Using the Resource-based View Strategy for a Competitive Advantage

Please Note: This article appeared in saviom and has been published here with permission.

With advancements in technologies and ever-growing innovations as work culture, businesses have become highly competitive. Today every company’s ultimate goal is to remain relevant during the continually changing market trends by creating value propositions for their clients.

To bring this strategy into action, managers must extensively evaluate their resource pool and competencies and leverage them to the maximum potential.

After all, the workforce is the success-driver of any organization. To leverage their skills to the maximum extent, managers develop a comprehensive resource-based view strategy. It allows seamless allocation of resources to the right job and enhances project performance and delivery. This, in turn, benefits the long-term success of the organization.

Overall, a resource-based view strategy can be the game-changer for any organization’s sustainability in a competitive market.

Let’s begin with understanding the fundamentals of resource-based strategy in detail here,

1. What is Resource-based View Strategy (RBV)?

The resource-based view or RBV is a strategy formulated by organizations to understand the elements of the business for a long-term competitive advantage. This theory emerged during the 1980s-1990s from the major works of B Wernerfelt, Hamel, Prahalad, and others.

They stated that- ‘to have an edge over the competition, the organization should look into the potential of the company’s internal resource pool rather than seeking the external competitive environment’.

The RBV model explains that it is significant to accept and fulfill external or new opportunities using existing resources innovatively by acquiring new niche skills. As a result, the internal analysis of resources should be empowered to achieve higher organization prowess in the RBV framework.

Let’s now dive deep into the benefits of RBV strategy:

2. Importance of Resource-based View Strategy

The resource-based view strategy aims to gain a sustainable competitive advantage. But how can an organization achieve this advantage?

It is through extensive resource analysis, resource allocation, and cross-functional usage of resources. Only when a firm unleashes its workforce’s true potential can they innovate better and out-stand in the industry.

Here is how an RBV strategy helps them achieve the same,

• Visibility for efficient resource allocation

The comprehensive view of all the resource pools facilitates managers to gain insight into resource skills and competencies. This, in turn, allows managers to allocate resources as per the scope and demand of the project. Real-time information helps them make data-driven decisions, leverage talent to the maximum potential, and maximize profitability.

• Maintains the competitive advantage

The rise in market volatility propels extensive ad hoc project demands, which often becomes the deciding factor for your company’s growth and success. In these situations, resource managers can utilize both their primary and secondary workforce skills to execute critical multi-faceted projects. A Resource-based view strategy on a centralized platform enables demand fulfillment to sustain their competitive advantage.

• Cross-functional usage of resources

In a matrix organization, the resource-based strategy model facilitates enterprise-wide visibility of the workforce and its expertise. It helps in allocating appropriate resources from different departments and form a cross-functional team to execute the project. It reduces hiring cycle costs and also helps to leverage the diversified workforce. Besides, employees are also given multi-faceted projects to work on enhancing their professional portfolio.

Given the importance of RBV strategy, here’s a detailed description of the fundamental concepts:

3. The Major Concepts of RBV Analysis

RBV is a strategic theory beneficial for understanding why companies outperform other competitors. It is a commonly adopted analytical method used to determine the strengths and limitations of an organization and evaluate the firm’s workforce.

With the understanding of resource-based strategy or RBV model, let’s emphasize details of its different types of assets.

The Assets of RBV Model

There are two types of assets in the RBV model: tangible and intangible assets.

• Tangible Assets

The tangible assets are the physical resources of the firm that are quantifiable. It includes products, machinery, equipment, capital, infrastructure, etc. They can be easily acquired by competitors in identical assets and offer a less competitive advantage in the long run.

• Intangible Assets

Intangible assets are resources that are owned by respective organizations and which do not have a physical presence. It includes brand presence, intellectual property, goodwill, trademarks, etc. Unlike tangible assets, intangible assets are built over a long time and cannot be replicated by competitors.

Invariably, intangible resources remain within a business and are the primary source of sustainable competitive advantage.

The Critical Assumptions of RBV

The fundamental principle of the RBV model explains competitive heterogeneity between companies. To transform a short-run competitive advantage into a sustainable one, the two critical assumptions of RBV are that the resources must be heterogeneous and immobile. Let’s discuss this in detail here:

• Heterogeneous

The primary heterogeneous assumption is that organizations must significantly differ in terms of resources and core competencies. If companies have the same mix of the resource pool, they would not be able to employ different business strategies to outperform each other. On the other hand, companies with a heterogeneous workforce when exposed to the same competitive market can outrank each other by implementing different strategies.

For instance, the technology giants- Apple Inc. and Samsung Electronics operate in the same industry (Smartphone & Tablet market) and therefore are subject to the same competitive market. However, they possess disparity in organizational performance due to the difference in resources and their expertise (heterogeneous resources).

