The Resource Based View (RBV):
The RBV’s basic premise is that each firm possesses a unique bundle of resources – tangible and intangible assets and organizational capabilities to make use of those assets. Each firm develops competencies from these resources and when put to use effectively these become the sources of the firm’s competitive advantages (Miller).
The Resources based View
Tangible assets + Intangible assets x capabilities = Competencies Competitive Advantages
Assets combined with capabilities produce competencies that can yield competitive advantages.
Until the mid 1980s strategy was seen primarily in terms of allocating a firm in an attractive Industry and achieving a competitive advantage over rivals. This approach however, has been attacked on three counts: (1) Globalization, international competition and deregulation have increased price competition even in industries which were thought to be highly attractive (e.g. software, Telecommunication, Electronic) (2) Rapid technological advancements have forced companies all over the globe to redefine their business boundaries continuously (e.g. Examine how software training and education majors like NIIT, Aptech, SSI have changed their focus over the years within the same line of business (3) There is no empirical evidence to suggest that industry led factors account for major portion of inter firm profit differentials. If that is so, what causes HDFC to stay ahead of the pack in housing finance industry wherein in their respective balance sheets – such as G/G housing Finance, Andhra bank housing Finance, Birla Home Finance, Tata Home Finance etc. The compelling reality seems to tilt to balance in favor of formulating strategy in terms of a firm’s unique resources and capabilities rather than industry attractiveness and pursue a generic strategy to exploit competitive advantages. Instead, the firm must focus on its own reservoir of internal resources and capabilities and exploit them to its advantage. Thus, RBV is built around three key elements:
Key elements of Resource based strategy
1) Pursue a strategy that exploit’s a firm’s principal resources and capabilities (e.g. Ranbaxy, HDFC, Infosys)
2) Ensure that the firm’s key resources are exploited fully or realize the full profit potential. For example, spending close to five per cent on R&D where the industry average is just a per cent or so. Sundaram fasteners today has developed world class design and development facilities and world class tooling capabilities that have helped it remain miles ahead of its competitors in term of quality, customer service and profits.
3) Fill the critical resource gaps and Box expand the firm’s base of resources and capabilities for the future (like what TELCO did to overcome the quality problems in its small car Indica with new, V2 version which is moving the metal like never before).
The term Resources may be defined as the stock of assets and skills that belong to an organization at a point of time; It may also be viewed that the factor inputs into the production process including tangible assets, intangible assets and the skills possessed by people working at various levels. It is important to note the essential differences between assets and skills here. Assets are basically related to having whereas skills belong to doing. Assets are incapable of acting on their own and produce results. Skills on the contrary refer to the individual abilities of human beings to perform a piece of work. It is a kind of asset that can be used to create other assets.
A simple framework for resources classification
Resources >> assets >> Skills
Assets >> Tangible assets >> intangible assets.
Tangible assets: They have a physical presence. They are visible an hence easy to identify and evaluate.
Source: Strategic Management