Research indicates that resource-based view is one of the primary approaches to strategy. Its key tenet is that companies possess resources which give them long-term competitive advantages and allow for superior performance.
Attracting valuable, rare, and imperfectly imitable/substitutable resources (VRIO) requires creating business processes which generate a competitive edge; but how best can this be done effectively is still up for debate.
The Resource-Based Theory Assumptions
The resource-based view is an approach to strategic decision-making that emphasizes a firm’s internal strengths and capabilities as the source of its competitive edge. It gained widespread adoption during the 1980s and 90s thanks to influential works by scholars like Wernerfelt, Prahalad, and Hamel.
Firm resources consist of tangible and intangible assets that contribute to its success, such as property, plant and equipment; cash; and other forms of financial capital. Tangible resources also include physical assets like buildings and machinery as well as cash and financial capital while intangible resources may include brand names; intellectual property rights; leadership traits of managers or employees and so forth.
Strategic resources are unique to every firm and represent resources that are valuable, rare, imperfectly imitable and nonsubstitutable (Barney 1991). Apple is an example of a company with powerful strategic assets; their proprietary software and hardware platforms, developed over decades of innovation and improvement; retail store experience; and company culture have allowed it to experience record profits year after year.
The Comprehensive View of All the Resource Pools
The Resource-Based View (RBV) framework emphasizes a company’s internal resources and capabilities as the key determinants of competitive advantage and strategy. Accordingly, it suggests that only unique resources that are valuable, rare, imperfectly imitable and non-substitutable can help businesses establish sustainable competitive advantages.
Resource Pools in project management refer to higher-level groupings that categorize and organize available resources for projects. As a centralized repository for human resources, equipment, materials, finances and finances a Resource Pool allows a clearer overview of inventory levels allowing more effective resource allocation.
Resource pools are typically structured hierarchically to enable roll-up analytics and reporting. For instance, in a health care system there might be one resource pool dedicated to IT resources and another one dedicated to clinical IT resources. Unfortunately, resource pools rarely remain static over time as new resources come online or others depreciate, making a robust yet flexible capacity planning model essential for meeting changing demand over time.
The Resource-Based Theory Helps Managers Assess Resource Strengths and Weaknesses
As with Aesop’s tales of childish characters that teach lessons for everyone, resource-based theory takes familiar ideas and modernizes them for modern business environments. It provides more comprehensive framework for assessing organizations than previous models did and offers extensive empirical support.
Key concepts in this approach are resources and capabilities. A resource refers to something owned by an organization; while capabilities refers to their ability to create value with those resources. Water, for instance, is an inexhaustible natural resource essential to life; yet without the capability of harnessing that value effectively an organization cannot gain an enduring competitive edge.
Southwest Airlines’ legendary organizational culture encourages employees to provide exceptional customer service, giving it a distinct competitive edge and creating loyal passengers, which forms a cornerstone of customer value.
The Resource-Based Theory Helps Managers Leverage Resources
The resource-based theory offers managers an effective means of capitalizing on existing and internal resources to gain competitive advantages, and serves as an excellent framework during strategic planning processes.
Through the VRIO framework, tangible and intangible resources can be assessed for their Value, Rarity, Imitability, and Organization aspects. For instance, specialized patented technology often delivers great Value by increasing product performance; however, its rarity might be compromised since competitors could easily copy and replace it.
Intangible resources such as company culture or employee knowledge/skills could have high Imitability. Thus, they could offer an edge that rivals can find it hard to duplicate. Aesop’s Fable of Asses and Grasshoppers reminds us that success comes from using various strategic resources instead of depending on one or two resources alone to fuel sustained success.
