Introduction
The resource-based theory basically explores organizations internal capabilities concerning the formulation of strategies that are intended to achieve sustainable competitive advantage both at the market and in the industries where an organization operates.
In fact, this theory deals with the competitive environment of an organization but applies the inside-out approach. The theoretical analysis starts with the internal environment of the organization.
As a result, the theory is frequently observed as an alternative replacement for the Porters five forces framework which looks at the external environment while taking the outside-in or the industrial structure as the starting point.
This paper examines the way internal resources of the firm contribute to the organizations success and sustainability. More emphasis is geared towards the role and nature of intangible and tangible resources in reference to the notion of dynamic capabilities of an organization.
The paper also reviews the available literature to shade light on the resource based theory approach and to relate it to how the internal resources of an organization contribute to the success of organization and the gaining of competitive advantage.
The resource based approach to the organization strategy
The resource based theory is not a new approach to the organization strategy, but it is rather a strategy that has long precursor with links going back to the early works of Penrose. Nevertheless, the resource based theory is majorly associated with works of scholars like Rumelt, Barney, Prahalad and Hamel as well as Peteraf and Grant.
These scholars put a lot of emphasis on the organizations internal resources and capabilities in formulating the organizational strategies (De Wall 2007, p.209).
As indicated, the resourced based view takes into account the organization internal capabilities and resources in formulating the organization strategy so as to attain the sustainable competitive advantage within market as well as at the industry levels (Barney & Clark 2007, p.189).
In situations where the organization has capabilities and resources that can be organized and reorganized for a company to attain the desired competitive advantage over competing firms, the organization perspective becomes inside-out (Barney & Clark 2007, p.189).
In essence, the company capabilities become the determinant of the strategic choices the company makes while competing with others in the outside environment.
Similarly, in certain situations, the capabilities of the organization may permit the creation of new markets besides adding value to the organization clienteles (Miles 2012, p.212). This has clearly been depicted by the Toyota hybrid cars and the Apple iPod.
In these cases, it is clear that the organization capabilities are paramount to the creation of the organizations competitive advantage. It is also imperative to note that the capabilities will enable an organization to lay much emphasis on the configuration of its value-chain activities.
The reason is that the company will stand a chance of identifying the competencies within its value-chain activities that make available the most competitive advantage (De Wall 2007, p.209).
For instance, the much revered Toyota manufacturing system that uses the inbound logistics in the form of excellent inventory and material control system ensure that the levels of the inventory are sufficient enough to satisfy the demands of the clients.
This system ensures that the inventory and the materials are delivered before the customers order for the assembly. Looking into the various activities that are involved in the value-chain such as operations, there are efficient automated plants with inbuilt quality control systems.
These are supported by services through the application of warranties and guaranties, sales and marketing which is augmented through the advertisements as well as dealership networks.
At Toyota Corporation, the value-chain activities are linked across the company operations. The linkages between the company value-chain to those of its suppliers are designed in such a way that it gives Toyota distinctive capability over its competitors or the core competencies.
It is these core competencies that provide competitive advantage for Toyota. Moreover, Toyota is also capable of appropriating the added value that it gets from these value chain activities. A distinctive example is seen where Toyota US makes larger profit than three combined largest automobile firms in the US.
Desouza (2005, p.89) asserts that, in situations where firms in the same industry are faced with similar conditions, the expectations are that, putting other things to be equal, the firms will have almost equal profits. However, this is not necessarily the case.
There is a wide variation in terms of profitability by firms in the same industry as depicted by the UK retail supermarket chain TESCO and its competitor Sainsbury. The Porters argument that the industrial system whereby firms functions and the manner in which firms position themselves within the system determines each of these firms profitability.
This contrasts the resource-based view that does not look at the industry structure rather unique bunch of resources together with capabilities that each organization possesses (Barney & Clark 2007, p.189).
The proponents of the resourced-based view argue that the reason why firms in the same industry experience different levels of profitability is because of different internal resources and capabilities that the firms possess (Helfat 2007, p.47).
As often been the case, diversity between the contending viewpoints can be done away with. This can be seen in some of the arguments put forward by some scholars like Amit and Schoemaker (1993, p.34) who asserted that the resource-based theory is being viewed as a complement to the Porters positioning theory.
Hamel and Prahalad (1993, p.83) have the notion that the approach by Porter that looks into the strategic fit concept matches the firm’s resources to the external environmental needs. Their argument is that this view is not all that wrong but rather unbalanced.
