A company operates with two components i.e. resources and products or services which in turn are derived from resources only (Alvarez & Busenitz 2007). As per the resource-based view, a firm’s resources can be considered determinant of competitive advantage and performance within the firm (Barney et al. 2001; Barney & Mackey 2005). The Resource-based theory was introduced by Birger Wernerfelt in his article ‘A Resource-Based View of the Firm’ in the year 1984 to bring into consideration the importance of resources in the firm and the management of the resources as well. As per the model, the first assumption assumes that the heterogeneity of the firms operating in the market is dependent on the heterogeneity of the resources they control and secondly, it assumes that heterogeneity in terms of resources persists within a firm as strategies are not mobile across firms. The researcher, therefore, concludes that resource heterogeneity is important for the firm to gain a competitive advantage (Barney, 1991).
Allocation of resources
The resource-based theory or resource-based view helps in determining the resources available within the firm and relates them with the capabilities of the firm in a silent manner. This brings into consideration, the profitability and the value factor associated with the firm (Colbert 2004). As per this theory, the competitive advantage can be delivered to an organization when the organization is able to utilize its resources in a unique and valuable manner than the competitors of the firm (Colbert 2004). This theory clarifies that all the firm that has gained excellent capability is due to the extraordinary and non-substitutable slot of resources available to the firm. This brings the firm more success in the emerging economy of the world (Das & Teng 2000).
Resource-based theory, in other words, is regarded as one of the processes which is based on inside-out strategy. The strategy focuses on the methods through which the firm collects resources (Das & Bing-Sheng 2000). The following diagram given below describes the formulation process of the resource-based theory:
As per Figure 1, there are two factors that are inter-dependent terms i.e. resource and capability and are integrated simultaneously (Das & Bing-Sheng 2000). The definition of the factors is given below:
- Resources are the inputs without which the production process will end up to a limit. As per the current situation, the major resources used in an organization are technology capacity, human resources, raw materials, the loyalty of the customers, financial supports etc (Hart 1995). Along with this, brands and patents can also be considered important resources.
- Capabilities are regarded as the capacity of the available resources with the firm and the techniques through which tasks of the firm are performed (Kozlenkova et al. 2014).
Both factors are responsible for deciding the competitive advantages availed by the firm from the market.
Role of resource based view in organizations
Resources can be sub-categorized into tangible and intangible resources and both the resources are important for the proper functioning of the organization (Wu 2010). This theory is considered to be one of the substantial theories of strategic management (Oliver 1997). This theory formulates the blueprint and accordingly the utilization of the resources are planned for every capability of the firm. The diagram below supports the perception described above about this theory’s role in an organization.
The theory supports the view that if the resource is valuable then it can act as a source of competitive advantage for the organization. At the same time, the firm is also able to evaluate the potential resources which provide more benefit to the firm and enable success in the emerging markets (Kozlenkova et al. 2014).
The resource-based theory also initiates the firm to examine whether the resources of the firm are valuable to the expected level. Along with this, the availability of the resources is also checked within the firm through this theory (Barney et al. 2001). The competitive advantages attached to the resources are evaluated so that the firm can understand which resource is unique in nature and is not available to the competitors of the firm. The resources that are non-substitutable in nature can provide more benefit to the firm as the competitors won’t be able to match the same expectation that the firm adopts in the market (Wernerfelt 1995).
Gimeno (1991) argues that resource-based operation within the organization enables the organization to innovate products as per the demand of the customers and also enables sustainable growth within the organization.
Achieving competitive advantage
In conclusion, it has been established that resources and a competitive environment within the organization is beneficial for the acceleration of performance and achievement of competitive advantage within the firm and at the same time also help in the management of resources effectively. This paper sketches the connections between resources and competition when it discussed how resources are used to compete in the market and may even be used as leverage to hurt competitors. In the present scenario, for strategic managers, resource management should be part of competitive advantage where they would analyze the importance of internal and external resources in order to bring opportunities and innovations within the firm.
Therefore, one can conclude that the resource-based view is a dynamic concept which enables the firm to act, enact and operate as per its internal and external resources in order to gain a competitive advantage.
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