Introduction
Resource Based View is an essential part of strategic management. It lays emphasis on the fact that the internal capabilities of a firm make it competitive, mainly entailing the firm’s capabilities and different resources. Indeed, it is the utilization of these resources that adds value to the firm. Despite its appealing nature, the Resource Based Approach has faced a lot of criticism from diverse scholars globally.
The views of the critics mainly focus on the conceptual and practical difficulties that plague this theory at the implementation stage. The purpose of this work is to bring out both the conceptual and practical difficulties in implementing it. Such difficulties include sidelining the vital external environment, failure to meet the criterion for operational validity, being boundary limited, and static, among others.
Meaning of the Resource Based View
The resource-based view is founded on various concepts. First, inputs into the production process are determined by resources, which form the fundamental units of analysis (Royer, 2005, p. 95; Jones and Tilley, 2003, p. 124). The most common categories in which resources are grouped include the Human Resource, fiscal resources, technology related resources, reputation based resources, and organizational ones.
Most resources offer a very weak competitive value when applicable on their own. Thus, both collaboration and coordination of resources from different categories are required to obtain a competitive and productive activity.
Strategic capabilities can result from bundles of resources. What an organization can do effectively and better compared to its competitors is what constitutes its capabilities (Lengnick-Hall, 2003, p. 168).
Capabilities are embedded in cumulative skills and knowledge that are practiced through organizational process to enable a firm not only to coordinate its functions, but also to utilize its assets. The capabilities of a firm are based on its resources. A firm’s main competitive advantage is founded on its resources (Remenyi, 2008, p. 80; Birkinshaw, 2000, p.103)
To attain long-term success, most firms are supposed to be excellent in several aspects of value creation such as having developing insight in the dynamic client needs, responding promptly to advancement in technology, designing products with an innovative touch, being efficient and responding to problems quickly.
A focus on the dynamics of a firm’s behaviors has replaced the logic of strategy fro products and positions. This has been brought about due to the need for both versatility and excellence.
This implies that processes that orchestrate assets and resources to obtain capabilities constitute the most imperative component of strategy. Firms that succeed invest strategically in infrastructure and in those processes that bridge together resources and rise above usual functional partitions (Lengnick-Hall, 2003, p. 169).
The longer the period and intricacy required transforming a collection of resources into capabilities, the more unlikely it becomes for competitors to copy the accomplishments that result. On the other hand, it is more challenging to transfer or achieve a capability within an organization that developed it if the capability is too complex.
Moreover, there is also core competence. This encompasses some aspects that form an exceptional contribution to the value of customers. They include expertise, resources, abilities, a pack of skills and other processes. In this case, competitive uniqueness is achieved from a core competence.
Since core competence’s outcomes have wide applications on broad product and market categories, they are able to provide gateways to future markets. Besides, rather than wearing-out or becoming depreciated over time, core competences get enhanced through use and so firms should not engage in what is outside their core competences (Lengnick-Hall, 2003, p. 169; Vigneaux, 2001, p. 122).
A firm that has particular competences and its rivals has the gap between value creating aptitudes and capacities widened by the persistent application of its core competencies. Changeable and unpredictable expectations on what is valued for a given purpose at a certain time introduce a creative tension. Valuable resources, abilities, and competences are developed on past actions and they develop over some time; in this way, they are thus said to be path-dependent.
The resource based view as an appealing model
The resource based view focuses on organizational internal abilities that enable it to it achieve a sustainable competitive advantage in its markets and industries through formulation of a suitable strategy. Based on the ability to see an organization as one that is endowed with resources and capabilities that can be configured to enable it have a competitive advantage, then an inside-out perspective is enhanced.
Put in different words, the way it competes in its external environment is determined by its internal capabilities. In some cases, both the creation of new markets and addition of value to the consumer may be the direct results of the organization’s capabilities (Anon, 2007, p. 126).
Examples are i-pod and hybrid cars from Apple and Toyota respectively. In cases where the creation of an organization’s competitive advantage stems from its internal capabilities, such a firm tends to concentrate on the configuration of its value chain activities. This is because there will be need to identify the firm’s capabilities within the activities of its value chain that enable it to have a competitive advantage.
For instance, the enviable manufacturing system of Toyota Motors is responsible for the management of its excellent material and inventory systems (inbound logistics). This ensures that customer demands are met by adequate inventory levels through ensuring that delivery of parts precedes their assembly.