Resources
The views of the resource-based competition are based on the capabilities and resources that are found within the organization or those resources that the organization intends to develop so as to attain the desired sustainable competitive advantage (Barney 1991, p.111).
Essentially, resources can be described as any input that that the company utilizes or that enables the company to operate. In situations where firms within the same industry possess similar resources however, they differ in performance.
Basically, the deduction is that the variation arises from the way each company utilizes the resources (Barney 1991, p.103). Similarly resources confer no value unless the organizations derive some innovative ways in which they can be turned into usefulness.
In other words, when resources are put into more productive use, then their value will be conferred to the organization (Barney 1991, p.107). This gives rise to the classification of internal resources into the tangible resources and intangible resources.
Tangible resources
These resources denote the physical assets that are owned by the organization. Also dubbed as physical resources, tangible resources can be grouped under the company financial resources including buildings, plants and machineries as well as human resources or human capital (Coombs et al. 2005, p.183).
The physical resources consist of the ordinary fixed assets namely businesses premises, materials or inventories, plants and machineries and the production capacity. In order for the physical resources to add value to an organization, they must be flexible enough to correspond to the changes within the marketplace (Divanna & Rogers 2005, p.63).
Obviously, those organizations with the most current technology and processes that use the required skills to exploit the potential will have an added competitive value.
The more a company is capable of attaining the acceptable return on capital employed, the more it can determine the extent at which the external resources or financial resources can be attracted into that company (Coombs et al. 2005, p.83).
This capability is also linked to the company future expectations or growth. The financial resources of an organization consist of cash balances, gearing ratios, creditors and the organization debtors.
The overall workforce that the company employs together with their productivity constitutes the tangible human resources or capital. The productivity of the workforce is generally measured using the sales or profit per employee criteria (Divanna & Rogers 2005, p.23).
The tacit knowledge and the specialist’s skills of various employees form the intangible resources and these make it more difficult for the company competitors to imitate or adopt such resources, thereby providing the company with the much needed competitive advantage.
Furthermore, the tacit knowledge provides larger organizations with comparative advantage against low-cost and small manufacturing firms (Divanna & Rogers 2005, p.103)
Intangible resources
According to Hamel and Prahalad (1990, p.77), intangible resources of an organization constitute the intellectual and technological resources together with the corporation reputation. The technological resources of an organization include its innovative ability and the promptness with which the innovative processes occur.
Examples of the intellectual resources involve copyrights as well as patents that are derived from the technological resources of the organization. For instance, the Dayson manufacturing company relies heavily on the intangible intellectual resource of the creative innovative founder, Dayson James.
This intellectual property has never been imitated by any competitor to Dayson manufacturing company. Tacit knowledge within an organization is built through the organizational culture and processes. The employees of such an organization have tacit knowledge that cannot be readily transferred.
The good will reputation of an organization is constantly being acknowledged as essential tangible asset that can be damaged easily through negative marketing campaigns and ill-thought strategies (Barney 1991, p.109). Companies like Benetton made a point by allowing debate over their controversial advertisements.
The debate seemed to equally draw both detractors and supporters while at the same time gaining useful and free publicity. Moreover, the way Johnson and Johnson responded to the mischievous meddling with their product Tylenol ensured that its reputation consistently persisted at the top.
Competencies
As previously indicated, the existence of organizations resources does not confer any benefit to the organization unless they are put into productive use. It is the effective and innovative conformation of these resources that provide competencies to the organization.
A competency can be described as the attribute that the company needs so as to be in a better position to compete appropriately in the marketplace (Barney 2010, p.45). Competencies are understood as being the prerequisite to the firm’s competiveness within the industry.
The competencies alone do not however confer to the organization any competitive advantage (Beaver 2002, p.213). In fact, the competencies are supposed to be thought of being derived from the company internal bundle of resources.
For instance, for companies to compete well within the automobile industry, they must be in possession of knowledge requisite to design and manufacture the automobile engine and body. Such knowledge will enable the companies to effectively compete within the industry despite their resource capabilities (Barney 2010, p.10).
Core competencies
Hamel and Prahalad (1990) argue that the most essential duty for the company managers is to come up with products that are needed to satisfy the customer demands, yet such products have not even been imagined.
In order to attain this objective, the company management must go beyond the organization boundaries instead of focusing on distinct and separate strategic business units.
In essence, Hamel and Prahalad (1993) were right to claim that competencies are derived from collective individual learning within the organization as well as the ability to operate across the organization boundaries.
