The success of strategy formulation is dependent on a myriad of factors. The multiplicity of these factors makes strategy formulation a relatively challenging exercise especially in cases where an organization does not have resources that give it a competitive edge. Due to these problems, theorists came up with numerous theories to guide organizational planners and managers in devising practical and sustainable strategies that emerge as bases for organizational success. The Resource-Based theory is one of these theories for strategy formulation. The Resource-Based theory attempts to maximize the use of the resources within an organization to the building of competitive advantage (Bourne, 2002, p. 1). The subset of these resources that is most instrumental in strategic planning includes core competencies and distinctive capabilities. In this essay, we discuss the relevance of a resource based perspective, including the concepts of core competencies and distinctive capabilities, in the context of the strategic planning of Information Systems and Technology.
Resource based perspective
The Resource-Based (RB) theory of organizational strategy and performance revolves around the internal capabilities of an organization (Russo & Fouts, 1997, p. 536). That is, the RB theory formulates strategies by first looking at the resources that are in the possession of the organization and then it appraises the capability of the resources to be invested in revenue generation and finally, it comes up with a strategy for using these resources maximally and sustainably (Grant, 1991, p. 1). The resource based perspective was developed due to the weakness in the pre-existent strategy method that only considers the characteristics of the industry and the positioning of the organization within the industry. This approach was weak due to the fact that an organization’s position in the industry depends on the resources that are present in the organization. In addition to this, a lot of research and studies have been conducted to prove the relationship between the performance of an organization and the industry but none have proved a valid relationship (Grant, 1991, p. 3). With the introduction of this strategy formulation theory, the vague link of an organization to its environment has been ignored in formation of strategies (Foss, 1996, p. 537). In this case, resources refer to the inputs that are used in production. They are the ones that are critically analyzed to help in deducing what an organization is capable of doing and the production opportunities the company has. These resources include employees, equipment, patents etc. This description of the resource based theory of strategic planning reveals the fact that this theory advocates for a balance between the scope of ability of the organization and its scope of opportunities (Dutta, 2003, P. 17).
Previous ideas held concerning the resource based theory and its use in strategic planning put undeserved emphasis on the internal analysis of firms. However, a different theory was developed by Hart in 1995 to increase the span of the resource based theory to include opportunities offered by the environment and the constraints imposed by the same (Hart, 1995, p. 1).
The resource based perspective classifies resources as personnel-based, tangible and intangible. In the tangible category, there are physical resources like equipment, stock, plants etc. and financial reserves. On the other hand, intangible resources are composed of resources like technology, human resources and reputation. The third category of resources is stated as human resources. This refers to the resources that exhibit themselves in terms of manpower. They include technical skills, leadership skills, supportive human resources etc. The definition of resources, therefore, touches physical resources, core competencies and distinctive capabilities. Let us have a look at the last two (Alvarez & Busenitz, 2001, p. 3)
Core competencies refer to the knowhow of the organization in its line of venture. Core competency is very essential in strategic planning since it gives planners the information about the operational success of strategies laid down (Chuang, 2000, p. 12). Its integration in strategic planning could prove to be challenging especially given the fact that there is no standard measure/ scale for competence. It is thus necessary for organizations to set out policies related to evaluation of competence in order to maximize the contribution of core competence to strategic planning. With identified competence, carefully selected placement and availability of other resources necessary for planning, an organization is likely to develop strategies that will completely transform it. Core competencies are a subset of organizational resources and thus they form part of resource-based strategic planning (Prfahalad & Hamel, 1990, p. 9).
Distinctive Capabilities are the most importance organizational resources that are capable of providing the firm with a competitive advantage (Kay, 1993, p. 31). Capabilities are said to be distinctive if the capabilities originate from characteristics of the firm which other firms do not have. They normally occur in cases where the organization possesses resources, mostly knowledge based, in which they enjoy some kind of monopoly. This is very evident in the Information Systems and Technology industries since these sectors are characterized with a lot of innovation and creativity. Thus if an organization possesses distinctive capabilities in these industries, it will be able to continually innovate and invent products that are not in the market and thus it will have a competitive advantage over other firms in these industries. The usefulness of distinctive capabilities is indubitable but the possession of a distinctive capability does not guarantee success. A distinctive characteristic must be appropriable and it must also be sustainable for it to translate to success. It must be appropriable for the primary benefit of the organization and sustainable to ensure that it is able to maintain stable positive effect on productivity. Thus distinctive capabilities being a part of an organization’s internal resources are very instrumental in achieving a competitive advantage and thus can be very useful in strategic planning (Kay, 1993, p. 19).
