Strategy in Context

BHS0035H

Resources and Competitive

Advantages
Dr Anna Zueva

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Lecture overview
• What are resources?
• What is the point of analysing them?
• What does resource-based strategic planning
look like?
• What kind of resources are most valuable to
organisations?
• What is the problem with using resource
considerations as a basis for strategy?
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 Topic 4.1

Resource-Based View of Strategy

Formation

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 Edith Penrose
• The Theory of the Growth of the Firm (1959)
• Founder of the Resource-Based View
– Strategy as management and development of
internal organisational resources that comprise
both strengths and weaknesses of the
organisation (Wernerfelt 1984)
– Configuration of resources determines
competitive advantage, performance and
distinguishes one organisation from another
– Firms tend to have more resources than they are
aware of
– Cannot analyse external environment without
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understanding of the internal workings of an
organisation
Why focus on resources?
• Opening the ‘black box’ of the firm (Penrose,
1959)
• A market-focused strategy may not deliver
sustainable competitive advantage (Grant 1991)
– Can be copied by competitors
– Environment can change quickly
• Difficult to understand the significance of external
environment for firm strategy without references
to the firm and its workings 5
Resource-based strategy formulation

Grant (1991)
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 Topic 4.2

Nature of Resources

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Nature of resources

Tangible Assets Intangible Assets

• Factories • Reputation
• Warehouses • Relationships with key
• Cash stakeholders
• Hardware technology • Organisational culture
• Software technology • Goodwill of the employees
• Patents/copyrights • Technical expertise
• Employees • Managerial expertise
• Usually recorded on balance • Do not normally appear on
sheets balance sheets
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Grant (1991)
Nature of resources
• Physical capital
– E.g. factories, machinery, product stocks…
• Human capital
– E.g. talented/competent and loyal employees…
• Organisational capital
– E.g. reputation, structure, relationships with other organisations
Barney (1991)

• Tied to the organisation on a semi-permanent basis

– Organisation is actually in possession of resources
– Or can easily access them (e.g. through alliances with other organisations)
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Wernerfelt (1984)
 Topic 4.2 Activity – Padlet Discussion
Marks & Spencer and London College of Fashion Partnership
• Watch a YouTube video about a
partnership between the major UK fas
hion design and retail company Marks
& Spencer and the London College of
Fashion
.
• What resources does Marks &
Spencer obtain through the
partnership with the London
College of Fashion?
• Post your thoughts on Padlet:
https://padlet.com/azueva/azs8fnjq6n
9ttlxw
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Organisational capabilities
• Aspects of the organisation and its abilities resulting from a
combination and complex patterns of interactions of resources, people
and organisational routines
– E.g. reputation for high quality, ability to evolve, technological expertise…. Not
always clearly distinguished from resources…
• Threshold capabilities
– Required for an organisation to meet the necessary requirements to compete in a given
market and achieve parity with competitors in that market – ‘qualifiers’.
• Distinctive capabilities
– Underpin competitive advantage and that others cannot imitate or obtain – ‘winners’.
• Dynamic Capability
– The ability of an organisation to renew and recreate its strategic capabilities to meet
the needs of changing environments.
• Resources may change, capabilities should remain 11
Organisational capabilities

Class question: What kind of capability do you

think London College of Fashion was hoping to
develop through its partnership with Marks &
Spencer?

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 Topic 4.3

Resource Analysis

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Jay Barney (1991): VRIO
• To constitute competitive
advantage, resources
must be:
– Valuable
– Rare
– Inimitable
– Organised (supported by
the organisation)

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Value
• Is it something that is valued by both end
users/customers and the organisation?
– Does it perform a function that end users consider
useful/beneficial?
– Do customers see the usefulness of the resource
as higher than its price?
– Can the organisation sustain the provision of the
resource while generating returns/ensuring its
own survival? 15
Rarity
• Is the resource possessed or can be created by just
one or only a few organisations?
– Is it scarce? (e.g. a diamond mine, a very large customer
base)
– Is it protected by intellectual property rights legislature?
(e.g. patents, trademarks, copyrights)
– Can other resources perform the same function in the same
or better (e.g. more efficient, cheaper, faster, etc.) way?
– Are customers likely to switch or can they easily switch to
substitutes?

