Strategic Resources and Firm Performance Executive Summary - Free Essay Example

Overtime, resources become very important for the continuation of a company to achieve competitive advantage. Thus, this essay was assigned to examine the relationship between resource-based view and firms performance especially in achieving sustainable competitive advantage. Along this essay there are some merits and demerits of RBV in achieving competitive advantage. Furthermore, this essay explained about the strengths and weaknesses of RBV in order to achieve competitive advantage and create value to its customers. Further evaluation of RBV model has provided firms with strategic resource, processes, capabilities and the ability to appropriate rent from the resources. While RBV argued firms key resources is the essential elements to attain sustainable competitive advantage, another theory which known as Industry Analysis argued that the key element to achieve sustainable competitive advantage is the firms activities that is performed. Both theories have come with certain strengths and weaknesses. An evaluation suggest that RBV has relationship with firms performance in achieving sustainable competitive advantage and also RBV model is better than Porters analysis because it has less complexity to formulate and implement the strategies. Introduction In recent years, many industries are struggling to take advantage of their resources in order to achieve competitive advantage and improve their performance among their competitors. This approach has forced the managers to understand heterogeneous firm performance and explaining the attributes that render a resource rent-generating (Zubac et al., 2010). To achieve competitive advantage managers have to understand the core of resource-based view (RBV). The term RBV was originally coined by Wernefelt in 1984 (Fahy, 2000), but the RBVs derives from the work of Penrose, who depicted a firm as a collection of productive resources the disposal of which between different uses and over time is determined by administrative decision (Zubac et al., 2010). The basic principle of the RBV is the intercourse between, competitive advantage, superior performance and customer value and the RBV contends that to achieve an SCA the answer lies in the several key resources for which a company has. Altho ugh the RBV has the relationship with firms performance especially in achieving a sustainable competitive advantage, it does not provide a strong relationship in achieving sustainable competitive advantage. Merits and Demerits of the Resource-Based View (RBV) As mentioned above that firms vying to achieve a SCA, competitive advantage is an advantage which is owned by a firm in a given industry or market and is not owned by other firms. The positions of advantage are usually considered as being either lower delivered cost or differentiation or both and the location of advantage is in the marketplace (Fahy, 2000). If a firm enables to achieve a sustainable competitive advantage it enables the firm to gain economic rents. However, sustainability does not mention to a specific period of time, but it relies on the level of competitive duplication. For example, in financial service industries competitive moves are rapidly imitated and sustainable advantages are difficult to achieve. One of the merits of RBV is to give a firm with a sustained competitive advantage by highlighting the firm as a unique collection of resources. A unique collection of resources must meet four conditions, namely, rareness, value, non-substitutability and inimitabil ity. As mentioned before that capabilities and resources are source of competitive advantage, but both do not need fully impart to competitive advantage. In order to impart to CA, both capabilities and resources must impart to present the products and service for which customers are deign to finance at a profitable price (Ortega et al., 2010). The competitive advantage gained by these resources is reflected in superior performance such as higher profits and increase in market share. Second advantage is RBV can be used in underperforming firms to determine resources that are missing, after that evaluate if these resources can be imitate or substitute. Resources such as intangible assets and capabilities are difficult to imitate or duplicate, because it is due to causal ambiguity and firms can utilise their value by employing them in-house, selling or leasing them. However, tangible assets while important to the firm, were identified not to suit the consept key resources due to be cau sally explicit and hence duplicable (Clulow and Gerstman, 2007). Another merit is RBV can be used to distinguish between the different types of capabilities which a firm can own. Finally, RBV caused the firms internal organisation, the producing rental properties of a firms resources and managers resource deployment decision a critical subject for research. Besides, having the advantages to provide sustainable competitive advantage RBV also has some disadvantages. First, despite RBV spotlights the firms as a unique gathering of resources, however, the theory stresses that not everything of these resources has the potential to assign the firm with an SCA (Clulow and Gerstman, 2007). It can be seen that tangible assets were not counted as key resources. Second, according to Zubac et al. (2010) although the proprietary of dynamic capabilities can explicate why several firms enable to surpass their competitors in the long run, it does not tell about the ability to successfully divers ity for the firms in the new markets. Another problem with examining the RBV is that it can be challenging to determine a generally acceptable way to specify the variant resources that be able to constitute a firm, implied in those resources that can influence the firms action and which can be employed in various ways. Finally, while the firms resources contribute to positive performance, RBV has an understanding that the fundamental value of a resource is only important to interpret as inimitability, rareness or an incapability to replace. Strategic Resources, Processes and Capabilities As RBV can differentiate the different kinds of capabilities, it can explain the concept of dynamic capability of why some firms are capable to surpass their competitors in the long run and make significant change in the marketplace. According to Zubac et al. (2010) there are two kinds of capabilities first is Operational capabilities and the second one is dynamic capabilities. Operational capabilities refer to the firms ability to assemble, deploy and combine the firms asset using pre-determined processes, protocol, activities, routines and competence of its employees to create products and services that could be the source of possible profits to its customers. On the other hand, dynamic capabilities refer to those developments at the firm that enable the firm to switch its resource according to certain processes to fulfil various strategic and competitive disputes (Zubac et al. 2010). According to its hierarchy of capabilities, dynamic capabilities are considered to be higher com pare to operational capabilities because it can make a living for a firm in the short run by enabling them to