Introduction
Resource based view is an approach used by management as a tool to formulate its business strategy using its core competencies from its unique resources and capabilities (Henry, 2007). This is an approach that regards a firm internal environment rather than the external factors. Using the SWOT analysis, it highly considers the Weaknesses and Strengths rather than the Opportunities and Threats.
“SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.” (Mind Tools, n.d.).
The advantage of using the Resource based View is that a firm is able to concentrate of the factors that are in its internal control and thus the management can manipulate these factors to ensure that the firm achieves the set targets (Comeford & Callaghan, 2011).
This paper presents the information resources that are necessary in completing RBV analysis. It looks and analysis the Economic Value Added (EVA), and resources and a firm’s distinctive capabilities that separate it from other firms in the quest to have a competitive edge over them
Economic Value Added
Economic value added is defined as a measure of a firm’s financial performance based on the residual wealth which is obtained by subtracting the cost of capital from the operating profit (investopedia.com). This seeks to obtain what is the true economic profit of a company. It is obtained by the formula:
Net Operating Profit After Tax (NOPAT) – (Capital* cost of Capital)
This measure is the most successful metric of performance since it considers cash as the key point in all its measurements. The approximations are few and this ensures that it gives a clearer picture of the firm’s financial performance.
Resources
Resources are the key inputs into a company’s production processed. This is because resources occur in all stages of company’s operation (Connely, 2010). They may be tangible or intangible. Examples of tangible resources are physical, financial, and human resources.
Physical resources are resources that are made by man through his abilities. They include Buildings, equipment etc. a company that has physical resources usually is able to minimize its costs of production thus having quality product to the customers at a lower price than the competitors or having high value products at the same market prices (Zahorsky, 2009).
Financial resources are the most important physical resources that a company may have. A firm that has enough finances will often have low debt capital and this ensures that it has high returns on investment.
Human resources are a key part of a company’s resources. This is because a firm that has skilled human resource will always have better quality products than the competitors. A firm should pursue to have skilled human resource as this will ensure that its production process is manned by qualified personnel and thus result to high quality products that will ensure that customers derive quality for their money.
Intangible resources
These are resources that are not visible but are important in a company’s production and subsequent quality goods. They include Technical resources, Intellectual resources, and goodwill.
Technical resources are the resources that a company has in its technological operations. A company takes advantage of technical resources where it has personnel who have great expertise in areas of production. This expertise knowledge enable it to produce unique products to the market thus take advantage of the inability of the competitors to have similar knowledge in production.
Intellectual resources are available to a company that has carried research and came up with an intellectual product that it reserves the intellectual rights. Such intellectual resources are not available to other companies thus giving the firm a competitive advantage over others (Henry, 2007). The firm is able to uniquely employ these resources to increase its profitability and thus add to its EVA.
Goodwill is an asset to any company. It helps a company to be able to operate at an advantageous position relative to the competitors. Good will comes through convenience locations of businesses, first presence in a market such that a company enjoys the first mover advantage, and also customer loyalty. Goodwill is an important resource to a firm since enables a firm to operate at a better position than the competitors.
Distinctive capabilities
A company uses its distinctive capabilities to carry out production in a manner that is superior to other companies in the market. This enables the company to produce at low costs or to produce high value commodities. They include architecture, reputation, and Innovation (Comeford & Callaghan, 2011).
Architecture provides a company with a multidimensional view of business capabilities and all other operations that ensure that the company’s products are of high quality (investopedia.com). It includes governance, structures, value chains etc. it is therefore an important tool that ensures the company has a holistic approach to production (Zahorsky, 2009).
This is important as the company is viewed as a single large unit that operates as a whole structure. Reputation is the overall view that various stakeholders hold on a company. This is usually due to its past ways of handling things and also the expected future behavior.
The advantage of reputation is that suppliers will always want to do more business in the future with the firm, and also the firm can charge a premium on its product (Connely, 2010). This increases the firms EVA. It can however be easily tarnished when competitors expose the abuse of the firm’s reputation through their marketing and advertising strategies.
Innovation is the ability of a company to come up with new or improved products that better appeal to the consumers. Companies that opt for innovation often experience high profits since they modify their products in such a way that they are providing higher utility to consumers than other substitute products.
Innovation can however be imitated and this may cause a company losses more so when it marks up its products prices to cover the cost of research and development.
References
Comeford, R., & Callaghan, D. (2011). Environmental, industry, and internal analysis. London: Prentice Hall.
Henry, A. (2007). The Internal Environment of an Organization. London: Oxford University Press.
Mind Tools. (n.d.). SWOT Analysis Discover new opportunities. Manage and eliminate threats. Web.
Zahorsky, D. (2009). A business owner’s Secret Weapon: Swot analysis. New Jersey: Mc Graw Hill.