Resource-Based View
IO vs. RBV
Industrial Organization (IO)
Resource Based View (RBV)
Barney, Wernerfelt
Some Authors:
Porter, Rumelt
Focus
External—describes environmental
conditions favoring high levels of firm
performance
Internal—describes firm’s internal
characteristics and performance
Assumptions:
Firms within an industry have identical
strategic resources.
Resources are highly mobile (easily bought
and sold) and therefore homogeneous.
Firms have idiosyncratic, not
identical strategic resources.
Resources are not perfectly mobile
and therefore heterogeneous.
Business Level Strategy
• How do we compete in a specific business arena?
• Four objectives of business-level strategy
•
•
•
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Generate sustainable competitive advantages
Develop and nurture (potentially) valuable capabilities
Respond to environmental changes
Approval of functional level strategies
Business-Level Strategy
• The primary objective of business-level strategy is to create “sources
of sustainable competitive advantage”.
• What is sustainable competitive advantage?
• There are many definitions, used by different people in different ways.
• What follows is a practical description. But first, we need to back up a bit…
Sustainable Competitive Advantage
• An asset is anything the firm owns or controls.
• Loosely, “Asset” is to Accounting as “Resource” is to
Management.
• Types of assets:
• Physical: plant equipment, location, access to raw materials
• Human: training, experience, judgment, decision-making skills,
intelligence, relationships, knowledge
• Organizational: Culture, formal reporting structures, control systems,
coordinating systems, informal relationships
Sustainable Competitive Advantage
•
A capability is usually considered a “bundle” of assets or resources to
perform a business process (which is composed of individual activities)
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All firms have capabilities. However, a firm will usually focus on certain
capabilities consistent with its strategy.
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•
E.g. The product development process involves conceptualization, product
design, pilot testing, new product launch in production, process debugging,
etc.
For example, a firm pursuing a differentiation strategy would focus on new
product development. A firm focusing on a low cost strategy would focus
on improving manufacturing process efficiency.
The firm’s most important capabilities are called competencies.
Competencies vs. Core Competencies vs.
Distinctive Competencies
•
A competency is an internal capability that a
company performs better than other internal
capabilities.
•
A core competency is a well-performed internal
capability that is central, not peripheral, to a
company’s strategy, competitiveness, and
profitability.
•
A distinctive competence is a competitively valuable
capability that a company performs better than its
rivals.
Examples: Distinctive Competencies
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Toyota, Honda, Nissan
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Intel
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Low-cost, high-quality manufacturing capability and short designto-market cycles
Ability to design and manufacture ever more powerful
microprocessors for PCs
Motorola
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Defect-free manufacture (six-sigma quality) of cell phones
Where are we?
• We are discussing sustainable competitive advantage,
and have defined Competencies:
• AssetsCapabilitiesCompetenciesCompetitive Advantage
• Next is competitive advantage.
• A competitive advantage is simply an advantage you have over
your competitors.
• A competency will produce competitive advantage provided:
A) it produces value for the organization, and
B) it does this in a way that cannot easily be pursued by competitors.
Sustainable Competitive Advantage
•
However, we said the primary objective of business-level
strategy was to create sources of sustainable competitive
advantage (SCA).
•
How do we know SCA when we see it? What is it? When
is it considered “sustainable”?
•
To produce SCA, the capability must:
1.
2.
3.
4.
Produce value
Be rare
Imperfectly imitable, i.e. not be easily imitated or substituted
Be exploitable by the organization
Sustainable Competitive Advantage
1.
The Question of Value:
•
Capabilities are valuable when they enable a firm to conceive of or
implement strategies that improve efficiency and effectiveness.
•
Value is dependent on type of strategy:
• Low cost strategy: lower costs (Timex)
• Differentiator: add enhancing features (Rolex)
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To be valuable, the capability must either
• Increase efficiency (outputs / inputs)
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Information system reduces customer service agents required, or increases
the number of calls the same number of agents can answer
Increase effectiveness (enable some new capability not previously held)
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Opening a new regional campus enables outreach to a new market of
students
Sustainable Competitive Advantage
2. The Question of Rareness:
•
Valuable resources or capabilities that are shared by large numbers of firms in
an industry are therefore not rare, and cannot be a source of SCA.
Given the following, which are rare?
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A web server
An MIS instructor
A state-of-the-art stamping press
None of these are rare. Some researchers think only organizational assets or
resources are rare (such as culture). What do you think?
Sustainable Competitive Advantage
3. The Question of Imitability
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Valuable, rare resources can only be sources of SCA if firms that do not
possess them cannot obtain them. They must be “imperfectly imitable”,
i.e. impossible to perfectly imitate them.
Ways imitation can be avoided:
• Unique Historical Conditions (Caterpillar, e.g.)
• Causal Ambiguity (why resources create SCA is not understood, even by
the firm owning them)
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Imitating firms cannot duplicate the strategy since they do not understand
why it is successful in the first place.
Social Complexity (trust, teamwork, informal relationships, causal
ambiguity where cause of effectiveness is uncertain)
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E.g. A competitor steals all the scientists in an R&D lab and relocates
them to a new facility. But, the “dynamics”, “culture” and “atmosphere”
are not the same.
Sustainable Competitive Advantage
4. The Question of Substitutability
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There must be no equivalent resources that can be
exploited to implement the same strategies.
Forms of substitutability:
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Duplication: Although no two management teams are the same,
they can be strategically equivalent, produce the same results.
Substitution: Very different resources can be substitutes, e.g.
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A charismatic leader with a clear vision vs. a strategic planning dept.
A superior marketing strategy for a recognized brand name.
A superior technical support group for an intelligent diagnostic
software package
Sustainable Competitive Advantage
5. The Question of Exploitation:
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Later research qualified this as another critieria for SCA. Is a firm organized to
exploit the full competitive potential of its resources and capabilities?
Are systems in place to enable firms to support the execution of a particular
strategy?
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Xerox, e.g
Notes on “Sustainable”
• Sustainable is not measured in calendar time.
• Sustainable does not mean the advantage will last forever.
• Sustainable suggests the advantage lasts long enough that
competitors stop trying to duplicate the strategy that makes the
advantage sustained.
Economic Performance
Costly to
Imitate?
Exploited by
the
Organization?
Valuable
?
Rare?
No
--
--
Yes
No
--
Yes
Yes
Yes
Yes
No
Yes
Competitive
Implications
Economic
Performance
--
Competitive
Disadvantage
Below Normal
--
Competitive
Parity
Normal
--
Temporary
Competitive
Advantage
Above Normal
Yes
Sustained
Competitive
Advantage
Above Normal