Resource-Based View (RBV) as a Way for Competitive Advantage of a Company

Blogpost No. 5: By Tilak Karunaratne (E201471)

 

Introduction

The Resource-Based View (RBV) is a theoretical framework often applied in strategic management and human resource management (HRM). It focuses on understanding and leveraging an organization's unique resources and capabilities to gain competitive advantage and create value.  The RBV theory was originally proposed by Birger Wernerfelt (1984) and later developed and refined by Jay B. Barney (1991) and other scholars (Kshethri, N; 2008).

The RBV theory shows that competitive advantage is a function of the resources and capabilities of the firm (Wernerfelt, 1984; Conner, 1991; Peteraf, 1993).

A key challenge in RBV however is: How can one define what is meant by ‘resource?’. In research, several terms such as competencies (Prahalad and Hamel 1990), skills (Grant 1991), strategic assets (Amit and Schoemaker 1993), assets (Ross et al. 1996), and stocks (Capron and Hulland 1999) have been used (Wade, M. and John, H)

 


Resource-Based View (RBV)

For discussion in this paper, resource means assets and capabilities.  Assets in turn is defined as anything tangible or intangible the company can use in its processes for creating and/or offering its products (goods or services) to a market.  Assets can serve as inputs or as the outputs of a process (Srivastava et al. 1998; Teece et al. 1997).

Capabilities is defined as ‘repeatable patterns of actions in the use of assets to create, produce, and/or offer products to a market (Sanchez et al. 1996)’.   Capabilities transform inputs into outputs of greater worth (Amit and Schoemaker 1993; Capron and Hulland 1999; Christensen and Overdorf 2000; Sanchez et al. 1996; Schoemaker and Amit 1994). Capabilities can include skills.

The RBV emphasizes that an organization's human resources (i.e., its employees and their skills, knowledge, and capabilities) are valuable, rare, inimitable, and non-substitutable resources that can contribute significantly to its success. Below is the key concepts within the Resource-Based View in HRM.

  • Valuable: Human resources are considered valuable when they help the organization achieve its strategic objectives and improve its performance. For instance, having skilled employees who can innovate, provide excellent customer service, or adapt to changing market conditions can be a valuable resource.  Where several competitors possess a valuable resource, then it is not a source of competitive advantage.
  • Rare: Resources that are rare are those that are not commonly available in the industry or among competitors. In HRM, this could refer to having a unique pool of talent with specialized skills or a distinctive organizational culture that sets the company apart.
  • Inimitable: Something is inimitable when it cannot be easily replicated or copied by competitors. Having a highly skilled and experienced workforce that is difficult for competitors to attract and retain is an example for this.
  • Non substituble: Resources that are non-substitutable have no close alternatives. In HRM, this could relate to having a team with a specific expertise that cannot be replaced by technology or outsourced without significant loss of competitive advantage.
The RBV approach in HRM encourages organizations to focus on developing and leveraging their human resources to create a sustainable competitive advantage. This may involve strategies such as:

  • Recruitment and selection: Identifying and hiring individuals with unique skills and talents that align with the organization's strategic goals,
  • Training and development: Investing in the continuous development of employees to enhance their skills and keep them up-to-date with industry trends,
  • Retention strategies: Implementing measures to retain key employees who possess valuable knowledge or capabilities, preventing them from being acquired by competitors, and
  • Creating a positive work environment: Building a culture that values employee contributions, fosters innovation, and promotes teamwork.

A RBV perspective focuses inwardly on the company’s resources and capabilities to enhance its competitive advantage (Barney, 1991; Penrose, 1959; Peteraf, 1993). The RBV approach helps us understand how firms achieve and sustain competitive advantage through leveraging the resources and function accordingly.  

Picture Source: Internet

Valuing the resources - especially those highly skilled - more and retaining and employing and rewarding them - resulting competitive advantage - for the company's development is an example for the use of RBV framework. 


Conclusion

Barney (1999) argues that a company must be organised to exploit its resources and capabilities. For that, the company must have elements such as: reporting structure, management control systems and compensation policies.  .

Valuable resources help a company exploit opportunities and / or avoid threats in the environment (Barney, 1991) and enable it to develop and / or implement strategies to improve its efficiency and effectiveness (Capron and Hulland, 1999)

Even if a company possesses several valuable, rare and costly to imitate resources, it will fail to fully-exploit the resources if it is ineffective.

By aligning HRM practices with the principles of the Resource-Based View, organizations can better leverage their human resources to achieve a competitive advantage in the marketplace.

