Madhani М. Resource Based View (RBV) of Competitive Advantage An Overview
.pdfResource Based View (RBV) of Competitive Advantage: An Overview |
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on the dynamic capabilities and is outcome of RBV (Teece, Pisano and Shuen, 1997). Dynamic capabilities have been defined as firm’s processes that use resources specifically the processes to integrate, reconfigure, gain, and release resources. While RBV primarily concentrates on types of resources and capabilities for its strategic importance, the dynamic capability concentrates on how these resources and capabilities need to change or update over a period of time to keep their relevance in the changing marketplace.
The RBV considered resources and competencies as static that can be pointed as stationary at certain time framework and will remain so over a period of time also. The focal point is that when firms are having resources that are valuable, rare, inimitable and non substitutable, it enables firms to develop value enhancing strategies that are not easily copied by competing firms (Barney, 1991; Conner and Prahalad, 1996; Peteraf, 1993; Wernerfelt, 1984). However in this era of dynamic economy, there is need for firms to build up new capabilities or competencies for sustaining such competitive advantage (Teece, Pisano and Schuen, 1997). Dynamic capabilities thus are the organizational processes or strategic routines by which firms develop new configuration for updating resources as per market requirement (Eisenhardt and Martin, 2000). Such dynamic capabilities require that organizations establish processes that enable them to change their routines, services, products, and even markets over time.
The RBV, MBV and dynamic capabilities perspective all focus on different unit of analysis and degree of change as shown in Figure 1. Initially to cope with market forces, MBV was conceptualized, subsequently focus shifted to RBV. Finally, to respond to challenges of ever changing globalized world, concept of Dynamic Capabilities became popular. This transition is shown by direction of arrow in Figure 2.
The dynamic capabilities approach, examines competitive advantage in the globalized environment of rapid market change. In such dynamic marketplaces, where the competitive environment is rapidly changing, managers of firms need to develop capabilities embedded in the firm which are based on sequences of path dependant learning in order to achieve periods of competitive advantage (Teece et al., 1997; Eisenhardt and Martin, 2000; Miller, 2003). Dynamic
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Figure 2: Characteristics of RBV, MBV and Dynamic Capabilities
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Resource Based |
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Change
Degree of
Market |
Dynamic |
Forces |
Capabilities |
Dynamic
Market |
Unit of Analysis |
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Compiled by the author.
capabilities are strategic and organizational processes like product development and strategic decision-making that create value for firms by manipulating resources inherent with firms (Eisenhardt and Martin, 2000, p 1106). Winter (2003) views dynamic capabilities as process of extending, modifying, or creating new capabilities. The key differential between ordinary capabilities and those that are dynamic is that dynamic capabilities are linked with change and more particularly, changing the resource base of a firm (Collis, 1994; Winter, 2003).
The dynamic capabilities approach is especially relevant today when global competitive forces are changing landscapes of industries. In this globalized environment ways of achieving competitive advantage are changing fast. As such, firms in this marketplace need to have timely strategies, flexible infrastructures, and an ability to utilize resources and capabilities in coupled and innovate ways (Teece et al., 1997). Therefore, in contrast to traditional RBV assumptions competitive advantages gained in the dynamic marketplace may be based on capabilities, which have greater homogeneity and substitutability across firms (Eisenhardt and Martin, 2000). Competitive advantages achieved through dynamic capabilities are therefore based on the ability to change the resource
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base of the firm. This means dynamic capabilities alter resource bases by creating, integrating, recombining, and releasing resources (Eisenhardt and Martin, 2000).
Dynamic capabilities have been tightly coupled with a dynamic or rapidly changing environment (Teece et al., 1997; Sher and Lee, 2004). However, Zahra et al., (2006) also discuss the applicability of such capabilities in non dynamic marketplaces and suggest that while organizations which operate in more dynamic marketplaces would gain greater value from dynamic capabilities; it does not exclude organizations in slower to change marketplaces from gaining value from dynamic capabilities.
Limitations of the RBV
Limitations of the RBV can be grouped into following three main areas1:
1.The vagueness of terminology associated with the RBV,
2.The tautological nature of some of the views underlying assumptions,
3.Methodological issues.