Other primary activities in the supply chain like the operations point to plants that are both automated and efficient having been implanted with systems of quality control. Sales and marketing through advertising and dealership networks together with service in form of (guarantees and warrantees) are used in backing this up.
The existing linkages between the value chain activities of Toyota and its connection with the suppliers’ value chains form a configuration that make the Japanese competitor have a core competence of very unique capability. Its competitive advantage stems from this capability and is the one that its rivals find it difficult to emulate. Besides, these activities enable Toyota to derive an added value that it is also able to appropriate.
For example, the profits made by Toyota are greater than those made by all the three automobile companies in the United States combined. The resources and capabilities that reside within a firm or that which it may desire to develop in order to enhance a competitive advantage that is sustainable constitute its resource-based view of competition (Smit, 2007, p. 93; Peng, 2008, P. 98).
Resources refer to inputs, without which, an organization will not be able to carry out its operations. Cases of organizations in the same industry having varied levels of performance may be attributed in the varying ways in which they utilize their resources.
Organizations do not receive any added value from resources that lye idle within them. Value only comes after putting the resources to some productive use. Resources can be classified as either as either tangible or intangible (Henry, 2008, p. 127; Karami, 2007, p. 160).
An organization’s physical assets such as its physical, fiscal and human resources are what constitute its tangible resources. Intangible resources comprises of an organization’s intellectual, technological, cultural resources, brands and reputation (Anon, 2007, p. 128).
Difficulties in Implementing the Resource Based View
The Resource Based View Sidelines the Vital External Environment
Based on its analytical rigor and seemingly managerial significance, the resource-based view of a firm has emerged as one of the key contemporary approaches to strategic research. However, the view still experiences aspects of problems that are unresolved and other unclear issues. Lack of a vivid conceptual model of the endogenous creation of new resources is one of the facts the Resource Based View has been criticized for.
Rather than placing focus on accounting for the environmental complexity within which a firm operates, the resource-based view’s concentration on the internal strengths of a firm restrains it. It has been criticized for failure to take into account how positive external factors like high levels of education may influence the resources of a firm.
Other study focuses on the holistic view of the conceptual model. For instance, Porter asserts that the Resource Based Concept is founded on arguments that go in circles. There is a criticism of the resource-based scholars who suggest that rents are used in defining the critical resources of a firm.
This is because identification of resources is achieved through comparison of firms that are successful and those that are not. Thus, resource-based proponents adduce from this that rents are generated from critical resources (Pommerening, 2010, p. 26; Enders, 2004, p. 13; Kirst, 2008, p. 90).
On the hand, other scholars argue that the Resource Based model is flawed in two ways. It is argued that apart from the model making implicit assumptions with regard to the product markets on the demand side, it is also made weak by the exogenous nature of the basic variable of value in the concept.
The critics reason that since the market environment determines the resource value, through risks and opportunities, it is exogenous to the Resource Based View. The fact that both product and customer focus being assumed constant makes the critics see this as a simplified assumption in the Resource Based View.
Such a Conclusion is arrived at by indicating that if there were to be a variation in the product and customer focus, resource value could be non-constant as well causing indeterminate outcomes of the resource-based analysis to emanate from the unpredictable resource value. This simplified assumption also has an impact on the current scope of analysis for the Resource Based View.
Shifts in the future demand curve for both product and factor markets could be integrated by models that are more dynamic. This could lead to the acquisition of factors hat can last for long through entrepreneurial cost.
Creation of a fast mover advantage will thus be possible since competitors will be required to incur a procurement cost that is relatively high. In this vein, it can be asserted that for the Resource Based View to give both a sound theoretical foundation and form a basis for a thorough analysis, it will need to make sufficient attempts to be interfaced with the external environment.
Besides the theoretical flaws in the model, its strong foundation in microeconomics has also made the Resource Based View to face a lot of disapproval.
The argument is that the Resource Based View incorporates aspects that are regarded in strategic management as disequilibrium phenomena hence making lack equilibrium orientation by excluding such vital factors like entrepreneurship.
This makes its analytical conceptualization to be narrow. Moreover, a 2007 research indicates that the relevance of the Resource Based View and hence its ability to be implemented could only be verified through 53% of the empirical tests that were conducted (Pommerening, 2010, p. 26).
Resource Based View does not meet the Criterion for Operational Validity
Embracing practitioners and valuing prescription is among the distinctive factors that encompass strategic management. Unless they connote an explicated linkage to performance, research questions may remain unanswered. Study reveals that firm level performance has been used as a definitive dependent variable in the discipline of strategy. Unless research questions include a clear connection to performance, they remain implicitly uninteresting or less important.
