In my first paper I outlined why it is important to look at Competitive Advantage as a means to gaining revenue and with the control of costs, profit. My second paper dealt with the SWOT framework and broke it down so that it became easier to understand and utilize more effectively. In this, the third article in this series, we will look at the basics of the Resource Based View (RBV) of strategy.
Grant2 stated that strategy has been defined as “the match an organization makes between its internal resources and skills….and the opportunities and risks created by its external environments”. He further commented that “this link between a firms strategy and its resources and skills has suffered comparative neglect”, a point I raised in my first article, which is why firms need to explore the RBV and identify their Competitive Advantage. Again, I will use the term ‘firm’, but it can be applied to any individual, groups, department or any institution.
The RBV of strategy quite simply is concerned with looking at the Resources and Capabilities [skills] of a firm. One of the effective ways to begin to build and complete your strategic planning is to use the RBV with the internal Strengths and Weaknesses of the SWOT framework, see fig 3 in article 2. Identifying Resource and Capabilities and placing them in the SWOT framework, should categorize those helpful attributes not exploited, and those harmful attributes that need a firm’s attention to mitigate harm, or convert into an attribute that may lead to Competitive Advantage.
To make it easier for firm’s, I will break these Resources and Capabilities into two sections, the first being those internal attributes that a firm should look at, which constitutes a firms resources and capabilities, and secondly (in the next article, 4) Resources and Capabilities with regards to their Value, Rarity, Imitability and its Organisational (VRIO) framework.
So firstly what constitutes the Resources and Capability attributes that a firm has, that need to be identified and hopefully exploited? Barney1 and Grant2 identified the following and I have thrown in a couple of my own ideas into the mix also.
- Financial attributes – debt, equity, retained earnings.
- Firms assets, physical – machines, capital equipment for manufacturing facilities, buildings used in operations.
- Intangible assets – service levels, goodwill.
- Human resources – experience, knowledge, judgment, risk taking propensity, wisdom of individuals.
- Organisational – the firm’s history, its relationships, trusts, culture of individuals and of internal groups or departments, reporting structure, management control and compensation policies, the firms size, which can define its impact on resources and capabilities.
- Intellectual property (IP) – which should be unique
- Branding – to highlight and gain a firm’s recognition.
- Market share – how to expand and promote
- Process technology – the effective way in which a firm processes its technology and information.
- Access to low cost inputs – such as Walmarts pricing coupled with its logistics
- Product technology.
In short, everything that is in a firm and is used by a firm has to have some value. The firm controls these assets and therefore how these assets are organized and deployed determines their value. Therefore using this value and exploiting it should become a major source of Competitive Advantage for the firm. By looking at your own firms resources you will be able to better understand your own firms profitability.
A couple of real life examples that I can share demonstrate how in identifying and exploiting resources can lead to Competitive Advantage. The first is about branding and market share. A technology firm in New York had a successful domestic market with the Federal government and law enforcement. Cutbacks in the defense spending in the US as well as with law enforcement severely impacted the firm’s sales and revenue income. Spending some time at the firm identified that they had a unique IP on one of their products that no other competitor had, and that a derivative of their technology, in arms training, could actually be deployed into a new product line, being a game. These attributes of the company could now be channeled into branding the original IP product to international markets, and the branding and selling of the game to the domestic consumer market, both opening new opportunities.
The second example talks about human resources, branding, expanding products and markets, a well established service and repair provider of ancillary equipment to the Semiconductor and other industries requiring vacuum. Reviewing the operation as a whole revealed strengths that were not exploited and weaknesses that needed to be corrected. The human resource capabilities, in the tacit knowledge of the workforce, were second to none in their abilities to identify and repair any faults with any competitor vacuum products. This was an asset that needed to be exploited. Additionally branding all the various products repairs and rebuilds with the firm’s logo when shipped back to the customers, enhanced the firm’s market share through brand recognition. On the weaknesses side there sales force was not solely geared to improving the sales as they were also tasked with gaining repairs and rebuilds, which caused a conflict of interest. Bringing in a new vacuum product line to complement the repair and rebuild, increased their horizontal markets, and with new sales people would improve their revenue streams. It also generated the repair rebuild division as a stand alone entity.
There are obviously also considerations in these examples that involve Porters3 [external] five forces, such as market entry, which will be covered in a later article, but in this paper we are only concerned with examples of identifying RBV attributes and how to exploit them.
In summary, finding the RBV of a firm should be broad and firms need to be aware that not all resources will have an equal value. Initially it is better to concentrate on those Resources and Capabilities that stand out, the low hanging fruit. I have given you a list of items to look at inside your firm, as well as two live examples. Identifying Resources and Capabilities delivers your firm Competitive Advantage and profitability. As you search for these Resources and Capabilities be prepared to answer the following. Are these resources valuable? Are they rare? Are they hard to imitate or copy by a competitor? And how easy can you deploy them? This is the basis of my next article (#4) when we will look at the second part of the RBV, that being the VRIO framework, in greater detail.
1 Barney, J. (1995) ‘Looking inside for competitive advantage’. Academy of management executive, vol 9 #4
2 Grant, R, M. (1991) ‘The resource-based theory of competitive advantage: Implications for strategy formulation’ California management review. pp 113-133
3 Porter, M. (2008)’ Five forces that shape strategy’. Harvard Business Review’ January 2008. pp 78-93
‘Strategic Global Group (SGG) establishes your Competitive Advantage’.
Author: Phil Wilton has worked in MNC’s as well as developing start-ups and business expansion for SME’s. He received his MBA in International Business, Strategy, Marketing and Emerging Markets from the University of Liverpool. He also completed Business Strategy – Achieving Competitive Advantage at Cornel University.
Feel free to contact Phil (SGG) for a free intro consultation on how SGG can help your firm. firstname.lastname@example.org
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