Strategic Management And Resource Based View Management Essay
The relationship between firm’s resources and performance has been a theory for strategic management. RBV analysis assumes that resources and capabilities are two important elements for achieving superior firm performance. The criteria for these strategic resources should be valuable, rare, inimitable and non-substitutable. However, they claim that resources are not productive by themselves. The firm’s management must be capable of deploying the resources effectively and efficiently. Capabilities dimension and a flexible organisation help a firm to outperform others. Nevertheless, RBV have its demerits too. There are critiques that RBV’s value of resources is not useful for firm. Additionally, there is argument that the value of RBV should be determined exogenously. Another critique is that RBV is not sufficient for achieving sustainable competitive advantage. Further development for RBV can help to save the reputation of RBV in a firm. For instance, human imagination should be brought into the centre of RBV. Some claim that a firm’s strategy should align with the environment where the firm are operating. This can be performed using the Porter’s framework. RBV support the view that resources use and capabilities developed are hard to imitate by rivals. The firm can achieve core competence by developing expertise and resource strengths, being a low cost provider or focus on niche market.
Ironically, RBV analysis has not been fully achieved in the field of strategy development. Instead, a firm can be more successful in performance if they implemented coordination between RBV and other competitive analysis such as Porter framework. This will give the firm a clearer view in both internal and external strengths.
The assignment is meant to critically analyse the relationship between resource-based view (RBV) and firm’s performance in order to achieve sustainable competitive advantage. This paper also discusses how RBV can be the best strategy route for the development of a firm’s strategy. I have studied various journals in order to understand the prospective of RBV in a firm.
The management has used RBV as a popular theory of competitive advantage (Fahy, 2000, p.94). In order to achieve advantage over other firms, the strategic management need to identify critical resources available in the firm and explore it into full capacity. The RBV uses a strategic choice enabling the firm’s management to identify, develop and deploy key resources to maximise returns (Fahy, 2000, p.96). In short, RBV help a firm to find out why some resources are more advantage-generating than others and why resources asymmetries and consequent competitive advantage exist in an open competition (Fahy, 2000, p.99). Although RBV is useful to find out how some firm can outshine others, it has limited normative guidance to managers (Sheehan and Foss, 2007, p.451). This will be further discussed as we go along the paper.
Overview of RBV
The RBV of the firm includes two components which is the internal resources and capabilities as a source of superior firm performance (Lucas and Kirillova, 2011, p.290). RBV carries the assumption that a high performing firm is made up of a bundle of resources that provides them with an advantage in the marketplace (Zubac, Hubbard, Johnson, 2010, p.516). Besides that, RBV assumes that resources are heterogeneously distributed among the firm and are immobile across the firms (Barney, 2001, p.101). As mentioned by Runyan et.al, a successful firm will be those who are proactive in gaining and maintaining competitive advantage in a hostile environment (p. 392).Therefore, difference in firm resource endowments will exist and last for quite some time, thus enabling differences in performance among firms (Kraaijenbrink, Spender and Groen, 2010, p. 358).
Resources and competitive advantage
To achieve competitive advantage, a firm’s resources must have characteristics such as valuable, rare, inimitable and non substitutable (VRIN). In RBV, not all resources are of importance for achieving competitive advantage in a firm (Fahy, 2000, p.96). Valuable resources are the key resources that enable a firm strategy to be implemented to satisfy the needs of customers, thereby improving firm’s performance (Clulow, Gerstman and Barry, 2003, p. 222). This indicates a complementary between RBV and Porter’s industry analysis of customers (Fahy, 2000, p.97). Rare resources can be a valuable creating strategy if it is not simultaneously implemented by majority of firms (Barney, 1991, p. 106). On the other hand, inimitable resources are not prone to duplication by rivals and barriers will exist when the resources cannot be imitated and substituted and are immobile (Clulow, Gerstman and Barry, 2003, p. 222). Immobile resources are particularly important in banking industry and advertising whereby individuals or small groups are the key advantage creating resources and will finally be taken up by competitors (Fahy, 2000, p.97).
