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Role of Firm's Recourses and Capabilities in Sustaining Competitive Advantage
Role of Firm's Recourses and Capabilities in Sustaining Competitive Advantage
To attain a competitive advantage level that can match those of their business rivals,
business organizations initially must understand their internal strengths and weaknesses and
their potential effects on the firm's competitive advantage. With information on the relative
internal strengths and weaknesses of their organization, management can be guided in the
process of making strategic business decisions to improve their overall position (Ismail,
Rose & Abdullah 2012: 151). Competitive strategy of companies consists approaches and
initiatives which need to be taken in order to attract more customers and to satisfy their
needs, while opposing to competitive pressures and strengthen its market position
(Ristovska 2013: 235).
Strategy and objectives of the company are directed towards the proper management and
use of resources, reduce of costs, maintain market position, meeting the demands of the
consumers and above all, maintain long-term competitive advantage over its rivals. In
achieving this goal, the company approaches towards utilization of advanced technologies
and information systems, as well as proper utilization, allocation and development of
resources and capabilities of the company (Ristovska 2013: 235).
The RBV has had a major impact on strategy because the typical product/market
orientation is no longer suitable due to the constant and rapid change of the external
environment and customer preferences. It is easy to catch this if we consider that it is more
feasible to control internal resources and capabilities to face the real world, than changing
the world to adapt to the firms’ needs (Enríquez 2015: 52). The RBV of the firm allows us
to respond significant questions such as: On which of the firm´s resources should
diversification be based? Which resources should be developed through diversification?
(Wernerfelt 1984: 172).
According to Barney (1991: 110), dynamic capabilities follow the theory of RBV of the
firm. As a matter of fact, DC can be seen as a complement to RBV approach. Dynamic
capabilities are not capabilities by themselves neither are they resources. When referring to
the term dynamic capabilities, we always must use both words together; otherwise the
meaning surely is not going to be the correct. (Enríquez 2015: 53).
Organizational Resources
Resources are inputs into the production process of the company investment equipment,
skills of employees, patents, finances and talented managers. Resources include a range of
individual, social and organizational phenomenon (Ristovska 2013: 236). As mentioned,
the resource-based view (RBV) of the firm predicts that certain types of resources owned
and controlled by firms have the potential and promise to generate competitive advantage,
which eventually leads to superior organizational performance. Organizational resources
are categorized as tangible resources, (namely human, physical, organizational and
financial), and intangible resources, (namely reputational, regulatory, positional, functional,
social and cultural) (Ismail, Rose & Abdullah 2012: 153).
Tangible Resources
The Resource Based View (RBV) of the firm predicts that certain types of resources it
owns and controls have the potential and promise to generate competitive advantage, which
eventually leads to superior organizational performance (Ismail, Rose & Abdullah 2012:
153). Physical resources such as the plant, machinery, equipment, production technology
and capacity contribute positively towards organizational competitive advantage and
eventually result in superior organizational performance (Morgan, Kaleka & Katsikeas
2004: 94). In addition, financial resources such as cash-in-hand, bank deposits and/or
savings and financial capital (e.g., stocks and shares) also help explain the level of
organizational competitive advantage and performance (Ismail, Rose & Abdullah 2012:
153). However, Ristovska (2013) argues that physical assets alone usually cannot enable
the company to maintain competitive advantage (Ristovska 2013: 237).
Intangible Resources
Intangible resources are deemed to be the more important and critical ones in attaining and
sustaining a competitive advantage position because of their natures, which are not only
valuable but also hard-to-copy relative to the other types of tangible resources (namely
physical and financial). In short, conceptually and empirically, resources are the foundation
for attaining and sustaining competitive advantage and eventually superior organizational
performance. Human resources such as top and middle management, and administrative
and production employees were also able to explain the extent of organizational
competitive advantage and the resulting organizational performance (Ismail, Rose &
Abdullah 2012: 154).
Organizational Capabilities
Studies have shown that there is a significant relationship between capabilities and
competitive advantage. Capabilities are conceptualized and categorized as, inter alia,
organizational skills and collective learning, core competencies, resource development
competence, organizational integration, strategic decision making and alliance-building,
product development, relationship-building and informational and technological
capabilities (Prahalad & Hamel, 1990: 82). With excellent strategic manufacturing practices
and strategic integration, deployment of resources and capabilities, firms can attain
competitive advantage and better performance. Organizational capabilities are indeed an
important element in a firm’s strategy, and a firm's knowledge is one of the vital
ingredients in attaining competitive advantage and good performance (Ismail, Rose &
Abdullah 2012: 154).
Competitive Advantage
The competitive strategy of the company consists of business approaches and initiatives
taken to attract customers and to meet their needs, to counter competitive pressures and
strengthen its market position. The basis of competitive strategy of the company consists of
internal company initiatives that lead to superior value for customers. But also it contains
offensive and defensive moves to counter competitors, actions for exchange of resources to
improve the long-term competitive ability of the company and market position, as well as
efforts to respond to any market conditions (Ristovska 2013: 237).
The issue of firm performance has been central in strategy research for decades and
encompasses most other questions that have been raised in the field, as for instance, why
firms differ, how they behave, how they choose strategies and how they are managed
(Porter 1991: 95). In the 1990s, with the rise of the resource-based approach, strategy
researchers’ focus regarding the sources of sustainable competitive advantage shifted from
industry to firm specific effects. As it was initiated in the mid-1980s, the resource-based
view (RBV) has since become one of the dominant contemporary approaches to the
analysis of sustained competitive advantage. A central premise of the resource-based view
is that firms compete on the basis of their resources and capabilities (Bridoux 2004: 1).
Managing Resource to Build Competitive Advantage One of the main strategic decision-
making processes that the managers are facing is deciding which resources to develop and
direct. Top managers spend a lot of time analyzing, selecting, developing and directing the
necessary resources to enable the company's competitiveness. These resources and
competitive advantages must be constantly upgraded or modified to enable the company to
maintain its competitive advantage over other companies in the market (Charls & Jones
2007: 93). Managing the process of identifying and developing resources required from the
managers examining the weakness of resources that must be corrected to ensure that the
current strategy of the company will be competitive in the future. It is therefore important
to evaluate the quality of competitive advantages, resources and skills needed in the current
and desired strategy and competitive position in the future (Ristovska 2013: 238).
However, research has also shown that there is a significant relationship between product-
development capabilities and competitive advantage in organizations (Morgan, Kaleka &
Katsikeas 2004: 94), where product development capabilities are measured in terms of the
research and development capacity, adoption of new methods in the manufacturing process
and product promotional and marketing activity. Indeed, studies have also shown that there
is a significant relationship between organizations’ relationship-building capabilities and
competitive advantage, where relationship-building capabilities are measured in terms of
the networking and relationship between the firms and their suppliers, distributors and
customers (Ismail, Rose & Abdullah 2012: 155).