Resource-based Theory in Strategic Management
Strategic management can be seen as a set of commitments, decisions, and actions of a company to achieve competitiveness (Hitt et al., 2007), and resource-based theory (RBT) is one of the frameworks that is commonly used to achieve sustainable competitive advantage observes and analyzes organizations as an assortment of resources that are organized to achieve sustainable competitive advantage (Madhani, 2010).
RBT acknowledges that not all resources of an organization will be its source of competitive advantage, so it is imperative to put more focus on organizing the resources that enable competitive advantage. The resources that enable sustainable competitive advantage, called strategic resources, are those resources that have these characteristics: valuable, rare, imperfectly imitable, and imperfectly substitutable (Barney, 1991). These characteristics of resources were then popularized as VRIN resources.
- V for Valuable: those resources that provide strategic value to the organization
- R for Rare: those resources that are difficult to find in the existing industry
- I for Imperfect Imitability: those resources that are not feasible to copy
- N for Non-substitutability: those resources that can not be substituted by alternative resources
Kennedy (2020) proposed modification to the VRIN resource as VRIO, with the O stands for “organized to capture value”, displacing the N. It means that the organizational systems, processes, and structure are also strategic resources if they are designed to capitalize on the potential of the resources and capabilities of the company to establish a competitive advantage.
Aside from the owned resources, the capabilities of an organization are another key concept within the resource-based theory (Kennedy, 2020). For instance, Procter and Gamble (P&G) utilized its information system capability to develop an in-house business intelligence system, named Business Sphere, that enables the company to make informed decisions quickly by combining expert analysis of real-time information and data visualization within an immersive environment (Watson, 2012). This capability is not only valuable, rare, and difficult to imitate, but also requires a distinctive reorganization of resources. It has become one of the company’s strategic resources that facilitates sustainable competitive advantage over its competitors.
Also read topics about Competitive Advantage
Environmental Determinism
The environmental determinism perspective sees organizations as how biological theories see organisms. An organization (and organism) is seen as an entity with a very limited ability to adapt to the surrounding environment (Edwards, 2014). Consequently, it drives firms to organize their internal resources based on the external situation, and the firms that are the most adaptable are the firms that will win the competition.
This perspective can provide a good framework for firms competing in a very harsh business environment that is prone to significant changes. However, it is not a solid framework to establish a sustainable competitive advantage. Its emphasis on external change may force the company to undertake frequent changes only to better adapt, not to create a sustainable competitive advantage that can last even in severe changes in the environment.
Nevertheless, environmental determinism is useful for some situations and some critical business decisions. Hence, leaders should consider these perspectives in mind as they carry out the strategic management of their organizations. However, to analyze the internal environment of an organization, RBT still has superior value for most executives (Edwards, 2014).
Firms can not only win by adapting and surviving, they should win and continue to win by utilizing their competitive advantage, and RBT is the suitable framework to build on sustainable advantage based on the company’s internal environment.
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References Barney, J. B. (1991), “Firm resources and sustained competitive advantage”, Journal of Management, 17(1), pp. 99-121. Edwards, J. (2014). Mastering strategic management. BCcampus. This book is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. https://opentextbc.ca/strategicmanagement/ Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2007). Strategic Management, Competitiveness and Globalization: Concepts and Cases (7th ed.). South-Western College Pub. Kennedy, R. (2020). Strategic management. Virginia Tech Publishing. This book is licensed under a Creative Commons by-nc-sa 3.0 Attribution-NonCommercial-ShareAlike CC BY-NC-SA License. Madhani, P. M. (2010). Resource Based View (RBV) of Competitive Advantage: An Overview. Resource Based View: Concepts And Practices, 3 -22, Icfai University Press, Hyderabad, India, Retrieved from SSRN: https://ssrn.com/abstract=1578704 Watson, B. P. (2012, January 30). Data Wrangling: How Procter and Gamble Maximizes Business Analytics. CIO Insight. Retrieved April 24, 2022, from https://www.cioinsight.com/big-data/data-wrangling-how-procter-and-gamble-maximizes-business-analytics/
