Resource-based View

by Clemens Werkmeister

Relevance of resources

Resources are important for companies because they provide the basis for the company’s operations and services. Hence, resources are fundamental both for the

• survival and the
• success of the company.

We will keep in mind both goals, but focus first on the relation between resources and the success of the company. This relation is emphasized by the Resource-based view of the company (RBV; starting with Wernerfelt (1984); see Burr/Stephan/Werkmeister (2011), pp. 21 ff.). The resource-based view assumes that markets are imperfect and that the distribution of resources among companies is heterogeneous. The resource-based view states that these differences between the resources can be the main source of competitive advantages of a company.

Characteristics of resources

In order to gain competitive advantage, the company should focus on idiosyncratic resources which – in the best case – meet five characteristics. Resources can provide competitive advantages, if they are

• valuable: the resource must bring a benefit to the company and its customers, and provide a competitive advantage.
• specific: the benefit of the resource should be linked to the company and not be easily transferable.
• rare: the resource should be difficult to find or purchase on the market.
• inimitable: competitors should find it difficult to copy the resource; depending on the resource it might even be difficult to identify the exact source of competitive advantage.
• non-substitutable: resources generate strategic advantages if no substitutes are available, id est no other resources exist that provide the same benefit.
  

Such resources can be identified - among other techniques - by company profiles.

Kinds of resources

In the resource-based view, very broad definitions of resources are common. Wernerfelt defined a resource as „[...] anything which could be thought of as a strength or weakness of a given firm [...] (tangible or intangible) assets which are tied semi-permanently to the firm“ (Wernerfelt 1984, p. 172). Barney (1991, p. 101) includes “… all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness”. We are more specific and distinguish three categories of resources (for a similar approach see Barney 1991, p. 101):

• Financial resources refer to the access of the company to financial markets and the possibility to fund its investments. Barney (1991) focuses on the use of the capital resources (note the different term!) in investments in physical capital (plants, machinery, access to raw materials), but this list should include other, non-physical assets (digital rights, licenses, …), too.
• Human resources are the humans that work in or for a company and the possibilities they provide. In a formal way, human resources and their labor are input factors of the company’s production process, as are raw materials, financial resources or IT resources. However, the formal analogy has clear limitations. Human resources differ from other input factors in their heterogeneity of competences, skills and traits, in their values, creativity and judgment. Further on, humans have specific basic needs and require a different care. The management of human resources (Human resource management) thus has a more comprehensive scope and requires a larger spectrum of skills, compared to the management of other resources.
• Organizational resources cover the way the financial and human resources are organized and used within a company through formal and informal management.

The relevance of competences

Whether a company can take advantage from its financial, human or organizational resources depends on the way how it arranges them in specific competences. Different arrangements or conditions are analysed in the competence and core competence approach (by Teece/Pisano/Shuen (1997), p. 515 and Sanchez/Heene/Thomas (1996), pp. 27 f.). But in a first step the five basic requirements mentioned above are necessary conditions for the competitive advantages of resources.

Differences between financial and human resources / organizational resources

Here we can detect clear differences between financial resources on the one hand and human and organizational resources on the other hand. Human and organizational resources can be valuable, specific, rare, inimitable and non-substitutable. Hence they can provide a fundament for competitive advantages if managed in an appropriate way. The case of financial resources is different. Important capital market theories assume perfect capital markets, arbitrage and efficiency, excluding thus any sustainable competitive advantage. But even if real capital markets are less perfect, they are very competitive, allowing only small advantages. Since money is a common good, it is by far less specific. There are legal definitions or other standards for the most important financial instruments (stocks, bonds, futures, …).

Certainly, financial institutions or financial departments struggle for competitive advantages, too. A good equity story can make a difference, if a company is planning its IPO. A strategic investor or an anchor investor provide new strategic directions, support against unfriendly other investors, and a certain stability. Recently, we could observe a large number of financial innovations, but they were easy to imitate, not to speak of their questionable value.

Financial resources serve a different purpose compared to human or organizational resources. The latter are sources of success. Financial resources, however, are fundamental for the survival of the company, providing the means to acquire and develop human or organizational resources as well as capital resources (the term preferred in Barney (1991)). If in underdeveloped financial markets, financial resources or financial departments contribute to the value of the company, who’s to put blame on them.

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see:
Barney, J.B. (1991): Firm Resources and Sustained Competitive Advantage. In: Journal of Management (17), pp. 99-120.
Burr, W./ Stephan, M./ Werkmeister, C. (2011): Unternehmensführung. 2nd ed. München 2011.
Sanchez, R./Heene, A./Thomas, H. (1996): Dynamics of Competence-based Competition. Oxford (UK) 1996.
Teece, D.J./Pisano, G./Shuen, A. (1997): Dynamic Capabilities and Strategic Management. In: Strategic Management Journal (18) 1997, pp. 509-533.
Wernerfelt, B. (1984): A Resource-based View of the Firm. In: Strategic Management Journal (5) 1984, pp. 171-180.