Resource Based View (RBV)

Michael Porter teaches us that a competitive advantage is obtained by cost leadership, a differential strategy, or a focus strategy. However, it is possible to have two companies adopting a fairly similar strategy with widely different results. Compare the success of Walmart and Kmart as discount retailers. The former has grown to be one of the largest retailers in the world while the latter has been close to bankrupt.

Professor Jay Barney in 1991 wrote an article in the Journal of Management entitled Firm Resources and Sustained Competitive Advantage. His thesis is that resources underpin the competitive advantage of firms.

Prof Barney's resource-based view (RBV) is a framework built around the resources of a company. The resources could be anything from physical assets through to knowledge, patents or even company culture. The key to understanding the value of the resources is to measure them against the following criteria:

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Valuable – do the resources enable the company to improve and maintain its efficiency?

Rare – are the resources unique or are they available to competitors?

Imitable – can alternative resources be developed or imitated?

Non-substitutable – can resources be replaced by another resource?

These criteria are known under the acronym VRIN.

Quite clearly a company that owns resources that are valuable and not in the possession of competitors will have a comparative advantage. It is in a position to use this comparative advantage to offer superior value and so improve its market position.

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The VRIN criteria leads to a view on the competitive strength of a company:

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• Competitive disadvantage – this is a company that has none of the VRIN resources - ie no resources of competitive value.

• Competitive parity – this is a company that has valuable resources but they are not rare - ie competitors have similar resources.

• Temporary competitive advantage – this is a company that has valuable and rare resources but they can be imitated which means that the advantage may soon be lost.

• Unused competitive advantage - this is a company that has resources that are valuable, rare and difficult to imitate but it hasn't got itself organised to take advantage of them.

• Sustainable competitive advantage – this is a company that has valuable resources which are rare difficult to imitate and cannot be substituted and which the company has organised to its advantage.

A sustainable competitive advantage is very difficult to envisage. De Beers may have had a competitive advantage in diamonds for many years but eventually substitutes and new diamond reserves have removed the advantages of its resources. So too Walmart may have ridden high on its competitive advantage for many years but it is now facing a threat from Amazon. Porter's view on competitive advantage takes into consideration the changing external marketplace and should be used alongside the RBV framework.

By applying the Resource-Based View, a business can strategically leverage its internal resources and capabilities to achieve sustainable growth. RBV emphasises the importance of focusing on internal strengths rather than solely relying on external market conditions for competitive advantage. Here is how the Resource-Based View can be applied to grow a business:

Growth through the identification and leverage of core competences

This requires an in-depth analysis of the firm's internal resources, covering both tangible and intangible assets. It must look at the core competences of the firm, especially those that enable it to deliver value to customers. Based on this analysis a strategy can be developed to leverage these core competences for new product development, market expansion or entry into related businesses.

Growth through strategic investment in valuable resources

The resource-based view would here look for an investment in a firm's technology and its ability to innovate. It would also consider strategic alliances through which external resources and capabilities could be added to the firm's existing strengths.

Growth through focusing on sustainable competitive advantage

Here there would be a focus on making sure a firm's competitive advantage is made stronger. This could involve refining processes and capabilities to maintain a competitive edge and adapting resources to align with changing market conditions.

Growth through diversification

This could involve using the firm's core competences to explore diversification opportunities. For example, it could involve entering adjacent markets or offering complimentary products to existing customers.

Growth through human capital development

Investing in employee training and development is a valuable resource for achieving growth. Also, there may be a need to attract and retain top talent by offering competitive compensation packages and a positive work environment.

Growth through strategic resource allocation

Here there would be a prioritisation of resources based on the importance of the resources in delivering growth. Resources would be allocated to projects that have the potential to create sustainable competitive advantage.

Growth through competitor analysis and benchmarking

This would involve a depth analysis of competitors resources and capabilities. It would lead to an understanding of areas where the firm can differentiate itself to gain a competitive advantage. Benchmarking would identify where competitive strengths and weaknesses lie.

Some things to think about:

• Seeking a competitive advantage can be achieved by following Michael Porter and obtaining a strong strategic position or following Jay Barney and leveraging internal resources. How well do you leverage your internal resources? How well do you understand your core competences?

• What are the opportunities for growth using your competitive advantage such as your core competences or your key resources?

• And how can you develop a strategy based on these internal resources as well as finding a differentiated position in the market.