Resource based view is a strategic planning framework that managers can use to build a competitive advantage. A resource based view says that excellent company performance is related to the effective use of resources. If a firm’s resources are Valuable, Rate, not Imitable, and can be effectively Organized around (if the resource has VRIO attributes – more on that later), that resource can be a powerful source of competitive advantage. In this article, we’ll explore the question of what a resource based view in more detail is. We’ll also discuss common criticisms and guide you towards a resource based view template. Let’s dive in.
What Is A Resource Based View?
What is a resource based view? A resource based view of strategy development is as simple as it sounds. It encourages managers to look internally at a firm’s own resources when engaging in the strategy development process. A typical strategy development process places equal focus on the firm itself, its key competitors, customers, industry trends, and the macroeconomic and geopolitical environment. When developing a sustained competitive advantage using a resource based view, great emphasis is placed on the firm’s own assets and capabilities.
Resource Based View of The Firm
To understand its true power, it’s important to understand the framework on a deeper level when taking a resource based view of the firm. One basic underlying core principle of a strategy resource based view is that it’s easier to exploit market opportunities or beat competitors by using existing resources wisely. This is assumed to be easier than developing or acquiring new skills or capabilities.
But how should a manager analyze a company’s resources to identify strategic insights and develop competitive strategies? The key is understanding which resources are likely to confer competitive advantage. Then, you build strategies that leverage your most powerful resources.
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How Does a Resource Based View Lead to Competitive Advantage?
First, it’s important to become familiar with some academic strategic language and thinking. A firm’s resources can be broken down into two categories:
Further, whether a resource is tangible or intangible, it must be BOTH heterogeneous AND immobile if it is to confer competitive advantage. To better understand a resource based view, let’s define the above terms.
A tangible asset is a physical thing – a building, a machine, land, etc. While companies may have impressive, cutting-edge machines, most physical assets can be obtained by any other competitor. So, they are not often the key to a sustained competitive advantage. Intangible assets are not physical things. They are ideas, knowledge, brands, processes, etc. Intangible assets are much harder for a competitor to recreate. For example, a unique culture or business process is hard for a competitor to replicate.
Now, whether intangible or tangible, a firm’s resources need to be heterogeneous, or different, from competitors. Your company may have unique brands, processes, and machines. But if taken together, although individually useful, three competitors have a similar mix of “unique” resources, no firm will have an advantage.
Second, a firm’s resources need to be immobile to lead to competitive advantage. This just means they can’t easily move from one company to another. For example, when a key executive leaves the firm. Most intangible assets are in fact immobile. We are not done, however. According to a resource based view, a resource that is heterogeneous and immobile still must pass through the VRIO framework to provide a true competitive advantage. What is the VRIO framework? Let’s discuss.
To determine if your resource can be used to create sustained competitive advantage, ask a series of questions about it:
- Is it Valuable? Does it clearly play a part in creating something differentiated from competitors that customers want?
- Is it Rare? Do only a few companies have something like it?
- Can it be Imitated? Though few have it today, could it easily be replicated by others?
- Is your firm Organized to capture value from it? If yes, you have or are ready to build a sustained competitive advantage. If not, you have the potential to build competitive advantage, assuming the required organizational changes are made.
Criticism of Resource Based View
As a framework that has been around since the 1980s, there is no shortage of criticism of the resource based view. Three major critiques of the resource based view are:
- It lacks managerial implications. Let’s assume a manager perfectly analyzes its resources and identifies several that should clearly lead to competitive advantage – and yet, the firm is losing market share and money. What next? The resource based view provides interesting structure for thinking about strategy, but it is lacking in executional or operational implications.
- In focusing so clearly on the internal elements of a firm, important competitive or market trends may be ignored. The resource based view, in fact, ignores perhaps the most important external factor: the evolving nature of customer demand.
- It doesn’t deal well with change or time and hinges on language. In applying the framework, one must grapple with notions of potential vs. actual, sustained vs. temporary, and current vs. future. Is this resource unique or not? Entire conclusions depend on one’s assumptions about the definitions of these terms.
Resource Based View Template
There are a variety of resource based view templates available. Applying the resource based view in strategy development doesn’t depend on a template, but analysts often find them helpful in organizing thinking and making insights more visual. This resource based view template is one option. Another template offers additional resource based view visuals for thinking through your company’s resources and how they might lead to competitive advantages.
A resource based view is one of many ways to think about strategy development. While it’s not the end all be all, it is a tool that has been effective for many organizations over the years. Taking time during your next strategic planning cycle to apply a resource based view could pay dividends for your company!
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