Firm Resources and Sustained Competitive Advantage - Literature review Example

ACADEMIC PAPER REVIEW OF FIRM RESOURCES AND SUSTAINED COMPETITIVE ADVANTAGE By Name Course Instructor Institution City/State Date Academic Paper Review of Firm Resources and Sustained Competitive Advantage The Purpose of the Article The article analyses the connection between firm resources as well as sustained competitive advantage. The purpose of the article is to highlight the conditions through which firm resources may become a basis of sustained competitive advantage. The arguments presented in the article are built on the assumption that there is heterogeneous distribution of strategic resources across firms with such difference stabilizing progressively. The article discusses four indicators of the firm resources’ potential in generating sustained competitive advantage; value, imitability, rareness, and substitutability. Precisely, Barney (1991) creates a framework that seeks to identify the factors which may allow resource immobility and heterogeneity with the goal of creating sustained competitive advantage. The article seeks to create an understanding concerning the firm’s sustained competitive advantage sources, and why it remains a key research area in the strategic management field. According to the article, value is imperative for neutralizing threats and exploiting opportunities with the firm’s setting. With regard to rareness, the firm resources must be rare amongst the firm’s existing competitors. The resources must also be imperfectly imitable and there should be no substitutes that are strategically similar for the firm’s resources. The resource-based framework is based on two assumptions; first, the model assumes that in an industry companies may be heterogeneous based on examining resources so as to realize competitive advantage. Second, the model assumes that heterogeneity may last long because the firm resources cannot be seamlessly mobile. Firm resources according to the article entails all capabilities, assets, attributes of the firm, knowledge, processes within the organisation, and information , which are enable the firm to formulate and implement strategies that improves the firm’s effectiveness and efficiency. On the other hand, competitive advantage can be achieved when the firm put value creating strategy into practice. The articles seek to prove that competitive advantage can be realised by having immobility and heterogeneous resources that can be accessed easily. Contribution of the Article to the Subject Area The article contribution is noticeable because it shows the relationship between sustained competitive advantage and firm resources. According to the study, sustained competitive advantage cannot be achieved if the firm’s resources are perfectly mobile and homogenous. However, this is possible of the firm has a first-mover advantage, whereby a temporary competitive advantage can be realised. The article offers addresses a number of key assumptions and concepts with the objective of contrasting and comparing resource-based view with traditional strategy theory. In this case, the traditional theory assumption; homogeneity amongst firms as well as high resources mobility are relaxed by the resource-based view. According to Barney (1991, p.99) companies get sustained competitive advantage through strategies implementation, especially those that exploit the firm’s internal strengths by capitalizing on the external opportunities. The article helps one understand the firm’s environment impact on its competitive position, especially with regard to how the competitive position of the firm is impacted by idiosyncratic attributes of the firm. The two simplifying assumptions that have been adopted in the study have successfully provided an understanding on how the firm’s environment impact performance. The article provides a number of definitions (sustained competitive advantage, form resources, and competitive advantage) so as to eliminate any possible confusion in view of this, firm resources have been defined by Barney (1991, p.101) as the strengths that can be utilised by the firm to formulate and implement strategies. Firm resources have been categorized into three; human capital resources (intelligence, experience, training, employees), physical capital resources (geographic location of the firm, equipment and plant, physical technology, raw materials accessibility, and organisation capital resources (structure of formal reporting, systems for planning, coordinating and controlling, informal relations). Completive advantage has been defined as value strategy implemented by the firm which is different from that implemented by the competitors. Sustained competitive advantage according to Barney (1991, p.102) is implementation of value creating strategy that is not similar as that of the competitors and whose benefits cannot be duplicated by other firms. According to Barney (1991, p.103) when a firm is looking for sustained competitive advantage, it should concentrate on immobility and heterogeneity of the firm resource. When operating in an industry where firms have exactly same resources, it becomes hard to achieve sustained competitive advantage because these firms have similar kinds and amount of strategically pertinent human, physical, and organisational capital. Still, Barney (1991, p.104) argues that sometimes when a first firm within the industry put the strategy into practice; it can achieve a sustained competitive advantage over the others. First moving companies according to the article may realize a sustained competitive advantage, especially when they easily access distribution channels, and have a positive reputation over other firms. It has been argued that when the competing firms’ controlled resources are identical, it becomes challenging for a firm to realize a competitive advantage from first moving. The article explains that for a firm to realize first-mover advantages, it must remain heterogeneous in regard to the resources it