Resource Based View Of Firms Competitive Advantage

Re root word Based View Of Firms rivalrous profitThe nature of competition constitutes the basis of a regular s success or failure. Quality straightaway no foresightfuler constitutes a belligerent weapon. Organisations long term success in a trade is determined by its ability to expand and maintain a large number of loyal client bases. insertion has always been at the focus of free-enterprise(a)ness. Innovation often occurs in sudden dynamic shifts. It is these sudden war-ridden changing intentions that open up and close out vast beas of argumentationes.A impregn fitted s core competences is dependent on its capacity to creatively combine core skills (Prahalad, 1993), from both within and out side the organisation. However, what matters is the creative bundling of a hard s core competency (Prahalad, 1993) and thus, the hold for a focus on the factors that signal value to the customers.Firms atomic number 18 required non only to improve, barely to present products and services and anticipate customer needs on a continuous basis. In order to maintain a long-term relationship with the customer, planetary houses need to licence their ability to think for the customer, and to conceive and implement new ways to serve them better.Table of contentsExecutive Summary 11.0 Introduction An Overview of the Resource-Based View (RBV)2.0 Competitive Advantage and Innovation 3-73.0 International Business Machines Corporation IBM4.0 SONY 85.0 Procter Gamble 116.0 Conclusion 14References 15-18Bibliography and Appendices 19-211.0 Introduction An Overview of the Resource-Based View (RBV)RBV is a strategic guess for understanding wherefore some firms outperform others. It is a widely adopted analytical tool of assessing a firm s internal strengths and weaknesses and a pipeline management tool used to determine the strategic imagings available to a firm. The fundamental principle of the RBV is that the basis for a competitive reward of a firm lies primaril y in the application of the bundle of valuable resources at the firms disposal (Wernerfelt, 1984, p172). It provides an explanation of competitive heterogeneity between firms. To transform a short-run competitive advantage into a sustained competitive advantage requires that these resources are heterogeneous in nature and non perfectly mobile (Peteraf, 1993, p180).Classical RBV opening was contributed by Penrose (1959) almost half a century ago. She argued that a firm is much than an administrative unit. It is in any case a collection of productive resources. The disposal of the resources between antithetical users over time is determined by administrative decision. Penrose contributed to our knowledge of the trigger of competitive advantage, sustaining competitive advantage, isolating mechanisms, and competitive advantage and economic rents (Kor and Mahoney, 2004). Modern RBV theory of the firm was introduced by Barney (1986, 1991), Dierickx and Cool (1989), and Peteraf (199 3). Their works assumed that each firm is a collection of key resources and capabilities that determines a firm s scheme. Above-average returns are illumine when the firm uses its core competencies to establish a competitive advantage over its rivals. With the progress in the research on RBV, it has become clear that the RBV extends beyond the assets of an government activity and reaches into its capabilities which throw more relation with surgical operation and activities.According to Barney (1991), for a firm to defecate the potential to sire competitive advantage firm resources moldiness have four attributes. First, the firm must be valuable, in the sense that it exploits opportunities and or neutralizes threats in a firm s environment. Secondly, it must be rare among a firm s current and potential competition. Thirdly, it must be imperfectly imitable. Finally, there finishnot be strategically equivalent substitutes for this resource .Identify the firm s potential key r esources.Evaluate whether these resources fulfill the following (VRIN) criteriaValuable A resource must enable a firm to employ a value-creating strategy, by either outperforming its competitors or reduce its own weaknesses (p99p36). Relevant in this perspective is that the transaction costs associated with the investment in the resource cannot be higher than the discounted approaching rents that flow out of the value-creating strategy (Mahoney and Prahalad, 1992, p370 Conner, 1992, p131).Rare To be of value, a resource must be by definition rare. In a perfectly competitive strategic factor market for a resource, the price of the resource will be a reflection of the expected discounted future above-average returns (Barney, 1986a, p1232-1233 Dierickx and Cool, 1989, p15041p100).In-imitable If a valuable resource is controlled by only one firm it could be a source of a competitive advantage (1p107). This advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly (Peteraf, 1993, p183 Barney, 1986b, p658). The term isolating mechanism was introduced by Rumelt (1984, p567) to explain why firms might not be able to imitate a resource to the degree that they are able to compete with the firm having the valuable resource (Peteraf, 1993, p182-183 Mahoney and Pandian, 1992, p371). An important underlying factor of inimitability is causal ambiguity, which occurs if the source from which a firm s competitive advantage stems is unknown (Peteraf, 1993, p182 Lippman and Rumelt, 1982, p420). If the resource in question is knowledge-based or socially