The key theoretical problem of strategic management is to identify the factors of the strategic success of the organization in the long term, allowing providing sustainable competitiveness in a rapidly changing business environment. Interest in the resource-based approach to strategic management theory is supported by more than 20 years. In that short time, it faced a surge of interest and periods of open criticism. For any theory it is useful to analyze skeptical opinion, since it allows identifying theory bottlenecks and opens new horizons for research in various directions. Resource concept of strategic management in recent years has become one of the most influential theories in the history of management theorizing (David, 2011). The purpose of this paper is to analyze the main theoretical models of resource-oriented approach to the study of economic organizations.
In resource-oriented approach to the development of business strategy, in contrast to the market-oriented approach, the focus is made not on the behavior of competitors and the industry, but internal aspects of the company – analysis of strengths and weaknesses. Thus, the optimal use and development of the internal resources of the organization contribute to the formation of core competencies, providing a competitive advantage, and with it the long-term profitability of the company (Lockett and Thompson, 2001).
Resource-Based View: History, Purpose and Crucial Characteristics
At the present stage, the development of strategic management theory is dominated by resource concept, which shifted the focus of research from the theory of industrial organization on companies as the main object. The development of the resource approach was due to the transformation of the nature and boundaries of competition in product markets under the influence of globalization, scientific and technical progress, changes in the parameters of consumer demand and the development of information technologies (Henry, 2011).
E. Penrose with “The Theory of the Growth of the Firm” (originally published in 1959) is the founder of the resource-based view. E. Penrose starts with the fact that explains the reason for the development of the special theory, which describes the company’s growth in the market economy. This reason is the dissatisfaction with the neoclassical theory of the firm. Management, as a limited resource is present in the neo-classics, but Penrose defends the view that the management borders as a resource, that is, the ability of managers to plan and coordinate production, eventually increase. Company management plans and coordinates the firm’s expansion, and it also learns to do so in ever larger scale. However, the company’s growth is yet another component of the indivisible fund of unique resources, in addition to knowledge and experience of managers. Penrose introduces the concept of previously unused resources. Unused resources and the ability of the subjects of the organization generate a new study, a constant stimulus to growth, i.e. the disposal of revealed unused resources (Penrose, 1995).
Further development of the theoretical ideas of the company as a set of resources associated with the understanding of the works of G. Barney, B. Wernerfelt, K. Prahalad, G. Hamel, P. Grant, etc. Much attention to resource-based view started to be paid only after scientists Prahalad and Hamel published in 1990 their concept of core competencies “The Core Competence of The Corporation”. The authors critically reviewed prevailed at the time the approach to the formation of a strategy based on so-called strategic activity areas (SAA). Focusing on the SAA and the appropriate division of companies into strategic business units (SBUs) lead to the fact that only one aspect of global competition is considered – the introduction of the competitive products of business unit of. SBUs concentrate their efforts on the vital development of their products or on territorial expansion. Thus, potentials of interaction between individual business units remain without proper attention. However, radical innovations and the creation of unique products by combining different technologies are possible only through targeted management of core competencies of the company (Prahalad and Hamel, 1990).
The core competences refer to the purposeful integration of technology and staff skills to develop, produce and market products in a way that is difficult to copy by competitors. By combining core competencies, the main products of the company, forming the basis for the success of the final products of individual business units, are created. For example, the developments, which allow producing LCD screens (the main product), may be used for the production of computer monitors, televisions, camcorders and digital cameras (end products of individual business units) (Shafeey and Trott, 2014).
The subject of study of resource-based approach is the relationship between the needs of internal resources and capabilities of the organization to achieve its ultimate goals. The goal of any organization is the conversion of resources to achieve results. The main resources used by the organization are people (human capital), capital, materials, and information technology). The generality of the resource-based approach predetermined the expansion of types of processed (recycled) environments, which began to include only material resources (metal, chemicals, plant products and other), but intangible resources (information, design and research and development, management processes, etc.). All resources can be divided into four main groups, namely physical, financial, energetic and intellectual. These four groups of resources are separate sets, which interact with each other in various proportions and combinations (Rothaermel, 2015).
The purpose of the resource-based approach is to identify the physical, chemical, mechanical, commercial, social, environmental and other laws of the nature of the conversion of the processed environments from one type to another in order to identify and use the most efficient production processes. The objectives of resource-based view include the following (Madhani, 2009):
Definition of organization resources and assessment of competitive advantages and disadvantages in comparison with competitors;
Definition of organization capabilities (potential of the organization);
After categorizing its prospective crucial resources, the organization must then assess whether stated resources are compliant with the next conditions (referred to as VRIN) or no (Barney, 1991):
Valuable – A resource should facilitate an organization to apply a value-creating approach, through either outdoing its rivals or decreasing available weak points.
Rare – To be essential, a resource should be exceptional by default.