controls. Barney (1991, p.105) argues that even if firms are perfectly homogenous in an industry, existence of mobility barriers or strong entry can facilitate these firms to realize a sustained competitive advantage as compared to firms that are not in this industry. Still, barriers to mobility or entry materialize when the existing competitors are heterogeneous based on the controlled resources, and when such resources are by no chance perfectly mobile. If the resources within the firm are perfectly mobile, then any resource which facilitates a number of firms to implement the strategy that has been protected by mobility and entry barriers may be achieved easily by firms that are intending to enter the industry. According to the article, mobility and entry barriers can turn out to be the basis of sustained competitive advantage when the resources within the firm are not distributed homogenously across the competing entities and when such resources are not perfectly mobile. Therefore, the value-chain logic is pushed further by the resource-based view through analysis of the attributes of the value chain isolated resources should have so as to be a basis of sustained competitive advantage. According to the article, firm resources may be considered a basis of sustained competitive advantage when only they are valuable. Basically, the firm attributes can possess some characteristics which can make them the basis of competitive advantage, but such attributes can only be considered as resources when they are able to neutralize threats or exploit opportunities within the firm’s setting. Imperatively, when many competitors have valuable firm resources, it cannot be considered as a source of sustained competitive advantage. This is because of the fact that when the majority of the competing firms have a certain valuable firm resources, all the firms can similarly exploit that resource; thus, executing a common strategy with no competitive advantage. Generally, provided that the number of companies that have a certain valuable resource is less as compared to the number of companies required to create a seamless competition in the industry, then that resource can bring about competitive advantage. When a firm gets rare and valuable resources due to its historical path, Barney (1991, p.108) argues that the firm can easily exploit such resources so as to implement value-creating strategies, which other firms can find challenging to duplicate. Considering that firms with no such path cannot realize the resources crucial for implementing the strategy. The article further states that a company with exceptionally positioned. Scientists for exploiting or creating a crucial scientific innovation can get an imperfectly imitable resource from individual human capital that is dependent on history. When the existing connection between firm’s sustained competitive advantage and resources are comprehended poorly, it becomes hard for firms trying to duplicate a successful strategy from another firm by imitating its resources so as to understand the resources that should be imitated. With regard to substitutability, Barney (1991, p.112) argues that if firms have valuable substitute resources, then no firm can achieve a sustained competitive advantage. Citing a number of studies, Barney (1991, p.112) argue that analysing strategic planning as a resource in the firm can help one understand how competitive advantages can be generated for firms. The findings and conclusions of the article In the study, a framework has been utilised to analyses the competitive implications of the firm resources, which are considered to be the basis of sustained competitive advantage. The three resources include positive firm reputations, information processing systems as well as strategic planning process. It was established that when under particular conditions, the three resources can generate sustained competitive advantage. In view of this, the suggested strategic management resource-based model of is perfectly in line with the concerns of traditional social welfare as well as behaviour models and organisation theory. Moreover, it has been recommended that the role of managers in description and comprehension of the certain resource endowments that the firm controls is important in achieving sustained competitive advantage. According to the resource-based model of strategic management, organisational behaviour and organisation theory are a rich source of theories as well as findings with regard to rare, non-substitutable, and non-imitable resources within the firms. According to the model, firm resource endowments are important in generating sustained competitive advantage. Therefore, Barney (1991, p.116) posits that managers’ ability to manipulate their firm’s characteristics and attributes is limited by the suggested model. Critical Appraisal According to Barney’s (1991) Resource Based View, sustainable supra-normal returns can be achieved by firms only if their resources are superior, and isolating mechanisms used to protect such resources so as not to diffuse all through the industry. Ferreira and Serra (2010) make it clear that abnormal returns may be achieved from resources insofar as they are: rare, valuable, and non-substitutable. A number of scholars such as Arrighetti et al. (2014, p.204) and Bounfour and Miyagawa (2014, p.217) agree with Barney (1991) that performance heterogeneity is described by intangible resources, and therefore, can result in competitive advantage. Recently, Garcia et al. (2013, p.249) established that even though RBV theory is to a large associating firm performance with resources (intangible), the relationship cannot be verified empirically. This is substantiated by the fact that some resources strength depend on combinations or interactions with other resources; hence no resource have effect on the firm performance. This is so especially on strategies normally typified as economizing such as downsizing, benchmarking, enterprise systems as well as engineering. Regrettably, these