What is the Resource Based View (RBV) strategic approach?

By Aresha Nawaz4 min read · Posted Jan 31, 2024

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A company's Resource Based View (RBV) strategic approach is a primary managerial framework for formulating strategies that create long-term competitive advantage. RBV is currently the preferred winning and competitive strategy in business.

What is a Resource Based View?

RBV has become one of the most influential and cited management theories in history. It seeks to interpret the internal sources of a company's sustainable competitive advantage (SCA) over time. The quality of resources defines the competitive organization, and determines its performance.

The Resource Based View (RBV) strategy became popular in the 1980s following the publication of Wernerfelt's "The Resource Based View of the Firm". Later, during the 1990s, Jay Barney's work emerged as the prevailing framework in strategic management and planning. According to Barney (1991), a firm's competitive advantage can stem from four characteristics of its resources: value, uniqueness or rarity, imperfect imitability, and non-substitutability (VRIN).

To address and tackle how a firm can achieve its goals and strategic behavior, Penrose's (2009) publication was the first to propose conceptualizing a firm as a coordinated bundle of resources.

How can a Resource Based View Lead to Competitive Advantage?

Here is a model that highlights and clarifies RBV's main ideas.

RBV proponents believe that rather than attempting to learn new skills for every opportunity, taking advantage of outside opportunities is far more practical by utilizing current resources. There are two types of resources that a firm can have:

  1. Tangible Physical objects are considered tangible assets. Physical assets include capital, devices, property, structures, and equipment. Any other competitor can acquire the majority of physical assets. Therefore, they are only sometimes essential for maintaining a competitive advantage.

  2. Intangible All other assets a firm may own but do not have a physical presence are intangible assets. Property rights, marques of goods, and brand reputation are intangible assets. These assets, such as brand reputation, are the primary source of long-term competitive advantage and typically remain with the company.

The two fundamental presumptions of Resource Based View are that resources should be heterogeneous and immobile.

Heterogeneous The first presumption is that organizations should differ in the abilities, competencies, and other resources they possess. Organizations could only outcompete one another if they had a heterogeneous amount and variety of resources.

Immobile The second presumption of RBV is that, at least initially, resources stay within businesses and do not become mobile.

VRIO framework

Organizations use the VRIO framework as a strategic analytical tool to identify and safeguard the resource capabilities that lead to a sustainable competitive advantage. VRIO stands for value, rarity, imitability, and organization. These categories are vital indicators for business success metrics. Make a list of questions to determine if it can generate a long-term competitive advantage.

Is RBV valuable? Since internal or external circumstances can cause resources to lose value or become useless, it is critical to assess their intrinsic value regularly.

Is RBV rare? Rare resources can only be acquired by a few companies. Having the same resources or using the same capability in the same way leads to competitive parity.

Is RBV expensive to replicate? If a business hopes to maintain a competitive edge, the resource must also be costly to imitate so they can replace a competitor.

Does RBV capture organization? A firm can benefit from its resources only if it is set up to maximize its value through organized processes, policies, and management. It can only maintain a competitive advantage if it effectively utilizes rare, valuable, and irreplicable resources.

Critiques of the Resource Based View

The RBV framework has received much criticism during its development since the 1980s. The resource based view faces five major critiques:

Critique #1. Lack of operational validity It instructs managers to create and acquire VRIN resources and build a suitable organization, but how to do this still needs to be heard.

Critique #2. Entails an infinite regression. It is only an issue for individuals who perceive economic science and management as positive pursuits of reliability regarding the ultimate cause of a company's sustainable competitive advantage (SCA).

Critique #3. Generalizability is too limited. Connor (2002) suggests that only large companies with a lot of market power are covered by the RBV. Small companies' SCA is not based on static resources; therefore, they do not fall within the boundaries of RBV.

Critique #4. Sustainable competitive advantage (SCA) is not achievable. SCA cannot last forever and eventually compete away. It is still a compelling strategic idea in the short run.

Critique # 5. VRIN/O is not sufficient for SCA. Empirical research has produced only modest support. Armstrong and Newbert (2007) highlight factors such as methodological issues, resource imitability, and deployment capabilities that must be considered when explaining SCA.

Conclusion

Competition is crucial in business. You navigate this competition with the help of your resources. Resources must be utilized to the fullest extent possible to sustain the competitive advantage. To achieve them, a Resource Based View and a VRIO framework are ways to consider when thinking about sustainable competitive advantage (SCA). By implementing this strategy, we can ensure the optimum performance of the firm’s resources. Although there are other solutions, this tool has proven helpful for many organizations to achieve their competitive goals.

References

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Aresha Nawaz

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