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Midterms - Resource-Based Theory

The document discusses Resource Based Theory, which analyzes organizations based on their internal resources rather than their industry or market. It focuses on three categories of resources: physical, human, and organizational. For resources and capabilities to provide competitive advantage, they must be valuable, rare, imperfectly imitable, non-substitutable, and the organization must be efficiently organized. Core competencies that are strategically important can lead to competitive advantage but can also become "core rigidities" that hinder future success if the organization does not develop new competencies. Human capital represents accumulated knowledge and skills in the workforce that add value to the organization.

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61 views2 pages

Midterms - Resource-Based Theory

The document discusses Resource Based Theory, which analyzes organizations based on their internal resources rather than their industry or market. It focuses on three categories of resources: physical, human, and organizational. For resources and capabilities to provide competitive advantage, they must be valuable, rare, imperfectly imitable, non-substitutable, and the organization must be efficiently organized. Core competencies that are strategically important can lead to competitive advantage but can also become "core rigidities" that hinder future success if the organization does not develop new competencies. Human capital represents accumulated knowledge and skills in the workforce that add value to the organization.

Uploaded by

AM
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Strategic Business Analysis - Resource Based Theory

Resource Based theory - looks at organization as set of resources, heterogeneous in that their
resources, both physical and human, varied and remained different over the course of time, related
to their different qualities including those of management and other employees.
Strategic Management theories traditionally focused their analysis on product market or industry
within which an organization operated. Resource based theories focused on internal resources of
organization to explore the implication of these for competitive advantage. Competitive advantage
and therefore superior firm performance might flow from the possession and development of better
quality resources.
Resource Based theory - Resources, Capabilities and Competitive Advantage
3 categories of Resources
A. Physical
B. Human
C. Organizational

Attributes of Resources and Capabilities that lead to Competitive Advantage

1. Valuable - resources and capabilities allow an organization to develop strategies to exploit


available opportunities and neutralize evident threats, will always be valuable. Valuable Resources
and capabilities provide basis for competitive advantage.
2. Rare - resources and capabilities need to be rare or unique in order to create a situation of
competitive advantage. Commonly available resources and capabilities that are valuable may help
an organization survive but will not ensure competitive advantage.
3. Inimitable - resources and capabilities that are valuable lead to competitive advantage.
Such an advantage will be eroded when others copy these resources and imitate resources and
capabilities. For the advantage to be sustained, these resources and capabilities need to be
inimitable. - that is they cannot be copied or imitated. Such resources and capabilities are then
labeled
Imperfectly Imitable - they cannot be copied successfully
4. Non-Substitutable - another strategy that competitors can apply to challenge organization’s
competitive advantage
5. Effectively organized - in addition to possessing valuable, rare, inimitable, and non-
substitutable resources and capabilities, organizations need to be efficiently organized. This
pertains to organizational structure.

3 Reasons for Resource Inimitability

1. History & Timing of the organization - resource position barrier from being a First Mover.
Competitors have to contend with barrier to entry and resource position barrier
2. Causal Ambiguity - situation of complexity may actually make it difficult for other
organizations to analyze reasons for their competitive advantage. Reasons for an
organization competitive advantage are not understood clearly,and difficult to know which
resources and capabilities should be imitated. In Football, successful managers are pirated to
imitate success of originating football club. Other situation may be that much knowledge is
likely to remain tacitly in the heads of many different employees spread throughout the
organization. Ex. Buddy Pizza’s success
3. Social Complexity - organizational culture can be a source of competitive advantage
because understanding and manipulating a competitor’s organizational culture to replicate
would be hard and unlikely in practice. How success is achieved is complex and may include
customer supplier relationship, good intra-organizational set-up, etc.

Resource Based theory : Core capabilities and Competitive advantage


Core Capabilities - capabilities which give an organization strategic advantage over its
competitors
Core Competence - develops from collective learning in an organization, especially from
being able to coordinate diverse set of skills and integrate different technologies. This perspective
sees business as being composed of small number of core competencies which are then used to
devise a set of core products, from which flow the range of end products.
Example - Honda, Canon and Philips
Honda - core competences in production of engines and power train - this is used to produce
end products like car, motorcycles and generators.
Canon - core competences in imaging, optics, microprocessors which lead production of
camera, copier, scanners.
Philips - core competences in optical media that lead to a wide range of laser disc related end
products.

Instead of focusing on particular markets and the products that are sold, the focus is on
strategic intent of organization to identify and build a small number of core competences to use a
competitive advantage through a range of commercial applications - Knowledge Based rather
than Product Based.

Resources - capabilities - competitive advantage - Strategy - this is Resource Based


Approach to Strategy

Alternative terms for concept of core capability


Distinctive competences, core competence, firm specific competence, resource deployment,
invisible asset

Core capabilities - knowledge based view as a knowledge set

Four dimensions --- Barton

A. Employee knowledge and skill - important during development of new product


B. Physical technical system
C. Managerial system
D. Values and norms - linked to culture of organization

Capabilities considered core if they are strategically important leading to competitive advantage

Core Rigidities can lead to the loss of such advantage.

Core Rigidities - knowledge sets that while once appropriate for organizational success, have been
inappropriate to achieve future advantage. Flip side of core competence which is difficult to change
as they have become part of organizational culture and capable of damaging its future prospects,
indicating need to develop a new knowledge base. The time to develop new core capability is
while existing one is still effective.
Proactivity - related to foresighted strategic intent to indicate need to avoid damaging period of
transition or even crisis.

Other categories of organizational capability


Not all resources in an organization can be considered core capability
A. Supplemental capabilities - add values to the activities of the organization but are not necessary
and can be imitated or copied by others.
Example - Organization’s core capability is in internet retailing but may also have a strong
distribution network: this supplement its core capability but is neither required or unique when
compared to other organizations
B. Enabling capabilities - necessary but not by themselves sufficient to create a situation of
competitive advantage.
Example - manufacturing firms that used to establish very high levels of quality in order to
compete but this attribute is not sufficient to create competitive advantage since many such
organizations need this just to stay in the industry.( high quality valuable but not rare). In this way,
high quality resources will serve an enabling role but other resource attributes will need to be
developed to make these core capability.

Resourse based theory - unlike other forms of production, people cannot be owned by the
organization that hire them. Management need to focus attention on developing organizational
structures, organizing work, fostering cooperative relationship and ensuring consistency of fair
treatment to facilitate development of organizational capability, rather than simply trying to exert
overt forms of control.
Human Capital - accumulated knowledge, skills, experience, and competence residing within
the workforce that represent an intangible asset that adds value to the organization. It can be
argued that the overriding purpose of the Human Resource Department in the organization is to
increase an organization’s human capital.

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