Resource-based view of the firm

Combines two perspectives:

• The internal analysis of phenomena within a company
• An external analysis of the industry and its competitive environment

Types of Resources
• Tangible resources
Organizational assets that are relatively easy to identify, includes physical
assets, financial resources, organizational resources, and technological
resources used to create value for customers.
Eg. Plant and Equipment, cash account.

• Intangible Resources
Difficult to account for or imitate, typically embedded in unique routines
and practices that have evolved over time
Eg. Brand name, Reputation with customers

• .Organizational Capabilities
Competencies or skills the firm employs to transfer inputs to outputs.
Eg. Outstanding customer service, Innovativeness of products and services,
Ability to hire, motivate, and retain human capital.

Firm Resources and Sustainable Competitive Advantages

Resources should be valuable
Organizational resources can be a source of competitive advantage only when they are
valuable
Resources should be rare
Organizational resources also possessed by competitors are not sources of competitive
advantage
Competitive advantages are gained only from uncommon resources
Resources should be difficult to imitate
Difficulty in imitating resources is key to value creation because it constrains
competition.Profits generated from inimitable resources are more likely to be sustainable.
The various sources of inimitability are:
 Physical Uniqueness The first source of inimitability is physical uniqueness,
which by definition is inherently difficult to copy. A beautiful resort location,
mineral rights, or Pfizer's pharmaceutical patents simply cannot be imitated..

Path Dependency: Resources are unique and therefore scarce because of all
that has happened along the path followed in their development and/or
accumulation.

Casual Ambiguity The third source of inimitability is termed casual ambiguity.

This means that would-be competitors may be thwarted because it is impossible
to disentangle the causes (or possible explanations) of either what the valuable
resource is or how it can be re-created.

Social Complexity Such phenomena are typically beyond the ability of firm to
systematically manage or influence. When competitive advantages are based on
social complexity, it is difficult for other firms to imitate them.

Substitutes should not be readily available

Resources should not have strategically equivalent valuable resources that are themselves
not rare or inimitable

Criteria for Sustainable Competitive Advantage

Valuable Rare Difficult to Without Implication for

Imitate Substitutes Competitiveness
No No No No Competitive
disadvantage
Yes No No No Competitive
Parity
Yes Yes No No Temporary
Competitive
advantage
Yes Yes Yes Yes Sustainable
Competitive
advantage
The VRIO Framework

If a firm has resources that are:

• Valuable: resource result in an increase in revenues, a decrease in costs, or
some combination of the two
• Rare: if a resource is not rare, then perfect competition dynamics are likely to be
observed (i.e., no competitive advantage, no above normal profits)
• Difficult to Imitate: competitors find it difficult in imitating the resource
• the firm is Organized to exploit these resources
then the firm can expect to enjoy a sustained competitive advantage.