Resource based view and competitive advantage
Resource-based view of the firm provide a superior means of evaluating a company’s competitive advantage. Resources are company’s assets, and they are also the materials used to produce the goods and services for sales. Looking at the resources of the company is looking at the ingredients of the company’s success or failure. The competitive advantage has to do with a feature or characteristic of products or services, which only a certain company can create. Resources enable the company’s competitive advantage. For example, Wal-Mart’s competitive advantage is offering everyday low price, any time and anywhere. The resource, which enables Wal-Mart to deliver such competitive advantage as a retailer, is buying the cheapest goods from the right vendors. These relationships with vendors are intangible assets essential for Wal-Mart’s pricing advantage.
Accompanying this resource-based approach is the VRIO framework. In order to determine whether a certain resource can help a company create competitive advantages, four questions must be answered:
- Value: does the resource provide customer value and competitive advantages?
- Rareness: do no other competitors possess it?
- Imitability: is it costly for others to imitate?
- Organization: Is the firm organized to exploit the resource?
These four questions provide inquiry into the relationships of resources, competences and capabilities of the company. In other words, the resource-based approach gives focus to resources but also the company’s ability to secure, possess and exploit the resource to create values. It is a superior view because it encompasses core internal elements of the company.
Using the IFAS table impacts the understanding of a company’s internal resources and capabilities. IFAS stands for Internal Factor Analysis Summary. This table lists out all strengths and weaknesses of a company. Each strength and weakness receives a weight, rating to calculate a weighted score and comments are given on the side. The table is a strategic look at a company because it quickly highlights the most important strengths and weaknesses of a company by giving the weighted rating. It also encompasses the response of the company to the strengths and weaknesses based on ratings and comments. This table is also useful because it can be used to compare to other companies in terms of side by side analysis. It can also be done for industry to see how the company compares against competition.