RESOURCE BASED VIEW OF THE FIRM

 Essentially, the view conceptualizes the firm

as a bundle of resources.
 It is these resources, and the way they are
combined, that make firms different from one
another and in turn allow a firm to deliver
products and services in the market
 The focus would be on what resources the
firm has and how these resources can be
leveraged in different ways.

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RESOURCE BASED VIEW OF THE FIRM

 Firm resources are generally quite loosely

defined, tending to include everything internal
to the firm.
 Resources include all assets, capabilities,
organizational processes, firm attributes,
information, knowledge, etc. as resources.
 So, if resources can be anything internal to
the firm, what ones are more strategically
important?
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RESOURCE BASED VIEW OF THE FIRM
 The following are the key characteristics for a
resource to be strategically important:
 Valuable – There is no point having a resource if it
does not deliver value to the firm.
 Rare – Resources that are owned by a large
number of firms cannot confer competitive
advantage, as they can not deliver a unique
strategy vis-à-vis competing firms.
 Inimitable – Resources can only be sources of
sustained competitive advantage if firms that do
not possess these resources cannot obtain them.
 Non-substitutable – There must be no strategically
equivalent valuable resources that are themselves 3

neither rare nor inimitable.

RESOURCE BASED VIEW OF THE FIRM
 While it is important to recognize that firms are
different, and have different resources, this is not
to say that the market is not also important.
 The challenge is to identify opportunities in the
market that are relevant to the resource base of
the firm.
 Conversely, resources need to fit with their
environment to deliver competitive advantage.
 This could be viewed in a Darwinian sense, in
that the firms that have the resources best suited
to the market are likely to perform the best.
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 TYPES OF RESOURCES
Tangible resources
 Refer to physical assets an organization posses
in form of physical assets
 Includes machinery, human, financial, buildings,
inventory, materials, productive capacity.
Intangible resources
 Intellectual Technology resources

 Reputation

 Organization’s ability to innovate

 Brand name
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 Patents and copy rights
Distinctive competencies
 There is difference between distinctive
competencies and resources
 Distinctive competencies are organizational
attributes possessed by an organization that
allow it to achieve completive advantage
 Distinctive competencies emanate from
effective configuration of resources to attain
completive edge
 They include efficient culture, innovative
capability, organizational learning practices
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Managerial implications – using RBT
in strategic planning
Step 1
 Identify and classify organizational resources.
Appraise strengths and weaknesses relative to
those of competitors. Identify opportunities for
better resource utilization
Step 2
 Identify the organization distinctive competencies
i.e. what it can do better than its rivals. Identify the
resource input to each capability and the
complexity of inputs

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Strategic plan formulation
based on a Resource view
Step 3
 Appraise the rent generating potential of
resources and capabilities using the following
criteria
 Sustainability – can they vanish in long term?
 Imitate ability – Can someone copy them?
 Transferability- Can they easily be snatched from
the organization by rivals?
 Replicability – can rivals replicate them in their
own organizations? 8
Strategic plan formulation
based on a Resource view
Step 4
 Formulate strategies that best exploits
organization resources and capability

Step 5
 Identify and resource gaps that may exist and
include strategies to invest on them

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Strategic plan formulation
based on a Resource view
Step 6
 Formulate mission and vision of the
organization based on what the organization
can do

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 INDUSTRY BASED THEORY
 Industry based strategic planning is based on
the principles that firm success is based on the
its ability to harness opportunities and tame
threats that exist in the environment
 The approach heavily relies on Porter’s Five
Forces model.
 Porters model is a simple but powerful tool for
understanding where power lies in a business
situation.
 This is useful, because it helps you understand
both the strength of your current competitive
position, and the strength of a position you’re11

looking to move into.

