resource-based view of the firm

Resource-based View of the Firm

(Barney, 1986; S. Hunt, 1990)

1.1. Strategy dictated by Strategy dictated by unique resources and unique resources and capabilities of the firm capabilities of the firm (what can the firm do (what can the firm do best?)best?)

2.2. Find an environment in Find an environment in which to exploit these which to exploit these assets (where are the best assets (where are the best opportunities?)opportunities?)

Resource-based Model of Exemplar Returns

1. Firm’s Resources1. Firm’s Resources

1.1. Identify the firm’s Identify the firm’s resources-- strengths and resources-- strengths and weaknesses compared with weaknesses compared with competitorscompetitorsResources: inputs into a firm’s Resources: inputs into a firm’s production processproduction process


Resource-based Resource-based ModelModel

ResourcesResources

- Brands- Brand equity- Products- People/Talent- Business processes- Innovation- Learning- Macro Structure- Vision Direction- Strategies- Core Values

-Market Orientation- Relationship Marketing- Market Segmentation, Positioning and Targeting- Marketing Mix- Marketing Research- Competitive Intelligence- Core Competencies-Increased Capabilities-Cross-Functional Teams

(permanent)

Resources: Examples (Tangible and Intangible)

2.2. Determine the firm’s Determine the firm’s capabilities--what it can do capabilities--what it can do better than its competitorsbetter than its competitors

Capability: capacity of an Capability: capacity of an integrated set of resources to integrated set of resources to integratively perform a task or integratively perform a task or activityactivity


Resource-based Resource-based ModelModel

ResourcesResources

CapabilityCapability

ResourcesResources

Inputs to a firm’s production process.Inputs to a firm’s production process.


Capacity for an integrated set of resources to integratively perform a task or activity.


Competitive Advantage

Ability of a firm to outperform its rivals

Action required:Determine how firm’s resources and capabilities may create competitive advantage.

Resource-Based Model of Exemplar Returns

ResourcesResources





Competitive AdvantageCompetitive Advantage

Ability of a firm to outperform its rivalsAbility of a firm to outperform its rivals

An AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilities

Action required:Locate an attractive industry.


ResourcesResources







An AttractiveIndustryAn AttractiveIndustry

Location of an industry with opportunities that can be exploited by the firm’s resources and capabilities


Action required:Select strategy that best exploits resources and capabilities relative to opportunities in environs.

Strategy Formulation and Implementation

Strategic actions taken to earn above-average returns


ResourcesResources







An AttractiveIndustryAn AttractiveIndustry



Action required:Action required:Maintain selected strategy in order to outperform industry rivals.





Superior Returns

Earning of above-average returns


Nonsubstitutable the firm must be organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage

Valuable allow the firm to exploit opportunities or neutralize threats in its external environment

Rare possessed by few, if any, current and potential competitors

Costly to Imitate when other firms either cannot obtain them or must obtain them at a much higher cost

Resources and capabilities lead to Competitive Advantage when they are:

TEACHING STRATEGIC AND GLOBAL STRATEGY: EXAMPLES OF THE FIRM’S RESOURCES AS A RESOURCE –

BASED VIEW OF THE FIRM

•Firm resources

•Firm competences

•Competitive advantage

•Sustainable competitive advantage

•Dynamic competition

•Static-equilibrium competition

•Innovation

•Organizational learning

•Marketing research and competitive intelligence

•Competitor analysis

•Environmental scanning

•Market segmentation, targeting, and positioning

• Relationship Marketing

• Market orientation

• Brand equity

• Marketing mix strategy

• Product strategy

• Distribution strategy

• Pricing Strategy

• Promotion Strategy

• Sales force strategy

Dr. Shelby Hunt, Texas Tech University, 2000

Read: Competition is the disequilibrating, ongoing process that consists of the constant struggle among firms for a comparative advantage in resources that will yield a marketplace position of competitive advantage and, thereby, superior financial performance. Firms learn through competition as a result of feedback from relative financial performance “signaling” relative market position, which, in turn signals relative resources. Source: Hunt and Morgan (1997)

Societal Resources Societal Institutions

Competitors-Suppliers Consumers Public Policy

Resources Market Position Financial Performance

• Comparative Advantage • Parity • Comparative Disadvantage

• Competitive Advantage • Parity• Competitive Disadvantage

• Superior/Exemplar • Parity• Inferior

FIGURE 1

A Schematic of the Resource-Advantage Theory of Competition

Competitive Disadvantage

Parity Position


Figure Effectiveness Competition

Relative Resource-Produced Value

Lower Parity Superior/ Exemplar







Higher

Relative Resource Costs

Parity

FigureEfficiency-Effectiveness Competition


Lower

ParityPosition


COMPETITIVE ADVANTAGE

1. Marketplace positions of competitive advantage lead to superior financial performance.2. It is a comparative advantage in resources that leads to marketplace positions of competitive advantage.