Strategic capability and firm performance
However, the firm to understand that resources are not productive by themselves. The manager’s ability is to turn advantage creating resources into profit. Thus, strategic capabilities of the firm in terms of coordinating, deploying and revamping resources are vital for achieving best performance in a firm (Lucas and Kirillova, 2010, p.194). Implication of RBV and firm capability was illustrated in Toyota as noted by Anand and Ward (2004, p.371):
[. . .] the success of the Toyota production system and JIT helped bring about a change in the approach to dynamic environments, popularizing the idea of incorporating flexibility in manufacturing systems without sacrificing efficiency. [. . .] As a result, the strategic approach of manufacturing firms has changed, with a new focus on building capabilities to effectively deal with dynamic environments instead of simply trying to avoid uncertainties.
Strategic internal capabilities are important for superior firm performance and for achieving competitive advantage. Tesco had posses another good example in this context. As Tesco, Sainsburry’s and Asda are rivals in the same field, Tesco still exist as a stronger rival because of their heterogeneous aspect in terms of retails sites, management and experience (Johnson, Scholes and Whittington, 2008, p.94). It has therefore been proven that capabilities can be derived from the resources themselves.
RBV and organising flexibility
To find out how some firm outshine others, we will look into the basis of capabilities dimensions and flexible organisation which increase the difficulty for imitation. As an example, a firm with process-based capability performed much better by transforming input such as information into products and services. This can be seen from McDonalds whereby it could deliver service at a low cost and is reputable fast food chain.
Another firm, Dell developed a network-based capability which was able to integrate product design, assemble and deliver customised computers. So, it can be seen that RBV gives a theoretical basis for organising flexibility, understanding interrelationship, thus allowing them to create and sustain competitive advantage (Lucas and Kirillova, 2010, p.198). These firm are able to perform well because they have the capabilities to produce at a low cost and differentiate their products from competitors using resources available (Johnson, Scholes and Whittington, 2008, p.94).
RBV and its critiques
The value of resource is not useful for firm
Nevertheless, some researchers have raised the question about the value of RBV in a firm. The critique argues that RBV stands on analytical statements which are tautology. From the definition of valuable resources and competitive advantage as discussed earlier, it seems that they are indefinite in notion of value (Kraaijenbrink, Spender, Groen, 2010, p.356). Bowman and Ambrosini (2000) attempted to clarify RBV notion of value by suggesting three concept of value, that is the perceived value by customers, customers willingness to pay and value they paid in exchange for products or services. Alternatively, if RBV is considered as a theory of firm, the firm’s resources and capabilities must be determined independently to justify the products delivered to the customers so as to decouple the tautology.
Exogenous value determination
Another disadvantage in RBV is that it has overlooked the environment in which the firm operates. The tautology definitions of the value offered triggered some debate on whether value of RBV is determined endogenously or exogenously. In reference to SWOT analysis, RBV has missed out the Opportunities and Threats part which is the environmental analysis on how to place themselves in the product market. However, it has been supported by Priem and Butler (2008) and then explicitly agreed by Barney that value in the RBV should be determined by the outside market. Unfortunately, RBV itself does not cater for such alternative external determination (Kraaijenbrink, Spender, Groen, 2010, p.357).
VRIN criteria is not sufficient for sustainable competitive advantage
Some additional argument on RBV is that the ‘VRIN’ resources are irrelevant to the competitive advantage (SCA) in a firm. This is further argued by Foss and Knudsent (2003) when they said uncertainty and immobility are important for SCA to work while others are simply additional to these. On the other hand, Becerra revealed that value uncertainty, resource specification and firm level innovation are important for a firm to make profits (Kraaijenbrink, Spender and Groen, 2010, p.355).
