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Resource Based View of the Firm
IIMB
PD Jose
7/10/2010
1
Competitive Advantage of Firms and Industry Profitability
• Industry conditions that determine industry-wide • A firm in a fiercely competitive industry may
continue to have an edge over its rivals
profitability are distinct from forces that sustain a firm’s competitive advantage
• Firms within an industry with high entry barriers and
higher than competitive profits may all be equally profitable
(Source: Besanko, Dranove, Shanley and Schaefer, 2004)
PD Jose 7/10/2010 2
The Fundamental Question
Why are some firms more successful than others?
Industrial Organization Perspective:
Profits = f (industry structure)
Resource-Based View:
Profits = f (firm’s resources & capabilities)
PD Jose
The Resource Based View
RBV argues that…..
the heterogeneous market positions of close competitors arise from each firms unique bundle of resources and capabilities
(Source: Hoopes, Madesn and Walker, 2003)
PD Jose 7/10/2010 4
The Resource Based View
• •
Resource: an observable - but not necessarily tangible - asset that can be valued and traded (e.g. brand, patent, land or license) Capability: is not observable – and hence necessarily intangible- can not be valued and can change hands only as part of its entire unit (Airline’s yield mgmnt system, WalMart’s cross docking etc)
(Source: Makadok, 2001)
PD Jose 7/10/2010 5
Resource Based Theory of the Firm
Firm resources Tangible resources
• Land
Intangible resources
Competences • Knowledge (CI, mkt insight) •Capabilities NPD (R&D, Mkt Res) •Attitude
PD Jose 7/10/2010 6
• Buildings • Materials • Money
Relational resources • Relationships `contracts’ • Reputation `brands’
The Resource Based View
• • •
Valuable: A valuable resource enables a firm to improve its market position relative to competition Rare: To be of value in sustaining competitive advantage, resources must be scarce...