Resource Based View (RBV) of Competitive Advantage

Jay Barney’s approach is known as resource based view of competitive advantage operates on the assumptions that firms are heterogeneous in terms of their control of important strategic resources and that resources are not perfectly mobile between firms. Firm resources are defines as strengths that firms can use to conceive of and implement their strategies. Classifications of resources are physical capital resources, human capital resources and organisational capital resources. Physical technology, plant and equipment, geographic location and access to raw materials come under physical capital resources. Human capital resources are the training, experience, judgement, intelligence, relationships and insight of the individual managers and workers of the firm. Organisational capital resources include the formal reporting structure, the informal and formal planning, coordinating and controlling systems, the informal relations among groups within a firm and other agents in the firm’s environment.

Summary of resource based view is that firm can only have a sustained competitive advantage if it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and controls its physical, human or organisational resources that are valuable, rare, inimitable and non-substitutable. In analyzing sources of competitive advantage, the resource-based view has two assumptions. Firstly, a firm within an industry may be heterogeneous with respect to the strategic resources they control. Secondly, the model assumes that these resources may not be perfectly mobile across firms, and thus heterogeneity can be long lasting. The resource-based model of the firm examines the implications of these two assumptions for the analysis of sources of sustained competitive advantage.

However, the strategist needs to evaluate the options and make the strategy selection based on some conditions. Firstly, the strategy must give the organisation an excellent chance of meeting its targets and protect it from risks that might drag its performance below target levels. Secondly, the strategy must make use of all the organisation’s most impressive strengths and correct all major weaknesses. Finally, it must reduce the impact of threats and exploit all high potential opportunities.

Once the strategic choice is made, implementation is conducted within the framework of action plans. Strategists prefer to focus on revising an existing strategy in an innovative way rather than generating a new one from scratch. They need to consider all the factors of McKinsey 7S model for implementation which are all interdependent. Restructuring management is the hardest job for strategists where co-ordination of the organisation’s operations is the main key.

Feedback and control will be the final stage of strategic management process. This stage involves a continuous monitoring of the strategies and action plans. Its purpose is to give the organisation the opportunity periodically to both control the progress and to review the whole strategic direction that has been selected. This final stage is conducted at three levels of the organisation: operational level, business unit and corporate level.

Today managers are moving manufacturing offshore to lower costs of labor, rationalizing product lines to capture global scale economies, instituting quality circles and just in time production, and adopting Japanese human resource practices. It was believed that the application of concepts like ‘strategic fit’ (between resources and opportunities), ‘generic strategies’ (low cost, differentiation and market focus) and the ‘strategy hierarchy’ (goals, strategies, and tactics) have often aided the process of competitive advantage. Most companies have approached competitor analysis that focuses on the existing resources like human, technical and financial of present competitors. Whereas, the only threat those companies aware are those with the resources to erode margins and market share in the future.

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