Porter analysis and RBV
It is proven that the RBV is helpful for a firm. However, it still lacks in various aspects. Therefore, integrating Porter’s competitve positioning view with the RBVof the firm is a very strategic weapon. Porter state that a firm’s strategy must align with its environment. One of the players identified by Porter is the customers of the firm (Lucas, and Kirillova, 2010, p.190). Recently, there has been a preference for customers to demand for better product performance, more customisation and greater responsiveness together with lower prices (Lucas, and Kirillova, 2010, p.191). Therefore, firm need to identify their resources and change according to customers preferences. Porter has given two generic strategies for better performance. One of it is to produce at a lower cost than its rivals and at the same time maintain reasonable quality and price. Apart from this, another suggestion is that customers pay a little extra without affecting the price differential earned (Sheehan and Foss, 2007, p.453).
Core competence and unique resources
Expertise and resource strengths
Superior performance of a firm may depend on the unique resources which rivals cannot imitate. However, the firm can achieve competitive advantage by having core competencies. Core competencies are the skills and abilities in which resources are deployed through an organisation’s activities and processes in order to achieve competitive advantage in ways that others cannot imitate or obtain (Johnson, Scholes and Whittington, 2008, p.98). An example is the Corning’s Enterprise. With expertise in glass and ceramics, they know that they cannot compete with medical diagnostics and biotechnological fields. They then took to expertise in optic and optoelectronics, opposing to medicine and biotechnology fields. This has proved to be a competitive advantage to Corning’s Enterprise. This is an example of a core competence whereby a set of skills when combined gives the business competitive advantage in a number of industries (Walsh and Linton, 2001, p.168).
Low cost provider
Managers can also provide another strategic capability by providing cost efficiencies in term of lower prices or more products features for the same price to customers. Customers think of value for money. Therefore, the management must ensure that an appropriate level of value is offered at a reasonable price (Johnson, Scholes and Whittington, 2008, p.99). As an example, fast-food restaurants are considered as a cost leadership strategic group among the broader restaurant industry. This is because their emphasis is on cost containment rather than their fast casual and upscale competitors. However, if a narrow fast-food industry is invoked, some fast food establishments might still be considered as low cost leaders while others are more closely aligned with differentiation (Parnell, 2011, p.132).
Besides that, management can use their unique resources to supply services to niche market. For example, Starbuck utilised its coffee making competency to supply its products in a niche market. Its strategy focused on young people and coffee lovers as their main customer. They created value for its coffee and other products through its strength and capabilities to the extent that the buyers are willing to consume (Thompson, Strickland and Gamble, 2010, p.9).
RBV and competitive advantage
The firm’s RBV is of the view that resources used and capabilities developed are dynamic and difficult to imitate. This is due to the fact that capabilities are developed through a firm’s experience and effort over a period time and therefore cannot be developed by its rivals within a short period. The resources that are inimitable should be causal ambiguous and thus are not transparent for competitors to realise what is the combination of internal resources and capabilities that has led to the competitive advantage of the firm. Apart from this, the bundle of resources and capabilities were developed within the firm’s idiosyncratic processes and routines. Therefore, they are not always visible and are socially complex because these processes involve a large number of employees. Consequently, competitors are unable to discover and replicate them within their own organisation. Thus, the firm can achieve a longer lasting competitive advantage (Lucas and Kirillova, 2010, p.195).
For a firm to develop firm’s strategy, the resource-based view of the firm is important strategy route. RBV thrive to achieve competitive advantage in a firm by focusing on critical resources and capabilities. For a firm to achieve competitive advantage, valuable, rare, inimitable and non-substitutable resources are the key resources. Moreover, these resources are needed by the manager to transform them into profit generating resources. Therefore, strategic capabilities of the firm in transforming the resources can help a firm to achieve superior performance. Toyota and Tesco had successfully implemented this strategy. Apart from this, the RBV combined with organising flexibility can help a firm to outperform others. Although there has been some critique on the tautology value of RBV resources, it can still be overcome by bringing in human imagination into the centre of RBV such as how human ideas ignite revolutionary modes of value creation. In some firm, the strategy is better performed if it can be aligned with the environment they are operating in. This can be done through Porter framework. To achieve core competencies, a firm can utilise its unique resources such as developing expertise and resource strengths, being a low cost provider or focus on niche market. These will help firm to achieve competitive advantage as RBV support the view that resources and capabilities developed are dynamic and thus difficult to imitate.