12
INDUSTRY BASED THEORY
 Five Forces Analysis assumes that there are
five important forces that determine
competitive power in a situation. These are:-
 Supplier Power: Here you assess how easy
it is for suppliers to drive up prices.
 This is driven by the number of suppliers of
each key input, the uniqueness of their
product or service, their strength and control
over you, the cost of switching from one to
another, and so on. 13
 INDUSTRY BASED THEORY
 The fewer the supplier choices you have, and
the more you need suppliers' help, the more
powerful your suppliers are.
 Buyer Power: Here you ask yourself how easy
it is for buyers to drive prices down. Again, this
is driven by the number of buyers, the
importance of each individual buyer to your
business, the cost to them of switching from
your products and services to those of someone
else, and so on.
 If you deal with few, powerful buyers, they are
often able to dictate terms to you. 14
INDUSTRY BASED THEORY
 Competitive Rivalry: What is important here
is the number and capability of your
competitors
 If you have many competitors, and they offer
equally attractive products and services, then
you’ll most likely have little power in the
situation.
 If suppliers and buyers don’t get a good deal
from you, they’ll go elsewhere.
 On the other hand, if no-one else can do
what you do, then you can often have
tremendous strength. 15
INDUSTRY BASED THEORY
 Threat of Substitution: This is affected by
the ability of your customers to find a different
way of doing what you do – for example, if
you supply a unique software product that
automates an important process, people may
substitute by doing the process manually or
by outsourcing it.
 If substitution is easy and substitution is
viable, then this weakens your power.

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 INDUSTRY BASED THEORY
 Threat of New Entry: Power is also affected
by the ability of people to enter your market.
 If it costs little in time or money to enter your
market and compete effectively, if there are few
economies of scale in place, or if you have little
protection for your key technologies, then new
competitors can quickly enter your market and
weaken your position.
 If you have strong and durable barriers to
entry, then you can preserve a favorable
position and take fair advantage of it
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INDUSTRY BASED THEORY
 To deal with these forces, firms must make a
choice among possible “generic” strategies
such as becoming the low-cost provider,
differentiating the product (making it unique),
developing a high degree of customer loyalty,
or focusing on narrow market segments.
 Firms should avoid the strategy of “being all
things to all people.” Porter’s model of
competitive analysis became the dominant
strategy approach and continues to be a
strong force in business education today.
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Managerial implications
-Strategic plan formulation
Step 1
 Identify and classify organizational
opportunities and threats. Use Michael
Porters five forces to assess the
potentials of the business.