Relevance of a resource based perspective in strategic planning of Information Systems and Technology
The contribution of resource-based theories in strategic planning is indubitably massive. Resource-based strategic planning is applicable in virtually all organizations since each and every organization must have certain resources in order for it to be successful in its business. Resource-based strategic planning is thus very essential in the identification of the potential of an organization and thus it gives practical strategic plans (Bharadwaj, 2000, p. 169).
The Information System and Technology part of any organization is characterized by a number of overly sensitive resources that need serious consideration before any organizational strategies are made. In virtually all organizations, processes are carried out based on a massive Information System. This implies that, the functionality of an organization process wise may be dependent on a single Information System and the Technology that support it. This means that, care has to be taken when strategizing for Information Systems and Technology. The organization must analyze the Information System resource(s) that it has and see if the system’s built-in resources help the organization to achieve operational efficacy. Sufficient information must also be obtained to ensure that the Information and Technology needs created by organizational growth are catered for. This will be done by comparing the Information Systems and Technology resources present with the resources that satisfy the Information System and Technology needs of the grown organization. This proves the fact that the resource-based strategic planning is very relevant in the strategic planning of Information Systems and Technology (Caldeira & Ward, 2001, p. 3).
With reference to the definition of resource-based strategizing that integrates the environment, it will be necessary for organizations to be performing regular reconciliations of the delivery processes of the organization with the changes that normally occur in the environment. Consider for example, the dynamic nature of Information Systems and Technology (Love, 1999, p. 3). Since these resources in the organization are normally dynamic and their changes may have effects on the organization, it is of essence that Information Systems and Technology in an organization be appraised constantly to ensure that it is up to date and that it satisfies the needs of the organization. The organization may also keep a keen eye on the technology environment to see if new Technologies and Information Systems appear which they can monopolize. This is because, if an organization is able to monopolize a given technology that is more productive than the existing technology, the organization will perform better than its counterparts and thus it will have a competitive edge, Therefore, the definition of the resource-based theory that considers the effect and contribution of the environment in strategic planning is very relevant in the strategic planning of Information Systems and Technology (Bamford, 2005, p. 23).
Core competencies form a very important aspect of resource-based strategic planning. They enable the organization invent and exploit markets, invent fantastic products, devise ways of achieving higher customer satisfaction etc. This means that core competencies are a great determinant of the success of any organization. A focus on development of core competencies enables an organization develop unique systems that are inimitable and that enable diverse production and use of appropriate technology and Information Systems (Cappelli & Crocker, 2003, p. 23). With the presence of core competencies, an organization is able to venture into new businesses with higher prospects of success since the strategies formulated in such an organization are characterized with professionalism and accurate predictions. Companies may also learn with experience to harmonize various technologies to their advantage. If this is followed by research and training, a higher level of core competence is achieved and this leads to even better technology and technological strategies. This translates to higher productivity and unique and more efficient Information Systems and Technology. The area of technology and Information Systems requires a lot of competence (Prahalad, 1993, p. 13). The presence of competent Information System and Technology personnel within an organization could draw the thin line between profits and losses. Consider for example a company whose Information System personnel are not competent enough. In the case of a system breakdown, the company may be forced to halt operations until it gets an adequately competent individual to solve the problem (Prahalad & Hamel, 1990, p. 11). This will result to low performance that will affect the financial welfare of the company. Likewise, a company that does not have sufficiently competent individuals in Information Systems may be forced to buy off-the-shelf software instead of developing custom software that fits their needs. This will lead to redundant functionalities, high costs of acquisition of Information System and, possibly, absence of important functionalities. This could affect the performance of the company substantially (Scarbrough, 1998, p. 35). Organizations should ensure that they have core competencies in them to increase their strategic options. For instance, a company that has core competencies in Information Systems and Technology will most probably be getting strategic suggestions for Information Systems and Technology even without the decision to develop plans. It has been clearly shown that core competencies are relevant in the strategic planning of Information Systems and Technology. The fact that core competence is a component of organizational resources proves the relevance of resource-based strategic planning on the strategic planning of Information Systems and Technology (Prahalad, 1993, p. 13).
