How does the resource-based view of firms help in determining the sustainability of a competitive

advantage?

The Resource based view (RBV) analyzes and interpret internal resources of the organizations and
emphasizes resources and capabilities in formulating strategy to achieve sustainable competitive
advantages. Resources may be considered as inputs that enable firms to carry out its activities. Internal
resources and capabilities determine strategic choices made by firms while competing in its external
business environment. According to RBV, not all the resources of firm will be strategic resources.
Competitive advantage occurs only when there is a situation of resource heterogeneity (different resources
across firms) and resource immobility (the inability of competing firms to obtain resources from other firms).

How does VRIO framework analysis help in evaluating a company’s competencies?

The VRIO framework is a strategic analysis tool designed to help organizations uncover and protect the
resources and capabilities that give them a long-term competitive advantage. It’s framework is one such
business analysis framework tool used to analyze the internal resources and capabilities of the firm.
Irrespective of the business model, VRIO is used as a framework to evaluate the capabilities and resources
of the firms like financial, human, material and non-material resources and capabilities. Each word in VRIO
denotes the four framework questions asked about a resource or capability to determine its competitive
potential:

 Value - These resources are termed as valuable resources and are a strength of the firm.
Resources are also said to be valuable if they help the firms to grow perceived customer value.
 Rarity - Getting a rare resource is quite difficult for a firm but it is extremely valuable when it gets
one. Having rarity in a firm leads to a competitive advantage over other firms. There are two
conditions to be satisfied for rarity to hold a competitive advantage in a firm. The resources and
capabilities must be really hard to find and they should last longer while their supply is always short.
 Imitability - Firms with rare resources and capabilities that are hard to imitate by other firms gain a
competitive advantage in the marketplace. It can also gain a competitive advantage by utilizing its
rare resources to neutralize any threats or exploit any opportunity.
 Organization - Organizing the firm to exploit the resources and capabilities is the last step in the
VRIO framework. Compensation policies let firms give incentives to their employees to motivate
them and make them work harder. Stock increases, bonuses as well as salary increase are some
monetary incentives while extra holidays or bigger offices are some non-monetary incentives.

VRIO analysis is complimentary to PESTEL analysis which assesses macro-environment. The following
analytical statements are taken into consideration by the firms, after which it gets an idea about the position
of their firm. If the resource is not valuable, then it should be outsourced as it is of no use to the firm.

The advantage of a VRIO analysis is its simplicity and clarity. Almost every firm uses VRIO analysis in
combination with other analytical techniques to help evaluate business resources and capabilities in a more
detailed view. For financial resources, there are many detailed financial indicators that assess the financial
condition or performance of the firm from different perspectives. In the same way, human resources,
information or property are other detailed indicators of their performance, quality or efficiency.

Why is organizational culture important for a business to effectively formulate its strategy?

Organizational culture is important for a business to effectively formulate its strategy because this can
encourage and develop a very efficient and strategic competitive advantage for a company. A strong
organizational culture can focus on establishing and sustaining the management of company, and make
employees believe that they are one the very crucial parts of the company.
How are organizational resources linked to the competitive advantages and corporate performance
of an organization?

The resource-based view stipulates that in strategic management the fundamental sources and drivers to
firms’ competitive advantage and superior performance are mainly associated with the attributes of their
resources which are valuable and costly-to-copy. As such, in order to achieve a competitive advantage
level that not only can at least match those of their business rivals’ but also will be able to exceed the
industrial performance averages, business organizations have to initially seek understanding as to the
relative degree of relationship between their organizational internal resources, competitive advantage and
performance. Such a research can contribute to the body of knowledge by lending empirical support and
further extending the RBV of competitive advantage by examining the relative magnitude of importance
placed upon organizational resources towards attaining competitive advantage and enhancing firm’s
performance.

How is the possession of valuable and scarce resources of an organization related to the planning
and formulation of its corporate-level strategy for enhancing its competitive advantages in the
market?

The Resource Based View (RBV) takes an ‘inside-out’ view or firm-specific perspective on why
organizations succeed or fail in the market place. According to RBV, firm’s abilities also allow some firms
to add value in customer value chain, develop new products or expand in new marketplace. The RBV draws
upon the resources and capabilities that reside within the organization in order to develop sustainable
competitive advantages. However, not all the resources of firm will be strategic and hence, sources of
competitive advantage. Competitive advantage occurs only when there is a situation of resource
heterogeneity and resource immobility.

 Heterogeneity - is an adjective that means composed of different constituents or dissimilar

components. In chemistry, the word is most often applied to a heterogeneous mixture. This is one
which has a non-uniform composition. A mixture of sand and water is heterogeneous. Concrete is
heterogeneous
 Immobility - immobile is something that is not moving or that is incapable of being moved. A person
who is bedridden is an example of someone who is immobile. A huge piece of furniture that is too
heavy to move is an example of something that is immobile.