The Importance of Resource Management - Literature review Example

Resource Management Student’s Name: University: Course: Instructor: Date: Introduction Resource management is crucial to the value addition since using resources is as important as owning them or processing them as Penrose (1959) stated. In addition, the methods and use of resources produce different results to firms having similar resources in the same environmental contingencies, (Zott, 2003). Heterogeneity in the firms’ outcome given similar conditions is dependent on the decision made in bundling, leveraging of resources and structuring. When a firm generates a greater utility for the customers more than competitors do, the firm has a competitive advantage. Competitive advantage leads to increased wealth, (Hoopes, Madsen, and Walker, 2003). The purchasing and supply chain management is an important factor in the allocation of resources in the modern business world, Makadok (2003). The management decides on whether to produce its raw material or acquire them in the process of resource management and creation of value to customers and wealth to owners. The decision to produce or purchase and the bargaining power keeps a firm on a competitive edge over its competitors. This is because the firm is able to cut on costs hence increasing the profit margin. Structuring Resource Portfolio Makadok (2003) argued that an effective portfolio of resources enhances the value creation. The process of structuring i.e. accumulating, acquiring and divesting are influenced by the environmental situation that eventually establishes the contribution to a firm. Therefore, managers adjust the structuring processes with regard to environmental unpredictability. Acquiring Barney (1986) described acquisition as purchasing resources from factor factors. A firm can acquire factor resources by forming mergers and acquisition to take advantage of the synergy of factors of production. However, uncertainty creates ambiguity with the regard of resources required to develop a competitive advantage. Therefore, companies require a repertoire of resources specifically the intangible resources since they are more flexible. Slack resources are required to change the current capabilities or in the creation of new ones to respond to the uncertainty of the volatile environment. However, creating a repertoire of a fully developed and useful slack resource such as specific knowledge sets in most cases is costly and highly risky, (Hoopes et al. 2003). Thus under uncertainty, real options help firm to absorb shocks of environmental changes with regard to opportunities and threats that would face a firm. Accumulating This refers to an internal accumulation of resources by a firm. Accumulating is crucial to a firm since strategic factor markets do not fully provide all required resources to a firm. Internal accumulation of resources enables a firm in isolation mechanisms, (Thomke and Kuemmerle, 2002). Isolation mechanism reduces the chances of imitation thus increasing the competitive advantage based on the resources at hand. Under uncertainty conditions, companies are most likely to fail to respond to competitors’ action or unexpected opportunities. For example, when a firm does not have an adequate human resource with managerial skills, it will be difficult to exploit an opportunity when it appears such as demand on the introduction of a new product in the market. This leads to the competitors exploiting the opportunity. Therefore, accumulating skills on employees enables a firm to respond to a sudden demand for their skills in time. In less munificent environments, internal development of available resources is crucial since resources cannot be outsourced in these environments, Makadok (2003). Therefore, a firm develops its internal resources for future needs and opportunities to keep itself at a competitive edge over the competitors. In most cases, accumulation involves a sustained addition of skills by employees. This enhances managerial skills and adds intellectual capital to them. In some instances, internal development is not possible and thus firms forms strategic alliances, (Hitt, Dacin, Levitas, Arregle and Borza, 2000). This is a common practice especially with emerging markets that have low munificence. Occasionally, firms require new or an improved resources in order to respond to ever-changing customers’ demand especially when changes appear in the external environment as stated by Hitt et al. (2000). However, in some cases, such resources require being developed internally such as low munificence environment. In conclusion, firms that fail to consistently to invest in real options have difficulties in responding to changes in the environment than those that invest in them. Divesting This refers to doing away with some firm’s resources to optimally gain from the remaining resources, (Hoopes et al. 2003). It involves reducing human capital, selling off some assets, divesting in non-core businesses, outsourcing of functions and spinning off businesses among others. Firms have a lot of resources and therefore, evaluating those of high benefit and laying off those with low or no value to the company is important, (Sirmon and Hill, 2003). Thus, those resources that do not contribute to the maintenance of a competitive advantage or cannot be leveraged profitably can be divested. However, Hitt et al. (2000) argued that it is a challenge to determine which resources to divest. In most cases, a resource’s future value is not known making a divesting decision to be more difficult. At times, a decision to divest in order to take advantage of and emerging opportunity may make a firm to lose valuable resources that can be leveraged profitably. For example, it is common in firms reducing human capital during the recession. However, the firm loses competitive advantage when the economy rebounds due to lack of intellectual human capital that was laid off. The laid of employees can be absorbed by competitors and become a challenge to the firm in future. Therefore, to maintain value creation ability, the firm have to conduct a thorough evaluation of the current and future resources ability in value addition. During uncertain environments, managers have to conduct a centralized decision making to come up with an ideal resource allocation mechanism. Bundling Resources Hoopes et al. (2003) argued that integrating a firm’s resources in creating capabilities with every capability having a unique combination that influences the firm to take an action with regard to wealth creation to shareholders and satisfaction of customers’ needs. Different bundling of different resources yields different results to a company that can be ranked accordingly. In addition, in a situation of the high level of environmental uncertainty, there is increased the need for establishing new capabilities to operate in the different environment. In practice, there are three bundling processes; Enriching The aim of enriching bundling is to add or to elaborate an existing capability. The degree of enriching varies from one capability to another, (Zott, 2003). Enriching can be effected by the addition of skills through learning of new skills or