As stated in the Distinctive Capabilities definition section, distinctive capabilities are very instrumental in achieving and maintaining competitive advantage in an organization (Henry, 2005, p. 134). This is made possible by the fact that distinctive capabilities unify an organization and hence their products have unique attributes. In the Information System and Technology industry, distinctive capabilities have the greatest contribution to the achievement of competitive advantage. This is because market for Information Systems and Technology products is filled with enthusiasm to balance the acquisition of new technology products with improvement in performance. Thus if an organization has distinctive capabilities and it uses them to develop unique products whose performance is not compromised, the organization will have guarantee to success. Consider Apple for example. The company has been able to use its innovative capability to develop products that have given it a commendable competitive advantage. This constant product innovation has made competitors struggle to imitate Apple products and thus it has kept Apple ahead of its competitors (Halawi, Aronson & McCathy 1998 p. 21). It is therefore evident that distinctive capabilities being a part of an organization’s internal resources are highly relevant in strategic planning. Their relevance in strategic planning in the Information System and Technology industries is also illustrated.
Difficulties in introduction of these concepts
It has been argued substantively that the resource-based theory of strategic planning does not have sufficient details to aid its implementation. Thus an organization wishing to implement the resource-based perspective in strategic planning is likely to face insurmountable problems in minor details of implementation of the theory. For instance, the theory does not clearly define the importance to be attached to specific resources in strategic planning due to the non-uniformity of these resources in organizations. For instance, an organization may have core competencies and distinctive capabilities and therefore it may experience problems related to strategic implementation by being in a dilemma to determine which of the two resources they should give priority to. These problems in the identification of the most important resource in strategy formulation may lead to under-utilization of resources (Gill, 2006, p. 182).
The theory does not a clear description of what distinctive capabilities are. An organization implementing a resource-based perspective in its strategic planning may wrongly identify a capability within it as a distinctive capability. The definition of distinctive capability in the resource-based theory of strategic planning just highlights the necessity that the capability must be unique to the organization for it to be distinctive. Consider a situation in which an organization possesses a capability that its competitors lack and the capability is not productive. If such an organization bases its strategy on the distinctive capability resource, it will lead to investment of resources in strategies based on an unproductive resource and thus this will lead to losses (Bill, Stonehouse & Campbell, 1999, p. 39).
Lastly, strategies may be formulated based on the assumption that core competencies will exist for a long time. If such competencies disappear within the course of the business, the strategies may turn to be inappropriate for the organization. This may lead to the need for the organization to form different strategies. This will lead to diversion of some resources from production to strategy formation. Thus the overall productivity of the organization will be affected (Ghosh, Liang, & Chan, 2001, pp. 1 – 2).
Solutions to these difficulties
The solution to the problems related to implementation of resource-based strategies depends on the extent to which the workers of an organization know the organization. For instance, the problem stemming from the misidentification of distinctive capabilities will not exist if the people who strategize know what capabilities are bound to bring innovative products to the organization. It can also be solved by carrying out a careful analysis of capabilities to determine their potential. In the latter case, capabilities will only be utilized in strategizing if they are proved to be productive enough (Olalla, 1999, p. 43).
Secondly, consider the problem arising due to the insufficient implementation details in the resource-based approach to strategic planning. This problem, which occurs due to the diversity in the characteristics and potential of resources held by organizations, can be solved by conducting an extensive research to determine the strategic resources of the organization and formulating implementation details that are appropriate for the particular organization. The effect of the lack of implementation details in the resource based approach to strategy formulation may also be mitigated by ensuring that resource-based strategies are holistically designed to include step by step implementation details (Conner & Prahalad, 1996, p. 1).
