Strategic Logic of Resource-Based View - Essay Example

?Resource-based view is a main theoretical framework for addressing the source of interfirm performance differences and has become a key theory in understanding the origins competitive advantage and superior firm performance. Nevertheless, despite its position as dominant conceptual frame its contribution to strategy remains controversial since firms can create competitive advantage by developing resources that are rare, valuable, inimitable and non-substitutable. Hence, there is confusion surrounding the contribution of resource-based view to strategy since it focuses on the concept of resources. The perspective has insufficient theoretical account of how firms use resources to create and maintain competitive advantage; hence, the concept is confounded with strategic logic of resource-based view. This confounding hinders the fact that resource-based concept is only one of the various strategic logics within heterogeneous firms that leads to intra-industry performance differences. The influence of environments on company performance has been a key theme in strategy and has become a function of the fit between organizational structure and the environmental setting (Porter, 1996). Extrapolating this argument to inter-organizational level, researchers argue that the influence of network position on firm performance is controlled by the environmental context. Essential to the argument is that changes in the environment influence the nature of skills and capabilities needed for competitive advantage. Since network positions are crucial to firms in an attempt to acquire appropriate skills and capabilities, firms are compelled to strategically design their networks to acquire skills and capabilities in a changed environment. Nevertheless, any mismatch between needs of the environment and the firm’s position could have serious performance implications (Bingham and Eisenhardt, 2008). Position strategy has various advantages like constructing an impressive empire surrounding an attractive market that offers long-term competitive advantage. In addition, competitive advantage relies on valuable strategic position within an industry and linking the various resources to defend the position, since strategic positioning drives huge profitability (Peteraf, 1993). Often companies defend their position by combining resources that their competitors find difficult to imitate; therefore, position strategy links resources to successfully defend an organization from challengers. Nevertheless, like any strategy, the position strategy has its vulnerability factor which is change since when industries change relocating a business empire locked in a strategic position is tough. The weaknesses of this strategy include dismantling synergies in case of change that management worked hard to put in place and exposing the organization to risks in transition to a fresh strategy. Thus, change forces managers to dismantle their resources in position strategy and reassembling them in fresh strategic positions, which consumes time and potentially lethal because performance may stall until all pieces are reassembled (Siggelkow, 2001). Currently firms are leveraging on social media tools in an attempt to attract consumers to engage in their interactive online social environment (Shadkam and O'Hara, 2013). In environments of moderate change, leverage strategies outperform position strategies because change is incremental and conventional which ensures that managers rotate strategically important resources in the industry. Although position strategy bases on the empire analogy, leverage strategy resembles chess in that competitive advantage results from having valuable pieces and ensuring smart moves with the pieces. Organizations pursuing leveraging strategy attain competitive advantage through their strategically essential resources within the existing as well as new industries at a rate consistent with market change. For instance, Pepsi owns various strategically important resources; however, the company has leveraged the resources to support new products that include alternative beverages like water, juices, sport s drinks and tea all of which rely on the company’s strategically important resources. Leveraging strategy is associated with resource-based view of an organization since it focuses on building or obtaining resources that are valuable, difficult to imitate, rare and non-substitutable and leveraging them within new products and markets (Rivkin, 2000). Advantages of leveraging strategies include the ability to focus on refreshing and consistently deploying core resources within the prevailing markets; for instance, Intel for short-term success relies on extracting value from the current generation of microprocessors, while the company’s long-term success relies on utilising its acknowledged design capabilities, manufacturing and branding resource in future microprocessor generations. Moreover, although leveraging is important in existing market, leveraging of resources into new markets is essential too. Nevertheless, the main mistake with leveraging approach is forgetting to reassess strategic importance of resources like value, rarity and non-substitutability in potential markets. Leveraging is not only suitable for expansion but also is useful in pulling back and redeploying resources in other contexts to create competitive advantage. The main challenge in creating competitive advantage through leveraging strategy is updating resource portfolio when organizations change since it may dictate whether to acquire or develop key resources in-house. Strategic logic of opportunity argues competitive advantage and superior performance results from entrepreneurial action. Essentially this approach takes superior performance from a firm’s ability to capture attractive and fleeting market opportunities that ensure creation of revenue and profits sooner and effectively than competitors. The strategy involves picking one or several organizational processes that align the firm with abundant flow of attractive opportunities. Attractive opportunities have the highest potential to generate revenue and profit and their capture creates superior performance. For instance, Cisco in late 1990 adopted a strategy of acquisition which ensured the company’s competitive advantage by acquiring various technology-rich ventures sooner, effectively and quickly compared to its competitors. Compared to the complicated routine processes of leverage strategy, opportunity strategy is semi-structured which enable flexible opportunity capture since the strategy leaves room for spontaneous actions for managers to seize attractive yet unexpected opportunities. The semi-structured organizational processes have unique rules that guide opportunity capture and heuristics enables executives to effectively and quickly capture fleeting opportunities by implementing various rules of thumb while at the same time improvising other actions (Eisenhardt and Sull, 2001; Bingham, Eisenhardt and Furr, 2007). However, this strategy faces one main challenge of maintaining an appropriate level of structure since, too much structure would render the strategy too rigid to seize opportunities effectively while too little structure render the approach inefficient. Another challenge is that the strategy is very tentative because in the face of unpredictability people have a tendency to ‘wait and see’ and when they do so they are too late to seize the opportunity (Bingham and Eisenhardt, 2008). In conclusion, the typology of strategy and competitive advantage link firms to competitive advantage and the various strategies include leverage, position and opportunity. Leverage strategy aims at ownership of core resources and competitive advantage is gained through leveraging these core resources in markets where they are valuable. On the other hand, position strategy aims at building an activity system of resources tightly linked in synergistic relations in order to occupy a unique and valuable strategic position. Finally, opportunity strategy aims at selecting several organizational processes that place an organization in abundant flow of attractive but fleeting opportunities; hence organizations have to develop heuristics that promote fast and effective capture of opportunities that are able to yield the highest payoff. References Bingham C.B., Eisenhardt K.M. and Furr N.R., 2007, “What Makes a Process a Capability? Heuristics, Strategy and Effective Capture of Opportunities,” Strategic Entrepreneurship Journal 1, no. 1-2: 27-47 Bingham, C, & Eisenhardt, K 2008, 'Position, leverage and opportunity: a typology of strategic logics linking resources with competitive advantage', Managerial & Decision Economics, 29, 2/3, pp. 241-256. Eisenhardt K.M. and Sull D.N., 2001, “Strategy as Simple Rules,” Harvard Business Review 79, no. 1: 107-116 Peteraf, M.A. 1993, “The Cornerstones of Competitive Advantage: A Resource-Based View,” Strategic Management Journal 14, no. 3: 179-191 Porter M.E., 1996, “What Is Strategy?,” Harvard Business Review 74, no. 6 Rivkin, J.W. 2000, “Imitation of Complex Strategies,” Management Science 46, no. 6: 824-844 Shadkam, M, & O'Hara, J 2013, 'Social Commerce Dimensions: The Potential Leverage for Marketers', Journal Of Internet Banking & Commerce, 18, 1, pp. 1-14. Siggelkow, N 2001, 'CHANGE IN THE PRESENCE OF FIT: THE RISE, THE FALL, AND THE RENAISSANCE OF LIZ CLAIBORNE', Academy Of Management Journal, 44, 4, pp. 838-857. Read More