Resource-based view (RBV) is a modern and promising concept that provides insights on both strategic and organisational matter. It is a manner of viewing the organisation and in turn of approaching strategy (Powell, 2007). Sustainable competitive advantages happen when a firm is executing a value-creating strategy that is not being executed by rivals and when these rivals are unable to replicate the benefits of this strategy (Henry, 2008).
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The achievement of sustainable competitive advantage can be anticipated to lead to higher performance measured in terms such as market-share and profitability (Sheehan and Foss, 2007). Thus, the main purpose of this critique is to determine whether resource based view analysis has a strong relationship with firm’s performance in attaining a sustainable competitive advantage. It is also to discuss the merits and demerits of RBV as the best strategy route in the development of a firm’s strategy and strengths and weaknesses of the RBV analysis in achieving competitive advantage and the contribution to firm-level value creation.
In the dynamic environment faced by several firms, market positioning can become obsolete quickly because of new innovations, process enhancement and competitive environments. To compete successfully in these markets, it is said that organisations need to constantly craft new sources of competitive advantage (Powell and Thomas, n.d.) In order to achieve sustainable competitive advantage and good performance, it is said that resource based view theory is essential (Klein, 2011). RBV underlines the internal capabilities of an organisation in creating strategy to attain sustainable competitive advantage in its market and industries (Henry, 2008). RBV claims that organisations achieve and sustain competitive advantages by deploying valuable capabilities and resources that are inelastic in supply (Ray, Barney and Muhanna, 2004). Competitive advantage happens only in a situation of resource heterogeneity, diverse resources across organisations and resource immobility, the incapability of competing organisations to gain resources from other firms (Madhani, P.M., 2009). Given that competitive advantage occurs in a situation of resource heterogeneity, organisations should have some basic threshold resources in order to battle in the market (Andersen, J., 2011). A division should to be made between capabilities (resources or competences) that are at a threshold level and those that might assist the firms to achieve competitive advantage and higher performance. Threshold resources are significant but it does not of themselves generate competitive advantage or the source of higher performance. These are dependent on a firm having distinctive capabilities that rivals will find it complicated to replicate (Johnson, Scholes and Whittington, 2008). It is held that RBV can be used to discover if the organisation have any strategic resources which can be utilised to base the firm’s strategy on. However, according to RBV, not each and every resources of an organisation will be strategic resources.
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