Using the Resource-based View Strategy for a Competitive Advantage

With advancements in technologies and ever-growing innovations in work culture, businesses have become highly competitive. Today, every company’s ultimate goal is to remain relevant during the continually changing market trends by creating value propositions for their clients.

To bring this strategy into action, managers must extensively evaluate their resource pool and competencies and leverage them to the maximum potential.

After all, the workforce is the success driver of any organization. To leverage their skills to the maximum extent, managers develop a comprehensive resource-based view strategy. It allows the seamless allocation of resources to the right job and enhances project performance and delivery. This, in turn, benefits the long-term success of the organization.

Overall, a resource-based view strategy can be the game-changer for any organization’s sustainability in a competitive market.

This blog explores the various aspects of resource-based view model and how it helps organizations gain a competitive edge.

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Let’s begin with understanding the fundamentals of resource-based strategy in detail here.

What is a resource-based view strategy (RBV)?

The resource-based view (RBV), also known as resource-based theory is a strategy which emphasises the significance of organizational resources and capabilities as the key to gaining competitive advandage and performance. A highly skilled talent pool helps an organization to explore opportunities and prevent risks in advance. It also enables them to implement strategies to improve operational efficiency and effectiveness.

It formulated by organizations to understand the elements of the business for a long-term competitive advantage. This theory emerged during the 1980s-1990s from the major works of B. Wernerfelt, Hamel, Prahalad, and others.

They stated that- ‘to have an edge over the competition, the organization should look into the potential of the company’s internal resource pool rather than seeking the external competitive environment.’

The RBV model explains that it is significant to accept and fulfil external or new opportunities using existing resources innovatively by acquiring new niche skills. As a result, the resource-based analysis should empower the workforce to achieve higher organizational prowess in the RBV framework.

The Comprehensive Guide to Resource Capacity Planning

Let’s now dive deep into the benefits of RBV strategy:

Importance of resource-based view strategy

The resource-based view strategy aims to gain a sustainable competitive advantage. But how can an organization achieve this advantage?

It is through extensive resource-based analysis, resource allocation, and cross-functional usage of resources. Only when a firm unleashes its workforce’s true potential can it innovate better and stand out in the industry.

Here is how a resource-based theory helps them achieve the same,

Provides visibility for efficient resource allocation

The comprehensive view of all the resource pools facilitates managers’ gaining insight into resource skills, competencies, experience, capacity, availability, etc. This, in turn, enables managers to plan ahead and allocate resources per the project’s scope, demand, and timeline. This real-time centralized information helps them make data-driven decisions, leverage talent to its optimum potential, and maximize profitability.

Facilitates strategic decision making

The resource-based theory helps managers meticulously assess resource strengths and weaknesses. This analysis empowers them to maximize the utilization of strengths while implementing measures to mitigate resource weaknesses. By leveraging strengths and strategically addressing the bottlenecks, the company can align its actions with long-term goals, gaining a competitive edge in the industry and ensuring sustained success in evolving market landscapes.

Enhances innovation & adaptability

The resource-based strategy helps foster a deep understanding of a firm’s unique resources and capabilities. It encourages leveraging these distinct strengths to drive innovation, encouraging the development of new products, services, or processes that capitalize on these resources. Additionally, RBV promotes adaptability by continuously evaluating and evolving these resources to match changing market demands, enabling firms to pivot and adjust strategies effectively based on their core competencies, thus fostering a culture of innovation and resilience.

Promotes long-term sustainability

By prioritizing the development of unique, valuable, and challenging-to-replicate resources, the resource-based strategy nurtures long-term sustainability. Further, continuous assessment, enhancement of the internal strengths establishes a resilient foundation, reducing reliance on external factors. This approach fosters adaptation to market changes, creating enduring advantages that competitors struggle to imitate. Thus, ensuring sustained success and longevity in the market.

Maintains the competitive advantage

The rise in market volatility propels extensive ad hoc project demands, which often become the deciding factor for your company’s growth and success. In these situations, resource managers can utilize both their primary and secondary workforce skills to execute critical multi-faceted projects. A Resource-based view strategy on a centralized platform enables demand fulfillment to sustain their competitive advantage.

Enables cross-functional usage of resources

In a matrix organization, the resource-based strategy model facilitates enterprise-wide visibility of the workforce and its expertise. It helps allocate appropriate resources from different departments and forms a cross-functional team to execute the project. It reduces hiring cycle costs and also helps to leverage the diversified workforce. Besides, employees are also given multi-faceted projects to enhance their professional portfolios.

Read More: Resource Allocation: A Guide on How to Apply it to Project Management

Given the importance of resource-based theory, here’s a detailed description of the fundamental concepts:

Major concepts of resource-based view (RBV) analysis

RBV is a strategic theory beneficial for understanding why companies outperform other competitors. It is a commonly adopted analytical method used to determine the strengths and limitations of an organization and evaluate the firm’s workforce.

With the understanding of the resource-based strategy or RBV model, let’s emphasize the details of its different types of assets.

The assets of the RBV model

There are two types of assets in the RBV model: tangible and intangible assets.

Tangible assets

The tangible assets are the physical resources of the firm that are quantifiable. It includes products, machinery, equipment, capital, infrastructure, etc. They can be easily acquired by competitors in identical assets and offer a less competitive advantage in the long run.

Intangible assets

Intangible assets are resources that are owned by respective organizations and which do not have a physical presence. It includes brand presence, intellectual property, goodwill, trademarks, etc. Unlike tangible assets, intangible assets are built over a long time and cannot be replicated by competitors.

