Is the Resource-Based View of the Firm Useful to

Is the Resource-Based View of the Firm Useful to Supply Chain Managers?

Author: Raquel Rivera Sanchez Student Number D16128769 Module: Business Strategy Code NITL9019 December 2017 Imparted by: Dr Eoin Plant

Table of Contents Introduction

1.0 What is Resource-Based View?

2.0 Different viewpoints of Resource-Based View

3.0 Other Theories

4.0 Utility and Applicability of Resource-Based View for a Supply Chain Manager

Conclusion

Introduction. What is Resource-Based View? The Resource-Based View of the Firm (RBV) is one of the most commonly used and accepted theories in strategic management. RBV is regularly used as a tool that helps determining the strategic resources available to a firm. The main goal for a firm, according to RBV perspective is to achieve sustained competitive advantage (Barney and Clark 2007, Newbert 2007). Jay B. Barney is one of the main defenders of RBV theory, in this paper his work will be analysed and compared with other authors with a different perspective of the utility of this theory. RBV has been a controversial subject with a variety of standpoints questioning its effectiveness, usefulness and potential to lead a firm towards a strategy. Other theories will also be reviewed and compared in this assignment to get a wider perspective of the tools a Supply Chain manager can use for the correct analysis of the firm. According to Simpson (1998), the key elements of success for a firm are a general sense of direction and flexibility. This paper will also analyse if RBV can bring these key elements to the table, which benefits does a firm get out of defining its strategic resources and capabilities, and what managerial improvements can there be for the Supply Chain area. This assignment will attempt to answer if the Resource-Based View of the Firm is useful to Supply Chain managers. RBV framework will be studied, bringing more awareness and a better understanding of its power, helping Supply Chain managers to recognize its practical benefits and knowledge of its limitations.

1.0 What is Resource-Based View? One of the pioneers in stablishing the importance of the resources within a firm was Edith Penrose, she describes a firm as a “collection of competitive resources” (1959, p. 24) and defends that they will lead to competitive advantage if they are exploited in such a manner that their potential value service is made accessible to the firm. Later in 1991, Jay Barney established as resources All assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness (p. 101). RBV of the firm can be defined as “a theoretical perspective that attempts to describe, explain and predict how firms can achieve a sustainable competitive advantage through acquisition of and control over resources”(Rungtusanatham et al. 2003, p. 1087). The resources can be tangible (warehouse, information system, means of transport…) or intangible (organizational culture, knowledge…); the distinctiveness of these along with the capabilities within the firm, lay the foundation of a firm’s strategy and its ability to produce above-average returns; with the continued use of such resources and capabilities they can also become a source of competitive advantage (Hitt, Ireland and Hoskisson 2012). RBV holds that such resources must offer economic value and they must comply with the following characteristics: value, rareness, costly to imitate (non-substitutable), exploited by the organization (VRIO) (Hitt et al. 2012, Rungtusanatham et al. 2003, Barney and Clark 2007). VRIO resources and competences would support or deliver high value to a customer, will make it difficult for competitors to copy or substitute, but must be easy for the firm to repeat in markets where its benefits can be also valuable (Mills, Platts and Bourne 2003). In Barney’s words, resources are valuable “when they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness” and “when they exploit opportunities or neutralize threats in a firm’s environment” (Barney 1991). Resources are more likely to

generate competitive advantage when they turn into a capability, that is “the capacity for a set of resources to perform a task or an activity in an integrative manner” (Hitt et al. 2012, p. 15) In the airline industry for example, planes, fares, gates etc are resources most airlines possess, by themselves they are not likely a source of competitive advantage, however by combining these resources to meet customer expectations and deliver efficient service (distinguishing them from the competence) they can generate loyalty among its customers. Continental Airlines realized this importance and redesigned its training programs and developed new strategies to exploit its mix of resources (Barney and Clark 2007). Supply Chain Management (SCM) itself can be considered as a VRIO resource as it enables the procurement of strategic resources, it also involves processes such as linkages which can help guaranteeing material flow and to generate sustainable superior operational performance. Supply Chain linkages can also become a method of acquiring new VRIO resources and capabilities,

and

even

knowledge

sharing

or

cooperative

product

development

(Rungtusanatham et al. 2003, Carter, Kosmol and Kaufmann 2017).

2.0 Different viewpoints of Resource-Based View Along RBV’s development, there have been different viewpoints to weather this theory is in fact useful and to if it can even be considered as a theory. Most disputes against RBV stablish that this theory is too ambiguous, as there is no specific criteria for value, resource (especially in terms of its inimitability) or what is competitive advantage and how should it be measured (Bromiley and Rau 2016, Priem and Butler 2001). Barney (2001) concurs there is a lack of parametrization for value and recognizes its importance, however he clarifies that “resource value must be determined by models of the competitive environment within which a firms competes” ( p. 42).