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Inimitability
• Can other organisations imitate/copy the
resource?
– Was it created in particular historical, socio-cultural
or geographical circumstances?
– It is easy to understand how it was created?
– Does it derive from long-established relationships
between individuals and/or organisations?
– Was it built up over a long period of time?
– Was a large investment required for its
development? 17
Organisational support
• Are organisational systems developed and
arranged to enable the organisation to make
use of the resource? E.g.:
– Organisational structure
– Employee/manager training
– Leadership priorities, wider strategies

– Creating vs capturing value

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VRIO analysis table
Resource Valuable? Rare? Inimitable? Organised? Competitive Performance
impact implications

1 - - - - Competitive Under industry

disadvantage average

2 Yes - - - Competitive Industry average

parity

3 Yes Yes - - Short term Over industry

competitive average
advantage

4 Yes Yes Yes - Short term Over industry

competitive average
advantage
5 Yes Yes Yes Yes Long term Over industry
competitive average
advantage
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Additional (Topic 4.3) Activity – Personal Reflection
Oppo in Europe – Resource Analysis
• Oppo is a Chinese mobile phone manufacturer that has risen from a humble vendor
of cheap handsets to an international commercial performance star.
• Read this article about Oppo’s entry into European markets and provide a analysis of
company’s resources:
• What specific resources that Oppo has can you identify in the article?
• Categorise the resources you identified into tangible and intangible ones.
• Use the VRIO framework to analyse each resource.
• On the basis of your analysis, can you conclude that Oppo’s success will be
sustainable in the long term?
• Make notes in your personal notebook.

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 Topic 4.4

Challenges in applying Resource-

Based View to strategy-making

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Difficulty with using RBV
• Can anything be a resource?
– Wernerfelt (1984): ‘By a resource is meant anything which
could be thought of as a strength or weakness of a given firm.’
• Where does one resource end and another begin?
• Can we separate an organisation from its resources?
– Penrose (1959): The firm ‘is not an observable object
physically separable from other objects, and it is difficult to
define except with reference to what it does or what is done
within it.’ The firm as a ‘bundle of resources’.
• Can we identify the impact of specific resources on
organisational performance? 22
Difficulty with using RBV
• It can be very difficult
to predict the long-
term sustainability of
resource-based
competitive
advantage

McKinsey evaluation of Peters

and Waterman’s companies’
long-term performance
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Difficulty with using RBV
• RBV is focused on the identification/creation and
maintenance of sustainable advantage of an organisation
in a competitive relationship with other organisations
– Focus on the benefit of a specific organisation as opposed to
other stakeholders or the natural environment
– ‘Value’ is defined primarily from an organisational perspective
(e.g. what people will pay for as opposed to what they actually
need).
– Focus on competition as opposed to cooperation
• Result: perpetuation of unethical corporate behaviour
and environmentally unsustainable practices
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Conclusions
• Competitive advantage can be described in terms of the
resources an organisation controls or has access to
• However, it is difficult to predict which resources will
become sources of competitive advantages in the future
• It can also be difficult to identify and define individual
resources
• Resource-based view defines ‘value’ in a narrow and
organisation-focused way, limiting organisational
imagination

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References and further readings
• Barney, J. (1991). Firm resources and sustained competitive
advantage. Journal of Management, 17:1, 99-120.
• Clegg, S., Schweitzer, J., Whittle, A., and Pitelis, C. (2017). Strategy:
Theory and practice, 2nd. ed. London: Sage, Chapter 3.
• Grant, R.M. (1991) The Resource-Based Theory of Competitive
Advantage: Implications for Strategy Formulation, California
Management Review, 33(3), 114–135.
• Penrose, E. (1959). The theory of the growth of the firm. New York:
Wiley.
• Wernerfelt, B. (1984). A resource-based view of the firm. Strategic
Management Journal, 5 (2), 171-180.

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