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Resource Based View is a modern day management tool that is used in crafting company’s strategy using the available resources and distinctive capabilities. One of the ways of achieving this is the use of Economic Values Added (EVA) or the Economic Rent (Connely, 2010). The EVA is gotten by subtracting the firm’s Net Operating Profit After tax (NOPAT) from the multiplication of the firm’s cost of capital by the firm’s capital i.e. NOPAT – (CAPITAL * COST OF CAPITAL).
A firm’s competitive advantage is therefore determined by its ability to use the available resources and utilize the core competencies to achieve targeted objectives (Barney, 1991). This paper discusses the various resources and competencies that an organizational can use to achieve competitive advantage over other firms.
Ensuing is source that offer information about these resources and competencies that provide a foundation for the formulation of a firm’s strategy.
Examples these internal factors are resources such as human capital, patents, skills, goodwill and physical resources such as equipment and buildings. The disadvantage of this source is that the firm only uses internal environment to formulate the strategy ignoring the external environment which presents conditions that a business operates in.
https://fba.aiub.edu/Files/Uploads/MGT110043.pdf. In his book, Henry presents the resource based view as a management tool for strategy formulation. Distinctive capabilities are useful in a firm’s competitiveness since the competitors are unable to duplicate them.
The limitations of this source are that it looks at the firm which is established and has heavily invested in research and developments thus have acquired competencies in the specific operation area. Small firms are therefore not able to use these types of resources.
Resources are the inputs that a company uses in all the functional areas of its operations to produce the desired output and thus achieve the set target (Comeford & Callaghan, 2011). Financial resources ensure that a firm has adequate amount of liquid cash to carry out the operations as well as finance the expected investments. This keeps the firm’s value high since its equity is not composed of large amounts of debt.
Human resources are other important organizations physical resources that ensure that the firm’s operations are of high quality. A workforce that is highly competent will make sure that the firm’s products are of high quality and also the firm employs efficient production methods resulting in low production costs.
Technical resources are intangible resources which enhance a firm’s products quality. Advanced technical knowledge in the production process ensures that the firm’s products are preferred over the competitors since they are of superior quality (Barney, 1991). This therefore acts as an important resource that will form a basis of customer loyalty hence boosting a firm’s profitability.
Intellectual resources are resources that a firm has acquired through research and development. These include patents and copyrights. Patents ensure that a firm possesses the exclusive right over certain means of production (Barney, 1991). A firm considers patents as important assets since it is able to employ unique production methods to achieve better results than the competitors.
Goodwill is resources which a firm bears that make provide a competitive advantage over others. It may be in form of location, first mover advantage or customer loyalty.
Goodwill usually puts a firm at a better state than the competitors and usually results in customer loyalty. It is therefore important in formulation of the firm’s strategy since it will ensure that firm strategic location and actions that will make it favorable over the competitors.
A firm’s reputation ensures that it bears goodwill and this acts to foster the customer loyalty on the products. Architecture is the ability of a firm to bear different structures and networks that ensure it is well positioned to take on the competition provided by the other market players.
Innovation gives a firm the ability to come with new products that are more appealing to the ever changing consumer tastes and preferences. A firm that is able to come up with new products will always enjoy a competitive advantage since its products will address the consumers presents tastes and preference.
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The Resource Based View is therefore and important management tool that is used to formulate a company’s strategy using the internal environment analysis. An internal environment will always provide the controllable parameter that an organization can manipulate to achieve its set targets and objective.
Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management , 99-120.
Comeford, R., & Callaghan, d. (2011). Environmental, industry, and internal analysis. London: Prentice Hall.
Connely, D. (2010). Strategy for Internal Environment.
Henry, A. (2007). The Internal Environment of an Organization. London: Oxford University Press.