Strategic Management

Topic
Resource Based View
of the Firm
Presente
d To :
Dr.Omer
Dr.Marya

Presented
By:
Iqra Inyat
Saima

Strategic Management

Brief History Of S.M.

Industrial Organization

Click ico
n to add
picture

Resource Based View of

the firm and its Model

Literature Review of

Competitive advantage
VRIO Frame of work.
Implications
Criticism and Suggestions

Overall Goal of Strategic Management

for an Organization
Deploy & allocate resources ==> competitive advantage

Process of Strategic Management

What is Strategic Management?

Analyze competitive

situation

Develop strategic
goals

Devise plan of
action
Allocate resources
Implement plan
Evaluate results

Brief history of Strategic

Management
Early Period
o Study of general management
o Largely descriptive
o Not theory based { SWOT ANALYSIS}
Key Authors
o Andrews
o Christiansen
o Ansoff.

Brief history
of Strategic
Management
First Revolution
o Potter Frame work
o Structure conduct performance
o

model (SCP) & Social Welfare.

Apply the SCP logic to strategic

Management

o Five forces frame work for

o

industry analysis

Generic strategies

Brief history of Strategic

Management
Limits of potter frame work
o
Market power versus efficiency (Demsetz)
o
Industry versus firm works (Wal-Mart)
o
The cost of entering attractive industries.
Central Conclusion

It is not possible to evaluate the

attractiveness of industry independent of the
resources a firm bring to the industry.

Two Contrasting Approaches

Industrial Organization Model vs.

Resource-Based View
o Research provides support for both positions

What drives strategy?

o I/O: External considerations
o RBV: Internal considerations

I/O: Strategy drives resource acquisition

RBV: Strategy determined by resources

Two Contrasting Approaches

I/O
Economics

Industry
Characteristics

Profitability

RBV
Firm
Characteristics

Profitability

Industrial Organization (O/I)

Model
o

External

determinant

environment
of

is

primary

organizational

strategy

rather than internal decisions of managers

o

Environment

presents

threats

&

opportunities
o

All competing organizations control or

have equal access to resources

o Resources are highly mobile between
firms
o Organizational success is achieved by
Offering goods & services at lower costs
than competitors
o Differentiating products to bring premium
prices

Resource-Based View (RBV)

Definition
An organizations resources & capabilities, not external environmental

conditions, should be basis for strategic decisions

Competitive advantage is gained through acquisition & value of

organizational resources
Organizations can identify, locate & acquire key valuable resources
Resources are not highly mobile across organizations & once acquired

are retained
Valuable resources are costly to imitate & non-substitutable

Definition
Jay Barney
The resource-based view (RBV) argues that firms possess resources, a
subset of which enable them to achieve competitive advantage, and a subset
of those that lead to superior long-term performance. Resources that are
valuable and rare can lead to the creation of competitive advantage. That
advantage can be sustained over longer time periods to the extent that the
firm is able to protect against resource imitation, transfer, or substitution. In
general, empirical studies using the theory have strongly supported the
resource-based view.

Resources
Daft, 1983, Barney, J., 1991
Physical capital {Technology, plant, equipment, location, access to raw material}
Human capital {Training, expertise, judgment, intelligence, relationships and
insights of managers and workers}

Organizational capital {Organizational structure, planning, controlling and

coordinating systems, informal relations among groups within the firm and with
outside groups}

Wernerfelt, B., 1984, Hafeez, K., Malak, N. and

Zhang, Y., 2002
Resource = anything that could be thought as a strength or a
weakness for a firm. Tangible and intangible assets tied permanently
or semi-permanently to the firm.

Hofer and Schendel, 1978, Grant, R., 1991

Mahoney, J. and Pandian, R., 1992
Physical resources
Financial resources
Human Resources
Organizational resources
Technological resources
Legal resources
Experience
Intangible resources
Hafeez, K., Malak, N. and Zhang, Y., 2002

Physical assets
Intellectual assets
Cultural assets

Competences

R. B. V.

Definitions

Selznick, 1957

Competence = things that an Organization does especially well in

comparison to its competitors

Hamel, G. and Prahalad, C., 1990

Competence = collective learning of the Organization, especially how to

coordinate diverse production skills and to integrate multiple streams of
technology

Penrose, 1959

Resource = stock. A resource can be defined independently from its use

Capability (competence) = flow. It implies function and activity and cannot be
defined independently from its use. Capabilities are created over time and may
depend on History and use of resources in an extremely complex (pathdependent) process