Therefore, a core competency or distinctive capabilities can be described as a group of attributes possessed by the organization that enable it to attain the competitive advantage (Barney 2010, p.110). This implies that, it is the ability of the company to configure its resources in a way that allows the company to successfully compete within the marketplace.
The classic examples of companies that have achieved the key competencies are Dell and Benetton. Dell has achieved the core competency by the way it has configured its value chains. Organizations have strained to imitate the dells model of direct sales but they have successfully failed.
Similarly, Toyota manufacturing company has attained its core competency in the production of petrol-and-electric hybrid cars. Nevertheless, this cannot be measured with the first mover advantage. Indeed, this materializes to be the sole advantage the company gets from being the first in the global in the marketplace (Kay 1993, p.45).
Therefore, core competencies should provide companies with access to a broader market. This has been witnessed in the case of Honda core competencies in the engine design which enabled the company to leverage its capabilities to successfully compete in the car and powerboat market.
Besides, core competency should add value to the customer end products (Barney 2010, p.109). For instance, the distinctive capabilities of BMW in engineering have enabled it to manufacture high quality cars normally being sold at premium.
The company core competency should equally be hard to imitate by any of the company’s competitors. This implies that the value a company gets from the core competency such as the competitive advantage should be sustained (Divanna & Rogers 2005, p.103). Thus, for any company to attain this, it must not allow the competitors to imitate the core competency.
Still, the core competency within an organization is normally increased as it is being utilized and mutually shared across the firm. Prahalad and Hamel (1993) claim that core competencies are the binding factor within the organization.
They spur growth and new developments within the organization. However, core competencies within the organization have to be protected for the organization to generate appropriate rewards.
Distinctive capabilities
Generally it is the organization distinctive capabilities of its resources that provide it with the competitive advantage. But the capabilities of the organization are distinctive if they are derived from those characteristics that other firms do not have (Holbeche 2009, p.34).
Having distinctive capability is only necessary, but not sufficient enough to be successful. The distinctive capability must be appropriable and sustainable. That is, it must persist over time to be sustainable (Divanna & Rogers, 2005).
The distinctive capability must also be seen to benefit the company rather than the competitors for it to have an appropriable characteristic. The organization distinctive capabilities emanate from the innovation, the company reputation and architecture.
These further relate the organization to the stakeholders. It is this relationship that permits the resources of the organization to offer distinctive capabilities through innovation, architecture and reputation (Barney 2010, p.109).
Organization architecture refers to the system of relationships that occurs within and out of the company (Barney & Clark 2007, p.189). The internal architecture is the relationship between the organization and its employees and between employees themselves while the external architecture is the relationship between the organization and its suppliers and the customers.
In fact, architectural network occurs in the relationships between the organizations with other firms within the industry. However, distinctive architecture is based on the employees output (Holbeche 2009, p.34). It permits the value that is created to be easily and readily distributed by the company.
As the basis of distinctive capability, reputation is especially essential in the markets where the consumers are capable of using their long-term experience to ascertain the quality of the product (Barney & Clark 2007, p.189). A firm’s reputation is build through its reliable long-term relationships. In most cases this takes a considerable period of time to develop and nurture.
Once this long-term relationship has been developed, the distinctive capability of the firm is attained. A reputation of quality product and better services provides the firm with a competitive advantage that the firm can utilize to secure reprise business and charge premium prices (Beaver 2002, p.213).
Firms can leverage such reputations when entering into the new markets. For instance, Sonny leverages its reputation while entering the electronic consumer market.
The company capability to successfully and speedily innovate is also another basis of distinctive capability that can be appropriated and sustained (Barney 2010, p.109). A company may manufacture innovative products like the Apples iPods and iTunes.
For a number of years, Apple has remained unrivaled in product design and functionality. It has made it difficult for its competitors to imitate its products. The ability to constantly innovate and develop products has ensured Apple with sustainable source of competitive advantage over its market competitors.
Competitive advantages that have emanated from innovations are derived from the organizations architecture. Innovative processes may be embodied within the organization routines thereby making it harder for the competitors to imitate (Barney & Clark 2007, p.189). Through patents and copyrights, organizations are capable of securing their innovative products and ensure that their values are appropriated.
Conclusion
The resource based view lay much emphasis on the application of the firms set of internal resources and capabilities to determine their competitive advantages. The delineated resources, the firms’ core competencies and the distinctive capabilities have also been explored to show how firms can achieve their competitive advantage.
However, both core competencies and distinctive capabilities are terms that are interchangeably used, but they relate to how organizations strive to attain sustainable competitive advantage.
References
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