Resource Based View Approach (RBV)

The resource-based view (RBV) is one of the most highly applied among HRM theories, largely
because of both its academic acclaim and its functionality to articulate the interaction between
HR and economic success of firms. This model proposes the origin of a companys competitive
edges are its internal resources including human capitals (Barney, 1991). From this foundation,
RBV advocates argue that people as one of the main input in a firm plays a critical role in
business performance as well as how should business strategies are designed (Deadrick and
Stone, 2009). It is evident that this approach underlines the level of competency of a firms
employees both intellectually and professionally in producing the extra values and revenues
in a sustainable manner.

One key achievement of Resource Based View Approach is that it acknowledges the theoretical
significance of internal resources to the success of a firm, thus strengthening its argument in
favor of human resource (Wright & McMahan, 2005). Further, the focus on employees regarding
recruitment and training is expected to create long-term sustainable development and companys
values. On the other hand, skeptical researchers add that there need to be more empirical
researches so as to validate the approachs desired effects and to clarify its application methods.

The Resourced Based View (RBV) and the Systems Perspective

This perspective adopted the view an organization is a system, or an entity of interrelated parts.
Among the management theories applicable from this view is the HRM & OB (including that of
organization theory - domestic, international, & virtual enterprises), resource-based view (RBV)
(the theory of competitive advantage), strategic management (SM) theories of competitive
advantage and collaborative advantage (including that of industrial-organization [I/O]
perspective), and competence and innovation (C & I) theory. The systems perspective is vital
since the interaction and interlinking of internal resources, capabilities and systems very much
explain the dynamism and adaptive nature of organization towards its environment.

Most of the recent work on strategic advantage, led by Michael Porter and his colleagues (1980;
1990) has focused primarily on the firms position in relation to the external environment, rather
than the firms internal processes leading to strategic development. Currently in the field of
strategic management a counter-emphasis, focusing on a firms internal attributes as a source of
advantage, has evolved. A firms internal idiosyncrasies are identified as a critical component of
its potential advantage. The umbrella term used to describe this approach is the Resource-Based
View of the Firm (RBV). The evolution of the Resource-Based View is intertwined throughout
three major research programs: strategy research, organizational economics, and industrial
organization (Mahoney & Pandian, 1992). The RBV asserts firms are heterogeneous and that it is
the idiosyncratic, immobile, inimitable, sometimes intangible bundle of resources residing in the
firm that gives the firm an opportunity for competitive advantage and superior performance.

The RBV suggests that it may be more appropriate to think of companies as possessing different
combinations or levels of assets and capabilities (Hart & Banbury, 1994) identified as
resources. Resources include both physical and intangible assets, individual and corporate
skills, organizational processes, firm attributes, information, knowledge, and the like (Barney,
1991). These resources also include a broad range of organizational, social, and individual
phenomena within firms that are often overlooked by concepts such as core competence or
capabilities. The collection of resources are idiosyncratic because no two firms have the same
set of experiences, acquired the same assets and skills, built the same organizational cultures, or
the same collection of resources in the same competitive arena at the same point in time (Collis
& Montgomery, 1995). The RBV strives to better understand the role of these idiosyncratic,
immobile firm resources in creating sustained competitive advantages.

Not all firm resources provide companies with a sustained competitive advantage. The RBV
asserts a resource must have specific attributes for an advantage to be gained from it. Barney
(1991) has identified four such attributes with supporting descriptions: (a) It must be valuable, in
the sense that it exploits opportunities and/or neutralizes threats in a firms environment, (b) it
must be rare among a firms current and potential competition, (c) it must be imperfectly
imitable, and (d) there cannot be strategically equivalent substitutes for this resource that are
valuable but neither rare or imperfectly imitable ... The problem lies in assessing their uniqueness
and in linking it to an advantage in the marketplace. The RBV of competitive advantage, because
it examines the links between a firms internal characteristics and performance, provides the
opportunity to more fully delineate the competitive capabilities of family companies that is, to
move from the so what to the strategic.
Impact of Resource based theory on a successful project

Resource based theory of the firm is a management device that is used to assess the amount of

the strategic assets available to an organisation or a firm. This theory is based on the idea that

efficient and effective application of all the resources an organisation has at its disposal

determines its competitive advantage (Nemati, 2010). Resource based theory of the firm is

relevant to project management because it places emphasis on the intangible organisational and

human assets which also involve intellectual and social capital. Tangible resources are grounded

on explicit or codified knowledge whereas intangible resources are founded on tacit knowledge.

Organisational resources that give a firm a competitive advantage are a mixture of codified and

tacit knowledge (Desa &Basu, 2013). There are three main categories of project resources.

