The Resource-Based View
Introduction
As part of the strategy of the organizations to have growth and development in their business performance, the adoption of changes and providing the necessary technology to assist the organization became the most common method. And as part of the approach in strategic management is to have a business model that will satisfy the objectives of the organization. The establishment of the business models is good indicators that the business’s operations and performance has a strong basis and the external changes in the business environment cannot easily shake the foundation of the organization. However, choosing the appropriate business model for the organization can be difficult for each organization especially in the advent of organizational change. Through addressing the concepts of the business models, the organization can adopt the relevant business framework in which their future growth, strategies, and performance are based.
The aim of the paper is to investigate the facts about the business models particularly regarding on resource-based view (RBV). The rationale of the paper is to critically discuss the conceptual and practical difficulties in the implementation of RBV within in an organization. In order to gather the necessary information associated and relevant to RBV, there are objectives needed to be satisfied. First is recognizing the advantages and disadvantages of applying the RBV as a model strategy in the organization. Second is addressing the organization/s that uses the concept of RBV as part of their organizational strategy. Third is to discover the issues that might associated towards the difficulties of implementing the strategy as well. And fourth is to discover some ways in which the organization can modify the RBV strategy to at least minimize its negative effects in the organization.
The Business Performance in the Midst of Globalization
Some managers believe that if their management has been effective in the past, it will also be effective in the future. But such attitude can be the advent of the organization’s downfall. It is dangerous to anticipate the changes but without the commitment for change. Therefore, an organization should “renew” their policies and plans based on the right management that is accord in changing times. Hence, the influence of the globalization is clearly interpreted by the modern-day organizations in which made them capable to adopt the certain changes. Management is an activity that has the ultimate goal of securing the happiness of man and having the right management philosophy and business approach is vitally important. Within that aspect, the policies or plans which embody the entire organizational strategy and applied in the daily business interactions are always subject to changes; accordingly, they should change with the times. The society is constantly changing and evolving, so the company must, for steady growth, not only adapt itself to social changes but also take necessary measures in the anticipation of changes.
Within the discourse of the strategic marketing, it is believe that the ideas and concepts applied where heavily influenced from the strategic management. Since both fields are concern with the relationship of the organization in the environments, still the strategic management hosts the marketing processes (Smithee & Fahy, 1999). As popularized by Michael Porter in 1980, there are industry analyses that are used by the organizations with a purpose to analyze the environment and techniques. Through the portfolio matrices that are obviously drove from the business and its environment, it is expected that the direction of the organization might be focused on the philosophy of marketing such as segmentation, product-life cycle, and its position in the market (Day, 1992).
One common type of change that became appealing in the modern organizations is the contribution of the information technology or IT in the business. The performance of most of the modern business were identified from two main perspective which is firstly related to the strategy as positioning perspective and the other is the resource-based view perspective. There is a unique difference in between these perspectives wherein the strategy to create positions usually underlines within the marketing power and plays an imperative role in the organization; while the resource-based view conceptualizes the organization as a bundle of unique resources (Rivard, Raymond, Verreault, 2006). Most of the organizations adopt the resource-based view (RBV) with an aim to reflect the role played by the IT and strategize the effective ways in which the organization can receive most of its benefits. Through the use of such business model, the firms believe that they encapsulates the effects of IT support and other related technologies as part of the business strategy and guide the organization to achieve their anticipated business performance.
The Resource-Based View of the Firm
In the continuous search of the managers in improving the performance of the organization, they eventually create criteria in order to satisfy the objectives of the organization. Most of the desirable outcome in the unique strategy is manifested in excellent service, technical know-how, responsiveness in the market needs, design and engineering capability, and the financial resources. The organization’s desire to anticipate the changes and compete with their contemporaries results in the organization’s focus on the resources and capabilities which can be typically crucial to align with the firm’s current performance. Therefore, the resource-based view (RBV) model is adopted.
The RBV model as the rigorous model for the purpose for analyzing the firm’s strengths and weaknesses have basic assumptions which come in to two factors. First, is the resource or the capability of the organization is heterogeneity which means that there are different firms possesses the bundles of bundles of different resources and capabilities; and second is that the resource and capability are immobile which means that these resources and capabilities are inelastic in terms of supply or can be expensive when another organization attempted to copy it. In addition RBV hypothesizes that the source of value creation are the resources and capabilities which arrives in the simple representation as [Value = Consumer surplus + Producer profit] and if it is applied continuously, the organization can outperform the industry norm and have an advantage to create more value that of the competitors (Jacquier, 2010).