Inimitable – In case an appreciated resource is measured by just one organization, it could be a basis of competitive advantage.
Non-substitutable – In case rivals can counter the organization’s value-creating approach with a substitute product, cost comes to the fact that the price matches the reduced prospect rents, causing zero economic returns.
Therefore, resource-based view emphasizes the uniqueness of each organization and states that the secret of profitability is not in doing the same thing as all the other companies, but to use own differences. The VRIO analysis should be applied in order to assess companies’ resources and capabilities (Peng, 2012).
Criticism of RBV
Along with the successful development of resource-based theory, a number of criticisms were put forward. For scientists involved in the development of the resource-based theory, this criticism can be very useful, as it will improve the concept. In this section provides, different arguments against the concept of resource are discussed. Some items are easy enough to challenge, while the others consider more serious problems in the theory, which open the potential for new research (Shafeey and Trott, 2014).
Argument 1: Resource-based approach has no administrative value or practical feasibility. This theory informs the leadership that it is necessary to develop a valuable, rare, difficult to imitate and irreplaceable resources and capabilities, as well as appropriate organizational structure, but does not say how to do it. Critics argue that this approach creates a “complete illusion of control”, simplifying the problem of property rights and exaggerating the degree, to which managers can manage these resources (Bridoux, 2004).
Argument 2: Resource-based approach implies infinite regress. The fact is that this theory considers the abilities of higher order more valuable than the abilities of a lower order, for example, the ability to develop an organizational structure that better updates the enterprise product line, be the ability of a higher order than the ability to update the product line. Based on this situation, the authors of the comments argue that the search capabilities of a higher order can be endless (Akio, 2005).
Argument 3: Sustainable competitive advantage is not achievable. Some experts claim that the skills, resources and the way, in which the organization uses them, have to constantly change, resulting in the creation of continuous change of time benefits. However, the firm is not passive; in fact, a competitive advantage can only exist at a dynamic level through organizational learning and dynamic capabilities, allowing the company to adapt more quickly than its competitors. None sustainable competitive advantage can always exist – it is a fact, but this concept draws attention of managers to the driving forces that support it, making it possible to protect them from imitation, to develop and apply them more widely. In static environments, some static unique resources can lead to a sustainable competitive advantage, but dynamic environments require dynamic capabilities (Fahy, 2000).
Argument 4: The resources in the resource-based approach described as valuable, rare, difficult to imitate and irreplaceable are not necessary and sufficient to create sustainable competitive advantage. In this critical observation, the fundamental axiom of resource theory is questioned. The first version of this argument is that there is not enough empirical evidence to support resource-based approach. Many scientists say that the possession of unique resources is not sufficient to achieve sustainable competitive advantage; they only give more opportunities to do so. There is also a view that the resources listed above are not necessary at all for competitive advantage. The nature of fundamental differences of opinion lies in the different views on the nature of markets, individuals, resources and roles that they play in creating a sustainable competitive advantage (Madhani, 2009). The second version says that the resource-based approach limits the inherent attributes of entrepreneurs and managers just by the presence of business caution and better information about the future value of resources. This argument against the resource-based theory states that the role of individual opinion and internal capabilities of entrepreneur is not considered sufficient. In order to create a sustainable competitive advantage, a company needs both resources and the management abilities that will recognize the latent potential resource (Mills, Platts and Bourne, 2003).
Argument 5: The definition of the resource is not feasible. The final critical argument against the resource-based approach focuses on its main axioms, especially on the definition of the term “resource”. The basic definition of a resource is as follows – a resource is anything that can be considered a strength or weakness of the company. A more formal definition explains that a resource can be called those tangible and intangible assets that are tied semi-permanent way to a firm. Stable resources include all activity, abilities, organizational processes, sustainable attributes, information, knowledge, which are controlled by the firm, which allow it to develop and implement strategies that improve the efficiency of the company. According to some scholars, these definitions are excessive, too bulky (Kozlenkova, Samaha and Palmatier, 2013). Despite the fact that J. Barney believes that such a comprehensive definition of the resource is the strength of the resource-based approach, it is, of course, the weakness, since it leads to the theory of tautology. The fact is that if we take these complex definitions of resource, there is nothing strategically useful associated with the company, to be a resource. The problem is that the resource-based approach does not pay enough attention to the effect of different types of resources in the development of various types of sustainable competitive advantage of the company. Despite the fact that the theory recognizes different types of resources, such as physical capital, human capital and organizational capital – they are all treated equally. Resource-oriented approach would be much better if it recognized the differences between resources and their types of ownership – static and dynamic resources; fragile and more stable resources; financial, human and technological resources, and so on (Barney, J. B. and Clark, 2007).
Therefore, these criticisms reveal the weaknesses of resource-based theory, and it can serve as an impetus for future research in this direction. A more in-depth consideration of these issues will enable the resource-based approach to develop into a more complete and studied theory of competition control.
