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Resource Based View

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170 views

Resource Based View

Uploaded by

pankaj Telang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Resource Based View

Definition

The resource-based view (RBV) is a model that sees resources


as key to superior firm performance. If a resource exhibits
VRIO attributes, the resource enables the firm to gain and
sustain competitive advantage.
 RBV is an approach to achieving competitive advantage that emerged in

1980s and 1990s, after the major works published by Wernerfelt, B.


(“The Resource-Based View of the Firm”), Prahalad and Hamel (“The
Core Competence of The Corporation”), Barney, J. (“Firm resources and
sustained competitive advantage”) and others.
 The supporters of this view argue that organizations should look inside

the company to find the sources of competitive advantage instead of


looking at competitive environment for it.
 The core idea of the theory is that instead of looking at the competitive

business environment to get a niche in the market or an edge over


competition and threats, the organisation should instead look within at
the resources and potential it already has available.
According to RBV proponents, it is much more feasible to exploit external
opportunities using existing resources in a new way rather than trying to acquire
new skills for each different opportunity. In RBV model, resources are given the
major role in helping companies to achieve higher organizational performance.
There are two types of resources: tangible and intangible.
Types of Resource
Within an RBV model, there are two main types of resource (assets), which
will likely be familiar to accountants and financial specialists:
 Tangible assets are physical things. Land, buildings, machinery, equipment

and capital – all these assets are tangible. Physical resources can easily be
bought in the market so they confer little advantage to the companies in the
long run because rivals can soon acquire the identical assets.
 Intangible assets are everything else that has no physical presence but can

still be owned by the company. Brand reputation, trademarks, intellectual


property are all intangible assets. Unlike physical resources, brand reputation
is built over a long time and is something that other companies cannot buy
from the market. Intangible resources usually stay within a company and are
the main source of sustainable competitive advantage.
Assumptions of RBV
 Heterogeneous

 This first major assumption is that resources, skills and capabilities must

vary significantly from one organisation to another. If these organisations


had the exact same set of resources and individuals, they would not be
able to employ varying strategies in order to compete with one another,
as other organisations would be able to follow them step-by-step (known
as "perfect competition").

 Perfect competition does not exist in the real world - companies may be

exposed to the exact same competitive and external forces, but they are
still able to formulate different strategies to compete with one another.
 The competition between Apple Inc. and Samsung Electronics is a good

example of how two companies that operate in the same industry and
thus, are exposed to the same external forces, can achieve different
organizational performance due to the difference in resources. Apple
competes with Samsung in tablets and Smartphone's markets, where
Apple sells its products at much higher prices and, as a result, reaps
higher profit margins. Why Samsung does not follow the same strategy?
Simply because Samsung does not have the same brand reputation or is
capable to design user-friendly products like Apple does. (heterogeneous
resources)
 Immobile

The second assumption of RBV is that resources are not mobile and do
not move from company to company, at least in short-run. Due to this
immobility, companies cannot replicate rivals’ resources and implement
the same strategies. Intangible resources, such as brand equity, processes,
knowledge or intellectual property are usually immobile.
VRIO
Although possession of heterogeneous and immobile resources is crucial
to organizational success, it is not alone if they wish to sustain this
competitive advantage. Barney (1991) identified a framework for
examining the key properties of resources and organizations (VRIO).
These criteria were altered later by other leadership thinkers, and the new
acronym VRIO was developed. This stands for:
 Valuable

Resources are valuable if they can help to increase the value of the service
or product supplied to customers or others reliant on the organisation. This
can be improved by increasing differentiation, decreasing the cost of
production, or other general modifications to improve the quality and worth
of the service. Any resources that do not meet this condition may lead to a
competitive disadvantage.

 Rare

Any resources - both tangible or intangible - which can only be acquired by


one or very few organizations, may be considered rare. If organizations
have the same resources or capabilities, this can result in competitive parity.
 Low Imitability

If an organisation holds resources which are valuable or rare, they can at


least achieve a competitive advantage in the short-term. However, to
sustain this advantage the resources need to be costly to imitate or
substitute, or else rivals may begin to close the gap by obtaining the same
or similar resources.
 Organized to capture value

Resources do not necessarily convey a competitive advantage - if the


organisation, its systems and its processes are not designed to exploit the
resource to its fullest, then it cannot hope to gain a competitive advantage.
This could refer to not utilizing talented or knowledgeable individuals in
the correct department or role, or not fully building campaigns that utilize
the organisation's positive reputation, amongst many other examples.
VRIO example
Google's VRIO capability

Excellent employee management

Valuable? Rare? Costly to Is a company organized to


Imitate? exploit it?
Yes Yes Yes Yes

Result: sustained competitive advantage


 Google’s ability to manage their people effectively is a source of both

differentiation and cost advantages. Unlike other companies, which rely


on trust and relationship in people management, Google uses data about
its employees to manage them.
 This capability allows making correct (data based) decisions about which

people to hire and the best way to use their skills. As a result, Google is
able to hire innovative employees that are also very productive ($1
million in revenue per employee).
 Besides being valuable, it is also a rare capability because no other

company uses data based employee management so extensively. Is it


costly to imitate? It is costly to imitate, at least, in the near future.
 First, companies should build the highly sophisticated software, which is

both costly and hard to do. about its employees.


 Second, HR managers should be trained to make data based decisions

and forget their old management methods.


 Is Google organized to capture value from this capability? Certainly, it

has trained HR managers that know how to use the data and manage
people accordingly. It also has the needed IT skills to collect and manage
the data.

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