The RBV is described to be the one of the latest concepts in strategic management which builds the earlier works of the industrial economists. In the holistic view of this approach, the RBV deals with the competitive environment which is appropriate with the environment of the modern organizations but it takes an “inside-out” approach so thus, the starting point of the strategy is within the internal environment of the organization. If the Porter’s approach is based on the external (“outside-in”) perspective, the RBV is accepted as an alternative perspective because it emphasizes the internal capabilities. Therefore, formulating the strategy from utilizing the resources and capabilities is vital in order to achieve the sustainable competitive advantage because the organization has the perspective in the “inside-out” attributes of the organization. According to Hooley and the associates (1997), the framework in analyzing the performance towards the international markets describes the dimension in which the organization can use to gain the position in the market.
The Issue and Criticisms
Since the nature of the firms are seeking the theory of competitive advantage, the model of “resource-based” is an appealing strategy which does not limit itself in the field of the strategic management but also in strategic marketing. However, when it is practically implemented in the organization, it appears that its true meaning is lost because of the difficulties in understanding its own concept. Even Hooley, Moller, and Broderick (1997) criticize the RBV because of its assumptions which derive in the idea that the model ignores the risks which usually involves in every market. If we are going to justify this argument, it will highlight the idea that risk unidentified in the market can affect the entire performance of the organization and will fail to achieve the competitive advantage because the environment and organization are linked in each other.
Therefore, uncertainty in the market is a great for the organization applying the RBV much more if the managers or leaders do not anticipate any drastic changes. This idea is supported by various analysts and concluded that the organization should firstly fully understand the perspective before adopting it (Smithee & Fahy, 1999). As according to Collis (1991), there is no logical body of theory to support the RBV or at least explain the framework of the approach which often leads the management in false start upon its adoption. The RBV were plagued with the issues regarding the inconsistency and vagueness of the RBV from its history up until the process of gaining the competitive advantage. Its application in the strategic management and marketing is also a question and criticism because of the lack of substantial evidences and empirical basis (Deligonul & Cavusgil 1997).
The development of the RBV perspective over the past decade has undoubtedly created a diverse collection of knowledge particularly in the areas of economics and strategic management. The basic propositions of RBV are an applied framework for the organizations for tackling the factors that are associated with the theory of competitive advantage. Based on the study of Smithee and Fahy (1999), they explained that the logic of RBV is very simple. “It starts with the assumption that the desired outcome of managerial effort within the firm is a sustainable competitive advantage (SCA). Achieving a SCA allows the firm to earn economic rents or above-average returns and in turn, this focuses attention on how firms achieve and sustain advantages” (Smitee & Fahy, 1999). These means that the RBV have the answers through the questions regarding the resources through the careful examination of the characteristics of the resources, their value, potential in duplication, and their appropriateness in the organization. In short, the firm can obtain the SCA if they manage effectively and deploy these resources in the markets. In general, the application of RBV in the organization is not an ordinary model but rather emphasizes the strategic choice of the firm itself.
The possibility of utilizing the RBV in its utmost advantages can be applied by the organization only if the management can identify the suitable tasks, develop, and deploy the important key resources in order to maximize the returns. This creates an impression that the managers should undergo in the process wherein they have to look for the elements or details involved in RBV. The first problem that RBV might deliver in the business is the fact that the business firms are unique even though they are under the same industry or nature of business, the firms will stay unique because of the resources and their level of capabilities. Therefore, the management that are under the influence of RBV should discover the strengths and weaknesses of their model – not by comparing the RBV applied by their competitors nor imitating the RBV process – in order for them to capture the essence of SCA. Remember that the business operations or performances are associated with its environment and the changes that may appear in either the business or environment will create a reaction on both parties. The role of RBV is to use the “internal factors” of the business (since it’s difficult to manipulate the business environment) to administer its continuous growth, because the managers know the abilities and the potentials of the organization in performing even in the midst of changes. This idea is the missing gap in understanding fully the RBV process and the misinterpretation of the model plagues and develops problems in the strategic management.
