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The Resource Based View of The Firm

The document discusses the differences between the Industrial Organization (IO) perspective and the Resource-Based View (RBV) of firms. The IO perspective views firms as identical and focuses on external environmental conditions, while the RBV sees firms as heterogeneous based on their unique, idiosyncratic resources. The RBV argues that resources must be valuable, rare, imperfectly imitable, and non-substitutable to provide sustainable competitive advantage. The document then defines assets, capabilities, competencies, and how competencies can provide a competitive advantage if they are valuable, rare, imperfectly imitable, and their benefits can be exploited by the organization.

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Hassan Bin Shahid
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620 views

The Resource Based View of The Firm

The document discusses the differences between the Industrial Organization (IO) perspective and the Resource-Based View (RBV) of firms. The IO perspective views firms as identical and focuses on external environmental conditions, while the RBV sees firms as heterogeneous based on their unique, idiosyncratic resources. The RBV argues that resources must be valuable, rare, imperfectly imitable, and non-substitutable to provide sustainable competitive advantage. The document then defines assets, capabilities, competencies, and how competencies can provide a competitive advantage if they are valuable, rare, imperfectly imitable, and their benefits can be exploited by the organization.

Uploaded by

Hassan Bin Shahid
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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THE

RESOURCE

BASED VIEW FIRM

OF THE

INDUSTRIAL ORGANIZATION(IO)
IO is a branch of microeconomics that seeks to theorize and explain the economic behavior of firms, as individual entities, within market structures and in reaction to public policies. Takeovers and mergers, deregulation and privatization, the increasing globalization of competition and political concerns regarding national competitors are issues that sit squarely within the domain of IO

INDUSTRIAL ORGANIZATION VS. RBV


Industrial Organization (IO) Some Authors: Focus Porter, Rumelt Externaldescribes environmental conditions favoring high levels of firm performance Firms within an industry have identical strategic resources. Resources are highly mobile (easily bought and sold) and therefore homogeneous. Resource Based View (RBV) Barney, Wernerfelt Internaldescribes firms internal characteristics and performance Firms have idiosyncratic, not identical strategic resources. Resources are not perfectly mobile and therefore heterogeneous.

Assumptions:

RESOURCE BASED VIEW


Relationships between a firms resources and competitive advantage An organization can be regarded as a bundle of resources and that resources are simultaneously valuable, rare, imperfectly imitable and non substitutable. (Barney, 1991 & 2002) VRIN or VRIO framework

SUSTAINABLE COMPETITIVE ADVANTAGE


An

asset is anything the firm owns or controls.

Loosely, Asset is to Accounting as Resource is to Management.

Types

of assets:

Physical: plant equipment, location, access to raw materials Human: training, experience, judgment, decision-making skills, intelligence, relationships, knowledge Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships
5

SUSTAINABLE COMPETITIVE ADVANTAGE

A capability is usually considered a bundle of assets or resources to perform a business process (which is composed of individual activities)
All firms have capabilities. However, a firm will usually focus on certain capabilities consistent with its strategy. For example, a firm pursuing a differentiation strategy would focus on new product development. A firm focusing on a low cost strategy would focus on improving manufacturing process efficiency. The firms most important capabilities are called competencies.

DEFINITIONS

A competency is an internal capability that a company performs better than other internal capabilities. A core competency is a well-performed internal capability that is central, not peripheral, to a companys strategy, competitiveness, and profitability. A distinctive competence is a competitively valuable capability that a company performs better than its rivals.
7

EXAMPLES: DISTINCTIVE COMPETENCIES

Toyota, Honda, Nissan

Low-cost, high-quality manufacturing capability and short design-to-market cycles Ability to design and manufacture ever more powerful microprocessors for PCs Defect-free manufacture (six-sigma quality) of cell phones

Intel

Samsung

WHERE ARE WE?


We

are discussing sustainable competitive advantage, and have defined Competencies:


AssetsCapabilitiesCompetenciesCompetitive Advantage

Next

is competitive advantage.