Thus, the ability of the resource Based Theory in developing meaningful tools of management in terms of prescriptions that are actionable for practitioners forms a key fundamental question for researchers who are strategy oriented. Theories are supposed to enhance operational validity. This means that the practitioners should be able to manipulate the theory’s independent variables thus implementing its action implications (Priem and butler, 2001, p. 32). A research that is relevant to management requires operational validity, though not always.
Therefore, the Resource Based View theory could have been operationally valid if it was only descriptively accurate but unable to give managers the practicality of manipulating the independent variables. By merely directing practitioners to enhance competitive advantage through obtaining valuable and rare resources, the resources should be both non-substitutable and inimitable for sustainable advantage does not meet the criterion for operational validity.
Criteria on which each resource characteristic can be used to judge each alternative resource represents an effective prescription, at a minimum. Criteria for immutability and substitutability characteristics related to sustainability can be provided by industrial organization. Either social complexity or causal ambiguity of a resource constitutes this criterion (Priem and butler, 2001, p. 32).
Resource Based View is boundary limited
Studies have shown that an aspect of theories that is as crucial as the theories themselves is the contexts within which the theories ought to operate. This can be supported from what some scholars have already indicated that many theories that are based in the United States may not be applicable in other parts of the world since quick and comprehensive decisions may work effectively in environments that encourage the same.
Apparently, there have been little efforts to establish the suitable contexts within which the Resource Based Theory should be based. However, some studies have been carried out to establish this.
One area where resource-based perspective has contributed significantly is in film industry, where it has been experimented for about three decades. Initially, there was high level of study that eventually resulted to change. During times of stability, high level of studio performance was attributed to control over property-based resources.
On the other hand, periods of higher performance during times of environmental turbulences were enhanced by knowledge-based resources. With this study, a step was taken to establish some boundaries for the Resource Based View. Through this certain contexts were established within which some resources were found to be of more value but of less value in other contexts (Priem and butler, 2001, p. 32).
Similarly, another research indicates that the different classes of service in the veterinary industry are determined by the different capabilities. The implications from the contingency approach applied in this research can be used by industrial practitioners making investments that are resource based. If such contingency theories of resource value continue to be developed, they could continue to provide useful information in establishing contexts of the resource based theory (Priem and butler, 2001, p. 32).
A closer look at the definition of the Resource based Theory reveals an all-inclusive approach to the resources that are used. Most definitions on this define resources differently. One of the definitions goes like this:
“By a resource is meant anything which could be thought of as a strength or weakness of a given firm; more formally, a firm’s resources at a given time could be defined as those (tangible and in-tangible) assets, which are tied semi permanently to the firm…….examples of re-sources are: brand names, in-house knowledge of technology, employment of skilled personnel, trade contracts, machinery, efficient procedures, capital, etc” (Wernerfelt, 1984: 172 cited in Priem and butler, 2001, p. 32).
Regarding anything that is associated with the firm as a resource may imply that operational validity may be the prescription of dealing with resources within the firm while it may be difficult for practitioners to measure and manipulate other categories of resources.
Tacit knowledge is an example of the resource that may be difficult both to be measured and manipulated. Tacit knowledge is that understanding that cannot be passed to someone else, is attained via experience, and is not known to the one holding it.
Some have expressed arguments that categorize tacit knowledge as a source of competitive advantage. Although referring to tacit knowledge as a source of competitive advantage may be descriptively in order, it may prove tricky for practitioners to properly manipulate what can be implicitly unknown (Priem and butler, 2001, p. 32).
Moreover, although there can be manipulation of some resources, researchers are supposed to be clear regarding the specific practical levels where prescriptions are supposed to be made. One of the examples to be researched in this category is the CEO resources. It asserts that the top managers of firms that do not perform well should consider volitionally laying off their duties since they are the main cause of poor performance.
This may not be helpful at in any way. In this case, there would be prescriptive implications for the board of directors than the CEOs themselves when the latter are perceived as resources. Similarly, implications that are more prescriptive would result for the CEOs when viewing board of directors as resources since rather appointing the board of directors for themselves, the CEOs appoint it to help regulate them.
Therefore, some strategy researchers may consider some resources more important to them than they could be to others. This is determined by either group or the ability of the resource to be manipulated. A significant step in establishing boundaries for Resource Based Management is detecting resources that may be specifically effective for given actors in particular environments (Priem and butler, 2001, p. 33).