Hrebiniak, L. and Snow, C., 1980

Competence = aggregate of numerous specific activities that the organization

tends to perform better than other Organizations in a similar environment

Durand, T. 1996 & (Penrose, 1959)

Elementary assets and resources, tangible and intangible
Plant, equipment, products, software and brands

Cognitive competences, individual and collective, explicit and tacit

Knowledge, know-how, technologies, patents
Organizational processes and routines).
Coordination mechanisms in the organization to combine the action of individuals into
collective tasks and achievements

Organizational structure
Structure including its internal and external dimensions (links with suppliers and
customers)

Identity (Culture)
Corporate culture and behavior in the organization. Its shared values, its rites and
taboos are manifestations of the firms identity

Porter 19801985
Ghemawat
1986
Lieberman and
Montgomery
1988
Hamel and
Prahalad 1994

Polanyi 1962
Rumelt 1984
Teece 1987
Itami 1987

Competitive
Advantage
Cost OR
Differentiation
Future Position

Capabilities
Technology
Design
Production
Service
Distribution

Resources
Tangible Resources
In-tangible Resources
Competiences

Andrews 1971
Hofer and
Schendel
1978
Prahalad and
Hamel 1990
Ulrich and lake
1991

Wernerfelt
1984
Deiricks &
Cool 1989
Reed and
Defillipi 1990
Barney 1991

Prahalad and Hamel (1990):

core competencies
Managements ability to consolidate technology and production skills into

competencies so the business can adapt quickly to changing

opportunities/circumstances.
Core competencies = collective learning of the organisation about

prod/tech/markets. e.g. Sonys miniaturisation skills.

Competencies have to be built over a long period.
They are difficult to identify precisely and hard to imitate.
Many firms fail to identify their own core competencies and so fail to

nurture them properly or exploit them fully .

Chandler (1990)
initial risky investments
Chandler (1990): successful giants such as IBM and Bayer derive
from the initial heavy and risky investments in building
organisational knowledge and capabilities which allowed them to
exploit the opportunities available to exploit scale and scope
economies.

Two Critical Assumptions of the RBV

Resource Heterogeneity
different firms may have different resources
Resource Immobility
it may be costly for firms without certain
resources to acquire or develop them
some resources may not spread from firm
to firm easily

Resource Heterogeneity
Heterogeneity of resources typically occurs as the
result of bundling several resources of a firm
Managers of a firm could take resources that seem
homogeneous and bundle them to create
heterogeneous combinations

Resource Immobility

Resources may be immobile due to natural

and/or intentionally created barriers to imitation
Costs of imitation
o Imperfect imitability: the resource could be
imitated but the cost of doing so would
capitalize the full value of imitation
o Inimitability: the resource cannot be imitated
at any cost

The VRIO Framework

If a firm has resources that are:

Valuable,
Rare, and
Costly to Imitate, and
The firm is Organized to exploit
these resources,

Then the firm can expect to

enjoy a sustained
competitive advantage.

 First, the resource must be valuable in the sense that it

exploits opportunities and/or neutralizes threats in the firms

environment.
Second, it must be rare among the firms current and

potential competitors.
Third, the resource must be difficult for competitors to imitate.
Fourth, the resource must have no strategically equivalent

substitutes.
3-27

Competitive advantage
Competitively valuable resources (Collis and Montgomery, 1995)
Reduction of costs,
The exploitation of market opportunities, and/or
The neutralization of competitive threats.
Inimitability -- is the resource hard to copy?
Durability -- how quickly does the resource depreciate?
Approprability -- who captures the value the resource

creates?
Substitutability -- can the resource be trumped by another
resource?
Competitive superiority -- whose resource is really better?

Stalk, Evans, and Shulman (1992): capabilities

Competitive advantage is based on the ability to respond to
evolving opportunities which depends on business processes or
capabilities. Business success involves choosing the right
capabilities to build, managing them carefully, and exploiting
them
e.g. Honda, Canon.

Collis and Montgomery (1995): competing

on resources
Competitive advantage derives ultimately from the ownership of a

valuable resource.
Superior performance derives from developing a competitively

distinct set of resources and deploying them in a well conceived

strategy.
Resources can be physical, intangible, or organisational capabilities.
Example: Marks and Spencer (poor timing!)

Empirical implications
Henderson and Cockburn (1994) {Why pharmaceuticals innovate
then others.}

Rumelt (1991) { variance Decomposition}.