Another weakness of RBV recognized by Barney (2001) is the problem of equifinality; many different combinations and configurations of the resources can generate value for the firm therefore, they won’t be sources of competitive advantage. Even VRIO resources cannot give competitive advantage if there are strategically comparable substitutes. One of the critiques to RBV is that not only resources give competitive advantage to a firm, core competences and the firms context (market environment) also contribute to this competitiveness, as well as firm abilities that might not fulfil the VRIO characteristics (Newbert 2007, Bromiley and Rau 2016, Priem and Butler 2001). Winter (1995) argues that even though resources are crucial for a firm to achieve competitive advantage, they are not sufficient by themselves: firms need to replicate routines and form a dyad or network by which its resources can be coordinated and organized. As the firm’s context changes, so does the value of the resources, for example if there’s a change in the product demand, the value of the resources won’t be the same. RBV leaves out these changes and works in a less flexible and more static environment (Priem and Butler 2001). Barney contends this point of view explaining that RBV should implement time series or any other system of dynamic analysis. “Theoretically, either equilibrium or evolutionary analysis can be applied to resource-based logic” (Barney 2001). Hitt, Carnes and Xu (2016) also address this point clarifying that this apparent lack of precision happens because researchers do not use the latest developments in recent RBV, like the differentiation between capabilities and resources. An important point of discussion about RBV is if it can answer “how” questions: How does a firm should obtain resources? How can a SCM compare its resources? How do resources contribute to competitive advantage? It appears to be a missing link between a resource possession and its exploitation (Priem and Butler 2001, Newbert 2007). The answer to this is

given by Mahoney and Pandian (1992): they explain that higher rents come of the firm’s distinctive use of its resources, allocating them ensuring their maximum productivity, and in this way they contribute to the competitive advantage of the firm. It is also important to know that RBV also has limitations, Barney (1991) observes for example, that RBV won’t acknowledge which of the resources is the one generating strategic advantage to the firm (causal ambiguity), and also that this advantage cannot be created or sustained if there is no potential within the firm’s resources. Some more evident limitations of RBV theory is the lack of study of the resources that might be outside the firm, and the exclusion of practices as a source of competitive advantage. It is important to underline that all of these are a crucial part of the Supply Chain practice (Carter et al. 2017).

3.0 Other Theories Given the limitations and the counterpoints mentioned in the section above, and without discarding RBV, it is worth to look at other theories that can be useful for SCM. Even though they have different approaches, most of them still have common arguments with RBV. 1. Resource Advantage Theory of Competition (RAT): is a theory of competition. Opposite to RBV view, this theory finds competition evolutionary and disequilibrating, it includes the product demand as an important factor and specifies that firms are in quest of superior financial performance. However, it does not discard the importance of the firm’s resources. RAT proposes that when firms find themselves in disadvantage or low financial performance, they will try to overcome this situation through innovation, finding or copying a superior resource (Hunt and Davis 2008, Hunt 1999). RAT theory can help the SCM to make an accurate prediction concerning financial performance, and will help understand competition as a process of knowledge discovery (Hunt 1999).

2. Practice-Based View (PBV): unlike RBV and its focus on competitive advantage through VRIO resources, PVB tries to explain performance through the practices in a firm. PVB stablishes that imitable resources or practices can lead to different performance among firms, there former, practices adoption are a continuum. (Bromiley and Rau 2016). According to Bromiley and Rau (2016), PBV seems to encompass more aspects of SCM, as practices are often imitated in this field. “Whereas the RBV assumes that firms adopt all useful transferable practices, the PBV recognizes that… firms often do not know and/or use all the practices that might benefit them.” (Carter et al. 2017, p. 115) PVB can improve an investigation in operations management, however the firm will still need to identify VRIO resources for a proper practice implementation (Hitt et al. 2016). 3. Supply Chain Practice View (SCMV): Carter (2017) proposes this theory which focuses on relational performance, such as the knowledge shared with suppliers and customers, the supplier development for sustainability, etc. “A central tenet of the SCPV is that imitable interorganizational SCM practices can explain performance differences, both within and across organizations” (Carter et al. 2017, p. 116). He comes to the development of this theory, as he considers this is a non-explored area by the literature (Figure 1).

Figure 1. RBV and other theories. Source: Carter et al. 2017 p. 116

4. Dynamic Capabilities: they can be defined as “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece, Pisano and Shuen 1997, p. 516). As cited by Newbert (2007), authors like Winter and Barney have agreed that VRIO resources by themselves should be paired with dynamic capabilities to help explain a film’s competitive position. It can be resolved that each of these theories, even though they offer different points of view with different variables, should be combined with RBV them for a broader examination of the firm, as this will lead to an understanding of the strategic alternatives for a Supply Chain Manager (Wu et al. 2006, Barney 2001). Hitt et al. (2016) observes that such theories can help the theoretical advancement of RBV through their better integration.