complex, causal ambiguity is more likely to occur as these types of resources are more likely to be idiosyncratic to the firm in which it resides (Peteraf, 1993, p183 Mahoney and Pandian, 1992, p3651p110). Conner and Prahalad go so far as to say knowledge-based resources are the essence of the resource-based perspective (1996, p477).Non-substitutable Even if a resource is rare, pot entially value-creating and imperfectly imitable, an equally important aspect is lack of substitutability (Dierickx and Cool, 1989, p15091p111). If competitors are able to look to the firm s value-creating strategy with a substitute, prices are driven down to the point that the price equals the discounted future rents (Barney, 1986a, p1233 sheikh, 1991, p137), resulting in zero economic profits.1.1 Competitive AdvantageA firm can attain competitive advantage if the current strategy is value-creating, and not currently being implemented by present or possible future competitors. Competitive advantage has the ability to become sustained, however, this is not necessarily the case always. A competing firm can enter the market with a resource that has the ability to invalidate the prior firms competitive advantage, which results in reduced rents (Barney, 1986b, p658). Sustainability in the context of a sustainable competitive advantage is independent with regards to the time-frame. When the onomatopoeic actions have come to an end without disrupting the firm s competitive advantage, the firm s strategy can be called sustainable. This is contrary to other views that a competitive advantage is sustained when it provides above-average returns in the long run. (Porter, 1985).2.0 Competitive Advantage done InnovationA convenient definition of launching from an organizational perspective is presumption by Luecke and Katz (2003), who wroteInnovation . . . is generally understood as the successful introduction of a new thing or method . . . Innovation is the embodiment, combination, or deductive reasoning of knowledge in original, relevant, valued new products, processes, or services.A content analysis on the term innovation carried out by Baregheh et al. (2009) within the organizational context, defines innovation asInnovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compe te and differentiate themselves successfully in their marketplace.3Innovation typically involves creativity, but is not identical to it innovation involves acting on the creative ideas to sterilize some specific and tangible difference in the domain in which the innovation occurs. For poser, Amabile et al. (1996) propose all told innovation begins with creative ideas . . . We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and groups is a starting point for innovation the initiatory is necessary but not sufficient condition for the second.For innovation to occur, something more than the times of a creative idea or insight is required the insight must be put into action to make a genuine difference, resulting for example in new or altered business processes within the organization, or changes in the products and services provided.Innovation, like many business functions, is a management process that requires specific tools, rules, and discipline.Innovation is an instinctive behavior in certain companies. It does not emerge overnight, and will not be developed unless the firm is placed in with the right structure. This means that the firms need to spot and make senseress their weakness, decide upon a strategic direction and determine what type of growth innovation will stimulate.In order for firms to survive intensive competition that exist about the globe, firms must be innovative. It is essential to understand what makes a firm innovative and the kind of resources make a significant contribution to a firm s innovation capabilities. We do know that good technical resources and rich innovation resources result in quicker innovation capabilities.Companies need to introduce architectural or business- model breakthroughs in order to develop new strategies to attack competitors and enter new markets. They must identify the gaps in industrial organisation and go into filling these gaps by finding ways to turn them into juicy markets. They need to find new customers, new products or new ways of promoting, producing or distributing them.strategic innovation goes beyond just product innovation. It links resources and efforts to an overall business strategy and involves making knowledge creation and innovative action a way of life. It seeks to create and expand markets, rather than to react to customer demand and then redirecting its resources from profitable lines to more potentially profitable lines. According to Abraham and Knight (2001), for those managers who know about the strategic innovation approach, the approach serves as a part of intelligence-gene transplant , enabling them to leverage resources to achieve superordinate word growth or competitive advantage.Innovation remains a management dilemma long-term survival requires a commitment to alteration and change through disrupting growth, but it s a strategy few companies survive. In order to so lve the dilemma, leaders must address its inherent conflict. The need to innovate is universally perceived as the key to organizational survival, but it s not enough for companies to merely need better. They need to be more differentiated not just through extensions of existing businesses, but mainly through a commitment to continuous growth. Such transformational innovation