Mcghan and Potter {Industry effect size can but firm effects is
generally larger.

Barnett et al (1994)

{ why some banks compete out during

recession}.

Ray et al.(2004) {IT and Customer satisfaction in insurance

firms}. {IT and CS management has direct and interaction effects.

Hatch and Dyer (2004) firm specific human capital can create the
competitive advantage .because human capital is imitate.

Theoretical extension
Applied to additional phenomenon
Vertical integration and theory of firm (Corner ,1994 , Corner and
Prahalad ,2001, Barany 2002)..
Diversification (wireman and Robbins ).
Complementary extensions {heterogeneity}
HRM
Marketing
Enterpenuership
Operations management.

Practical Implications of RBT

Industry attractiveness cant be evaluated without the firm resources.

(South west and Wal-Mart.

Competitive advantage is every employee responsibility (Koch

industries of trading manufacturing investment).

Doing as well as just competition just shows the Mediocrity (Bench

marking).
Product features cant not be used for sustained the competitive

advantage as the ability to produce different features (Sony).

HP.. Mail Box Incorporation.. Xerox.

Criticisms on RBV and assessment

Criticisms

Assessment

1- The RBV has no managerial

implications.

1- Not all theories should

have direct managerial
implications. Through its
wide dissemination, the
RBV has evident impact.

2- Applies only to abstract

mathematical theories. In
an applied theory such as
2- The RBV implies infinite regress.
the
RBV
levels
are
qualitatively different.

Criticisms on RBV and assessment

3. The RBVs

applicability is too
limited

3Generalizing
about
uniqueness
is
not
impossible by definition.
The RBV applies to small
firms and startups as well,
as long as they strive for
an SCA. Path dependency is
not problematic when not
taken to the extreme. The
RBV only applies to firms in
predictable environments.

Criticisms on RBV and assessment

4- SCA is not
achievable.

By including dynamic
capabilities, the RBV
is not purely static.
Though,
it
only
explains ex post, not
ex ante sources of
SCA. While no CA can
last forever, a focus
on
SCA
remains
useful.

Criticisms on RBV and assessment

The VRIN/O criteria are not always
necessary and not always sufficient
to explain a firms SCA.
The

5- VRIN/O is neither

RBV

does

not

sufficiently

consider the synergy within resource

bundles as a source of SCA. The RBV

necessary nor

does not sufficiently recognize the

sufficient for SCA.

models of individuals play in value

role

that

judgment

and

assessment and creation.

mental

Criticisms on RBV and assessment

7- The value of a
resource is too
indeterminate to
provide
for useful theory.

The
current
conceptualization
of
value turns the RBV
into a trivial heuristic,
an incomplete theory,
or a tautology. A more
subjective
and
creative
notion
of
value is needed.

Criticisms on RBV and assessment

Definitions of resources are
all-inclusive.

8- The definition of
resource is
unworkable.

The RBV does not recognize

differences
between
resources as inputs and
resources that enable the
organization of such inputs.
There is no recognition of
how
different
types
of
resources may contribute to
SCA in a different manner.

Suggestions for future research in RBV:

Demarcating and Defining Resources
o Theorize the distinctions between the building, versus the processes

of deploying that capacity.

o Conduct more process-based empirical research within the RBV

frame to probe how resource-based SCA and performance are

related.
o Identify types or characteristics of resources that help refine the

predictions of the RBV that differ in the manner they contribute to a

firms SCA. Specifically:

Suggestions for future research in RBV:

o Explore the distinction between rivalries and non-rivalries resources

and the impact of this distinction on the predictions of the RBV.

o Expand on the distinction between resources and integrative

capabilities and on the hierarchical relationship between individual

and collective resources.

Suggestions for future research in RBV:

Towards a Subjective and Firm-Specific Notion of

Resource Value
o Investigate the value assessment processes by which new ways to

create and capture novel value are conceived.

o Study whether and how human ideas ignite revolutionary modes of

value creation.
o Study the social influence mechanisms through which entrepreneurs

create value by convincing others of the value of their products.

Suggestions for future research in RBV:

The RBV as a Theory of Sustained

Competitive Advantage
o Develop a resource-based explanation of SCA that focuses on the
differences in peoples capacities to identify or imagine and judge the
potential risks and benefits associated with the ownership of resources.
o

Develop refined propositions on the relationship between specific

types of resources and a firms SCA.

o Study how new resources are selected and how they can be matched

with the existing resources in place in the organization.