Oftentimes, it is only by looking inwards that an organization can find those values and strategic resources that stand it out from the competition. To this effect, the resource-based view framework helps companies identify their strategic assets and leverage them for productivity and market prominence. This article aims to discuss the concept of this management framework and why it can make a world of difference in the life of any business.
What is it?
The resource-based view (RBV) is a management framework that recommends the various ways an organization can acquire a competitive advantage. It defines and identifies the strategic assets and core competencies a company must possess an edge over its competition. When these assets are identified by a company (usually by looking inwards) and exploited, It can achieve the most favorable position in its industry and the market.
The RBV framework classes these strategic resources under certain considerations that give them a differentiated and specific value. To further understand the RBV framework, you may start by knowing what classes of resources/assets it recognizes.
Tangible assets
This includes machinery, material, unique processes, capital infrastructure, and other physical assets that can be quantified. However, they may confer a minimal competitive advantage on a company because rival companies can easily acquire them.
Intangible assets
A company's Intangible assets are those non-physical resources that are unique to it, thus giving the company a competitive advantage. They include a brand image, trademarks, patents, intellectual property, and other conceptual objects that can not be purchased in the market.
The RBV theory further assumes that a company's tangible and intangible resources must be heterogeneous and immobile to be considered competitively advantageous. Heterogeneous resources are those unique skills, capabilities, and resources that are concentrated in only one organization. On the other hand, immobile resources are those that can not be transferred from one company to another or replicated by a competing brand.
The main idea behind the RBV framework is that the resources highlighted must possess certain qualities. These qualities present the company with a competitive advantage. Other than the fact that the assets must be homogeneous and immobile, it states that they must be rare, valuable, non-substitutable, and difficult to imitate. When this happens, the company can leverage the resources to create core competencies that give it a sustainable competitive advantage.
When do we use it?
Business managers use this tool when they look to:
Identify the company's most valuable potential for profit and coordinate efforts to exploit them.
Exploit opportunities for growth and expansion into larger markets in the future.
Assert the company's position as a market leader by promoting its competitive advantage.
Qualify its resources and estimate their value, rarity, and uniqueness.
Recognize its core competencies, specialized skills, knowledge, expertise, and key personnel to be leveraged to the company's benefit.
What business questions is it helping us to answer?
The RBV framework helps organizations answer questions on core competencies, resource management, and competitive advantage. These questions include:
What tangible resources are available to a company?
It encourages you to take stock of your physical assets and quantify their value and impact.
What intangible resources are available to it?
By discovering what unique skills, knowledge, and processes a company has, it can coordinate efforts to deploy them to more productive use.
What capabilities are available to it?
A company's capabilities are those core competencies and areas of strength that distinguish it from other competitors.
What rare, valuable, non-substitutable, and impossible-to-imitate resources can it boast?
The presence of this type of resource will arm the company with a competitive advantage that is both lasting and hugely beneficial.
How do we use it?
The resource-based view provides a framework for an organization to identify key resources and competencies. To effectively use this management tool, below is a brief description of the steps you must follow.
Step 1
The first and perhaps most important step is to identify the company's key resources and assets—tangible and intangible. This entails highlighting any special skill set, expert knowledge, brand reputation, and other unique traits that its workers or the company have. Others include tangible assets such as equipment, machinery, finances, and other valuables that can be seen.
Step 2
Next, it can group all of the aforementioned objects and features under four categories of resources. They include those that are rare, valuable, non-substitutable, and inimitable. If it can successfully present entries in each of these four categories, then it can boast a competitive advantage in the market.
Step 3
The next step is to deploy these resources in their most productive and natural use capacity. Efforts should be made to connect the right persons with the right resources to maximize their capacities and achieve the greatest impact. The company must focus on its biggest strengths and create a strategy that optimizes them. This way, it can put its best foot forward and put the competition in the shade.
Practical example
Here, we describe the resource-based framework using the example of a pipeline construction company. The company can count on highly skilled technicians specializing in subsea welding operations and the high-tech equipment/machines needed to execute it.
Its high-pressure steam pipes use a rare technology that delivers fast-moving gas pockets at high speeds that can not be matched industry-wide. This unique material resource gives the company a competitive advantage in the market. It also makes it one of the industry's biggest and most visible names.
Advantages
It encourages optimized and judicious use of a company's strategic asset so it can be used for a long time. It also promotes responsibility in the use of a company's resources.
It helps companies identify what areas will present them with a competitive advantage in the market.
It directs organizations to look inward to find areas of strength and opportunities for growth and development.
It is designed to promote more efficient, shrewd, and productive management of a company's resources.
The RBV theory allows businesses to achieve sustainability and long-term operation. It is a model that is suited for lasting impact rather than quick fixes.
Disadvantages
It does not necessarily provide any guarantees that a company will successfully leverage its key competencies.
A company's competitive advantage may present itself as a combination of several limited or expensive resources. This makes it more difficult to exploit and is capable of becoming an issue of comparative advantage.
The theory does not extensively consider the role of product markets. This is because certain market dynamics could flip the script and render a company's capabilities less impacting.
It is difficult to find a resource that satisfies all the VRIN conditions. Finding an asset that is rare, valuable, organized, and impossible to imitate is a big ask of any organization.
External factors such as government policies, natural circumstances, economic outlooks, and new disrupting technologies can counteract o company's competitive advantage.
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