Explain the resource-based view of the firm creating market strategy?

Answer 1

Anand) ) Basic principles of the RBV model o RBV of the firm provides a rigorous model for analysing firm's strengths and weaknesses o Basic assumptions of RBV : § Resource and/or capability heterogeneity : different firms possess bundles of different resources and capabilities § Resource and/or capability immobility : Some of these resources and capabilities are inelastic in supply or costly to copy o RBV posits that the sources of value creation are resources and capabilities § Value = Consumer surplus + Producer profit § To outperform industry norm, a company must create more value than its competitors Starting point for a unifying strategic framework : THE RBV of the firm · The RBV of the firm is grounded in economics · RBV sees companies as different collections of physical and intangible assets and capabilities, which determine how efficiently, how effectively a company performs its functional activities · Attributes competitive advantage to ownership of valuable resources and capabilities that enable a company to perform activities better or more cheaply than competitors · Combines internal analysis with external analysis Resources · Are defined as stocks of firm-specific assets · Cannot be easily duplicated · Cannot be easily acquired in well-functioning markets Examples : Patents and trademarks Brand-name reputation Installed base Organizational culture Workers With specific expertise or knowledge · Contribute either directly (e.g., reputation) or indirectly (e.g., through serving as the basis of capabilities) to value creation · Are converted into final products or services using bonding mechanisms such as IT, incentive systems, trust, etc. · Sometimes non-specific resources (like buildings, raw materials, unskilled labor, etc.) are included in the definition of "resources" · Resource categories : § Financial capital § Physical capital § Human capital § Organizational Capital Capabilities · Are defined as cluster activities that a firm does especially well in comparison with other firms o May reside within business functions (e.g., AA yield management)

o May be linked to technologies, product design (e.g., Honda engines)

o May reside in firm's ability to manage linkages between elements of value chain, i.e., coordination skills (e.g., Ford product development)

o Refer to a firm's capacity to deploy resources, usually in combination, using organizational processes to effect desired ends · Information-based, firm-specific processes which are created over time through complex interactions between resources · Key characteristics : o Valuable across multiple products and markets

o Embedded in organizational routines (well-honed patterns of performing activities)

o Tacit (i.e., difficult to reduce to algorithms, procedure guides) Resources and capabilities are distinct from key success factors Key success factors (KSF) · Refer to the skills and assets a firm must have to achieve profitability in a particular market · Market-level rather than individual characteristics · Necessary, not sufficient for achieving competitive advantage (e.g., KSF in athletic footwear are development of new designs, management of a network of suppliers and distributors, creation of marketing campaigns) · Predictors of firm profitability (like resources and capabilities) A FRAMEWORK FOR ANALYSIS : VRIO Resource-based analysis of the firm determines which resources and capabilities result in which strengths or weaknesses . Strategies are to be implemented which exploit (or build) strengths and avoid (or eliminate) weaknesses . What constitutes a strength or weakness is partially a function of the external environment . Framework for analysis: VRIO - resources and capabilities should be o Valuable

o Rare

o Inimitable

o Organization can effectively exploit them VALUE of resources and capabilities * A VALUABLE resource or capability (or a combination thereof) must * Contribute to fulfillment of customer's needs * At a price the consumer is willing to pay, which is determined by Customer preferences * Available alternatives (including substitute products) Supply of related or supplementary goods .Thus, value is partially a function of external environment (product market, demand forces) .Changes in consumer tastes, industry structure, technology, etc. can result in changed value . Resources of different firms can be valuable in different ways (e.g., Timex versus Rolex) Value = Lowered costs or increased revenues or both SCARCITY of resources and capabilities Resources and capabilities must be in short supply to create competitive advantage (and go beyond competitive parity) What would happen if this were not the case? An analysis of the firm's resources and capabilities must include critical assessment whether they are unusual when compared to those of competitors How rare does a resource have to be in order to have potential for generating a competitive advantage? Example of a rare resource: Wal-Mart's point-of-purchase inventory control system .To be a source of sustained competitive advantage the rarity of the resource must persist over time . INIMITABILITY of resources dans capabilities * Requirement for sustained competitive advantage * Ease of imitation depends on Cost asymmetries ("Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?") * Capabilities of competitors * Sources of cost asymmetries / cost disadvantages fall into two categories : * Impediments to imitation : Impede rivals from duplicating critical resources and capabilities * Early-mover advantages : Set in motion a dynamic that increases the magnitude of that advantage relative to other firms over time