In a resource-based approach, the main factors of success are resources and competences. These two factors enable a firm to have a product development that is founded on a superiority that is long lasting. In this vein, the problems that may be encountered in putting these factors into practice in other firms are not relevant. This is because they are said to be resources that cannot be imitated and thus not implementable in different firms. This works well in the theoretical framework but not in empirical studies.
Conclusions in empirical studies normally end up in theoretical ways rather than really revealing how firms are practically dealing with the variables under study. Thus, the resource-based perspective does not offer a ready answer that vividly explains how firms are practically going about it. However, insights provided by the view on the attributes that make the resources and capabilities to be inimitable may provide some clues to understanding the issue of implementation (Foss and Knudsen, 1996, p. 143).
Some uncertainty involving what should be included in the definition of resources is revealed by the resource-based perspective. On one hand, resources are looked at as being assets that are owned and controlled by the firm. On the other hand, a demarcation is drawn between resources and competences.
Whereas resources are inputs to the process of production like employees, patents, and finance among other items, competences is used to refer to a bundle of resources that can be utilized in performing a certain duty. Thus, far from being just bundles of resources, competencies describe intricate patterns that enhance coordination both of people and of those people with resources (Foss and Knudsen, 1996, p. 143).
Shift from dynamic to static conceptualization of the Resource based Theory
The Resource Based approach began as a dynamic idea emphasizing on change over time. However, the literature on the subject that has followed is static in concept.
First, there is a presentation of the variation of the theoretical statement that competitive advantage can be produced from some resource. Second, by suggesting that resource can generate a competitive value, there is a demonstration of the resource value. Finally, sustainability of advantage is established through isolation of mechanisms that makes replication of resources difficult. Resources such as strategic planning and top management skills have received variations on this argument.
However, the strategic management research faces short comings regarding this static concept of the Resource Based View. First, rather placing comparisons to differing situations or resource comparisons, the static argument takes a descriptive approach pointing to generic attributes of the resources that generate rent.
For example in a given study, instead of judging CEOs on performance, they are merely argued to possess either superior or inferior management skills (Priem and butler, 2001, p. 32).
Second, the processes through which competitive advantage is derived from some resources remain in a black box. For instance, other than heterogeneity, there is no other way through the resources are known to generate rents that are sustainable. There is also a question as to the generation of value by some heterogeneous resources but not others.
Third, it is inherently hard for some resources to be manipulated by practitioners. Tacit knowledge forms a good example of such resources. Therefore, the resources do not stand the test of operational validity.
Fourth, under a Resource based view that is static, most researchers normally take a frequently researched field and rename the dependent and independent variables as resources and competitive advantages respectively. They then use operations as measures that are often used in cross sectional strategic research. Such studies may reveal the irrelevance of the resource based labels in strategy research (Priem and butler, 2001, p. 32).
Generally, these issues imply that the implementation of the Research based View to strategy research may be impeded by the current value of its static nature. A careful definition of the key underlying elements and the detailing of the specific mechanisms claimed to produce competitive advantage will result to helpful studies on the Resource Based View.
Extension of the Resource Based View to second order issues and beyond by theorists may very easily aggravate the problems of static studies. Moreover, the ability to desire to learn more about resources is a resource in the same way the environment that the learning is supposed to be carried out (Priem and butler, 2001, p. 32).
Further Criticisms in Practical Implementation
The sustainable competitive advantages of a firm are derived from resources and capabilities that are valuable, rare, cannot be substituted, and inimitable. However, there is an argument that a single inimitable core competency cannot be used to generate a sustainable advantage. This is because in the modern business world, there is a rapid change in the environment that leads to is coupled with changing organizational skills and resources.
The ways in which they are used undergoes continuous change to produce advantages that are dynamic. Other scholars argue that, as long as it renders additional value, the ability to be adaptive could qualify to be a competitive advantage in itself.
This is provided that it contributes to the instability of the environment by rendering additional; value (Hannula, Radosevic and Tunzelmann, 2006, p. 302). Thus, it is possible to assert that changes in the business environment can be achieved by the resource-based approach without necessarily introducing dynamic aspects in the underpinnings of the concept.
The resource-based view of internationalization suggests that customers and suppliers of a firm form part of the firm’s resources (Nothnagel, 2008, p. 262). Therefore, in order to have a better resource base, firms enlarge their operations to foreign markets.
Recent study reveals that problems in practical strategic management are created from both assumed stability in product markets and assumed possibility to determine the value of resources (Hannula, Radosevic and Tunzelmann, 2006, p. 30).