Organizations with RBV Model
The entry of the firm in the market is possible. Its business strategies are grounded in sustainable competitive advantage or position in the marketplace (Oliver, 1997). This is true in the modern-day organizations because of their potentials in bringing their business abroad. However, the challenge is to maintain and sustain their performances to be effective and competent in their respective industries. The operations-led perspective of the organizations makes the firm excellent in their operations that make the entire management drive their organizational strategy. The RBV that dominates the strategic management literature became the premise for most of the organizations in a way in which the organization can acquire, develop, and deploys their resources towards the superior performances and builds the capabilities in the marketplace (Barney, 1991). Thus, this process was materialized in the organizations strategic development, but with the foundation of intent understanding on their current operational capabilities so as analyzing the next movements in the future. The organizations can use the knowledge from the RBV to have a strong basis on their decision making to appropriately use the resources and capabilities in their chosen market. Mills, et.al, (2002) and Hayes, et al., (2005), explained that without the confusion on the RBV, the organizations can develop new methods that can prevent the other competitors in attacking their business performance if and only if, the organization managed to apply the essence of RBV in their practice. Developing the methods, such as the research is not an easy task because the manager needs to analyze the operations involve in the organization as well as the underpinned activities that can be found on those operations. Learning the essences and significant contribution of each activity will make the entire operation worthwhile. Because managers can weigh the advantages and disadvantages that lies on those activities, the managers can improve or re-define the activities that may suitable with the organization’s resources and capabilities.
As an example, Zara (under the fast-fashion industry) deliberately developed their processes to identify the valuable activities that will aid the organization to meet their objectives and be success in the industry. Accordingly, the organization has six resource categories, which are not mutually exclusive, are used: tangible resources, knowledge resources skills and experience, systems and procedural resources, cultural resources and values, network resources and resources important for change. The resources are evaluated against three criteria: value, sustainability and versatility. Resources that individually or collectively score highly in these criteria are considered to be important resources. They are sources of existing or potential competitive advantage to the organization (Tiplady, 2006).
The influence of Prahalad and Hamel (1990) about the core competence of the organization through the internal analysis is the said origin of the RBV but apparently there are only few organizations who managed to apply the teachings of RBV. As a strategic approach, another organization used the RBV to their advantages –Honda. Since the focus is based on the resources, the organization has the opportunity to use their resources and leverage it in many ways. No wonder why the organization managed to drive in the idea of expansion and product diversification to increase their competitiveness. Honda built its strategy through strengthening the petrol-based engine of their manufactures vehicles. Through their continuous development on the products, the Honda’s performance slowly excelled. Furthermore, the organization competes in the market with their products by leveraging the common resource with a purpose to build the petrol-based engines. Thus, the popularity of the RBV ran across the industries, particularly in the logistics. RBV, when applied wisely, can satisfy the objective of the organizations to minimize the costs of production while at the same time, gaining more profits in return.
Like what the primary problem we elaborated earlier, the investigation of Rumelt (1991) proved that the RBV is a great strategic approach to an organization but the differentials that are found in various industries creates an impact on what the organization’s strategic management. This supports the evidences that the very reason why the RBV fails in most of the organization because the people overlook the differences within the industries and across the industries. Those specific differences largely affect the internal activities that are happening inside the organization and if the firm endured to allow the changes entered in their operation, the organization will also contributes in the differences in the environment and thus push another series of changes. However, the perspective of RBV does not only apply on the profit-gearing organizations but also in the non-profitable organizations because the resources are meant for the fixed assets. This makes the managers or leaders be more focused on the internal factors.
Another organization that used the RBV approach is Toyota and their popular inbound logistics. This practice in manufacturing makes the organization effective in delivering the timely response to the needs of the consumers within the line of their operating costs. As an interpretation, the cost is minimized and the profit is generated. The concentration of the organization is on its value chain and operations which resulted in the ability of the organization to promote the quality control systems. In addition, Toyota as part of the strategic management backed the marketing and sales through advertising and dealership networks which made them possible to guarantee the service and provide warrantees. The value chain emphasized by the organization became the significant link in the Japanese management and philosophy which in return provides the competitive advantage and difficult to match. Other manufacturing companies under the same automobile industry that was thunderstruck by the performance of Toyota attempted to follow the example of the organization. However, the possibility for failure is relatively high because they are only imitating the strategy and not clearly looking on their capabilities. The primary concern of the RBV emerges in the issue that the strategic management should interpret the concept of “strategy” wherein the management should investigate their capabilities, capabilities, and other internal aspect.