produce, promote and deliver its products and services to the target market. The dynamic capabilities are very essential for firms to outperform and maintain their competitive advantage over other others because, dynamic capabilities are responsible for shifting the focus from materials placed at the firm to those that embodies the knowledge and skills needed to build competences and create value. The core to obtaining a competitive advantage is the utilisation of a valuable resource-capability mixture (Ortega et al. 2010). Resources can lead to a competitive advantage but this in turn defines what a valuable resource is. A resource is said to be useful will depend on the surrounding structure of an organisation such as on the nature of the resource itself. According to the resource-based view, RBV defines how key resources create value to its customers, thus, achieves co mpetitive advantage. In the figure below, it shows that the arrow linking value with sustainable competitive advantage acquires attention to the presumption in the theory that value from a firms dispersion of key resources accords with a customers assessment of value. Source: Clulow and Gerstman, 2007 Figure 1 The relation in the RBV model betwixt the value of main resources and the firms achievement of an SCA may be explained by an understanding of how customers make value evaluation. Understanding which resources customers value would benefit the firm to concentrate to those assets to attain their sustained competitive advantage. Other than that, firms must also consider strategic resources as one of essential part in achieving sustainable competitive advantage. Strategic resources are potential resources to achieve sustainable competitive advantage and if the firm uses RBV to control of strategic resources, it enables the firm to attain profitable position. Strengths and Weaknesses of the RBV and Value Creation In the contribution to firm-level value creation and achieving competitive advantage, RBV has offered some strengths and weaknesses. According to Fahy (2000) the resource-based view have the capability to sustain the conversation within strategic management and between branches of economics and strategic management, creating a mainstay foundation on which to develop advance research. However, the development of RBV requires a number of empirical issues and key conceptual. In a study of cholesterol lowering drug (Zubac et al. 2010); RBV has been enabled to create customer value by utilising the use of technology and employ complementary assets, which covered its capacity to elevate its marketing, reputation and distribution channel management skills. However, the discussion did not explain how the value determined by management to the firms success might be tied to the expansion of the firms customer-centric resources. In order for manager to produce value to its customer by util ising the resources, managers need to figure ways out to interpret and design its different dimension contrary to those firms specific resources that could bring a maximum product and service mix to the target market. Thus, the RBV model has provided managers with clear explanation to mapping its resources so that can present the best product and service to the customers. Source: Zubac et al. 2010 Figure 2 Although managers can use this model to mapping its resources, managers are still highly required to understand the timeframes for delivering and the different product and service-based dimension that are very important to the customers. Furthermore, according to Zubac et al. (2010) there are three suggestions that managers should invariably consider about; first, the attributes which are inveterate in or customers may relate with the industrys products and services. Second, the consistency attained by customers while utilising or being given with the firms products and serv ices. And the third is the purposes and goals which are attained after customers utilise or have been given with its products and services. By seeing firms resources from the RBV as one of the factor to achieve sustainable competitive advantage, it offers difficulty to employ the RBV in a perspective form due to equilibrium orientation. Economic equilibrium is a very beneficial tool, because it provides arrangement to analysis by enabling some and no other outcomes. Porters Industry Analysis vs. RBV However, in the early 1980s (Fahy, 2000) Porter came with the theory of industry analysis to gain competitive advantage and achieve superior positions. As compared to RBV, the industry analysis argued that firms were not paid for products per se, but rather reimbursed for the activities they perform to provide products consumers (Sheehan and Foss, 2007). Moreover, industry analysis only consider of two general strategies to achieve superior positions which are to produce at lower cost with good quality and seduce customers to pay a price above-average without incurring higher production costs (Sheehan and Foss, 2007). While RBV sees firms resources as an essential key in achieving competitive advantage, Porters analysis argues that the main determinant to achieve competitive advantage is the activities a firm can perform. In other words, Porter argues that some industries can be more profitable than others by either manipulating the forces driving competition or by selecting these structural attractive industries could earn monopoly rents. The industry analysis is best employed for a firms current form of activities, while RBV is best applied for a firms current resource portfolio. To support managers in interpreting, implementing and improving a low cost of differentiation strategy, Porter had constructed the value chain network. But when it comes to following his logic of two general strategies, managers face difficulties while trying to carry out the drivers. First the managers must equilibrate manifold drivers across manifold activities; second managers must operationalise the understanding in the particular situation of a firm. For example, the scale of manufacturing operations (i.e. policy choices, capacity utilisation, etc.) has to be equilibrated with the other drivers of other activities (i.e. transportation cost) and associated with its competitors (i.e. potential to no-win situation) (Sheehan and Foss, 2007). Conclusion In conclusion, the firms core resources and the duty of management in utilising its resources to achieve sustainable competitive advantage and leading to superior performance in the industries are the essential elements of the resource-based view of the firm. Key resources have been identified as tangible assets, intangible assets (such as client loyalty and relationship) and capabilities (such as skills and knowledge) (Clulow and Gerstman, 2007). While RBV has the relationship with firms performance in achieving a sustainable competitive advantage, it does not have a strong relationship in achieving SCA, because RBV is not a theory of value creation and has some limitations as a strategic tool. However, comparing Porters Industry Analysis with RBV in achieving SCA, RBV model is better because it offer less complexity in formulating and implementing firm strategy to achieve desired position. Appendices Appendix 1 Appendix 2