Barney’s (1991), Resource Based View of the firm model takes an ‘inside-out’ view of the firm to identify why organisations succeed or fail. The RBV allows organisations to add value to the customer value chain and to develop new products in the marketplaces. The RBV draws on the internal resources and capabilities within the organisation to develop sustainable competitive advantage. The model focuses on the difficult to imitate attributes of the firm and which are difficult to transfer without major change within the organisation. Having these valuable and inimitable resources allows organisations to develop superior performance.
Resources must fulfil the VRIN criterion eg:
Valuable – exploiting market opportunities to reduce market threats,
Rare – difficult to find in competitors and must be rare or unique to offer competitive advantage,
Imitability – copying the resources is not feasible and other firms do not hold these resources,
Non-substitutability – resources can’t be substituted by another alternative resource.
Barney (1991 suggested there are three types of resource – physical, human and organisational and it is a useful model in identifying the basis by which the resources and capabilities serve as sustained competitive advantage.
Some examples of tangible and intangible resources are identified below:
Financial – are organisations able to raise external capital,
Physical – how accessible are the raw materials and distribution channels,
Technological – possession of patents, trademarks and copyrights,
Organisational – command and control systems,
Human – managerial talents and organisational culture,
Innovation – R&D, capabilities to innovate new products,
Reputational – reputation as good employer, socially responsible corporate citizen.
The traditional corporate resource‐based perspective of the past based competitive advantage on a variety of mainstream elements related to basic core values such as quality, cost, and timeliness. Today, innovation has become an important additional factor in the challenge to create and sustain competitive advantage. A dynamic and turbulent environment has forced organisations to build innovation capabilities for change. Key resource components such as rare, difficult to imitate, or non-substitutable resources give organisations a strategic advantage and above average returns. Firms that look internally to fill perceived gaps in resources and competencies are more likely to be competitive.
An organisation hoping to enhance corporate performance through innovation should consider the following steps for an efficient allocation of its resources:
1. Determine the current business environmental conditions the firm faces and
2. Allocate resources disproportionately to the market orientation component that is most effective in the identified condition.
The RBV of the firm emphasises resource accumulation over product positioning as a possible source of enduring competitive advantage. These resources can include tangible components such as plant, machinery, and skilled personnel, and intangibles such as brand name, reputation, specialised know‐ how of production processes, marketing expertise, and trade industry contracts.
These resources allow firms to conceive and implement strategies that may improve efficiency, effectiveness, or grow the organisation. This also includes external strategic alliances.
Alliances can often improve the market power of a firm, either because the alliance partner is a customer for the product or because the distribution channels and buying power of the partners can be combined through vertical integration. Furthermore, the close inter-firm relationships of alliances provide specific knowledge‐based resources, such as manufacturing or customer service. Alliances are a good method to circumvent certain barriers of entry and have been employed to enter new markets and gain new knowledge. Alliances allow firms to share, develop, and utilise resources and capabilities over time. There are many reasons for companies to form an alliance, including insufficient resources, low pace of innovation, high manufacturing cost, market access, and low technology. However, one of the reasons companies join a strategic alliance is to create their competitive advantage in the global market.
Capabilities can be viewed as the capacity of the organisation to create, extend, or modify a firm's resource base, augmented to include preferred access to the resources of its alliance partners.
Organisational change
Organisational change can be defined as the adoption of a new idea or behaviour by an organisation. It is a difficult process that relies on utilisation of competencies within the organisation. The RBV framework describes a firm as a specific collection of resources and competencies that can be deployed to gain competitive advantage through strategy implementation.
Researchers have found that the success rate for strategy implementation is approximately 10% to 30%. This is very low considering the amount of resources and financial investment organisations put into creating strategies. Therefore, it seems sensible that the internal alignment of staff and strategy should be synchronised for successful implementation.
Many organisations need to introduce change into their processes in order to address a weakness in their capabilities. Thus, organisations may look inside the firm to see where there are opportunities for improvement based upon internal resources. The supporters of this view argue that organisations should look inside the company to find the sources of competitive advantage instead of looking externally at the competitive environment for it. Such resources are inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. RBV assumes that companies achieve competitive advantage by using their different bundles of resources.
Although having heterogeneous and immobile resources is critical in achieving competitive advantage, it is not enough alone if the firm wants to sustain it. In order to understand the sources of competitive advantage, firms are using many tools to analyse their external (Porter's 5 Forces, PESTLE analysis) and internal (Value Chain analysis, BCG Matrix) environments.
As presented in the graph above, we are asking if a firm is organised to capture the value of the resources. A resource or capability that meets all of these requirements can bring sustained competitive advantage for the company. We have the recognition that sustained competitive advantage grows out of those valuable, income‐generating, firm‐specific resources and capabilities that cannot easily be imitated or substituted.