These are the tangible resources, intangible resources and human resources. For example, the

tools and methodologies used in a project are tangible resources; the support an organisation

gives to a project is an intangible resource, while the competency of the manager, cohesion

between team members and communication in a project environment are human resources

(Nemati, 2010). Heterogeneity of resources determines the performance of a project. One of

the resources that are important in the successful performance of a project is the competence of

the project manager (Nemati, 2010). The project manager is the person who performs the

relevant management activities needed to complete a project with a certain given period. This is

the person who allocates resources, monitors their utilisation and also coordinates the processes

and human capital that execute the project. There are several attributes of a project manager that

impact on the success of a project. Technical competency, communication expertise and good

planning abilities are some of the attributes that can help a manager to manage a project

successfully. High quality management skills are one of the top contributing factors to project
success. Mistakes committed by a project manager such as errors in processing of information

and emotional involvement can easily contribute to project failure. Another factor that

contributes to project success from a resource based perspective is the cohesion of the team

carrying out the project. Team work among members executing the project is one of the critical

success factors. Team cohesion is the degree to which members of a team are willing to work

with each other towards the success of the project. Research indicates that cohesive groups

produce better technical quality which adds value to the project (Husted &Allen, 2007). Project

communication is another critical success factor in project management from a resource based

theory perspective. One of the most important resources in execution of a project is knowledge

(Nemati, 2010). Knowledge is embedded in human capital. Knowledge is one of the non-

imitable resources at the disposal of an organisation. It cannot be codified or replicated. When

communication between team members and also between the team members and project

manager is effective, transfer of knowledge becomes more effective. Therefore, efficient

communication channels existing during the course of execution of a project facilitates

knowledge sharing, leading to a successful project.

Synopsis
This article discusses the Resource-Based View of the Firm (RBV) approach in strategic
management. According to RBV, the firms resources are the main determinant of competitive
advantage and the firm profitability. RBVs main prescription is that only resources with certain
characteristics are capable of generating and sustaining high levels of economic rents. Resources
is defined in the article as all assets, capabilities, organizational processes, firm attributes,
information, knowledges, etc. controlled by a firm that enable a firm to conceive of and
implement strategies that improve its efficiency and effectiveness. There are physical , human,
and organizational capital resources. Physical capital includes property, plant, equipment and
etc. Human capital consists of the knowhow, insight, judgement, and the experiences of
employees. Organizational capital contains organizational culture and systems, intellectual and
property rights. Resources also can be categorized as intangible and tangible.
 The article then presents assumptions and conditions when dealing with RBV. First,
RBV assumes that resources are asymmetrically dirstibuted across firms in an industry. This
would result in firms having a resource-based advantage or a resource-based disadvantage. The
second assumption is that RBV assumes that resources are relatively immobile. A condition
underlying RBV are the ex ante and ex post limits to competition. Before (ex ante) a resource
can be a source of competitive advantage, there must be limited competition for the resources.
Ex post limits competition for a resource are necessary for the resource to continue to be a source
of advantage.

The article then goes on to talk about the notion of strategic assets. They note that not
all resources are sources of competitive advantage. Resources that are sources of sustainable
advantage and superior profits are called strategic assets. The resource has to be a valuable rare
resources within the industry for it to play apart in competitive advantage. If RBV is true, then
strategic assets should be crucial determinants of firm performance. Empirical testing has to be
done to find the relationship between strategic assets and firm performance, this first requires to
identify if the resources are capable of being simultaneously being valuable, rare, imperfectly
imitable, and nonsubstitutable.

Later on discussed are the different types of intangible resources that can be strategic
resources for firms. They talk about trademarks, patents, copyrights, registered designs,
contracts, trade secrets, and networks as being a part of strategic decision making. These
intangible resources are called assets for the firm. Intangible skills include employee knowledge
and experience and the organizational culture. Intangible resources can also be categorized as
people dependent and people independent. People dependent will include knowledge of
employees, organizational culture, reputation and networks. People independent include
contracts, licenses, trade secrets, intellectual property rights, and databases.

Intangible resources and how they affect competitive advantage is then talked about.
There are four capability differentials that come into play; functional capability, cultural
capability, positional capability, and regulatory differentials. Different types of intangible
resources underlie the four capability differentials leading to sustainable competitive edge.
Functional differentials are based on competencies; based on knowledge, skills, and experience
of employees, suppliers, distributors, and other members of the value chain. Cultural is based on
habits, beliefs, and value of its constituent members. They can permeate an organization and
result in a sustainable competitive advantage when the organizations culture results in a
perceprtion of high quality standards. Positional and regulatory are based on intangible assets.
Positional are the consequences of past actions and often take time to develop. Regulatory
comes from intangible assets that are often defendable by law, such as patents, copyrights, and
contracts.
 The last part of the article reviewed the findings of empirical studies; the studies were to
determine the relative importance of intangible resources on business success. In the first study,
CEOs all from different industries were asked to rank thirteen resources in terms of their
importance to the firms success. This study showed the top five resources were: company
reputation, product reputation, employee knowhow, organizational culture, and networks. These
are four significant intangible resources that are important in firms success.