• Immobile

The second assumption of RBV states that the resources are immobile and thus do not move freely from one company to another (employee movement), at least in the short-run. Due to this immobility, competing firms could not replicate their resources’ expertise and implement an appropriate strategy.

Immobile resources include all the intangible assets of a company, such as brand equity, intellectual property, etc., and some of the tangible assets.

However, a firm’s sources of competitive advantage go beyond heterogeneity and immobility. Other factors play a vital role in enabling firms to stay competitive. Here is an in-depth explanation:

4. The VRIO Framework:

Adding on to the assumptions, a renowned professor of strategic management, Jay B Barney, in 1991 has introduced a VRIN structure that was later altered by other leading thinkers. The new VRIO Framework is an improvement of the VRIN model and was adapted from Rothaermal’s ‘strategic management’ (2013).

The VRIO analysis categorizes the resources based on their Value, Rarity, Imitability, and Organizational system. Let’s understand each of these attributes in detail:

Value: It states that the resources are only valuable to organizations if they contribute to their goal in terms of products or services. Besides transforming inputs to outputs, value-addition also occurs when your resources successfully exploit profitable ventures or bring down external costs.

Rarity: The tangible and intangible resources that very few organizations can only acquire are rare resources. A firm with these rare skill sets in its closet can reap the competitive benefits and stand out in the market. In contrast, companies that possess the same set of resources and skills face competitive parity.

Imitability: The key to competitive sustainability is the decrease in the rare or valuable resources’ imitability rate for the long-term. It can only be achieved when the compensation is higher than the cost offered by other companies to mimic these resources and capabilities.

Organization: For a resource to exhibit competitive advantage, the organization, its processes, and systems must be designed in a way that supports a resource for maximum productivity. It includes having the right resource management system to ensure all the critical resource KPIs are optimized and balanced.

Formulating the VRIO Framework is only half the battle won. It is also important to develop and implement a strategy that suits organizational needs. Here is some information to create a strategy that sustains the competitive advantage in the long-run.

5. How to Develop a Full-Proof RBV Strategy?

The scope of strategy integration in the current business functions results in a competitive advantage. Managers should develop a plan in the RBV-centered organization to leverage internal resources to external opportunities and competition.

Here are the different steps to develop a strategy when utilizing a resource-based view of the organization:

• Identify key resources and competencies

Identifying essential resources and skillset is the first step towards forming an effective RBV strategy for the organization. The multidimensional resource scheduler facilitates the 360-degree visibility of all resource profiles across the enterprise. It helps managers to deploy potential resources based on the demand of the project.

• Allocate competent workforce to projects

After analyzing different resource attributes (skill sets, cost rate, location, available capacity, etc.), the next step is resource scheduling. Thus, strategic resource allocation is an essential step that facilitates deploying the right resources with the desired skill set to suitable projects.

Scheduling the right resources for the right projects is crucial to gain its competitive advantage and success.

• Leverage resources to multiple projects

As mentioned earlier, deploying resources to varied projects facilitates the shared service model in a matrix organization. It encourages the utilization of resources across multiple projects instead of one high-priority project. It will empower the overall resource utilization against their available capacity and enhance its profitability and reduce resourcing costs.

• Implement succession planning for niche skills

The resource managers must ensure that the sudden resignation of critical or niche resources does not jeopardize a project delivery. Therefore, an appropriate succession planning and backup strategy should be in place to replicate competent resources. It can be done in advance by providing proper training and development opportunities such as shadowing or knowledge transfer techniques to create its niche skill set.

• Conduct regular training to upskill the resource pool

It is worthwhile to invest in multi-skill building practices (Individual Development Plans or IDP) like training, workshops, and certifications. Such initiatives help the resources to diversify their professional spectrum, giving you a competitive advantage, especially against new entrants who are building upon their skills and expertise.

6. Conclusion

Competition is a fundamental aspect of business and innovation. Resources are the force that steers you through this competition. Therefore, utilizing the resources to their maximum potential is the key to maintain and sustain the competitive advantage.

A resource-based strategy ensures optimal performance of resources and organization both!

The best practices mentioned above will help formulate a full-proof RBV strategy for competitive advantage to enhance business sustainability and profitability. The new framework will also help identify discrepancies in the current functional system giving scope to continuous improvements.

How often do you look at your resource pool? Does your workforce have the four VRIO qualities as articulated by resource-based theory?

7. The Glossary

8. The Saviom Solution

SAVIOM is the market leader in offering the most powerful and configurable solutions for managing enterprise resources efficiently and effectively. Having more than 20 years of experience, this Australian-based MNC has a global presence in over 50 countries. It is also popular with more than 100 customers and helping them to achieve their business goals. SAVIOM also has products for project portfolio management, professional service automation, and workforce planning software which can be easily customized as per business requirements.