is a necessity, not an optionStrategic innovation process has become such an essential element due to the speed of change and increased competition. According to Abraham and Knight (2001), The process is based on repetitions of the five phase strategic innovation cycle as illustrated in the diagram below.Source Abraham, J.L, and Knight, D.J, (2001) Strategic Innovation leveraging creative action for more profitable growth. Strategy Leadership 29, pp 24Abraham and Knight (2001), states that This cycle helps transform difficult-to-describe tacit knowledge and experiences into more explicit form and enables a le ader to by choice and systematically create results-oriented knowledge and innovative action.Abraham and Knight (2001) identifies the five phases as per of the strategic innovation cycle. It is illustrated in Appendix 1.Abraham and Knight (2001) as well as identified a strategic innovation cycleIn the below diagram, the strategic innovation cycle is recurring, generating an increased knowledge and innovation, spiraling up and across an organization and still reaching outside the organizations boundariesSource Abraham, J.L, and Knight, D.J, (2001) Strategic Innovation leveraging creative action for more profitable growth. Strategy Leadership 29, pp 242.1 Criticism of innovationIt is often considered that firms often resist to change, both within and outside the organisation. Virtually ein truth large smart set that has got into trouble has been criticized for not changing rapidly enough. some(prenominal) firms fail to anticipate change and its subsequent ramifications renders them unprepared, reactionary and lacking the drive necessary to respond to the market s demands. It has become increasingly important for firms today to introduce innovation and flexibility into their core competence (Peters, 1987). Moreover, in order to influence an organisation s potential resources, Prahalad (1993) argues for the development of a proactive mannikin in which innovation can be planned and managed.3.0 Over view of International Business Machines Corporation IBM.The building block of IBM reach back into the middle 1880s, however, the company was officially founded in 1911 by Charles F. Flint, as he engineered the merger of Holleriths Tabulating Machine Company, Computing Scale Company of America and International Time enter Company. The agreed upon name was Computing- Tabulating- Recording Company or C-T-R. C-T-R soon found itself struggling do to over diversification of its product. In 1914 Thomas J. Watson, Sr. was brought in to help homogenize the company. wit hout the Great Depression IBM was able to continue to grow and innovate even when demand for their products began to drop. In the 1940s IBM completed the scratch ever Automatic Sequence Controlled Calculator, also called the Mark I. In the 1950s IBMs computers became smaller and more practical for business applications such as billing, payroll and size up control. IBM was the first computing company to sell computers without software bundled into the package, this move generated the multi-billion dollar software industry that exist today, of which IBM is still an industry leader.In the 1970s and 80s IBM worked to get the computer smaller and more convenient for the household format. Floppy disks were introduced to the public market as personal self storage devices. IBM also developed the first Intranet in the mid 80s and created the foundations for what would later become the internet. In the late 1980s and early 90s IBM was soft on(p) with turmoil as the PC revolution exploded I BMs long standing relationships with big business saw the company struggling to survive, averaging annual losses of 8 billion. Personal consumers were all the rage not big business consumers. Soon IBM was able to use their intranet experiences of the past and harness the emerging information age using their line of top end servers and integrated business solutions.Today, IBM is a world leading research organisation boasting a track record for breakthrough developments that many other envy and we can match. IBM has an impressive enumeration of ideas due to their reliance on in-house expertise. The company has been forging closer links with a range of external engineering developers due to changing market demands.To IBM, technology equals participation and interaction, whose prime motive is how it can be more widely applied. IBM employs a breakthrough tool to enhance the aggroup creation process.IBMs future looks strong as they are the underlying producers of servers and business so lutions for the e-business industry, which is maturation at an incredible rate.4.0 Procter and GambleProcter Gamble is a company with more than 100 years on business, and is a clear example of a successful company. Procter and Gamble was founded in 1837 and incorporated in Ohio on May 5, 1905. It began as a small family operated strap and candle company, and now provides products and services of greater quality and value to consumers in over 180 countries.Procter Gamble has one of the largest and strongest portfolios of trusted brands. Procter and Gamble is the producer of products in nearly 50 categories. Because of this, they have been able to bond technologies within the categories in various astonishing ways. Over the years, Procter Gamble s Research and Development team has revolutionized home care. Many breakthroughs originate in the Procter Gamble s laboratories. Procter Gamble operates in more than 80 countries worldwide, which makes for one of