through adding a resource to the existing bundle. An example for enriching is a pharmaceutical company using an alliance of a biotechnology company in order to gain knowledge when conducting a research and development capability. The main aim is to create a synergy to better create a competitive advantage of a product. However, enriching is more likely to be copied by competitors since they are simply capabilities extensions. Therefore, in order for a firm to maintain competitive advantage using enriching process, it has to establish new capabilities more often as stated by Zott (2003). Stabilizing The aim of stabilizing is to improve the current capabilities, for example, establishing training mechanism to human capital to add skills on emerging trends and keeping them up to date, (Sirmon and Hill, 2003) . More often, firms with a competitive advantage over resources use this process to maintain the advantage. This process of bundling creates value to firms that compete in the environment with low uncertainty or those that operates in high environmental munificence. Pioneering Sirmon and Hill (2003) argued that rather than adding knowledge of an existing capability, a pioneering process is preferred as it creates uniqueness. With the learning of new methods, pioneering might result in an integration of unique resources acquired and included by a firm in its resources recently. The main aim of pioneering is establishing a new and unique competitive advantage. This type of bundling enhances creativity and expands knowledge base thus creates an environment on developing new capabilities. This enables the managers in the development of unique, new value-enhancing ideas on integration of different capabilities. In some cases, managers use the previously unrelated information to develop a value addition strategy. For example, SmithKline managers acquired Beckman instruments in order to obtain access to Beckman capabilities of diagnostic technology, (Hitt, Harrison, Ireland and Best, 1998). Therefore, pioneering uses new resources to boost the current resources in the development of new capabilities. Thus, pioneering bundling requires a heterogeneous group of experienced managers. Leveraging Capabilities This is a process involving mobilizing, deploying and coordinating processes aimed at value creation as well as wealth creation to customers and the shareholders respectively. To create the greatest value to customers, firms choose the markets where its capabilities can be leveraged effectively. Leveraging Capabilities Across Various Markets The complexity of markets creates a number of opportunities that a firm can leverage its capabilities in value creation to customers and wealth accumulation to the owners. Organizational learning in a given market context enables the application of similarly learned skill in other market contexts. Additional applications can be achieved through; Leveraging same capabilities to different products as well as industries to serve customers with same needs By the use of knowledge gained through serving a customer’s needs in selling other types of goods to the same customer to meet other needs Learning application of market segment-oriented developed through leveraging capabilities in meeting expectations of other customers in the same marketing niche. In different markets, firms use processes such as mobilizing, deploying and coordinating in leveraging their capabilities as argued by Sirmon and Hill (2003). For effective leveraging, these processes must be complementary to each other. Mobilizing; the aim of mobilizing is to assist in identification of capabilities required in designing capability configurations in order for the firm to exploit existing opportunities in a given market and place itself in a competitive advantage over the competitors. However, in uncertain environments, firms find it difficult to establish specific capability configurations required in optimizing value to shareholders. Coordination; this is the initial stage in the implementation of a leveraging strategy. The aim of coordinating is the integration of mobilized capabilities in the most effective way in order to facilitate the creation of capability configurations. This results in sharing of useful knowledge. Deploying; the process involves the use of capability configurations in supporting the already chosen leveraging strategy. Successful deployment of capabilities by a firm leads to value creation to the customers. In conclusion, this is the second stage of the implementation of the leveraging strategy. The process assists a firm to maintain a competitive advantage over its competitors. This is possible only if the competitors are not able to attain the skills required in deploying their capabilities in such a way that it would lead to a creation of superior value to customers. Conclusion Every component of resource management is of great importance individually. However, integration of the various resources creates a synergy that places a firm in a better competitive edge. Therefore, while managing each resource, it is equally important to balance the resources in value creation to customers and wealth accumulation to owners. Managers ought to be sensitive to needs and put into consideration feedback at every stage. Synchronization process requires managers get involved in resource management stages since the feedback by customers influence the preceding process of resource management. it is also important to keep on monitoring environment the firms operates in order to take precaution on impending changes that can lead to losing of value. References Barney, J. B. 1986. Strategic factor markets: Expectations, luck, and business strategy. Management Science, 32: 1231–1241. Hitt, M. A., Dacin, M. T., Levitas, E., Arregle, J., & Borza, A. 2000. Partner selection in emerging and developed market contexts: Resource-based and organizational learning perspectives. Academy of Management Journal, 43: 449 – 467. Hitt, M., Harrison, J., Ireland, R. D., & Best, A. 1998. Attributes of successful and unsuccessful acquisitions of U.S. firms. British Journal of Management, 9: 91–114. Hoopes, D. G., Madsen, T. L., & Walker, G. 2003. Guest editors’ introduction to the special issue: Why is there a resource-based view? Toward a theory of competitive heterogeneity. Strategic Management Journal, 24(Special Issue): 889 –902. Hunter, L., Beaumont, P., & M Makadok, R. 2003. Doing the right thing and knowing the right thing to do: Why the whole is greater than the sum of the parts. Strategic Management Journal, 24: 1043– 1056. Penrose, E. T. 1959. The theory of the growth of the firm. New York: Wiley. Sirmon, D. G., & Hitt, M. A. 2003. Managing resources: Linking unique resources, management and wealth creation in family firms. Entrepreneurship Theory and Practice, 27: 339 –358. Thomke, S., & Kuemmerle, W. 2002. Assets accumulation, interdependence, and technological change: Evidence from pharmaceutical drug discovery. Strategic Management Journal, 23: 619 – 635 Zott, C. 2003. Dynamic capabilities and the emergence of intraindustry differential firm performance: Insights from a simulation study. 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