The resource-based view of the firm provides the theoretical framework for this study.
However, the RBV theory is an economic tool used to determine the strategic resources available to a firm. The work of Penrose (1959) is marked as a base of RBV of the firm.
Penrose conceptualized the firm as an administrative organization and a collection of productive resources. She distinguished between ‘physical’ and ‘human resources’ and the latter include the knowledge and experience of the management team. The classical RBT presume that firm requires recruitment of more such resources in order to achieve competitive advantage (Penrose, 1959). The initial statement about the RBV theory by Wernerfelt (1984) served as its foundation, which states that a resource is 'anything’ which could be thought of as a strength or weakness of a given firm . . . whose tangible assets which are tied semi permanently to the firm. The resource based theory has intention to understand how firm’s value-creating strategies meet dynamic environment to achieve sustainable firm performance (Eisenhardt & Martin, 2000).
Though, RBV theory was popularized by seminal article of Barney (1991), in which he specified four attributes of a ‘resource’ through which a firm can attain sustained competitive advantage. He redefined a ‘resource’ to include 'all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm and which enable it to conceive and implement strategies that improve its efficiency and effectiveness’. This
theory underlines the condition under which firms can gain the best performance. Along with broaden perspective of global sustainability, such performance is considered to be superior profit if it meets a sustainable competitive advantage. There’re two main concepts, which are expected to bring superior performance, namely resources and capability (Bell & Martin, 2012).
According to Barney (1991) resources fall into three categories: physical, human and organizational. Tangible/Physical capital: includes the physical and financial assets like, plant and equipment, technology, etc. that an organization uses to create value for its customers.
Human capital: includes skills, experience, judgment and intelligence of the individual managers and workers in the firm. These are typically embedded in unique routines and practices that have evolved and accumulated over time.
Organizational capital: refers to an organization’s capacity to deploy intangible and tangible resources overtime. Barney (1991) formalized this theory, although it was Wernerfelt (1984) who introduced the idea of resource position barriers being roughly analogous to entry barriers in the positioning school (Wikipedia, 2017).
Barney and Clark (2007) asserts that resource based view RBV theory views organizations as consisting of a variety of resources generally including four categories viz; physical capital, financial capital, human capital, and corporate capital, (Barney & Clark, 2007). The attributes of resources held by firms can contribute and determine their level of performance (Yang &
Konrad, 2011). Resources that allow a firm to implement its strategies are viewed as valuable and can be a source of competitive parity Barney & Clark, (2007). Resources that are viewed as valuable and rare can be a source of competitive advantage. Those that are valuable, rare and inimitable can be a source of sustained competitive advantage (Barney & Clark, 2007).
Moreover, to achieve a sustained competitive advantage, a firm needs to have the ability to fully exploit the potential and stock of its valuable, rare and inimitable resources. Such ability and potential often resides in the diverse characteristics of its workforce.
Barney (1986, 1991) summarized four empirical indicators of the potential of firm resources to generate sustained competitive advantage in a VRIN model signifying V=Valuable, R=Rare, I=Imperfectly Imitable and N= (Non) –Substitutability. The resource-based view (RBV) as a basis for the competitive advantage of a firm lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm's disposal. To transform a short-run competitive advantage into a sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile (Peteraf, 1993). Effectively, this translates into valuable resources that are neither perfectly imitable nor substitutable without great effort Barney (1991). If these conditions hold, the bundle of resources can sustain the firms above average returns. The VRIO and VRIN model also constitutes a part of RBV. Notably, employees of different age groups may be endowed with different capabilities and are viewed as resources that are well appropriated, can enhance organizational performance.
Resources are the assets of the firm because firm uses them to do their activities. Specifically, resources may be utilized to create capabilities which linked with firm performance (Amit and Schoemaker, 1993). The resources capabilities and performance relationship are defined by Newbert (2007). Newberts research is based on initial works by Amit and Schoemaker (1993).
i. If a firm has resources and capabilities to utilize resources efficiently which are important and unique for it than attain sustainable competitive advantage
ii. If firm’s resources and capabilities are unique and non-substitutable then firm also achieve sustainable competitive edge.
iii. The sustainable competitor’s edge will help the firm to enhance its short term and long term performance (Newbert, 2007).
These resources can be exploited by the firm in order to achieve sustainable competitive advantage. The resource - based view focuses on enterprise resources as the key element of
competitive advantage and performance (Das & Teng, 2000; Peteraf & Barney, 2003). The RBV is efficiency - based explanation of performance and is one of the leading theories used to explain the role of organizational capabilities in utilizing resources to gain a competitive advantage and superior performance (Akio, 2005; Peteraf & Barney, 2003).
This framework has been used in previous empirical studies to demonstrate positive relationships between firm resources, capabilities, and performance (Closs & Xu, 2000;
Daugherty, Patricia, Richey, Glenn, Genchev, Stefan & Chen 2005). The current research is specifically concerned with intangible resources: organizational culture as evidenced by market orientation, entrepreneurial orientation, customer orientation, competitor orientation, and technological orientation. Resources are the source of firm capabilities (Grant, 1991).
Capabilities are defined as complex routines that determine the efficiency with which firms transform inputs to outputs (Collis, 1991).
Firms with a strong customer orientation pursue competitive advantage by placing the highest priority on the creation and maintenance of customer value Olson, Slater and Hult, 2005).
Market intelligence is an important element of strategic orientation. A firm’s sustained ability to compete is due, in large, to the uniqueness of a firm’s intelligence (Grant, 1996; Turner &
Makhija, 2006; Zander & Kogut, 1995). Customer orientation is a culture in which the needs and values of the customers are communicated formally within the organization between departments and managers and informally among all employees of the organization. The communication exchange supports the development of organizational capabilities (Teece, 1998). As a result, these firms should be well positioned to anticipate changes in needs and develop new products and services (Day, 1994). In particular, previous researchers have argued that product innovation may result from a firm’s ability to focus on thinking on behalf of the customer to achieve an outcome beyond the customer’s expectations (Kandampully, 2002). Leaders in service industries introduce cutting-edge products in advance of customer expectations and set the pace in the market (Kandampully, 2002).
The RBV argues that resources are the main resources possessed by any firm and therefore are the primary determinants of their performance, that is, competitive advantage (Powell, 2001). The effect of the external environment on strategic orientation illustrates the organization’s capacity to survive in today’s competitive business environment, the above-mentioned association therefore explained under the premises of RBV.
Furthermore, the effect of strategic orientation (i.e., market orientation, entrepreneurial orientation, technology orientation, customer orientation, interaction orientation etc) on organization’s success, performance and entrepreneurial development demonstrates a firm’s capacity to combine resources to innovate and improve performance, therefore also explained under the premises of RBV theory.
Source: Adapted from Barney (1991).
Figure 8: The Resource-Based View of the Firm