Difference between resource-based and industrial organization views

RBV holds that sustained competitive advantage can be achieved more easily by exploiting
internal rather than external factors as compared to industrial organization (I/O) view. While this
is correct to some degree, there isnt definite answer to which approach to strategic
management is more important. The chart [1] below shows how industry, firm and other effects
explain firms performance. From ~30% to ~45% of superior organizational performance can be
explained by firm effects (resource based view) and ~20% by industry effects (I/O view). This
indicates that the best approach is to look into both external and internal factors and combine
both views to achieve and sustain competitive advantage.

Criticisms

Criticisms of the RBV are:

There is insufficient focus on depreciating resource value, i.e. the negative effect of
external change on the resource/asset base of the SBU.
 As described earlier, perhaps the entire focus of the RBV on achievement of sustainable
competitive advantage should be re-considered. Competitive survival is more important.

It is perhaps difficult (if not impossible) to find a resource which satisfies all of the
Barney's VRIN criteria.

There is the assumption that a firm can be profitable in a highly competitive market as
long as it can exploit advantageous resources, but this may not necessarily be the case. It
ignores external factors concerning the industry as a whole; a firm should also
consider Porter's industry structure analysis (Porter's five forces).

Long-term implications that flow from its premises: A prominent source of sustainable
competitive advantages is causal ambiguity (Lippman & Rumelt, 1982, p420). While this is
undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource
it does not know exists, even if a changing environment requires this (Lippman & Rumelt,
1982, p420). Through such an external change, the initial sustainable competitive advantage
could be nullified or even transformed into a weakness (Priem and Butler, 2001a, p33;
Peteraf, 1993, p187; Rumelt, 1984, p566).

Premise of efficient markets: Much research hinges on the premise that markets in
general or factor markets are efficient, and that firms are capable of precisely pricing in the
exact future value of any value-creating strategy that could flow from the resource (Barney,
1986a, p1232). Dierickx and Cool argue that purchasable assets cannot be sources of
sustained competitive advantage, just because they can be purchased. Either the price of the
resource will increase to the point that it equals the future above-average return, or other
competitors will purchase the resource as well and use it in a value-increasing strategy that
diminishes rents to zero (Peteraf, 1993, p185; Conner, 1991, p137).

The concept of rarity is obsolete: Although prominently present in Wernerfelt's original

articulation of the resource-based view (1984) and Barneys subsequent framework (1991),
[2]
the concept that resources need to be rare to be able to function as a possible source of a
sustained competitive advantage is unnecessary (Hoopes, Madsen and Walker, 2003, p890).
Because of the implications of the other concepts (e.g. valuable, inimitable and
nonsubstitutability) any resource that follows from the previous characteristics is inherently
rare.

Sustainable: The lack of an exact definition of sustainability makes its premise difficult to
test empirically. Barneys statement[2]:102103 that the competitive advantage is sustained if
current and future rivals have ceased their imitative efforts is versatile from the point of view
of developing a theoretical framework, but is a disadvantage from a more practical point of
view, as there is no explicit end-goal..
Resource Based View Theory
An increasingly influential sector of this research has focused on the resources held by an
organization and how these are managed and used. Thus RBV theory seeks to analyze the
relationship between organizations and innovation by focusing on the resources and capabilities
organizations possess and that leads to differences in firm performance.
It is important to distinguish between the resources and the capabilities of a firm. The resources
are the firm's productive assets whereas capabilities are what a firm can do.
An organizations resources can be considered as two broad categories: tangible and intangible.
Tangible resources are the easiest to identify and evaluate since they are the physical and
financial assets of the organization. Tesco's tangible resources are, for instance, 3700 stores,
440,000 employees, 60 billion turnover, and 3 billion operating income.
The intangible resources are invisible assets or skills such as a particular technology,
accumulated consumer information, brand name, reputation and corporate culture. Tesco's
intangible resources are, for instance, a wide knowledge of the retailing industry, a wide
customer information, a good brand awareness, a reputation for promoting big brand and service
innovations such as 24 hour opening. According to a report presented by Hall (1992), the three
most valuable intangible resources are the company reputation, the product reputation and the
employee know-how. In order to sustain competitive advantage a firm must have valuable and
unique resources, that is, rare, non-imitable and non-substitutable.
Capabilities represent what a company need to do in order to survive in its industry; they are
directly linked to the critical success factors. They aim to follow a particular strategy and
respond to customer needs by using some resources. For instance, grocery retailers such as Tesco
and Sainsbury's have to present a customer-friendly environment in order to attract a maximum
of potential consumers, thus Tesco requires its staff to be helpful toward the customers. These
threshold capabilities help an organization to survive in its industry.
On the other hand, core competences are the ability to create a chain in an organization's
activities by combining resources and capabilities that will be strong enough to lock out imitators