEssay. 2021. "Firm's Resource-Based View & Competitive Advantage." December 1, 2021. https://business-essay.com/firms-resource-based-view-and-amp-competitive-advantage/.

1. BusinessEssay. "Firm's Resource-Based View & Competitive Advantage." December 1, 2021. https://business-essay.com/firms-resource-based-view-and-amp-competitive-advantage/.


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BusinessEssay. "Firm's Resource-Based View & Competitive Advantage." December 1, 2021. https://business-essay.com/firms-resource-based-view-and-amp-competitive-advantage/.