1.

0 INTRODUCTION

Resource based view The resource-based view is grounded in the perspective that a firm's internal environment, in terms of its resources and capabilities, is more critical to the determination of strategic action than is the external environment. Instead of focusing on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment, the resourcebased view suggests that a firm's unique resources and capabilities provide the basis for a strategy. The strategy chosen should allow the firms to best exploit its core competencies relative to opportunities in the external environment. The resource based view emphasizes the internal capabilities of the organization in formulating strategy to achieve a sustainable competitive advantage in its market and industry. If we see the organization as made of resources and capabilities which can be configured and re-configured to provide it with a competitive advantage then the perspective becomes an inside out approach. The resource-based perspective highlights the need for a fit between the external market context in which a company operates and its internal capabilities.

2.0 Resources and Capabilities Each organization has a collection of unique resources and capabilities that provides the basis for its strategy and the primary source of its returns. Resources can be thought of as inputs that enable the organization to carry out its activities. In the 21st-centurys hyper-competitive landscape, a firm is a collection of evolving capabilities that is managed dynamically in pursuit of

above-average returns. Thus, differences in firm's performances across time are driven primarily by their unique resources and capabilities rather than by an industry's structural characteristics.

2.1 Resources They are inputs into a firm's production process, such as capital, equipment, and the skills of individual employees, patents, finances, and talented managers. Resources are either tangible or intangible in nature. With increasing effectiveness, the set of resources available to the firm tends to become larger. Individual resources may not yield to a competitive advantage. It is through the synergistic combination and integration of sets of resources that competitive advantages are formed. 2.1.1 Tangible resources Tangible resources refer to the physical assets that an organization posses and can be categorized as physical resources such as financial resources and human resources. Physical resources include such things as the current state of buildings, machinery, material and productive capacity. In order to add value, these physical resources must be capable of responding flexibly to changes in the market place. Clearly organization with the most up to date technology and processes which posses the knowledge to exploit their potential will be at an advantage. 2.1.2 Intangible resources Intangible resources comprise intellectual/technological resources and

reputation. Technological resources include an organizations ability to innovate and the speed with which innovation occurs. Intellectual resources include patents and copyrights which themselves may derive from the organizations technological resources. Organizations with valuable tacit knowledge built up

through their culture, processes, and employees posses an intangible resource which cannot readily be transferred. The reputation or goodwill of an organization is increasingly recognized as a valuable intangible asset which can easily be damaged by ill-thought out strategies and marketing campaigns .e.g. double M commuter buses have a good reputation in terms of service provision and efficiency.

2.2 Capability A capability is the capacity for a set of resources to interactively perform a stretch task or an activity. They are not specific inputs like tangible or intangible assets but rather the skills, the ability and ways of combining assets people and processes that the company uses to transform inputs in to outputs. Through continued use, capabilities become stronger and more difficult for competitors to understand and imitate. As a source of competitive advantage, a capability should be neither so simple that it is highly imitable, nor so complex that it defies internal steering and control. 2.3 Key success factors (KSF) Resources and capabilities are distinct from key success factors; Key success factors refer to;

to the skills and assets a firm must have to achieve profitability Market-level rather than individual characteristics Necessary, not sufficient for achieving competitive advantage

in a particular market

(e.g., KSF in athletic footwear are development of new designs, management of a network of suppliers and distributors, creation of marketing campaigns)

Predictors of firm profitability (like resources and capabilities)c

3.0 POSTULATES OF RESOURCE BASED VIEW OF THE FIRM 3.1 Building Sustainable competitive advantage Sustainable competitive advantage is the prolonged benefit of implementing some unique value-creating strategy based on unique combination of internal organizational resources and capabilities that cannot be replicated by competitors. Resources and capabilities can be analyzed in a framework i.e VRIO. 3.1.1 A framework for analysis: VRIO