SUSTAINABLE COMPETITIVE ADVANTAGE

1. Factors internal to the firm Reinvest Know thyself (causal ambiguity) Adapt Proactively innovate


SUSTAINABLE COMPETITIVE ADVANTAGE (CONTINUED)

2. Factors external to the firm Consumer activities Governmental actions Competitor actionsa. Acquisition of same resourcesb. Imitation of resourcesc. Substitution of resourcesd. Major innovation (reactive innovation) in resources

3. Characteristics of offering Offering → Consumers (Causal ambiguity) Resources → Offering (Causal ambiguity)

4. Characteristics of resources Mobility Complexity Interconnectedness Mass efficiencies Tacitness Time compression diseconomies


FIRM COMPETENCES

Distinct “packages” or bundles of basic resources.

Definition: Socially complex, interconnected, packages of

tangible basic resources (e.g., specific machinery) and intangible basic resources (e.g., the skills and knowledge of specific employees and

specific organizational policies and procedures) that fit coherently

together in a synergistic manner and enable firms to produce valued

market offerings efficiently and/or effectively.


DYNAMIC COMPETITION

Firm’s motivation is superior financial performance, i.e., more than, better than.

The constant struggle among firms for comparative advantages in resourcesthat will yield marketplace positions of competitive advantage and, thereby, superior

financial performance.

Renewal Competences: The firm’s ability to renew itself based on (1) reacting to changes in its environment and/or (2) proactively changing its

environment.

“Dynamic capabilities” (Teece and Pisano 1994)“Higher order learning” (Dickson 1996)“Industry foresight” (Hamel and Prahalad 1994)

STATIC-EQUILIBRIUM COMPETITION

Competition occurring in the “parity” cell of the competitive position matrix.

Requires homogeneous resources, homogeneous products, absence of endogenous innovation.


INNOVATION

Proactive innovation: Innovations that are not prompted by marketplace positions of competitive disadvantage, i.e., “entrepreneurial innovations.”

Reactive innovation: Innovations that are prompted by marketplace positions of competitive disadvantage.

ORGANIZATIONAL LEARNING

Firms learn through competition as a result of feedback from relative financial performance “signaling” relative market position, which, in turn signals relative resources.


MARKETING RESEARCH AND COMPETITIVE INTELLEGENCE

An organizational competence. Guides proactive innovation. Informs reactive innovation.

MARKET SEGMENTATION, POSITIONING, AND TARGETING

Competition is segment-by-segment.Proactive innovation

MARKETING MIX (PRODUCT, PRICING, PROMOTION, AND DISTRIBUTION) STRATEGIES

Firm competences


RELATIONSHIP MARKETING

Relational resources

MARKET ORIENTATION

Firm competence Guides proactive innovationInforms reactive innovation

BRAND EQUITYIntangible, legal resource


FIRM RESOURCES

Definition: The tangible and intangible entities available to the firm that enable it to produce efficiently and/or effectively a market offering that has

value for some market segment(s).

Characteristics: Significantly heterogeneous and imperfectly mobile.

Categories:

1. Financial (e.g., cash reserves and access to financial markets)2. Physical (e.g., plant, raw materials, and equipment)3. Legal (e.g., trademarks and licenses)4. Human (e.g., the skills and knowledge of individual employees)5. Organizational (e.g., controls, routines, cultures, and competences)6. Informational (e.g., knowledge about market segments, competitors, and technology)7. Relational (e.g., relationships with competitors, suppliers, and customers)


ParityPosition

CompetitiveAdvantage



Lower

Parity

Higher

Relative Resource Costs

FigureEfficiency-Effectiveness Competition

CompetitiveAdvantage




Figure 2Competitive Position Matrixa

1

Indeterminate Position

2


3


6


5

Parity Position

4




Lower

Parity

Higher

9


8


7


RelativeResourceCosts

Source: Hunt and Morgan (1997).

aRead: The marketplace position of competitive advantage identified as Cell 3 results from the firm, relative to its competitors, having aResource assortment that enables it to produce an offering for some market segment(s) that (a) is perceived to be of superior value and (b)Is produced at lower costs.

Figure 2Competitive Position Matrix

1


2


3


6


5

Parity Position

4




Lower

Parity

Higher

9


8


7


RelativeResourceCosts


Resources Market Position Financial Performance

• Comparative Advantage • Parity • Comparative Disadvantage

• Competitive Advantage • Parity• Competitive Disadvantage

• Superior/Exemplar • Parity• Inferior

FIGURE

Resources and Performance


Market Position Financial Performance

• Competitive Advantage • Parity

• Competitive Disadvantage

• Superior/Exemplar • Parity

• Inferior

FIGURE

Competitive Advantage and Performance


Perfect Competition vs. R-A

P1: Demand is Heterogeneous across industries, homogeneous within, static

Heterogeneous across industries and within, dynamic

P2: Consumer information is

Perfect and costless Imperfect and costly

P3: Human motivation is

Self-interest maximization Constrained self-interest seeking

P4: The firm’s objective is

Profit maximization Superior financial performance

P5: The firm’s information is

Perfect and costless Imperfect and costly

Perfect Competition Theory R-A Theory

resource-based view of the firm

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