A competitive advantage is simply an advantage you have over your competitors. A competency will produce competitive advantage provided:
A) it produces value for the organization, and B) it does this in a way that cannot easily be pursued by competitors.

SUSTAINABLE COMPETITIVE ADVANTAGE

However, we said the primary objective of businesslevel strategy was to create sources of sustainable competitive advantage (SCA).

To produce SCA, the capability must:


1. 2. 3. 4. Produce value Be rare Imperfectly imitable, i.e. not be easily imitated or substituted Be exploitable by the organization
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NOTES ON SUSTAINABLE
Sustainable is not measured in calendar time. Sustainable does not mean the advantage will last forever. Sustainable suggests the advantage lasts long enough that competitors stop trying to duplicate the strategy that makes the advantage sustained.

11

SUSTAINABLE COMPETITIVE ADVANTAGE


1.

The Question of Value:


Capabilities are valuable when they enable a firm to conceive of or implement strategies that improve efficiency and effectiveness. Value is dependent on type of strategy:
Low cost strategy: lower costs (Timex) Differentiator: add enhancing features (Rolex)

To be valuable, the capability must either


Increase efficiency (outputs / inputs)

Information system reduces customer service agents required, or increases the number of calls the same number of agents can answer

Increase effectiveness (enable some new capability not previously held)

Opening a new regional campus enables outreach to a new market of students


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SUSTAINABLE COMPETITIVE ADVANTAGE


2. The Question of Rareness:

Valuable resources or capabilities that are shared by large numbers of firms in an industry are therefore not rare, and cannot be a source of SCA. Given the following, which are rare?
A web server An MIS instructor A state-of-the-art stamping press

None of these are rare. Some researchers think only organizational assets or resources are rare (such as culture). What do you think?
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SUSTAINABLE COMPETITIVE ADVANTAGE


3. The Question of Being Imitable
Valuable, rare resources can only be sources of SCA if firms that do not possess them cannot obtain them. They must be imperfectly imitable, i.e. impossible to perfectly imitate them. Ways imitation can be avoided: Unique Historical Conditions Causal Ambiguity (why resources create SCA is not understood, even by the firm owning them)

Imitating firms cannot duplicate the strategy since they do not understand why it is successful in the first place.

Social Complexity (trust, teamwork, informal relationships, causal ambiguity where cause of effectiveness is uncertain)

E.g. A competitor steals all the scientists in an R&D lab and relocates them to a new facility. But, the dynamics, culture and atmosphere are not the same.
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SUSTAINABLE COMPETITIVE ADVANTAGE


4. The Question of Substitutability

There must be no equivalent resources that can be exploited to implement the same strategies. Forms of substitutability:

Duplication: Although no two management teams are the same, they can be strategically equivalent, produce the same results. Substitution: Very different resources can be substitutes, e.g.

A charismatic leader with a clear vision vs. a strategic planning dept. A superior marketing strategy for a recognized brand name. A superior technical support group for an intelligent diagnostic software package
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SUSTAINABLE COMPETITIVE ADVANTAGE


5. The Question of Exploitation:

Later research qualified this as another criteria for SCA. Is a firm organized to exploit the full competitive potential of its resources and capabilities? Are systems in place to enable firms to support the execution of a particular strategy?
Xerox, e.g

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ECONOMIC PERFORMANCE
Valuable? No Rare? -Costly to Imitate? Exploited by the Organization? Competitive Implications Competitive Disadvantage Competitive Parity Temporary Competitive Advantage Sustained Competitive Advantage Economic Performance Below Normal

--

--

Yes

No

--

--

Normal

Yes

Yes

No

--

Above Normal

Yes

Yes

Yes

Yes

Above Normal

17

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MARKET SHARE TELECOM COMPANIES IN PAKISTAN


Mobilink ; 37% Ufone ; 21 % Telenor ; 20 % Warid ; 17 % Zong ; 5%

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