Invariably, intangible resources remain within a business and are the primary source of sustainable competitive advantage.

The critical assumptions of RBV

The fundamental principle of the RBV model explains competitive heterogeneity between companies. To transform a short-run competitive advantage into a sustainable one, the two critical assumptions of resource-based theory are that the resources must be heterogeneous and immobile. Let’s discuss this in detail here:

Heterogeneous

The primary heterogeneous assumption is that organizations must significantly differ in terms of resources and core competencies. If companies have the same mix of resource pool, they would not be able to employ different business strategies to outperform each other. On the other hand, when exposed to the same competitive market, companies with a heterogeneous workforce can outrank each other by implementing different strategies.

For instance, the technology giants- Apple Inc. and Samsung Electronics operate in the same industry (Smartphone and tablet market) and, therefore, are subject to the same competitive market. However, they possess disparity in organizational performance due to the difference in resources and their expertise (heterogeneous resources).

Immobile

The second assumption of resource-based theory states that the resources are immobile and thus do not move freely from one company to another (employee movement), at least in the short run. Due to this immobility, competing firms could not replicate their resources’ expertise and implement an appropriate strategy.

Immobile resources include all the intangible assets of a company, such as brand equity, intellectual property, etc., and some of the tangible assets.

Read More: Project Resource Management: An Ultimate Guide on How to Master it

However, a firm’s sources of competitive advantage go beyond heterogeneity and immobility. Other factors play a vital role in enabling firms to stay competitive. Here is an in-depth explanation:

What is the VRIO framework?

Adding on to the assumptions, a renowned professor of strategic management, Jay B Barney, introduced a VRIN structure in 1991 that was later altered by other leading thinkers. The new VRIO Framework is an improvement of the VRIN model and was adapted from Rothaermal’s ‘strategic management’ (2013).

The VRIO framework is a tool used within the Resource-Based View (RBV) to assess whether a company’s resources and capabilities can contribute to sustainable competitive advantages. The VRIO analysis categorizes the resources based on their Value, Rarity, Imitability, and Organizational system.

Let’s understand each of these attributes in detail:

Value: It states that resources are only valuable to organizations if they contribute to their goal in terms of products or services. Besides transforming inputs into outputs, value addition occurs when your resources successfully exploit profitable ventures or bring down external costs, thereby, increasing revenue. The resources that cannot acheive this condition lead to competitive disadvantage.

Rarity: The tangible and intangible resources that very few organizations can only acquire are rare resources. A firm with these rare skill sets in its closet can reap the competitive benefits and stand out in the market. In contrast, companies that possess the same set of resources and capabilities face competitive parity.

Imitability: The key to competitive sustainability is the decrease in the rare or valuable resources’ imitability rate for the long term. It can only be achieved when the compensation is higher than the cost offered by other companies to mimic these resources and capabilities.

Organization: For a resource to exhibit competitive advantage, the organization, its processes, and systems must be designed in a way that supports a resource for maximum productivity. It includes having the right resource management system to ensure all the critical resource KPIs are optimized and balanced.

What is an example of VRIO framework?

Let’s consider the following scenario to understand the VRIO framework:

An IT organization wants to assess its competitive advantage in the market. They conduct a VRIO analysis to evaluate their internal resources and capabilities.

First, they look at their human resources.

The organization has a team of highly skilled software engineers and cybersecurity experts who possess deep expertise in cutting-edge technologies. This expertise is valuable as it allows them to develop innovative software solutions and provide robust security measures. It is also rare because finding individuals with such specialized knowledge and experience is challenging.

Furthermore, the company has invested significantly in training and developing its employees, making it difficult for competitors to replicate this resource. Overall, the human resources of the IT organization possess a valuable, rare, and difficult-to-imitate advantage.

Next, they assess their tangible resources. The IT organization owns a state-of-the-art data center with advanced server infrastructure and networking equipment. This physical infrastructure is a valuable asset as it enables the organization to deliver reliable and scalable IT services to clients.

However, it is not a rare resource since other IT companies can invest in similar equipment. While it may be difficult to imitate the exact setup of the organization’s data center, the resource does not provide a sustained competitive advantage.

Moving on to organizational capabilities, the firm has a well-established project management framework that ensures efficient project execution. They have a streamlined process for requirements gathering, development, and deployment, enabling them to deliver projects on time and within budget. This capability is valuable as it gives them a competitive edge in terms of project delivery and customer satisfaction.

However, it is not rare, as other IT companies also implement project management methodologies. Therefore, while valuable, the organizational capabilities of the IT organization do not provide a sustained competitive advantage.

Finally, they analyze their intangible resources. The IT organization holds several software patents related to their proprietary solutions, protecting their intellectual property and providing legal barriers to entry for competitors. These patents are a valuable and rare resource, granting the organization exclusive rights to their innovations. It is also difficult to imitate, as competitors must develop unique solutions to bypass the organization’s patents. This gives the IT organization a sustained competitive advantage in the market.

In conclusion, the VRIO analysis indicates that the IT organization’s human resources and intangible assets (patents) provide valuable, rare, and difficult-to-imitate advantages, thus contributing to their competitive advantage in the IT industry.

However, while valuable, their physical resources and organizational capabilities do not offer sustained competitive advantages. This resource-based analysis helps the organization identify areas where they can leverage their strengths and prioritize their talent to maintain their market position and continue delivering innovative IT solutions to clients.

Formulating the VRIO Framework is only half the battle won. It is also essential to develop and implement a resource-based strategy that suits organizational needs. But first, let’s understand the limitations of the RBV strategy.