Moreover, research indicates that the resource-based approach has an impact in several aspects of the international business research (Fahy, 2001, p. 14; Schnedlitz et al, 2010, p. 2). However, the effect of the approach on the development of multinationals and on the market entry was found to be minimal.
This was in comparison to the fact that important fields like international entrepreneurship, globalization, and study on strategic alliances in upcoming markets were greatly influenced by the resource-based view (Hannula, Radosevic and Tunzelmann, 2006, p. 303).
Conclusion
The Resource Based View is an old but yet very imperative element of strategic management. The fundamental principal of the Resource based View is that the resources at the disposal of a firm constitute its capability. The resources are both tangible and intangible.
Thus, the capability of a firm is enhanced by the utilization of these resources, which eventually add value to the firm enabling it to have a competitive advantage over other firms. The theory focuses on the internal environment of the firm that makes it distinct from other firms. Therefore, the performance of a firm in its external environment is based on its internal capabilities.
The Resource Based View is criticized by several scholars, managers and economists for various aspects that tend to restrain its implementation. The issues being criticized are found in the theory’s conceptual and practical frame works.
First, the view is criticized for concentrating on the internal environment alone as the main determining factor of a firm’s competitive advantage and neglects other vital aspects in the external environment such as high level of education that may positively impact the firm’s resources. Secondly, the theory does not form a strong basis for operational validity that is an important aspect in strategic research to establish the practicability of the variable in question.
Thirdly, the Resource Based View like other theories is criticized for being limited by boundaries. Research has revealed that its impact in one country under particular conditions may not be applicable to other nations in the same way. Thirdly, though the approach began on a dynamic note, the subsequent concepts have become static in nature.
This becomes an impediment in its implementation. Moreover, most of the views held by the Resource Based view in international business cause some problems. For example, the assumed ability to determine the value of resources results to difficulties in strategic management.
References
Anon. (2007). The Internal Environment: A Resource based view of Strategy. Web.
Birkinshaw, J.M. (2000). Entrepreneurship in the Global firm. London: Sage Publications.
Enders, A. (2004). Management competence: resource-based management and plant performance. NY: Springer.
Fahy, J. (2001). The Role of Resources in Global Competition. NY: Routledge.
Foss, N. and Knudsen, C. (1996). Towards a competence Theory of the Firm. NY: Routledge.
Hannula, H., Radosevic, S. and Tunzelmann, G. (2006). Estonia: The New EU Community Building a Baltic stone? Hampshire: Ashgate Publishing.
Henry, A. (2008). Understanding Strategic Management. NY: Oxford University Press.
Jones, O. and Tilley, F. (2003). Competitive advantage in SMEs: organizing for innovation and change. West Sussex: John Wiley and Sons.
Karami, A. (2007). Strategy formulation in entrepreneurial firms. Hampshire: Ashgate Publishing.
Kirst, P. (2008). Supplier switching management: an empirical analysis of supplier switching activities in an industrial context. Wiesbaden: Cuvillier Verlag.
Lengnick-Hall, M.L. (2003). Human resource management in the knowledge economy: new challenges, new roles, new capabilities. San Francisco: Berrett – Koehler Publishers.
Nothnagel, K. (2008). Empirical Research within Resource-based Theory: A Meta-Analysis of the Central Propositions. Wiesbaden: Gabler Verlag.
Peng, M. W. (2008). Global Business. Mason: Cengage learning.
Pommerening, T. (2010). Strategic Changes for Business Models in the German Retail Banking Industry in the Post Financial Crisis Era: Using the Example of the Post bank AG. NY: GRIN Verlag.
Priem, R. L. and Butler, J.E (2001). The Academy of management review. Volume 26. Is the Resource-Based “View” a Useful Perspective for Strategic Management Research? Academy of Management. Web.
Remenyi, D. (2008). The 5th International Conference on Intellectual Capital. London: Academic Conferences Committee.
Royer, S. (2005). Strategic management and online selling: creating competitive advantage with intangible Web goods. NY: Routledge.
Schnedlitz, P. et al. (2010). European Retail Research. Volume 23, Issue II. Wiesbaden: Gabler.
Smit, P.J. (2007). Management Principles: A Contemporary Edition for Africa. Cape Town: Juta and Company Limited.
Vigneaux, S. (2001). Enhanced Services on the Next-Generation Network: Technologies, Business Drivers, Markets, and Architectures. Chicago: Professional Educational International.