Next, consider the problem posed by the uncertain availability of core competencies in the organization for a long time. The situation can be improved by implementing periodic training programs for personnel to make sure that employees are always conversant with the businesses of the organization (Olalla, 1999, p. 57). This will, in turn, make the organization able to predict existence of core competencies for a long period of time and thus strategies can be implemented without fear of lack of core competencies.
The Resource-Based theory has revolutionized strategic management by challenging the ideas of selection and positioning that make organizations’ strategies conflict. To challenge these ideas which have led to similar strategies across industrial platforms, the resource-based theory of strategic planning explores organizational resources as a means of attaining competitive advantage. In the essay we explored resources, distinctive capabilities and core competencies and their effect on strategic planning of Information Systems and Technology. We also explored the effect of resources, distinctive capabilities and core competencies on competitive advantage (Geoffrey, 2009, p. 1).
From the essay, it has been proved that internal organizational resources, core competences of the organization and distinctive capabilities are all important assets for achieving competitive advantage which is desirable to every organization due to its direct effect on productivity. It has also been evidenced that the three mentioned aspects of an organizations are tools of utmost importance to strategic planning especially the strategic planning of the Information Systems and Technology due to the dynamic nature, innovative nature and creativity that is characteristic of the Information Systems and Technology industries (Henry 2005, p. 148). Conclusively, it has been shown that although core competencies and distinctive capabilities are a part of the internal resources of an organization, their contribution towards organizational competitive advantage and strategic planning of Information Systems and technology is so massive that the two deserve individual analyses of contribution. It is thus of essence for organizations to analyze their core competencies and distinctive capabilities whenever they have a strategic planning exercise.
Alvarez, S. & Busenitz, L. (2001).The entrepreneurship of resource-based theory. Web.
Bamford, C. (2005). Creating a Technology-Based Entrepreneurial Economy: A Resource Based Theory Perspective. Web.
Bharadwaj, A. (2000). A Resource-Based Perspective on Information Technology. Web.
Bill, H., Stonehouse, G., Campbell, D. (1999). Business Strategy.Web.
Bourne, M. (2002). Resource-based perspective.Web.
Caldeira, M. & Ward, J. (2001). Using Resource-Based theory in adoption of Information Systems and Technology. Web.
Cappelli, P., Crocker, A. (2003). Distinctive human resources are firms’ core Competencies. U.S..Barnes & Global.
Chuang, S. (2000). Resource-based perspective. [Web.
Conner, K. & Prahalad, C. (1996). A resource-based theory of the firm. Web.
Dutta, S. (2003). Pricing process as a capability. Web.
Foss, N. (1996). Knowledge-based Approaches to the Theory of the Firm. Web.
Geoffrey, J. (2009). Core Competence. Web.
Ghosh, B., Liang, T. & Chan, B. (2001). Distinctive Capabilities. Web.
Gill, R. (2006). Theory and practice of leadership.Web.
Grant, R. (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. Web.
Hart, S. (1995). A natural resource-based view of the firm. Oxford. Balckwell Publishing.
Halawi, L., Aronson, J. & McCathy, R. (1998). Resource-Based view of Knowledge Management. Web.
Henry, M. (2005). The Internal Environment: A Resource-Based View of Strategy. Web.
Kay, J. (1993). Foundations of corporate success, Oxford University Press.
Love, L. (1999). Distinctive competencies and competitive advantage. Web.
Olalla, M. (1999). The resource-based theory and human resources. Netherlands. Springer.
Prahalad, C. (1993). The role of core competencies in the corporation, New York. Barnes& Global.
Prahaland, C. & Hamel, G. (1990). The Core Competence of the Corporation. U.S. Harvard.
Russo, M & Founts, P. (1997). A Resource-Based Perspective on Corporate Environmental Performance and Profitability, Web.
Scarbrough, H. (1998). Path(ological) Dependency? Core Competencies from an organizational perspective. U.K. University of Warwick.