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Business Strategy - Essay Example

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Business Strategy Resources are the inputs that allow the firms to manufacture products. Looking from the point of view of the firm, resources and produces can be considered as the two faces of a single coin. While most of the resources can be employed into production of several products, the production process of many goods within a single firm require services of most of the resources…
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Download file to see previous pages The vast existing literature based on strategic management reflects both these perspectives from the firm’s point of view. The traditional economic theories embrace the firm’s resource position while conceptualizing strategies to be adopted by the firm (Andrews, 1971). On the other hand, a majority of the formal tools used in economics nowadays emphasize upon the product-market facet of a firm. Although these are two different perspectives of studying a firm’s resource position and its market activities, these are both focused on the role of resources used by the firm in determining its strategic decisions. Hence, one might expect to yield the same insight on following either of these two perspectives of the resource based view of a corporate organization. However, these insights might arrive with differing levels of ease, depending on which perspective the analyst has chosen. Literature review Economists traditionally consider economic units (firms) in terms of the resource endowments each firm has. These resource endowments are typically confined to three factors, namely, land, labour and capital. Authors that espouse the resource based perspective of the firm accredit Edith Tilton Penrose for laying the building blocks of this theory (Rugman and Verbeke, 2002). Penrose (1959) has made direct contributions to develop the modern view of resource based management. She has as well indirectly influenced the proposition by contributing further into these theories; the theory of creating competitive advantage, theory of sustaining the competitive advantage for the firm and the relationship between economic rents and competitive advantage (Penrose, 1959). There are debates regarding the work by Penrose. Rugman and Verbeke (2002) have put forth the argument that Penrose’s work was not aimed at providing strategy prescriptions for the creation of a sustainable flow of rents. The ideas put forth by Penrose have been used by several scholars as the foundation for models depicting the relationship between rents and competitive advantage of firms and they emphasise that this relationship plays a significant role in the achievement of sustainable competitive advantage. However, the argument against the espousing of the resource-based view (RBV) of Penrose by these scholars, is that, she had given a rigorous description of the growth process of firms in her works and did not intend to build up a strategy prescription for firms (Rugman and Verbeke, 2002). Till 1984, when Wernerfelt presented his work ‘A resource-based view of the Firm’ this perspective of looking at firms did not become well accustomed with economists and analysts. While other papers did not yet receive much formal attention, the paper by Penrose (1959) had received wide acclamation from contemporary and modern economists. According to Wernerfelt (1984), some of the resources used in firms have certain properties that are unpleasant and unhelpful for modelling purposes. Due to this reason economists might not have considered these resources as a good measure for strategizing competitive advantage of firms’. While products of a firm are easy to identify and the characteristics of their production and sales can be categorised and measured easily, a firm’ ...Download file to see next pagesRead More
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