the largest global comp anies around.Procter Gamble s strategy is mostly focused on innovation. They use this strategy to approach consumers more easily, and to obtain the most effective results towards the market share in the industry.Procter Gamble is also strongly committed to the concept of sustainable development, and continues to lead its industry in that regard. The company views sustainability as an opportunity to innovate products that improve the lives of the worlds consumers. Procter Gamble centers its sustainability efforts largely on its core activities. In particular, two key themes are significant to a number of Procter Gambles businesses water purification technology products and sanitation hygiene. In that context, Procter Gamble emphasizes on innovation in products that serve basic needs of consumers in the least developed countries. The companys high scores in the criteria of product impact and strategies for emerging economies is a reflection of that fact. In developed markets, P rocter Gamble focuses on environmental excellence, innovating in products such as cold-water cleaning technologies that provide good procedure as intimately as energy savings and eco-efficiencyProcter and Gamble s Innovation strategy is called Connect + Develop. This strategy is seeking to build a global innovation network. Through Connect + Develop relationships, the company continually searches for products, packaging, technologies and commercial opportunities that can be reapplied to brands and rapidly introduced to better meet consumers diverse needs. This strategy seeks to leverage the ideas, talents and innovation assets of individuals, institutes and companies around the world.Innovation ExamplesReady-to-go Technologies Procter Gamble introduced Bounce, the worlds first dryer added softener, after acquiring the product technology from the independent inventor who developed the innovative fabric-care solution.Ready-to-go Products In this instance, the deal was struck when Procter Gamble acquired Dr. Johns Spin brush business and added the Crest brand name to the innovation.Ready-to-go Packaging Several of the Olay Skin Care products now utilize new consumer-preferred manage dispensers originally developed by a European packaging products company.Commercial Partnerships Procter Gamble found the perfect complement to the Swiffer brand in a handheld duster developed by a Japanese competitor.The VRIO analysis provides a deep look into Procter Gamble which helps to analyze what makes or does not make this company so unique. Procter and Gamble s physical resources are valuable but not rare, and are costly to imitate. The Procter Gamble Company has over 138,000 employees. Managing this many employees is not an easy task. Training these masses alone is an unprecedented task. Having all these employees work in conjunction is something that is not easy to imitate. Procter Gamble s research team is made up of 7,500 Ph.D.s and researchers. Within Research and Development, there is a strong commitment to find the best researchers, and retain them with a culture designed to reinforcer success, stimulate learning, challenge complacency, and nurture innovation. It is this common goal, which in instilled in those who work in the department, that the company gets its extra vigor and motivation.CriticismProcter Gamble could focus more on the Research and Development department, which has the task of analyzing and preparing potential products for such a complex market. It is also important to mention that India and China are the fastest growing economies, and so this factor represents an opportunity for growth. In the marketing aspect, Procter Gamble has to focus more on demographics and how to target effectively the Asian market.Procter Gamble is a very strong competitive company within the markets that it resides. This company will most likely continue to prosper for some time but always has the supposition of a down fall. As long as Procter Gamble continues to implement their strategies and effectively revise them along with the changes in the markets Procter Gamble will continue to have a prosperous outlook.5.0 Overview of Sony CorporationSony is a company which managed to become an established name in the electronics market. It exists of a mix of businesses ranging from Hollywood studios to high-definition televisions. It is the company which created the forever-famous Walkman, as well(p) as the highly popular Playstation gaming devises. The Sony brand is often seen as cool , hip .It is a company with very high heights, but also very low lows. Not only on the subject of products, but also regarding management and structure.Sony s Play Station video game locker is just one of a string of imaginative hit products that include the Trinition colour television and the Walkman personal stereo player. The company s creative, somewhat quirly, scrap engineer-focussed corporate culture, where ideas and enthusiasm are valued over and above seniority, experience and university degrees, has been the main reason for its success.Consumer electronics industry is changing, competition is becoming intense and product lines are moving closer together. With complacency settting in at Sony, resources became stretched too thinly, managers becamse less demanding and creativity was made over complicated.The case of Sony questions whether efficiency and productivity really go hand in hand with creativity and innovation. Sony is struggling to find a balance between the drive to stay innovative and