The resource‐based approach focuses on the characteristics of resources and the strategic factor markets from which they are obtained. In order for the organisation to utilise these competencies and achieve results, there must be a formal method of planning and control. T
he more a firm can use internal resources in its change process, the more likely it will be successful in implementing organisational change. We look internally using the RBV framework to identify gaps in its resources, skills, and capabilities. Resources need to be assigned to key projects that utilised core competencies in order to maintain competitive advantage. We can gather an inventory of all internal resources and skill sets for each employee. This database would then be used to evaluate gaps in the skills and knowledge at various levels in specific areas of the firm. Each employee is responsible for updating this database periodically based upon any individual changes in employee skills, competencies, or knowledge (i.e., new degree or training program). The database, resource inventory initiative (RII), provides information for senior management to make resource decisions around internal training and external recruitments. This information is then disseminated at the senior level and cascaded downward to lower levels of management for strategy formulation around key projects that would utilise identified skill sets within particular units. Gap analysis highlights key skill sets that would require external recruitment and selection. Based on the analysis, the organisation can implement training programs that are projects to improve existing employee skill sets and competencies needed for the projects. An external recruitment strategy can then be established to bring onboard employees who met the skill set requirements and filled the gaps.
The RBV explains that managers have to develop and obtain strategic resources that meet the criteria of valuable, rare, non-imitable, and non-substitutional (VRIO criteria) and how an appropriately competitive organisation can be developed. Only firms that already possess VRIO resources can acquire and apply additional resources. If this was not so, competitors would acquire them with equal ease.
Strategic planning from the RBV requires an organisation to identify resources that are unique, valuable, hard to imitate, and rare, which will achieve above average return. By having the ability to look internally through the RBV perspective, organisations will then be able to become innovative and achieve superior returns. Also, strategic alliances provide legitimacy to firms by cooperating and providing more visibility to that firm and by providing enhanced status to employees and suppliers of the firm. The RBV approach enhances the combination and utilisation of strategic resources to differentiate firms in the market. RBV allows to identify and manage resource gaps within their core competencies that lead to achieve a competitive structure and hence competitive advantage in the market place.
Commitment and data
Managers can view these findings as another lever to create competitive advantage through the resource‐based model. First, there must be a commitment by leadership to the precepts of RBV, the essential assumption that companies achieve competitive advantage by using their different bundles of resources. This means that in a traditional strengths, weaknesses, opportunities, and threats analysis, equal attention is given to the internal strengths and weaknesses of the firm. Leadership must be able to honestly identify the key drivers for performance.
Following on the commitment by leadership, there must also be an organisational commitment to the development and utilisation of a thorough and sustained inventory management system that focuses on being able to identify and assess both tangible and intangible resources of the firm.
Limitations
The RBV offers a useful framework to gain sustained competitive advantage. However, there are limitations to the RBV. RBV holds that sustained competitive advantage can be achieved more easily by exploiting internal rather than external factors as compared to the traditional industrial organisation (I/O) view. Although this is correct to some degree, there is no definite answer to which approach to strategic management is more important. This indicates that the best approach is to look into both external and internal factors and combine both views to achieve and sustain competitive advantage.
Toyota, the world's largest car manufacturer, is known for their development of internal resources to improve quality, efficiency, and inventory reduction simultaneously. Toyota has their own manufacturing system, operating system, and capabilities, pioneering the “kanban” inventory system that aids them in design, quality, and customer service differentiation to sustain its competitive advantage.
Within the automobile industry, Honda appears to be another firm following the RBV approach. Honda achieved sustainable competitive advantage through their operational just‐in‐time and enterprise resource planning system. They developed strategy around their strength in gasoline‐based engines. Part of the RBV approach is the idea that high value creation enables firms to appropriate more rent by retailing their products and services efficiently. Honda has done this through production and manufacturing that allows them to compete in differentiated product markets but leverages a common resource with the ability to appropriate more rent.
Summary
The RBV approach breaks down when the firm lacks sufficient systemic means of identifying and protecting important resources. Focus, both short term and long term, on sustainable performance improvement tied to the development of resources and capabilities is absolutely necessary for RBV to succeed. This means that management should avoid constriction of funding to support continuous process improvement as well as improvement in employee competencies. The RBV is not a one‐time or short‐term strategy, but one that requires time to focus on the long view of honing unique core competencies.
Managers must be willing to move beyond investments that have already been made in internal and/or external resources and admit when changes must be made. Perhaps one of the hardest things to do is to admit that what has always worked so far in your favour may no longer have a place as a rare, inimitable, or valuable means to support the firm's competitive advantage.
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