Defense of RBV
According to supporters of the resource-based approach, industrial and economic concept of strategic management does not fully take into account the organizational, scientific, psychological and social factors of behavior of the organization (for example, provision of resources, intra-structure of social management aspects, etc.), so that an existence of strategy clearly focused on market is not itself a guarantee of success and stable position in the organization market (Fahy, 2000). If in the industrial and economic concept of strategic management, the concept of strategy has been generally reactive (as the best adaptation of the firm to the specific environmental conditions), in the resource-based view, the strategy is proactive in nature, since it must be aimed at advancing the creation and development of unique resources and capabilities of the company, which are the basis for the formation of competitive advantage. The main thesis of the resource-based concept is that firms are fundamentally different, and this heterogeneity can be sustained due to the possession by specific firms of unique resources and capabilities that, as sources of economic rents, determine the competitive advantages of firms. Resource-based view emphasizes the uniqueness of each company, and suggests that the key to profitability is not a repetition of patterns of other firms’ behavior, and the exploitation of the differences between them (Barney, J. B. and Clark, 2007).
In defense of the resource-based approach, it can be said that this theory seeks to explain the sustainable competitive advantage of some firms over others and are not intended to provide managerial decisions. However, these figures, to which this approach refers to is very useful for managers, and its obvious impact on management practice cannot be denied (Henry, 2011).
In terms of abstraction and mathematics, the second argument is true, but from a practical point of view it is not wealthy. Each level of abilities is qualitatively different from each other and cannot be compared; they have a different contribution and all needed to the company’s development. Most often, these abilities interact and that sustainable competitive advantage may arise in the development of these interactions (Bridoux, 2004).
Resource-based approach returns the company the special role of integrator of organizational-specific knowledge, which the market is not able to carry out, replacing market transactions, the company creates a unique institutional environment and a set of related resources, which are reproduced in integrity. The organizational specificity (ability to build team skills, implicit and explicit knowledge) is formed on the technological structure of the intersection (technology, motivational schemes and control structures) and social activities (trust and willingness to cooperate, responsibilities, general education and creativity) (Ferreira, Azevedo and Ortiz, 2011).
Therefore, the strategic management of the organization on the basis of resource-based approach as a concept allows looking at the organization as a whole and explaining from the system-wide position why some organizations develop and thrive, while others experience stagnation or face bankruptcy (Williamson, Cooke, Jenkins and Moreton, 2003).
The applicability of the resource-based approach is too limited. This critical remark concerns the issue of dissemination of the analysis results of the limited number to a larger number of organizations. Connor argues that this approach is applicable only to large firms with significant market power. As he argues, sustainable competitive advantage of smaller and more agile companies may not be based on their static resources, and so they are outside the boundaries of the resource-based approach (Mills, Platts and Bourne, 2003). However, this argument does not take into account the intangible resources that enable small businesses to develop unique abilities and create a sustainable competitive advantage. With competitive advantage in the industry, the company has the potential for growth. Despite the fact that the argument against the theory of resource firms is not critical, it points to an important idea in this concept: in unpredictable environments, where new technologies and markets occur fast, cost and value of resource can change dramatically (Barney and Clark, 2007).
It should be summarized that the principal difference of the resource-based concept is to define the conditions, under which firms have a competitive advantage in a state of economic equilibrium. Temporary benefits of firms would be easy to explain on the basis of the more traditional sectors of the organization as a theory of the imbalance phenomenon. Another difference of the resource-based approach is the priority of organizational (firm – the basic unit of analysis), rather than the industrial causes (on what M. Porter insisted) of differences between the firms on profit indicator (Shafeey and Trott, 2014). Finally, to the resource-based view scientists implicitly proceeded from the simplistic notions that firms within an industry are homogeneous in terms of resources and strategies, and resources are highly mobile on the market. Competences and capabilities, as well as routine, on which they are based, are usually quite difficult to play, so they are the most powerful mechanisms of isolation of competitive advantages (Habbershon and Williams, 1999).
It was found that the resource-based approach was at first discussed by Penrose. The subject of study of resource-based approach is the relationship between the needs of internal resources and capabilities of the organization to achieve its ultimate goals. The criticism concerns the fact that the resource-based approach has no administrative value or practical feasibility. Also, it implies infinite regress. Additionally, sustainable competitive advantage is not achievable. The resources in the resource-based approach described as valuable, rare, difficult to imitate and irreplaceable are not necessary and sufficient to create sustainable competitive advantage. The final critical argument against the resource-based approach focuses on its main axioms, especially on the definition of the term “resource”.
However, resource-based view emphasizes the uniqueness of each company, and suggests that the key to profitability is not a repetition of patterns of other firms’ behavior, and the exploitation of the differences between them.
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