Resource-based analysis of the firm determines which resources Strategies are to be implemented which exploit (or build) What constitutes a strength or weakness is partially a function of Framework for analysis: VRIO - resources and capabilities should

and capabilities result in which strengths or weaknesses

strengths and avoid (or eliminate) weaknesses

the external environment

be Valuable rare inimitable Organization can effectively exploit them The resource based view of firms is based on several assumptions: resource diversity and resource immobility (Barney, 1991; Mata et al., 1995). According to Mata et al. (1995), these assumptions are defined as:
1. Resource diversity (also called resource heterogeneity)

This Pertains to whether a firm owns a resource or capability that is also owned by numerous other competing firms, then that resource cannot provide a competitive advantage. As an example of resource diversity, consider the following: a firm is trying to decide whether to implement a new IT product. This new product might provide a competitive advantage to the firm if no other competitors have the same functionality. If competing firms have similar functionality, then this new IT product doesnt pass the resource diversity test and therefore doesnt provide a competitive advantage. 2. Resource immobility This refers to a resource that is difficult to obtain by competitors because the cost of developing, acquiring or using that resource is too high. As an example of resource immobility, consider the following: a firm is trying to decide whether they should buy an off-the-shelf inventory control system or have one built specifically for their needs. If they buy an off-the-shelf system, they will have no competitive advantage over others in the market because their competition can implement the same system. If they pay for a customized solution that provides specific functionality that only they implement, then they will have a competitive advantage, assuming the same functionality isnt available in other products. e.g. Real estates locations
3. Resource Inimitability

The view assumes that for a firm to have competitive advantage over other firms, its resources must not be inimitable. A resource that competitor can easily copy can only generate temporary value. It cannot generate a longterm competitive advantage. Inimitability doesnt last forever. Competitors match or better any resources as soon as they can. 4. Appropriability who gets the profit created by a resource

Resources that one develops and controls- where ownership of the resources and its role in value creation is obvious- are more valuable than resources that can be easily bought, sold or moved from one firm to another.
5. Durability- How rapidly will the resource depreciate?

The view assumes that for a firm to have competitive advantage over other firms, its resources must not be durable. The slower a resource depreciates, the more valuable it is. Tangible assets, like commodities or capital, can have their depletion measured. Intangible resources, like brand names or organizational capabilities, present a much more difficult depreciation challenge.
6. Substitutability- Are other alternatives available?

The view assumes that for a firm to have competitive advantage over other firms, its resources must not be able to be substituted for other resources. The manager should consider whether the existing facilities and operational resources can quickly create alternatives. 7. Exploitable The Resource Based view assumes that for a firm to have competitive advantage over other firms, its resources must not be exploitable. The resources must be able to be nurtured and converted into competitive advantage. 8. Valuable The Resource Based view assumes that for a firm to have competitive advantage over other firms, its resources must not be valuable. This value is defined by the market demand.

9. Organized The Resource Based view assumes that for a firm to have competitive advantage over other firms, its resources must not be organized. The firms resources must be effectively organized and deployed in an organized in such a manner as to create competitive advantage for the organization. These assumptions can be used to determine whether an organization is able to create a sustainable competitive advantage by providing a framework for determining whether a process or technology provides a real advantage over the marketplace.

3.2 competences Competencies on the hand refer to the firm's ability to employ the different resources, generally in combination, using organizational processes to achieve a desired end (Grant, 1991; Amit and Shoemaker, 1993). They are based on information, tangible or intangible processes that pertain specifically to the firm, and were developed over a length of time through complex interactions between and among the resources (Amit and Shoemaker, 1993). Competencies are the collective learning in the organization, particularly how to coordinate the different production skills and integrate the multiple chains of technology. They are also associated with the organization of work and the delivery of value; they can be described as communication, involvement and a profound commitment to working across organizational boundaries (Prahalad and Hamel, 1990; Kogut and Zander, 1992). They can be perceived abstractly as intermediary assets generated by the firm to enhance the productivity of its resources, as well as

