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The Resource-based view (RBV) emphasizes the internal capabilities of the organization in formulating a strategy to achieve sustainable competitive advantage in its markets and industries. Ideally, the organization is made of resources and capabilities that can be configured to provide it with a competitive advantage (Kirsch, 2007). Its internal capabilities determine the strategic choices it makes in competing with its external environment. Clearly, where the capabilities of an organization are perceived to essential in unveiling the competitiveness of the firm, it will resort to the configuration of the chain activities that add value to the organization. As such, a company or an organization needs to identify the various capabilities that are within its value chain activities that provide it with a competitive advantage. The company can be quantified with its economic value that it adds to the economy. Porter (1980) argues that it is the structure of the industry that the organizations compete and the positioning of the organization against the stipulated structure which determines the profitability of an individual firm. In contrast, the resource-based view strategy attributes the success of a firm to the unique capabilities and resources in the organization rather than the structure of the industry. Therefore, the firms within the same industry experience different levels of performances and can be attributed to its internal organization (Armstrong, 2010). However, for many managers, the concept of strategy implies pursuing opportunities that fit the company’s resources. An organization with a small amount of resource allocation but with enormous strategic plans and ambitions can easily leverage the available resources. This will enhance the firm to achieve immense output for the smaller quantity of outputs.
The resource-based view offers a competitive use of resources and capabilities that are imminent in the organization or resources that may develop in the organization, in order to have a sustainable advantage over its competitors. A resource is the inputs that enhance the organization to undertake its activities in an effective way. Ideally, where the organizations that are in a similar industry and having the same resources, but differ in performance, it can be deduced that such difference exists due to varied extent of resource utilization. Resources by themselves do not add any value to the organization performance, but it is when they are incorporated into distinct and productive use that the value is realized. Resources can be classified into tangible and intangible resources (Kirsch, 2007).
Tangible resources involve the physical assets that are possessed by an organization and can be broadly categorized into financial resources, human resources, and physical resources. Physical resources that may be found in an organization include machineries, productive capacity, and buildings. These resources need to be flexible to the market and economic changes for them to add value to the organization. Indeed, organization having up-to-date processes and technology that enhance exploitation of a market in the economy is considered to be competitive advantageous over the other rival organizations (Henry, 2008). On the other hand, the firm can utilize its financial resources in an effective way in order to be competitive in the economy. The capability of the firm to attract external finances or capital is determined by the return on capital employed. It is also linked with the expected future growth in its finances. The financial resources include creditors and debtors, cash balances, and gearing ratio (Henry, 2008).
Tangible-human resource involves the total workforce employed by an organization and the overall productivity it realizes. It is measured in terms of sales or profit per employee. In the knowledge-based economy, the specialist skills and tacit knowledge of employees in the organization forms an intangible resource that cannot be imitated by the competitors. Developed economies can rely on the tacit knowledge in enhancing their competitiveness in the market.
Intangible resources comprise mostly of technological resources, intellectual resources, and goodwill. Technological resources enhance the organization’s innovativeness and speed in which the organization can achieve innovation in the economy. Intellectual resources include copyrights and patents that derive themselves from the technological resources of the organization (Warren, 2008). Firms that have a valuable tacit knowledge are built through processes, culture, and employees who possess intangible resources that cannot be transferred with ease. Goodwill or reputation of an organization has been recognized as the most valuable resource in an organization. It can be damaged with marketing campaigns and cannot easily be recovered. Recently, most of the organizations have courted debate on the controversial advertisement campaigns, as such, generating useful publicity in the society.
While the resources can be vital in an organization, resources per se cannot benefit the organization. It is the efficiency of resource configuration that provides a firm with the competencies it deserves (Kirsch, 2007). A competence involves the attributes that the organization requires for it to be competitive in the economy—this is a prerequisite for any competitive firm in the industry. For an organization to be regarded as competitive, it needs to be innovative and must possess an excellent reputation in the industry. Though the firm may be well-endowed with tangible resources, without competencies, it cannot be competitive in the economy.