Vagueness of Terminology
The lack of commonality of terms with RBV research has received a lot of criticism in the literature (e.g., Foss, 1998; Williamson, 1999; Fahy, 2000; Priem and Butler, 2001; Montealegre, 2002; Rugman and Verbeke, 2002; Foss and Knudsen, 2003; Hoopes et al., 2003; Wade and Hulland, 2004). Collis (1994) and others (e.g., Coates and McDermott, 2002; Ray et al., 2004) describe the number of definitions as vast. The use of different terminology to explain results of RBV studies makes it very difficult to compare the results of various studies. For example, while some researchers outline distinct meanings for the core terms; resources, competencies, and capabilities (e.g., Helfat and Peteraf, 2003), other researchers use the terms interchangeably (e.g., Ray et al., 2004). Nanda (1996) suggests that the lack of commonality of terms limits the usefulness of results of RBV research to strategic thinking. Conner comments that since everything in a firm may be seen as a resource ‘resources lose (their) explanatory power’ (1991, p.145). Similarly, Hax and Wilde (2001) suggest a significant limitation of RBV research is the vagueness of the theory.
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Karyn Chri S Tine Rastrick, http://adt.waikato.ac.nz/uploads/approved/adt-uow20080115.215153/public/04c |
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Tautological Nature
Another significant assessment of the RBV is that the view is essentially a tautology (Porter, 1991; Foss, Knudsen, and Montgomery, 1995; Mosakowski and McKelvey, 1997; Priem and Butler, 2001; Bromiley and Fleming, 2002) in nature. Porter claims that ‘at its worst, the resource based view is circular’ (1991, p 108). The researchers also challenge the premise of the RBV suggesting that the view “seems to assume what it seeks to explain” (Hoopes et al., 2003, p 891). Furthermore, the researchers posit that the lack of clarity about core aspects of the RBV impede the development of theory and fruitful debate.
Methodological Issues
Each of the studies of resources and firm performance vary substantially in terms of the methodology employed and the way the RBV research is designed. Rouse and Daellenbach (1999) question the strong bias towards quantitative research methods suggesting that such a methodology is not appropriate for RBV research in general. The researchers suggest that the nature of advantages in organizations should be firm based and complex and, as such, qualitative and field based methodologies are much appropriate. Chan (2000) supports this position suggesting that the field of research may not be fully understood until more qualitative contributions are added to the conversation.
Discussion and Conclusion
The RBV also deals with competitive business environment faced by firms but take an inside-out approach i.e., it starts with analysis of firm’s internal environment. As such RBV is often considered as an alternate to Porter’s five force model. The RBV emphasizes internal resources and capabilities of firm in formulating strategy to achieve sustainable competitive advantages in the marketplace. Internal resources and capabilities determine strategic choices made by firms while competing in its external business environment. Firm’s abilities also allow some firms to add value in customer value chain, develop new products or expand in new marketplace. When firm’s capabilities are considered as paramount in the creation of competitive advantages, it will focus on reconfiguration of value chain activities. This is necessary as it provides opportunity to identify the capabilities within value chain activities which provide it with
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competitive advantages. The RBV draws upon the resources and capabilities that reside within the organizations in order to develop sustainable competitive advantages. Resources may be considered as inputs that enable firms to carry out its activities.
According to RBV, not all the resources of firm will be strategic resources and hence sources of competitive advantage. Competitive advantage occurs only when there is a situation of resource heterogeneity (different resources across firms) and resource immobility (the inability of competing firms to obtain resources from other firms). If the resource is not perfectly mobile (i.e., the resource is not free to move between firms, or if a firm without a resource faces a considerable cost burden in developing, acquiring or using it, that a firm already using it does not), then the resource is likely to be a source of sustained competitive advantage. If a resource is imitated or substituted then any advantages gained may be short lived. In short, the more mobile a resource is, the less sustained the advantage gained from that resource will be. In this current era of fast changing globalized world, if an organization is able to change swiftly and be more alert to changes in the competitive market, then they are more likely to gain and sustain competitive advantage.
(Pankaj M Madhani, Faculty Member, Icfai Business School, Ahmedabad. He can be reached at pankaj.madhani@gmail.com).
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