strategic flexibility and protection for its end product or service (Amit and Shoemaker, 1993). 3.2.1 Distinctive capabilities Whilst the existence of resources is important, resources per se do not confer any benefit on an organization. It is the efficient configuration of the resources that provides an organization with competencies. A competence is the attributes that firms require in order to be able to compete in the market place 3.2.2Core competencies (strategic capability) Core competencies or strategic capability can be thought of as a cluster of attributes that an organization possesses which in turn allows it to achieve competitive advantage. It may simply be that the organization has configured its collection of resources in such a way that allows it to compete more successfully .E.g. Toyota with the production of petrol-and-electric hybrid cars which places them as the first and pace setters in the market while the other companies play catch up. Core competences should,

Coordinate diverse production skills and integrate multiple Are communication, involvement, and a deep commitment to Do not diminish with use, but are enhanced as they are applied Are the glue that binds existing businesses Are difficult to imitate, especially if they are a complex Are corporate resources and may be reallocated by corporate

streams of technology

working across organizational boundaries

and shared

harmonization of individual technologies and production skills

management 3.3 Economic rent The resource based view of strategy emphasizes economic rent creation through distinctive capabilities. Economic rent, or Economic Value Added (EVA), is what

companies earn over and above the cost of the capital employed in their business. It is the measure of the competitive advantage, and competitive advantage is the only means by which companies in competitive markets can earn economic rent. The objective of a company is to increase its economic rent, rather than its profit as such. A company which increases its profits but not its economic rent - as through investments or acquisitions which yield less than the cost of capital destroys value. E.g. EABL yields more in terms of economic profits through product differentiation, they reduce cost e.g. by employing marketers who own vehicles to save on buying company cars as well as maintenance. 3.4 Knowledge management 4.0 critical lessons for strategic management A firm must first identify and evaluate its resources to find those that provide the basis for future competitive advantage. The management should recognize and protect valuable resources so that they dont lose them. E.g. expatriates in a company should be well remunerated so that they are not poached by other companies.

This process involves:

1. Disaggregate

resources:

Break

them

down

into

more

specific

competenciesrather than stay with broad categorizations.

2. Utilize a functional perspective: Look at different functional areas of

the firm, desegregating tangible and intangible assets as well as organizational capabilities that are present, can begin to uncover

important value-building resources and activities that deserve further analysis.

3. Look at organizational processes and combinations of resources and not

only at isolated assets or capabilities.

4. Use the value chain approach to uncover organizational capabilities,

activities,

and

processes

that

are

valuable

potential

sources

of

competitive advantage

Innovation does not come by simply scanning the external environment for market opportunities but from analyzing resources and core competence of the organization. Managers should never stop reassessing the scope of their business in terms of the mission the objectives both long term and short term as well constant monitoring evaluation and control. It is crucial to develop resources that will strengthen the firm's ability to continue the superior performance hence the need to develop new resources so as to survive in the competitive market. Rigorously apply market tests to your strategic assets so as to be up to date with the industry, the technology, customer relations, change In tastes, durability of your assets and if they can withstand time and economic fluctuations. The existing resources of a firm may not be adequate to facilitate the future market requirement, due to volatility of the markets. There is a vital need to modify and develop resources in order to encounter the future market competition. Continually upgrade number and quality of resources and capabilities

depending on technological build up, consumer preferences, cost and competition. An organization should exploit existing business opportunities using the present resources while generating and developing a new set of resources to sustain its competitiveness in the future market environments; hence, an organization should be engaged in resource management and resource development. 5.0 Common mistakes

