The resource based view is defined as a business management tool utilized to know the strategic resources available to firm. The basic principle of the resource based value is that the basis for a competitive advantage of a company lies primarily in the application of the group of valuable resources at the firm’s disposal. In order to change a short-run competitive advantage into a maintained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile. In other words, this will change into valuable resources that either perfectly imitable or substitutable without great effort. If these conditions are remained, the company’s group of resources can help the firm sustaining above average returns.
The recent dominant view of corporate strategy – Resource Based Theory or Resource Based View (RBV) of company – is based on the theory of economic rent and the view of the company as a collection of capabilities. This view of strategy has a coherence and integrative role that puts it well ahead of other mechanisms of strategic decision making. The olden strategy models such as Michael Porter’s five forces model concentrates on the firm’s external competitive environment. Most of them do not try to look inside the firm. Instead, the resource-based perspective shows the need for a fit among the external market context in which a firm works and its internal capabilities.
In contrast to the Input/Output Model (I/O model), the resource based view is grounded in the perspective that a company’s internal environment, in terms of its resources and capabilities, is more crucial to the determination of strategic action compared to the external environment. The resource based view suggest that a company’s rare resources and capabilities give the basis for a strategy instead of concentrating on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment (I/O model). The business strategy chosen should enable the company to best use its core competencies relative to chances in the external environment.
The resource based view also stands that companies possess resources, a subset which allows them to reach competitive advantage and later on giving them long term superior performance. Many studies of performance from company using the resource based view have found differences within the industries. This recommends that the effects of individual, firm-specific resources on performance can be crucial. Valuable and rare resources and whose benefits can be sorted by the owning (or controlling) company giving it with a temporary competitive advantage. That strength can be maintained over longer time periods to the extent that the company can protect against resource imitation, transfer, or substitution. In other words, empirical studies using the theory have strongly supported the resource based view.
One of the key challenges of resource based view related is to understand the meaning of resource. Many people are interested in the resource based view and utilized a few different concepts to speak about a company’s resources. This includes assets, stocks, competencies and skills. Such proliferation of terms is a problem for research utilizing resource based view because it is usually not clear what the researchers mean by key terminology. To make things simple, it is better to clarify the terms in a relevant way. Together, assets and capabilities define the set of resources available to the firm.
The resource based view method of analyzing firm’s performance is focused that other vital factors tend to be disregarded. Resources are not valuable of themselves; instead they are valuable because they allow firms to perform activities that in return create advantages for them. The competitive value of resources can be enhanced or eliminated by changes in technology, competitor behavior, or buyer needs which an inward focus on resources will overlook. Resource uniqueness is essential as this differentiates between the firms. However, resource uniqueness is not sufficient to achieve sustainable competitive advantage and thus the resources must also be valuable, rare, imperfectly imitable and non-substitutable. Resource based view suggests that business processes that exploit valuable but common resources can only be a source of competitive equality; business processes that exploit valuable and rare resources can be a source of temporary competitive advantage; and business processes that exploit valuable, rare, and costly-to-imitate resources can be a source of sustained competitive advantage.
One of the important contributions of resource based view is the ability of it to measure and identify the internal environment of the firm. The importance of using resource based view as a strategy route is to be able to work the inside-out approach. This means that companies using resource based view focus on their internal strengths more as it is the root of their competitiveness. Furthermore, resource based view recommends that effective management of operations can create uniqueness in the firm’s resources. Louis Vuitton is one firm in a competitive industry which has the edge over their competitors because of their product uniqueness. Louis Vuitton’s expertise’s are their design skills and manufacturing efficiency. While they may not be able to control the external environment, Louis Vuitton can use the resource based view model and analyze their position and work on their strategies.
Many organizations have been faced with dilemmas on how to use their resources strategically. Organizations that fail to efficiently convert their resources and capabilities into business processes cannot expect to recognize the potential competitive advantage of these resources. The resource based view has little contribution in terms of predicting firm performance because of its nature of being tautological and its focus is too narrow. Also, as a measure which only focuses on the internal environment, the resource based view cannot be taken as the ‘best strategy’ route. Many firms which focus mainly on the internal environment encounter competitive disadvantages to their business. For example, when IBM, a successful company achieved its success many of their competitors entered into the market. IBM’s competitors included other big names such as Hewlett Packard (HP), Dell and Compaq. IBM did not pay close attention to their competitors because they were focused greatly on their internal strengths and not those of their competitors. Some other firms which have experienced failures from the strategies are Marlborough. Marlborough took the price cut strategy too far as they did not consider their competitors possible moves. The CEO of Marlborough started a price war by reducing their prices to attract consumers and gain more market share. However, their competitors also followed in reducing their prices which resulted in Marlborough facing losses.
Resource based view is not the only factor which determines performance of the firm. In industries such as the airline industry, other external factors such as timing and marketing are also essential. Entering into the industry requires good timing and this can be influenced by the economic position and consumer choice of quality and lower price. For example, Southwest airlines which are one of the well-known low cost carriers in the United States used the niche market strategy to maintain competitive advantage from its rivals. They avoided large airports, focused mainly on short flights which are ideal for families and business people, as well as excluded seating requirement and on flight meals to reduce their cost.
Assets mean anything intangible or tangible that the firm can utilize for producing and creating in its process to a market. Assets can be taken as a input or output of a process. It can also be tangible and intangible. In other words, capabilities change inputs into outputs of greater worth. Capabilities includes processes and skills.
Since years ago, there are big collections of contributions in the areas of strategic management and economics which find to change the term of resource based view or utilize it as a framework to solve empirical questions. Meanwhile, the basic propositions of resource based view have increased explained. In summary, the initial contribution of the resource based view of the company to date has been as a concept of competitive advantage. The start is with an assumption which the wanted outcome of managerial effort within the company is sustainable competitive advantage. Achieving such a level enables the company to earn economic rents instead. This also concentrates on how the company achieve and maintain advantages. The resource based view argues that the answer to such question stays in the possession of important resources which have certain characteristics like barriers to duplication and value. A sustainable competitive advantage can be achieved if the company effectively uses the resources in its product markets. Resource based view focuses the strategic choice, charging the company’s management with the crucial tasks of developing, identifying and utilizing important resources to maximize returns.