The Resource Based View of the Firm

8/13/2019 The Resource Based View of the Firm

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T HE RESOURCE BASED V IEW OF THE F IRM


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INDUSTRIAL O RGANIZATION (IO)

IO is a branch of microeconomics that seeks totheorize and explain the economic behavior offirms, as individual entities, within market structuresand in reaction to public policies.Takeovers and mergers, deregulation andprivatization, the increasing globalization ofcompetition and political concerns regardingnational competitors are issues that sit squarelywithin the domain of IO

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INDUSTRIAL O RGANIZATION VS . RBVIndustrial Organization (IO) Resource Based View (RBV)

Some Authors: Porter, Rumelt Barney, Wernerfelt

Focus External describes environmentalconditions favoring high levels of firmperformance

Internal describes firms internalcharacteristics and performance

Assumptions: Firms within an industry have identical

strategic resources.Resources are highly mobile (easily boughtand sold) and therefore homogeneous.

Firms have idiosyncratic, not

identical strategic resources.Resources are not perfectly mobileand therefore heterogeneous.

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RESOURCE B ASED VIEW

Relationships between a firms resources andcompetitive advantage

An organization can be regarded as a bundle ofresources and that resources are simultaneously

valuable, rare, imperfectly imitable and nonsubstitutable. (Barney, 1991 & 2002)VRIN or VRIO framework

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S USTAINABLE C OMPETITIVE ADVANTAGE

An asset is anything the firm owns or controls.Loosely, Asset is to Accounting as Resource is toManagement.

Types of assets:Physical : plant equipment, location, access to rawmaterialsHuman : training, experience, judgment, decision-makingskills, intelligence, relationships, knowledge

Organizational : Culture, formal reporting structures,control systems, coordinating systems, informalrelationships

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A capability is usually considered a bundle of assets or resourcesto perform a business process (which is composed of individualactivities)

All firms have capabilities. However, a firm will usually focus oncertain capabilities consistent with its strategy.

For example, a firm pursuing a differentiation strategy would focuson new product development. A firm focusing on a low cost

strategy would focus on improving manufacturing processefficiency.

The firms most important capabilities are called competencies. 6


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DEFINITIONS

A competency is an in ternal capabi l i ty that acompany performs better than other internalcapabilities.

A core com pe tency is a well-performed internalcapability that is centra l , not peripheral, to acompanys s t ra tegy, co m pet i t iveness , andprof i tab i l i ty .

A dis t inc t ive co m pe tence is a compet i t ive lyvaluable capabi l i ty that a company pe r fo rmsb etter than i ts r ivals .

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EXAMPLES : D ISTINCTIVE C OMPETENCIES

Toyota, Honda, NissanLow-cost, high-quality manufacturing capability and shortdesign-to-market cycles

Intel Ability to design and manufacture ever more powerfulmicroprocessors for PCs

SamsungDefect-free manufacture (six-sigma quality) of cell phones

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WHERE ARE WE ?

We are discussing sustainable competitiveadvantage, and have defined Competencies:

Assets Capabilities Competencies Competitive Advantage

Next is competitive advantage. A competitive advantage is simply an advantage youhave over your competitors.

A competency will produce competitive advantageprovided:

A) it produces value for the organization, andB) it does this in a way that cannot easily be pursued by

competitors .

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However, we said the primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA).

To produce SCA, the capability must:1. Produce value

2. Be rare3. Imperfectly imitable, i.e. not be easily imitated or substituted4. Be exploitable by the organization

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NOTES ON SUSTAINABLE

Sustainable is not measured in calendar time.Sustainable does not mean the advantage will lastforever.

Sustainable suggests the advantage lasts longenough that competitors stop trying to duplicate thestrategy that makes the advantage sustained.

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1. The Question of Value :Capabilities are valuable when they enable a firm to conceive ofor implement strategies that improve efficiency andeffectiveness.Value is dependent on type of strategy:

Low cost strategy: lower costs (Timex)Differentiator: add enhancing features (Rolex)

To be valuable, the capability must eitherIncrease efficiency (outputs / inputs)

Information system reduces customer service agents required, orincreases the number of calls the same number of agents can answer

Increase effectiveness (enable some new capability notpreviously held)Opening a new regional campus enables outreach to a new market ofstudents

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2. The Question of Rareness :Valuable resources or capabilities that are shared by largenumbers of firms in an industry are therefore not rare, andcannot be a source of SCA.Given the following, which are rare?

A web server An MIS instructor A state-of-the-art stamping press

None of these are rare. Some researchers think onlyorganizational assets or resources are rare (such as culture).What do you think?

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3. The Question of Being ImitableValuable, rare resources can only be sources of SCA if firms that donot possess them cannot obtain them. They must be imperfectlyimitable, i.e. impossible to perfectly imitate them.

Ways imitation can be avoided:Unique Historical Conditions Causal Ambiguity (why resources create SCA is not understood,even by the firm owning them)

Imitating firms cannot duplicate the strategy since they do notunderstand why it is successful in the first place.

Social Complexity (trust, teamwork, informal relationships, causalambiguity where cause of effectiveness is uncertain)E.g. A competitor steals all the scientists in an R&D lab andrelocates them to a new facility. But, the dynamics, culture andatmosphere are not the same.

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4. The Question of SubstitutabilityThere must be no equivalent resources that can beexploited to implement the same strategies.Forms of substitutability:

Duplication : Although no two management teams are thesame, they can be strategically equivalent, produce the sameresults.Substitution : Very different resources can be substitutes, e.g.

A charismatic leader with a clear vision vs. a strategic planning

dept. A superior marketing strategy for a recognized brand name. A superior technical support group for an intelligent diagnosticsoftware package

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S USTAINABLE C OMPETITIVE ADVANTAGE 5. The Question of Exploitation:

Later research qualified this as another criteria for SCA. Is afirm organized to exploit the full competitive potential of itsresources and capabilities?

Are systems in place to enable firms to support the executionof a particular strategy?Xerox, e.g

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ECONOMIC P ERFORMANCE

Valuable? Rare?

Cost ly toImitate?

Exploi ted by theOrganizat ion? Compet i t ive

Impl ica t ions Econom i cPer formance

No -- -- -- CompetitiveDisadvantage Below Normal

Yes No -- -- CompetitiveParity Normal

Yes Yes No --TemporaryCompetitive

Advantage Above Normal

Yes Yes Yes YesSustainedCompetitive

Advantage Above Normal

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M ARKET S HARE TELECOM C OMPANIES IN P AKISTAN

Mobilink ; 37%Ufone ; 21 %Telenor ; 20 %

Warid ; 17 %Zong ; 5 %

The Resource Based View of the Firm

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