Another organization falls under the service industry – McDonalds. McDonald applied an essential step in translating directions and operating practices into capabilities. The idea RBV is manifested in their routine in every McDonald such as operating manuals that provides precise directions for the conduct of every activity. In the continuous practice or repetition, the operating manuals are referred in the course of day-to-day operations, the tasks become a routine. In addition, this allows the McDonald’s outlets worldwide to produce the standard fast food products. The successful firms used the knowledge as part of the fundamental transformation in their enterprises. Moreover, the McDonald’s and other companies pioneered the transformation through systematization which is appropriate in their processes (Yan, 2007).
Since the resources and capabilities of the service organization falls primarily in the idea of “quality service”, McDonald did not waste much time looking for strategies to compete in the market but rather nurtured the given opportunity. If the routines develop learning by-doing, and this was supported by the knowledge, then, the idea of systematization is easy. The idea of systematization underlies in the capability of the standard operating procedures of one company to disseminate in all over the outlets or branches the McDonalds may have. The business system that the company has is guided by the operating procedures and training manuals that governs the operation and maintenance of each restaurant. The idea of systematization presumes that the firm can more fully articulate the processes as part of its capabilities.
Recommendations
The most common reason on why the RBV fails or associated with various risks is that the management did not perform its function in conceptualizing the essence of the model. Basically, the managers think holistically that the firms under the same industry are alike and might face the similar industry conditions. The classical economic idea about “other things being equal” only applies in the degree wherein these companies have the respect to gain profitability. According to Porter (1980), the structure of the organization determines its position in the market and making it competitive and profitable. The same is true in the RBV wherein the structure of the organization should be different from the other firms because of its unique cluster of resources and capabilities that can be the greatest advantage of the organization in its contemporaries. Thus, the misinterpretation of the RBV will definitely drag the organization into a state of confusion. If we take another practical example such as in school; we all know that the students are all the same – maybe in uniforms, school materials, amount of teaching they receive and the fact that they are under the same institution. But in some manner, they are different. The students have different needs, interests, and the level of performances which can be also found inside the organization.
For the company, the strategy is concerned with matching a firm’s resources and capabilities to the opportunities that arise in the external environment. The resources and capabilities of a company are considered as a strategy. The increasing emphasis on the role of resources and capabilities as the basis for strategy may come in to two factors. First, the industry where the firm belongs became unstable and so the internal resources and capabilities of the firm are given more focus in formulating strategies. And second, the combination of the resources and capabilities of the firm became the superior competitive advantage and profitability (Yan, 2007).
The connection between the resource and capabilities of a firm in the area of business makes a competitive advantage. It is because the capabilities and resources allow the organization to create value and gain some form of advantage from the rivals. The capabilities and resources may include the degree of business cycle literacy of the top of management team; deployment of various forecasting resources; a facilitative organizational structure that facilitates timely acquisition, processing, and dissemination of macroeconomic information as well as timely decision making relative to rivals; the observable application of a set of business cycle-sensitive management principles; and a supportive organizational culture that supports the firm’s management activities (Navarro, 2005).
In order to appropriate use the effectiveness of the RBV the management should understand that corporations are different; most of them have the ability to undergo the risk of rapid changes. And in their recognition to the human resources and investments, corporation still have the ability to create cooperative and productive behavior, despite of the massive agency and organizational costs. The resource-based view approach enables the firm to have unique resources and capabilities and used as an advantage to excel in the marketplace. This influential approach defines the capabilities as the firm’s core resources, which makes the firm as a whole. The capabilities lie within a firm’s infrastructure, reflect both the firm’s human resources and routines which is most of all, difficult to duplicate or replicate by the competitors (Chatterji and Richman, 2008). Through learning the essence of the RBV, from there the organization can implement the knowledge management to strengthen, improve, and increase their resources and capabilities. Furthermore, based on the studies of Barney (1991) the organization should provide checklist or criteria to determine the key characteristics of the resources to be strategically important (Powell, 2007).