the cooperate need to not fall behind the competition in key markets. It must decide whether it is leading, following or simply standing still.CriticismSony could afford to concentrate on product quality and can have a more rigorous project management structure.First mover advantage is active in evolutionary technological transitions which are technological innovations based on previous developments (Kim and Park 2006, p, 45, Cottam et al. 2001, p. 142). Late entrants may comply with the technological innovativeness and increase pressure of competition, hence, seek for a competitive advantage through making the existing competences and resources of early entrants invalid or outdated. In other words innovative technological implications will significantly change the landscape of the industry and the market, making early mover s advantage minimum. However, in a market where technology does not play a dynamic role, early mover advantage may prevail.6.0 Critiques of Resource Based View.The RBV s lack of clarity regarding its core premise and its lack of any clear boundary impedes fruitful debate. Given the theory s lack of specificity, one can invoke the definition-based or hypothesis-based logic any time. Again, we argue that resources are but one potential source of competitive heterogeneity. Competitive heterogeneity can obtain for reasons other than sticky resources (or capabilities) (Hoope s et al. 2003 891). Competitive heterogeneity refers to enduring and systematic performance differences among close competitors (Hoopes et al., 2003 890).The limitations of RBV are mainly in two aspects. First, RBV alone does not capture all the essences of competitive advantage of the firms. RBV provides no perspective on why and how some firms rather than others accumulated valuable and inimitable resources, or indeed what made these resources valuable and inimitable (Lazonick, 2002). In order to explain competitive advantage, the RBV must incorporate the evolution over time of the resources and capabilities that form the basis of competitive advantage (Helfat and Peteraf, 2003).Second, RBV ignores the external elements and focuses on the internal. A complete model of strategic advantage should adopt both the internal dimension which is based on periodic reviews of the fitness of the firm s current resources and the external dimension which is oriented towards an judgement of the resource endowments of outsiders such as competitors, customers, suppliers and so on.Furthermore, it is also important and relevant to briefly discuss the concept of resource and capability. A firm s resources can be classified into two categories tangible resources and intangible resources. Tangible resources are assets that can be seen and quantified.Intangible resources are rooted deeply in the firm s history and that have accumulated over time. Barney (1991) and Grant (1991) classified tangible resources into four forms fiscal resources, organizational structure, physical resources and technological resources. Grant (1991) and mansion (1992) identified three kinds of intangible resources human resources, innovation resources and reputation resources.Priem and Butler (2001) made four key criticismsThe RBV is self-verifying. Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are, among other characteristics, valuable (1991, p1 06). This reasoning is circular and therefore operationally invalid (Priem and Butler, 2001a, p31).Different resource configurations can generate the same value for firms and thus would not be competitive advantageThe role of product markets is underdeveloped in the argumentThe theory has limited normative implicationsHowever, Barney (2001) provided counter-arguments to these points of criticism.7.0 ConclusionIn order to maintain a sustainable competitive advantage, firms will have to out-innovate the competition continuously so that it is the customer who constitutes the ultimate beneficiary. All too often firms lose sight of their primary goal their customers needs, wants and values in pursuit of innovations that appear to promise improved efficiency and augmented financial benefits. Thinking for the customer , it is argued, implies that innovation derives from customer orientation the firm s desire to serve and reward their customers.Furthermore, beyond a firm s technological in novations, what has become increasingly important is the firm s service innovations. Service innovation is the process through which a firm undertakes changes in its philosophy, culture, operations and procedures to add value to the result of the service/product for the benefit of the customer. It requires an understanding of the complex nature of customers needs and the values attributed to combined product and service offerings (service package). Essentially, therefore, service innovation depends on a firm s ability to use this understanding to evolve, collaborate and enter partnerships that effectively fulfil their customers holistic needs and, thereby, increase the opportunities for customer allegiance (relationship).A number of issues have emerged from this study which have important contributions in both innovation as a competitive advantage and how resource based view is applied in the real world . While the above arguments tender theoretical understanding and explanation, it is recommended that future empirical research need to be done to complement this study, particularly in terms of identifying the various analytical tools for understanding and developing competitive advantage.