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 Self Assessment—Bargaining Power of Suppliers
ISSUE
Are there a large number of potential
input suppliers?
Are the products that you need to
purchase for your business ordinary?
Do your purchases from suppliers
represent a large portion of their
business?
Would it be difficult for your suppliers
to enter your business, sell directly to
your customers, and become your
direct Competitor?
Can you easily switch to
substitute products
from other suppliers?
Are you well informed about your
supplier’s product and market?
YES NO REMARKS
The greater number of suppliers of
your needed inputs, the more control
you will have.
You have more control when the
products you need from a
supplier are not unique
If your purchases are a relatively large
portion of your supplier’s business, you
will have more power to lower costs or
improve product features.
The easier it is to start a new business,
the more likely it is that you will have
competitors.
If it is relatively easy to switch to
substitute products, you will have
more negotiating room with your
suppliers
If the market is complicated or hard to
understand, you have less bargaining
power with your suppliers.
Self Assessment—Bargaining Power of Buyers
ISSUE
Do you have enough customers
such that losing one isn’t critical
to your success?
Does your product represent a
small expense
for your customers?
Are customers uninformed
about your product and market?
Is your product unique?
Would it be difficult for buyers to
integrate backward in the supply
chain, purchase a competitor
providing the products you
provide, and compete directly
with you?
Is it difficult for customers to
switch from your product to
your competitors’ products?
YES NO REMARKS
The smaller the number of customers, the
more dependent you are on each one of them
If your product is a relatively large expense
for your customers, they’ll expend more effort
negotiating with you to lower price or improve
product features.
If your market is complicated or hard to
understand, buyers have less control
If your product is homogenous or the same
as your competitors’, buyers have more
bargaining power
The less likely a customer will enter your
industry, the more bargaining power you
have.
If it is relatively easy for your customers to
switch, you will have less negotiating power
with your customers. 21
 Self Assessment—Threat of New Entrants
ISSUE
Do you have a unique process
that has been protected?
Are customers loyal to your
brand?
Are there high start-up costs for
your business?
Are the assets needed to run
your business
unique?.
Is there a process or procedure
critical to your business?
Will a new competitor have
difficulty acquiring/obtaining
needed inputs?
Will a new competitor have any
difficulty acquiring customers?
YES NO REMARKS
For example, if you are a technology-based
company with patent protection for your
research investments, you enjoy some barriers
to entry
If your customers are loyal to your brand, a new
product, even if identical, would face a
formidable battle to win over loyal customers
The greater the capital requirements, the lower
the threat of new competition.
Others will be more reluctant to enter the market
if the technology or equipment cannot be
converted into other uses if the venture ails
The more difficult it is to learn the business, the
greater the entry barrier
Current distribution channels may make it
difficult for a new business to acquire/obtain
inputs as readily as existing businesses
If current distribution channels make it difficult
for a new business to acquire/obtain new
customers, you will enjoy a barrier to entry.
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Self Assessment—Threat of Substitutes
ISSUE YES
Does your product
compare favorably to
possible substitutes?
Is it costly for your
customers to switch
to another product?
Are customers loyal
to existing products?
NO REMARKS
If another product offers more features or
benefits to customers, or if their price is
lower, customers may decide that the other
product is a better value.
When customers experience a loss of
productivity if they switch to another
product, the threat of substitutes is weaker
Even if switching costs are low, customers
may have allegiance to a particular brand. If
your customers have high brand loyalty to
your product you enjoy a weak threat of
substitutes.
Self Assessment—Rivalry Among Competitors
ISSUE YES NO REMARKS
Is there a small Often the greater the number of players, the
number of more intense the rivalry. However, rivalry can
competitors? occasionally be intense when one or more
firms are vying for market leader positions
Is there a clear Rivalry intensifies if companies have similar shares of
leader in your the market, leading to a struggle for
market? market leadership.
Is your market In a growing market, firms are able to grow revenues
growing? simply because of the expanding market. In a
stagnant or declining market, companies often fight
intensely for a smaller and smaller
Do you have low With high fixed costs, companies must sell more
fixed costs? products to cover these high costs.
Can you store your High storage costs or perishable products result in a
product to sell at the situation where firms must sell product as soon as
best times? possible, increasing rivalry among firms
Are your You will have more intense rivalries if your
competitors competitors are more aggressive. In contrast, if your
pursuing a low competitors are following a strategy of milking profits
in a mature market, you will enjoy less rivalry
growth strategy? 24
Self Assessment—Rivalry Among Competitors Cont.
ISSUE YES NO REMARKS
Is your product Firms that produce products that are
unique? very similar will compete mostly on
price, so rivalry is expected to be high.
Is it easy for If exit costs are high, a company may
competitors to remain in business even if it is not
abandon their profitable.
product?
Is it difficult for If customers can easily switch, the
customers to market will be more competitive and
switch between rivalry is expected to be high as firms
your product vie for each customer’s business.
and your
competitors’?

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MANAGERIAL IMPLICATIONS- STRATEGIC
PLANNING

Step 2
 Formulate strategies that will help the
organization seize potential opportunities and
strategies for dealing with potential threats in
all five forces

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 MANAGERIAL IMPLICATIONS- STRATEGIC
PLANNING
Step 3
 Appraise formulated strategies in view of
resource base of the organization using the
following criteria
1. Strategy cannot be implemented through the use of
existing resources
2. Strategy will need little extra investment
3. New staff recruitment will be needed
4. Retraining of staff will be needed
5. New technology will be required
6. Negotiation with many stakeholders will be required
7. Impact to organizational performance of the strategy is low
MANAGERIAL IMPLICATIONS-
STRATEGIC PLANNING
Step 4
 Select strategies that rank high in terms of
total score. Identify resource gaps and
include strategies for resource acquisition

Step 5
 Cluster strategies to get strategic objectives
and ultimately Key Result Areas

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MANAGERIAL IMPLICATIONS- STRATEGIC
PLANNING

Step 6
 Formulate mission and vision of the strategic
plan based on what the organization should
do.

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