Resource-Based View
Prof. Arindam Mondal
XLRI Jamshedpur
The object of strategic analysis…
◼ The key question strategic management discipline attempts to
answer is “why do some firms persistently outperform others?”
◼ Two possible explanations
❑ It’s something to do with the industry in which they operate (industry
structure shapes a firm’s conduct, which defines its performance)
❖ External analysis - Porter 5 Forces
❑ It’s something the firm owns or controls (no two companies are alike
because no two companies have had the same set of experiences; acquire
the same assets and skills, or built the same organizational cultures.
❖ Internal analysis, the Resource based view of the firm
Porter’s Winning Formula
Pick a business in an attractive industry in which you can
excel. Notice that Porter’s Framework stressed rivalry
and competition. Therefore, an attractive industry is one
in which one can achieve as close to a monopolistic
position as possible. In turn, the firm’s strategy is to
achieve sustainable competitive advantage by beating
their competitors, if not in all aspects, at least in those
activities that are most crucial to competition.
Strategy is War!
Porter’s Framework: Explaining the
Profitability of a Business
Competitive Positioning Industry Structure
Achieving sustainable Factors affecting
competitive advantage industry profitability
Strategy Formulation
and Implementation
Defining and executing
the managerial tasks
If Industry Mattered Most…
a a b b b b c c c c c c
In fact, Firms Matter Most…
a a b b b b c c c c c c
Shifting the Focus from the External
to the Internal Environment
THE FIRM THE
INDUSTRY
• Goals &
Values ENVIRONMENT
• Resources & STRATEGY •Competitors
Capabilities
•Customers
• Structure &
•Suppliers
Systems
The The
Firm-Strategy Environment-Strategy
Interface Interface
7
So, what resources do firms need?
[Resources are the things firms use to create its
products and services]
◼ Something that makes them distinctive, different,
unique…
◼ Distinctiveness stems from unique resources…
❑ Create products of value to customers
❑ Not available off the shelf
❑ Are hard to imitate (barriers to imitation - not entry)
The Resource-Based View
Definition: Resources and Capabilities
Resources: Loosely, “Asset” is to Accounting as
“Resource” is to Management.
• tangible and intangible assets of a firm
» tangible: factories, products
» intangible: reputation
• used to conceive of and implement strategies
Capabilities:
• a tacit level of resources that enable a firm to
take full advantage of other resources
» marketing skill, cooperative relationships
The firm’s most important capabilities are called competencies (core).
IO vs. RBV
Industrial Organization (IO) Resource Based View (RBV)
Prominent Porter, Rumelt Barney, Wernerfelt
Scholars:
Focus External-describes Internal-describes firm’s
environmental conditions internal characteristics and
favoring high levels of firm performance
performance
Assumptions: Firms within an industry have Firms have idiosyncratic, not
identical strategic resources. identical strategic resources.
Resources are highly mobile Resources are not perfectly
(easily bought and sold) and mobile and therefore
therefore homogeneous. heterogeneous.
The Resource-Based View
Two Critical Assumptions of the RBV
• Resource Heterogeneity
» different firms may have different resources - 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
» it may be costly for firms to acquire or develop them
» some resources may not spread from firm to firm easily
The VRIO Framework
If a firm has resources that are:
• valuable (firm’s resources and capabilities enable the firm
to respond to environmental threats or opportunities),
• rare (resource is currently controlled by only a small
number of competing firms), and
• costly to imitate (firms without a resource face a cost
disadvantage in obtaining or developing it, due to unique
historical conditions, causal ambiguity, social complexity,
and un-substitutability), and…
• the firm is organized to exploit these resources,
then the firm can expect to enjoy a sustained
competitive advantage.
Applying the VRIO Framework
The Question of Valuable
• in theory: Does the resource enable the firm
to exploit an external opportunity or neutralize
an external threat?
• the practical: Does the resource result in an
increase in revenues, a decrease in costs, or
some combination of the two?
Applying the VRIO Framework
The Question of Rarity
• if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no
competitive advantage, no above normal profits)
• a resource must be rare enough that perfect
competition has not set in
• thus, there may be other firms that possess the
resource, but still few enough that there is scarcity
Applying the VRIO Framework
Valuable and Rare
If a firm’s resources are: The firm can expect:
Not Valuable Competitive Disadvantage
Valuable, but Not Rare Competitive Parity
Competitive Advantage
Valuable and Rare
(at least temporarily)
Applying the VRIO Framework
The Question of Imitability
• if there are high costs of imitation, then the firm
may enjoy a period of sustained competitive
advantage
» a sustained competitive advantage will last
only until a duplicate or substitute emerges
if a firm has a competitive advantage, others will attempt
to imitate it
» intangible resources are usually more costly to
imitate than tangible resources (Harley-Davidson’s
styles may be easily imitated, but its reputation
cannot)
Applying the VRIO Framework
The Question of Imitability
Costs of Imitation
Unique Historical Conditions
• physical uniqueness: real estate of Tata Group
• path dependence, as the result, competitors can’t
go out and buy these resources instantaneously.
Causal Ambiguity
• would-be competitors are thwarted because it is impossible to
disentangle either what the valuable resource is or how to re-create it.
For example, as Continental and United try to mimic Southwest’s
successful low cost strategy, what will be most difficult for them to copy
are not the planes, the routes, or the fast gate turnaround. All of those
are readily observable and in principle, easily duplicated. However, it will
be difficult to reproduce Southwest’s culture of fun, family, frugality, and
focus because no one can quite specify exactly what it is or how it arose.
Applying the VRIO Framework
The Question of Imitability
Costs of Imitation
Social Complexity
• if the most important resource of a company is a
combination of the strength of its social network,
interpersonal relations, a company’s culture and its
reputation among both suppliers and customers, it is
very hard for competitors to build an identical social
network since it is dependent on so many different
factors.
The VRIO Framework
Costly to Exploited by Competitive Economic
Valuable? Rare? Imitate? Organization? Implications Implications
No No Disadvantage Below
Normal
Yes No Parity Normal
Temporary Above
Yes Yes No Advantage Normal
Sustained Above
Yes Yes Yes Yes
Advantage Normal