(a)Valuable – There is no point having a resource if it does not deliver value to the firm.
(b) Rare – Resources that are owned by a large number of firms cannot confer competitive advantage, as they cannot deliver a unique strategy vis-Ã -vis competing firms.
(c) Inimitable – Resources can only be sources of sustained competitive advantage if firms that do not possess these resources cannot obtain them.
(d) Non-substitutable – There must be no strategically equivalent valuable resources that are themselves neither rare nor inimitable.
Once the resources have been acquired it doesn’t actually ends there, the organization have the chance to use the opportunity to help them gain the competitive advantage through the continuous development of the resources and capabilities to deploy them precisely and effectively. However, these competencies may take a long journey and the management should expect the challenges that will meet them in their way to success (Powell, 2007).
Conclusion
The resource-based view approach is an appealing model but is plagued with criticisms and difficulties in applying the perspective in the organization. The primary reason is that the organization fails to understand the concepts behind the RBV. The misinterpretations of the business managers became a critical starting point of deploying the resources and capabilities identified. Based on the review on the performances of other organizations, the success they gained in applying the RBV is an important strategy to find competitiveness. The primary idea that RBV principle wants to tell is that the industries and firms under them are different and so thus the resources are unique. The relationship of the business in the environment is also important because of the reaction that each of them receives and give. Therefore, the organization is advises to identify the internal opportunities.
References:
Barney, J. B., (1991) Firm Resources and Sustained Competitive Advantage, Journal of Management, 17 (March): 99-120.
Chatterji, A., & Richman, B., (2008) Understanding the “Corporate” in Corporate Social Responsibility, Harvard Law & policy Review, Vol. 2.
Collis, D. J., (1991) A Resource-Based Analysis of Global Competition: The Case of the Bearings Industry, Strategic Management Journal, 12 (Summer): 49-68.
Day, G. S., (1992) Marketing’s Contribution to the Strategy Dialogue, Journal of the Academy of Marketing Science, 10 (May): 323-329.
Deligonul, Z. S., & Cavusgil, S.T., (1997) Does the Comparative Advantage Theory of Competition Really Replace the Neoclassical Theory of Competition?, Journal of Marketing, 61 (October): 65-73.
Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge, New York: John Wiley.
Hooley, G., Moller, K., & Broderick, A., (1997) Competitive Positioning and the Resource-Based View of the Firm, Aston Business School Research Paper Series, RP9726
Jacquer, B., (2010) The Resource-Based View of the Firm (RBV) [Online] Available at: http://www.ecofine.com/strategy/RBV%20of%20the%20firm.htm [Accessed 16 February 2011].
Mills, J.F., Platts, K.W., Bourne, M.C.S.B and Richards, H. (2002) Competing through Competences, Cambridge: Cambridge University Press.
Navarro, P., (2005) The Well-Timed Strategy: Managing the Business Cycle, California Management Review, 48 (1).
Oliver, C., (1997) Sustainable Competitive Advantage: Combining Institutional and Resource-Based Views. Strategic Management Journal 18(9): 697-713.
Porter, M.E., (1980) Competitive Strategy, The Free Press: New York
Powell, T., (2007) Encyclopaedic Dictionary of Strategic Management [Online] Available at: http://tamanpowell.com/Writing/assets/Resource%20Based%20View.pdf [Accessed 16 February 2011]
Prahalad, C. K. & Hamel. G., (1990) The Core Competence of the Corporation, Harvard Business Review, 68 (May-June): 79-91.
Rivard, S., Raymond, L., & Verreault, D., (2006) Resource-Based View and Competitive Strategy: An Integrated Model of the Contribution of Information Technology to Firm Performance, The Journal of Strategic Information Systems, 15 (1)
Rumelt, R. P. (1991) How Much Does Industry Matter? Strategic Management Journal, 12(3): 167-185.
Smithee, A., & Fahy, J., (1999) Strategic Marketing and the Resource Based View of the Firm, Academy of Marketing Science Review, No. 10
Tiplady, R., (2006) Zara: Taking the Lead in Fast-Fashion, Bloomberg Businessweek,
Yan, L., (2007) Analyzing Resources and Capabilities [Online] Available at: http://www.blackwellpublishing.com/grant/files/CSAC05.pdf [Accessed 16 February 2011].
0 comments:
Post a Comment