 

References

Kshetri, N. (2021) Chinese technology enterprises in developing countries: sources of strategic fit and institutional legitimacy; ScienceDirect

Mclover, R and McKittrick, A. (2009) A Study of Performance Measurement in the Outsourcing Decision, ScienceDirect

Wade, M. and Hulland, J (2008) The Resource-Based View and Information Systems Research: Review, Extensions and Suggestions for future research, MIS Quarterly; 108-109

Yang, H. and Morgan, S.L. (2011) Business Strategy and Corporate Governance: Theoretical and Empirical perspectives, ScienceDirect

 

Comments

  1. Divvigaa KajendranAugust 15, 2023 at 9:02 PM

    Agreed, Peteraf & Barney (2022) states that the Resource-Based View (RBV) offers a valuable framework for organizations seeking to achieve and sustain competitive advantage by leveraging their unique resources and capabilities. This perspective emphasizes the importance of identifying, developing, and effectively utilizing resources within the organization, particularly in the context of human resource management (HRM).

    However, Hinterhuber (2013) said that it's important to note that even possessing valuable and unique resources isn't enough to guarantee success. The organization's effectiveness in utilizing and integrating these resources into its operations is crucial. Therefore, the RBV approach serves as a guide for aligning HRM practices with the broader organizational strategy, ultimately leading to a sustainable competitive advantage in the dynamic marketplace.

    ReplyDelete
  2. S.JANAGANAugust 16, 2023 at 2:24 AM

    Hi Tilak,

    I enjoyed reading your blog post on the Resource-Based View (RBV) as a way for competitive advantage of a company. You did a great job of explaining the key concepts of RBV and how they can be applied in HRM. I also appreciated the examples you provided of how companies can use RBV to their advantage.

    One of the things I found most interesting about your blog post was your discussion of how RBV can be used to create a sustainable competitive advantage. You pointed out that valuable, rare, inimitable, and non-substitutable resources can give a company a competitive edge. However, you also noted that even if a company possesses these resources, it will not be successful if it is not organized to exploit them. I think this is an important point to remember, as it shows that RBV is not a magic bullet. It takes more than just having valuable resources to be successful.

    ReplyDelete
  3. Nalin Thushara FernandoAugust 16, 2023 at 10:14 AM

    Well done Tilak
    The passage highlights the essential link between a company's resources, capabilities, and organizational structure. Barney's perspective emphasizes that a company's success hinges on effectively utilizing its resources and capabilities. To achieve this, elements like reporting structure, management control systems, and compensation policies are crucial in orchestrating efficient resource exploitation.

    The idea that valuable resources enable a company to seize opportunities and navigate threats underscores the importance of these resources in enhancing competitiveness(Martin, 2014)

    Furthermore, the concept of aligning human resource management practices with the principles of the Resource-Based View emphasizes that even if a company possesses valuable, rare, and difficult-to-imitate resources, their potential won't be fully realized if the organization lacks effectiveness.

    This passage underscores the symbiotic relationship between organizational structure, resource utilization, and human resource management. By strategically aligning these elements, companies can optimize their resources, enhance efficiency, and ultimately gain a competitive edge. This holistic approach emphasizes the significance of not only possessing valuable resources but also having the operational framework to harness them effectively.

    ReplyDelete
  4. Gayani RajapakshaAugust 18, 2023 at 10:20 PM

    Agreed, The Resource-Based View (RBV) is a theory that argues that a company's competitive advantage is based on its resources and capabilities. The RBV identifies four key characteristics of a valuable resource: it must be valuable, rare, inimitable, and non-substitutable. Human resources are considered valuable resources when they help the organization achieve its strategic objectives and improve its performance. (Bromiley, P., & Fleming, L. 2002). The RBV approach in HRM encourages organizations to focus on developing and leveraging their human resources to create a sustainable competitive advantage.

    ReplyDelete
  5. Nilantha de SilvaAugust 22, 2023 at 9:49 AM

    Agreed with you Thilak, Barney (1999) says a company needs structure, control, and compensation to use its resources well. Valuable resources help in opportunities and strategies. Aligning HRM with this view helps organizations succeed.
    Really insightful reading, keep up the good work !!

    ReplyDelete
  6. Madhawa PereraAugust 27, 2023 at 7:34 AM

    A Good reading and informative article. Good job Thilak

    ReplyDelete
  7. Fawaaz JishtyAugust 29, 2023 at 9:43 PM

    Good work Tilak.Organizations must utilise existing resources to be compete with others.Its easier to explore and exploit options with what is available than trying to acquire those resources.However these resources must be unique , valuable and unsubstitutable(Barney,1991)

    ReplyDelete

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