Resource-Based View (RBV) of Competitive Advantage

Learning Objectives: The RBV has become the dominant theory in strategic management. Our main interests are in understanding (1) the theoretical bases of the RBV, and (2) how managers might apply this framework in their pursuit of competitive advantage.

Prior to RBV -- Three Traditional Perspectives on Firm Strengths and Weaknesses

1. Theories of distinctive competence

General managers their decisions have great impact Pros high appeal and validity Cons positive traits are ambiguous Institutional leadership - creates vision, organization and structure Pros intuition, strong appeal Cons sr. managers not only source of advantages

Three Traditional Perspectives on Firm Strengths and Weaknesses

2. Ricardian Economics

Little role for management Original, indestructible gifts of nature (land) Inelastic supply function High quality factors of production quantitative, testable theory numerous resources are inelastic natural shift in demand curve other contributing factors

Pros: Cons:

Three Traditional Perspectives on Firm Strengths and Weaknesses

3. Penroses Theory of Firm Growth

administrative framework bundle of productive, heterogeneous resources

Pros: Cons: introduced heterogeneity, broad definition of productive resource deemed important, but limited in scope

Other theories of the firm Population Ecology Transaction cost Agency theory

Firm Resources and Sustained Competitive Advantage According to J. Barney

Relationship between traditional SWOT analysis and RBV models
Internal Analysis Strengths Weaknesses External Analysis Opportunities Threats

Resource-based model

Environmental models

What Determines Profitability of a Firm?

Resource Based View of the Firm

Dominant theoretical perspective Resources, capabilities, competencies may be more

important than industry effects

Assumptions

Resource heterogeneity Resource immobility Firms are bundles of productive resources Financial capital Physical capital Human capital Organizational capital

Resource Based View of the Firm: Some Definitions

Firm resources Competitive advantage Sustained competitive advantage

RBV Model:

Value
Heterogeneity Immobility Rare Imitability Substitutable VRIS or VRIO ?

Sustained Competitive advantage

Discovering Sustained Competitive Advantage: The VRIO Framework

Value when resources and capabilities enable the firm to

respond to threats and opportunities

Rarity when resource is controlled by a small number of

competing firms
Imitability the degree that the resource can be duplicated

or substituted unique history causal ambiguity (numerous small decision) social complexity Organization how the firm is structured, organized and managed to exploit valuable, rare and costly to imitate resources.

Applying the VRIO Framework

Costly to Imitate -Competitive Implication * Disadvantage Economic Performance Below Normal

Valuable No

Rare --

Yes
Yes Yes

No
Yes Yes

-No Yes

Parity
Temporary Advantage Sustained Advantage

Normal
Above Normal Above Normal

Assumes firm is organized to exploit resource

Some Examples

Applying the VRIO Framework: Some Examples

Telephone systems ? Formal strategic planning systems ? Information processing systems ? Firm reputation ? Firm culture ?

Strategy Implications of the Resource-based View

Broader responsibility for competitive advantage Better to exploit firms existing valuable, rare and costly to

imitate resources, rather than mimic other successful firms Relative cost of difficult to implement strategy should be compared to its value Socially complex resources can be source of competitive advantage Firms structure, control systems and compensation policies should change if they conflict with firm resources or capabilities