techniques can be accessed by all competitors within the industry. Evidently, valuable resources for sustaining advantages as argued by Lucas (2003, p.73) should be inimitable; therefore, not accessible to the competitors. According to Vergne and Durand (2010, p.740), creating capabilities rooted in path-dependent learning sequences, a company may outshine its imitators. Chou et al. (2009, p.162) assert that the objective of inimitability is exceedingly demanding; therefore, achieving capabilities, resources, or assets that are lacking in the firm becomes questionable. Therefore, although advancement in strategy field has left many specialists in a dilemma, understanding how to create sustainable advantage is still attainable. Miller (2003) in his study demonstrates how firms were able to develop not so much on capabilities as well as resources as on asymmetries. Miller (2003) describes asymmetries as processes, skills, or assets that cannot be copied by the firm's competitors since they are inimitable, rare and non-substitutable. Still, as mentioned by Miller (2003) asymmetries are not associated with any value creation engine, and, actually, normally double up as liabilities. Miller (2003) agrees with Barney (1991) and argues that reconceptualizing as well as discovering such asymmetries, integrating them in the organisational design as well as ensuring they are leveraged across suitable market opportunities can help firms transform asymmetries into sustainable competitive advantage. Since strategy emergency as an acknowledged area in the management field, strategists in industrial organisation have depended on SWOT in structuring their research (Barney, 1991; Wright et al., 1993). Contributors of strategy literature such as Buckley and Ghauri (2015, p.2) have focused on the framework external portion, emphasizing on the firm performance environmental determinants. Even though adoption of such models, especially Porter’s model has been prevalent, Hamel and Prahalad (1989) posits that such models have almost no value to the practitioners, mainly since such models concentrate mainly on the firm performance environmental determinants and disregard manager’s influence on firm performance. Barney (1991) and Harrison and Leitch (2008, p.231) have contributed a lot in the strategic management theoretical discussion, especially in terms of firm’s resource-based view. Still, this insight of competitive advantage is completely different from the strategic management model (especially those that are environmentally-focused such as Porter’s model) since it focuses on the connections between the firm’s internal resources, its performance as well as its strategy. Collings and Wood (2009, p.44) competitive advantage resource-based view can be described as a firm-focused whereas strategic analysis models like Porter's are environmentally-focused in the industry. Still, the theoretical discussion is not sufficient with regard to the specific resources that can bring about sustained competitive advantages, as well as the conditions that can make firm resources to create sustained competitive advantage. With regard to the firm’s resource-based view, Greitemeyer (2002, p.24) agrees with Barney (1991) that competitive advantage can be achieved in situations of firm resource immobility as well as heterogeneity, and such assumptions are crucial in distinguishing resource-based paradigm from the traditional model of strategic management. Arguably, heterogeneity of firm resource has been described by Madhani (2009) as the fact that firm resources are variable. On the contrary, firm resources in the environmentally focused strategy paradigm are seen as homogeneous (Poole & Ven, 2004, p.141; Alon, 2003, p.189). Besides that, immobility of firm resource has been described by Barney (1991) as lack of ability by the competitors to get other firms resources. Resources in the environmentally focused strategy model are viewed as mobile since resources held by competitors can be purchased or created by firms. A number of scholars such as Pettigrew et al. (2001, p.55) and McIvor (2010, p.63) agree with Barney (1991) that so as to understand high quality human resources imitability, the conceptions of unique social complexity, causal ambiguity as well as historical conditions have to be addressed. Besides that, the human resources potential mobility has to be taken into account based on the human resources imitability. This can be confirmed through the firm’s resource-based view theoretical concepts, whereby human resources may be a basis of sustained competitive advantage since the criteria of being non-substitutable, inimitable, rare as well as valuable are met. From Barney (1991) arguments, it is without doubt that human resources can be a potential basis of sustained competitive advantage. Still, given that social complexity, causal ambiguity as well as unique historical circumstances typify human resources, not every firm as observed by Wright et al. (1993) may effectively create human resources as competitive advantage by imitation of successful firms’ HR practices. In view of this, the firm’s resource-based view points out the significance of integrating human resources into the firm's strategy formulation stage. Habbershon and Williams (1999) and Steiner (2006, p.14) agree that the resource-based model offers a framework for analysing the ability of a certain pool of human capital resources so as to implement a certain strategy. Therefore, the resource-based view can exhibit that strategies cannot be implemented universally; rather they are dependent on possessing a human resource base crucial for implementing them. References Alon, I., 2003. Chinese Culture, Organisational Behavior, and International Business Management. Santa Barbara: Greenwood Publishing Group. Arrighetti, A., Landini, F. & Lasagni, A., 2014. Intangible assets and firms heterogeneity: evidence from Italy. Research Policy,vol. 43, no. 1, pp.202–13. 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