Resource Based View

Resource-based view (RBV)

Introduction

A resource-based view is a basis for competitive advantage which weighs the importance of an organisation’s internal versus external resources. The theory states that internal resources are more important for achieving and maintaining a competitive advantage than external resources. Resources are important business assets and constitute an organisation’s human capital. Strategic Resource Management enables the organisation to allocate resources according to the established organisational goals.

Definitions

Resources in relation to this article refer to two categories of resources: resources and capabilities. Resources define the tradable resources (e.g. Human Resources, Machine, Material, etc.)  Capability refers to the organisation specific knowledge, assets, intellectual property which affects the productivity or profitability of the organisation and should have the ability to transfer the knowledge between resources. This capability should be owned by the organisation. The four types of resources in strategic resource management are: Financial resources, Physical Resources, Human Resources and Technological Resources.

Empirical Indicators

So what are the key points (empirical indicators) of this theory?

1. Identify potential key resources in the organisation according to the following criteria:
   1. Intangible Assets
      1. Value – What is the total estimated value for the
      2. Barriers to Duplication -
      3. Appropriate -
   2. Tangible Assets
      1. Location – At which client and in which city does the resource perform best?
      2. Position – What kind of resource is it, e.g. Project Manager, Business Analyst?
      3. Seniority – What level the employee were employed against what level the employee operates against (can operate on a more senior level, and can operate at a more junior level)
      4. Client recognition – What is the client’s opinion around performance and value addition?
      5. “Blue-eyed boys/girls” – In any organisation these resources should only be evaluated last – and an objective opinion around their performance should be captured.
   3. Capability
      1. Skills – What are the company’s core competency skills? Select resources accordingly.
      2. Good as your last project – This maxim should be disregarded and the resource’s average performance of the last five projects should be weighted and scored (disregarding the highest and the lowest scores).
      3. Situational analysis – Does the resource work well under pressure, or in the normal operational environment?
   4. Organisational Culture – How does the resource promotes the organisation culture in the following ways:
      1. Story Telling,
      2. Attending the Braais and Social Feedback,
      3. Engagement with other employees, and
      4. Promotes the organisation externally
2. Evaluate potential key resources against:
   1. Valuable – What is the resource’s key competency? What is the resource’s business and client value? A Valuable resource should be evaluated as well according to its addition to the organisations strategy (addition, creation or implementation), and to what extent the resource is outperforming its competitors.
   2. Rarity/ Scarcity – The skill, drive and motivation of the resource must be exceptional. This will generate a high level of competency of knowledge transfer to other employees, which in turn will derive greater profits for the organisation. A Rare/Scarce resource will only be in this position for a short span of time, and so this measurement should be conducted frequently
   3. In-imitable – Other competitors should not be able to control the resource and the resource are only controlled by the organisation to achieve a competitive advantage,
   4. Non-substitutable – Herein lies the conundrum: due to the fast pace of economic, technological and organisational changes a resource can only be non-substitutable for a short period until the market catches up with the resource.
3. Protect these resources
   1. Ensure that these identified key resources are protected by providing adequate motivation, remuneration and adequate job goals and objectives. This can be enabled by mapping the correct skills of the resource against the correct project, by either job enlargement or job rotation.
   2. Recognize these resources’ key achievements – via email, rewards or in person (BUT according to individual motivation theories, different people are motivated by different needs),
   3. Provide adequate support to the resource by: Constant communication, recognition and motivation analysis for human resources, and for other tangible assets – regular servicing and if need be additional research and develop to increase the potential of the asset

 Competitive Advantage

Organisations must maintain their competitive advantage by ensuring that their resources are managed according to their strengths and weaknesses. By identifying these key resources an organisation can institute proper mentorship and knowledge transfer initiatives to enable easy access to information for other resources to become key resources as well. By enabling more key resources and moving away from a “golden boys/girls” environment, an organisation can achieve greater competitive advantage over its rivals.

Not the last word

I’ve taken the principles of the resource-based view and adapted them to the modern business environment. The purpose of this blog is to start discussing RBV to see how we can modernize an age-old valid concept into a global context. You are invited to join the discussion so that we can re-evaluate and update this entry.

References

The following are a summary of all the updates to this theory which I could find, and this stresses the point that the RBV theory is a living and constantly evolving theory – which could be modified with substantial reason to assist the organisation to obtain its competitive advantage.

The theory of resource-based view originated with Coase in 1937 (updated every couple of years) and gained traction in the early 90’s.  The following updates to the RBV were done:

Emphasis on Implication of firm’s performance by identifying the importance of resources (Created by Coase (1937), Selznick (1957), Penrose (1959), Stigler (1961), Chandler (1962, 1977), and Williamson (1975))

Shift from internal focus to external effects – e.g. competition, economics etc. (Rumelt (1984), Conner (1991), Mahoney and Pandian (1992), Rugman and Verbeke (2002))

Addition of strategic factor market by: Wernerfelt, Barney (1986a, 1986b), Barney (1991). Additional Updates were performed by:  Lippman and Rumelt (uncertain imitability, 1982), Rumelt (isolating mechanisms, 1984) and Dierickx and Cool (inimitability and its causes, 1989), Conner (1991), Mahoney and Pandian (1992), Conner and Prahalad (1996) and Makadok (2001), Amit and Shoemaker (1993), Priem and Butler (2001a, 2001b) and Hoopes, Madsen and Walker (2003), plus several other authors and research papers.