Resource-Based View (RBV)
The Resource-Based View (RBV) is a strategic framework in business that focuses on analyzing a company's internal resources to identify competitive advantages. Developed primarily in the 1980s and 1990s by scholars such as Birger Wernerfelt and Jay Barney, RBV suggests that companies should assess their own resources rather than solely analyzing competitors. The framework emphasizes the importance of both tangible and intangible resources, where tangible resources include physical assets like land and equipment, and intangible resources encompass elements like brand reputation and intellectual property, which are less easily replicated by competitors.
Central to RBV is the VRIO (Value, Rarity, Imitability, Organization) or VRIN (Value, Rarity, Inimitability, Non-substitutability) framework. Resources that are valuable, rare, inimitable, and organized contribute significantly to achieving a sustainable competitive advantage. This competitive edge can manifest through cost advantages, where a company produces goods at lower costs than competitors, or through differentiation, where unique or high-quality offerings command higher prices. Ultimately, RBV posits that leveraging unique and well-organized resources enables companies to maintain a long-term competitive advantage, which is crucial in dynamic market environments.
Resource-Based View (RBV)
The resource-based view (RBV) is a business model that analyzes company resources to assess a company’s competitive advantage. Competitive advantage is the edge a company has over its competitors. RBV takes into consideration the attributes of a company’s resources, including whether they are tangible or intangible; if they are heterogeneous or immobile; and whether or not they are valuable, rare, inimitable, and organized/non-substitutable (VRIO or VRIN). With the appropriate resources, a company can acquire long-term competitive advantage.
Company Resources
The resource-based view (RBV) model was developed in the 1980s and 1990s, primarily by Birger Wernerfelt, C. K. Prahalad, Gary Hamel, and Jay Barney. Proponents of the model claim that in order to discover its competitive advantage, a company should look internally rather than examining its competitors. A company can examine the resources it uses in several areas of the business, including marketing strategy, current prices, the company website, and employee satisfaction as it relates to employee retention. The ultimate goal of a company is to utilize its resources to achieve and maintain competitive advantage. The main way a company can do this is by employing new methods of using its existing resources.
Two principal types of resources exist: tangible resources and intangible resources. Tangible resources are those that are physical, including land, buildings, and equipment. Such resources do not offer a company much competitive advantage because competitors easily are able to obtain these resources. Intangible resources are those that are not physical, such as brand reputation and intellectual property (copyrights, trademarks, and patents). Unlike tangible resources, a company’s competitors cannot easily obtain intangible resources. For example, a competitor cannot simply purchase brand reputation; it must be earned over time. Intangible resources typically are the resources that allow a company to sustain competitive advantage.
To acquire competitive advantage, a company’s resources also should be heterogeneous and immobile. Heterogeneous, which means diverse, describes resources that are different from those of other companies. A company should have a different number and a variety of resources over its competitors. Immobile resources are those that do not move from one company to another. Generally, intangible resources are immobile.
Competitive Advantage
There are two main types of sustainable competitive advantage: cost advantage and differentiation advantage. With cost advantage, a company is able to produce a product or service at a lower cost than its competitors yet sell the product or service at the same price as competitors. Because the company has lower production costs, it can gain higher profits than its competitors can. As for differentiation advantage, a company can sell a product or service at a higher price than its competitors can because the product or service is unique or is of higher quality. In other words, the uniqueness or high quality of the product or service allows the company to set a higher price than the competitors can for their lesser quality product or service.
Other qualities can help a company achieve competitive advantage, including unique knowledge, abilities, and processes. A company that possesses this advantage makes it difficult for competitors to imitate its products or services. Innovation is yet another attribute that can lead a company to competitive advantage. A company that produces innovative products or services, has innovative manufacturing processes, and possesses an innovative business model can gain an edge over its competitors. The main reason this is possible is the first-mover advantage, which involves a company that is the first to move into a particular market, enabling the company to secure brand recognition, build customer loyalty, and improve its product or service. A good example of a first mover is eBay, which was the first company to offer online auctions.
VRIO or VRIN Attributes
To work toward competitive advantage, a company typically must have resources that are valuable, rare, inimitable, and organized (VRIO). Valuable resources increase differentiation and decrease production costs, thereby augmenting their value to customers. Rare resources are those that only one or a very small number of companies possess. Inimitable resources are unique or difficult to imitate. They typically are expensive for competitors to replicate. Lastly, a company’s resources must be well organized to gain an advantage over competitors. The organized trait of the VRIO attributes sometimes is replaced by a non-substitutable trait, which changes the acronym to VRIN. Non-substitutable resources are those that cannot easily be substituted by a company’s competitors.
Examples of resources that possess VRIO or VRIN attributes include intellectual property, experience, reputation, and brand equity, which is the positive or negative value that a product or service with a recognizable brand name provides to a company. While each of the VRIO or VRIN attributes is important individually, a resource must possess all of the attributes to contribute to a company’s competitive advantage. Furthermore, a company that has resources with all of the VRIO or VRIN attributes typically will achieve long-term competitive advantage as opposed to a short-term competitive edge.
Bibliography
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