4.0 Applicability and Utility of Resource-Based View for a Supply Chain Manager As explained in the introduction of this paper, RBV is about identifying and assessing resources or competences within a firm, having competitive advantage as main objective. To do this firms must identify and evaluate the resources, one way of doing so is the use and study of past events, brainstorming and even staff interviews can be helpful in this process. This must be followed by an assessment of the identified resources and comparative evaluations in order to determine the new business strategy and course of actions for the firm (Mills et al. 2003, Barney and Clark 2007). According to Mills et al.(2003), the application of RBV can be summarized in 5 steps: 1. Choose a unit of analysis. 2. Tutor the involved personnel in RBV. 3. Make a list of unique historical conditions and events that are relevant to the unit of analysis.

4. Identify the resources within the unit of analysis and classify them (for example tangible and intangible, cultural resources, network resources, etc). 5. Evaluate the resources by analysing its VRIO characteristics. Focusing the attention towards the firm’s resources helps clarifying its contribution to competitive advantage, as well as easing a threat and opportunities analysis (Priem and Butler 2001, Barney 2001). In this way, RBV can help SCM to provide a theoretical underpinning to the benchmarking process, which potentially can lead a firm to overcome its competitors performance for example, when a firm realises itself in disadvantage it can gain access to strategic resource through interfirm cooperation, buy a firm that already owns them, or try create this resources and capabilities by itself (Barney and Clark 2007, Barney 2001). Xerox Corporation was one of the first firms in using benchmarking as a tool for generating competitive advantage: after evaluating its resources and processes such as repair, maintenance, distribution, etc. it started comparing them with the competitors’ processes, leading the firm to an increase in quality and productivity, as a result Xerox logistics and distribution was able to double its productivity (Christopher 2016). Not all firms have the same resources and capabilities even if they belong to the same branch of a business, therein lies the importance of identifying the ones that generate competitive advantage. GM and Toyota are an example of this: Toyota stands out for its resources and capabilities in lean production, which enables it to produce quality cars at a low cost; while GM might have inferior production performance, it has a remarkable distribution system in USA and Canada that Toyota does not possess, giving them sustained competitive advantage in its product distribution (Barney and Clark 2007). RBV can help SCM to get a wider understanding of the resources that are generating sustained competitive advantage, with this knowledge managers can apply strategies that lead to VRIO

resources adequate exploitation, as well as to identify which of the resources should be nurtured and protected, which ones have the potential to generate competitive advantage in the future, and which missing resources should be acquired, this will help a Supply Chain Manager to move towards a correct strategy, such as a patent to reduce imitability, investing in technological infrastructure or creating linkages with suppliers and customers that improve the operational performance and generate competitive advantage (Hitt et al. 2016, Barney 2001, Rungtusanatham et al. 2003).

For example Publicis SA, the world’s third largest

communications group, throughout a RBV analysis came of awareness of its VRIO resources and capabilities such as unique assets in data, creativity, media, consulting, technology and artificial intelligence; knowing this, Publicis refused to be acquired and turned down a purchase offer from Saatchi & Saatchi. They opted instead to form a joint venture with the firm Foote, Cone & Belding (FCB) , allowing them to keep exploding its VRIO resources (Barney and Clark 2007, Publicis 2017). RBV also enables a SCM to develop interfirm relationships with key partners and customers, growing its service capabilities and thus delivering optimal supply chain solutions to customer’s requirements by harnessing the firms’ resources: “an effective interfirm long-term relationship can span firm boundaries to build stronger capabilities” (Yang and Lirn 2017, p. 887).

Conclusion The analysis in this assignment shows the utility and applicability of RBV theory for the Supply Chain Manager. RBV helps identify the resources needed to build a base for a strategy implementation, as well as evaluate the competitive potential of a firm; in this way it can also

help SCM deciding which resources should be acquired and which resources should be given more attention within the firm. RBV continues to be relevant and valuable for SCM, however it must be used cautiously and being sensible to its limitations. As showed in Figure 1, RBV is not a tool for an integral analysis as it does not integrate the firms’ environment to the study, or the imitable resources and capabilities. Therefore, it needs to be combined with other theories that will help achieving a whole analysis, in Barney’s (2001) words: “These theories could then be applied to understand the strategic alternatives a firm might be able to pursue, given the resources it controls” (p. 53). A Supply Chain manager with proper knowledge of the VRIO resources a firm possesses will be pointed at the right direction to take the correct strategy for the firm. However, the resources and capabilities identification and categorization will still not answer questions like: how to compare the resources with the competence or how to parameterize value and competitive advantage. As mentioned before, one of the keys to success is the ability of being flexible and RBV works on a static environment, which can limit and sometimes mislead the management of a firm if it is not complemented with another theory. RBV is a theory that continues to evolve, nowadays it stands ready to expand itself by asking questions that appear to be outside its current borders. The development of this theory will depend on its use, critiques and pushing its boundaries to answer new questions within our field of study (Barney and Clark 2007, Newbert 2007).

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