Managers tend to overestimate the transferability of specific Managers tend to overestimate their capability to compete in Managers tend to assume that leveraging generic resources will

assets and capabilities

highly profitable industries

be a major source of competitive advantage in a new market 6.0 Contributions of RBV The main contribution of the resource-based view of strategic management is based on the notion that Modern resource-based thinking builds upon both a descriptive and a normative component. From a descriptive perspective, the focus is on the distinctive resource prole of each rm and the processes, both at the rm and industry level, that lead to specific new resource combinations and induce or reinforce heterogeneity among organizations. As regards prescription, the value of the resource based field to practitioners results from its emphasis on the purposive creation, through rm-level investments in resources and capabilities, of isolating Mechanisms. These constitute the analogue of entry barriers at the industry level and mobility barriers at the industry group level (Mahoney and Pandian, 1992). In operational terms, the main role of the resource-based view, within the eld of strategy, as recognized by most scholars in the eld, is its complementarily to the strategic positioning school, which build upon the Bain Mason Scherer structure

 conduct performance paradigm and culminated in Michael Porters (1980) book on competitive strategy ( Scherer and Ross, 1990). Expressed in the simplest terms and building upon Andrews (1971) seminal work on the concept of corporate strategy, the resource-based view can be seen as an excellent starting point for analysis of the relative strengths and weaknesses of rms (thereby largely treating the demand side as exogenous), whereas a strategic positioning approach is probably the cornerstone of any opportunities and threats. 7.0 CRITISMS OF RBV Most would agree that the resources based view of the firm represents a leap forward in strategic management. There are clear links and complementary with the works of Michael porter and the positioning school and equally sharp departures. Whether one would go so far classifying the resource based view as a new paradigm within strategic management is a matter of debate. Furthermore although there are benefits to the resource based view of strategy, it is not without criticisms. A common criticism made of resource based view of strategy is that it says very little on important issues of how resources can develop and change over time. Similarly the dynamic role played by individuals within organizations is often assumed to be self evident and therefore seldom addressed. Among them; 1. The Risk of tautology The underlying explanation of RBV is that the resource characteristics (or capabilities) that lead to competitive advantage are rare and valuable. Yet competitive advantage is defined in terms of value and rarity. This verges on tautology. Others argue that a business performs better than another because it has superior resources or is better at some things than other businesses is a

statement of the obvious. It can only be helpful if it is possible to be specific about what capabilities are important and why.

2. The lack of specificity However, there is typically little specific in what is written about RBV. And some would say the same is true when you talk about capabilities and competencies. Top management skills innovation and organizational culture means little without being specific about the activities and processes that comprise them. This is particularly in regard to the argued importance of tacit knowledge in bestowing competitive advantage. This may be descriptively correct, but is likely to be quite difficult for practitioners to effectively manipulate that which is inherently unknowable. 3. It is difficult (if not impossible) to find a resource which satisfies all of the Barney's VRIO criteria. I.e. resources and capabilities that are, valuable, rare, inimitable and those that the organization can effectively exploit them. 4. There is the assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources, but this may not necessarily be the case. It ignores external factors concerning the industry as a whole; a firm should also consider Porters Industry Structure Analysis (Porter's Five Forces). 5. Long-term implications that flow from its premises: A prominent source of sustainable competitive advantages is causal ambiguity. While this is undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource it does not know exists, even if a changing environment requires this. Through such an external change, the initial sustainable competitive advantage could be nullified or even transformed into a weakness

6. Sustainability: The lack of an exact definition of sustainability makes its premise difficult to test empirically. Barneys statement-that the competitive advantage is sustained if current and future rivals have ceased their imitative efforts is versatile from the point of view of developing a theoretical framework, but is a disadvantage from a more practical point of view, as there is no explicit end-goal. 8.0 COCLUSION The RBV provides the understanding that certain unique existing resources will result in superior performance and ultimately build a competitive advantage. Sustainability of such an advantage will be determined by the ability of competitors to imitate such resources. However, the existing resources of a firm may not be adequate to facilitate the future market requirement, due to volatility of the contemporary markets. There is a vital need to modify and develop resources in order to encounter the future market competition. An organization should therefore exploit existing business opportunities using the present resources while generating and developing a new set of resources to sustain its competitiveness in the future market environments; hence, an organization should be engaged in resource management and resource development.