Resource-Based Theory: Importance of Resource Management - Literature review Example

Importance of Resource Management in and how it could lead to Competitive Advantages in Line with Resource-Based Theory Student name: Student number: Tutor: Date: QUESTION: In line with the Resource Based Theory, discuss the importance of resource management in organisations and how it could lead to competitive advantages support discussion with multiple examples. Introduction Resource Based Theory or Resource-based view (RBV) is significant theory of strategic management, which is based on the premise that the firm's resources are the foundation of its strategic management (Kraaijenbrink et al. 2009 p. 3-3). Hence, the theory tends to overlook the role of entrepreneurial strategies and capabilities as the essential forces for competitive advantage of a business. Rather, the long-term continued existence of a company is contingent on the company’s unique products, in addition to the development of such exceptionality over a long duration of time, by nurturing the company’s core competencies. This essay argues that efficient management of resources based on the RBV can lead to a firm’s competitive advantage. RBV promotes competitive advantage. However, this perspective of competitive advantage is different from the environmental-focused strategic management model, since it emphasises the relationship between the company's environmental resources and its strategies and eventual performance (Grant 2001 p.114). In which case, the resource-based theory is company-focused, while strategic analysis models, such as that of Porter analysis, is industry-focused. Hence, the internal resources of the company are the key determinants of attaining and sustaining competitive advantage. At the core of the theory, is that firms are in possession of diverse or mixed resources. Hence, those that are valuable should be integrated into a set of functional policies or processes to increase and sustain the company’s potential and long-term success (Kelliher and Reinl, 2009 p.522-524). Importance of resource management Within the context of resource-based management, resource management contributes to efficient resource allocation. This also draws attention to the significance of resource management and its implication in ensuring the competitive advantage of an organisation. According to Wright et al. (1993 p.5-7), a resource refers to a company's attributes, assets, knowledge, information, capabilities, management or anything, whether tangible or intangible, that could be viewed as a company's strength or weakness (Barney 1991 p. 101; Platts et al. 2003 p.149). Resource management is therefore defined as the effective and efficient allocation and use of a company’s resources when needed for certain operations. Based on the resource-based theory, the principle of resource management within the perspective of RBV is to ensure uniqueness of the resources. In turn, the uniqueness promotes competitive advantage. Resource management within the context of resource-based view promotes the discovery, cognition and analysis of the market opportunities, as well as, coordinated knowledge that ensure inputs are transformed into heterogeneous outputs (Barney, Wright and Ketchen (2001 p.628-630). The resulting unique outputs ensure the competitive advantage of a firm. Grant (2001 p.114-115) pointed out that entrepreneurial opportunities may emerge from resource management, which gives insight into the resource value that competitor's lack. According to Barney, Wright and Ketchen (2001 p.628-630), resource management within the context of resource-based value promote entrepreneurial capability, knowledge and alertness, which are essential in coordinating resources. Hence, it fulfils an important role in recognition of the value and opportunities that promote competitive advantage. The resource management can also create a lasting relationship with the profitable consumers. To ensure this, Vucetic (2012), suggests that the company management should ensure delivery of commodities of higher value to the consumers, as well as, seeking to satisfy the requirements of the targeted consumers relative to the competitors'. To this end, it can be argued that the resource management should undertake competitive analysis of the organisation to enable it identify, evaluate and choose the competitive key advantage of its competitors. Grant (2001 p.114-115) pointed out that competitive advantage is a conception of economic theories on competitive organisations that stress the value of resources and the commodities offered in the marketplace. Accordingly, it represents the likelihood of the company to create superior value to its customers and to achieve superior businesses simultaneously. Wright et al. (1993 p.5-7) pointed out that for a company to maintain its competitive advantage, in the marketplace, it should engage in efficient resource management. Through resource management, an organisation can create the strategically valuable resources, as well as, sustain its core competencies. How it leads to competitive advantage Within the context of resource-based theory, an important question is the conditions through which resource management can contribute to competitive advantage. Wright, McMahan and McWilliams (1993 p.5-7) suggested that efficient management of these resources bears forth competitive advantage. Competitive advantage, in itself, is said to occur when an organisation implements value-creating strategy that is not implemented by another company (Peteraf 1993 p.179). Hence, resource management should focus on ensuring that the company has unique resources that can give it a competitive advantage (Barney 1991 p. 102). This perspective is consistent with earlier analysis by Wright et al. (1993 p.5-7), which pointed to the idea that competitive advantage only occurs when the company resource immobility and company's resource heterogeneity manage to differentiate the resource-based model from the traditional strategic management model (Akio 2005 p.129-130). To this end, the company's heterogeneity calls for the attention on the idea that resource differ across companies. Company's resources immobility describes the inability of the competitor companies to acquire resources from other companies or resource markets. In which case, to ensure competitive advantage, the resource management must be able to create heterogeneity and immobility of resources (Wright et al. 1993 p.5-7). For instance, when it comes to electric cars, Tesla has used resource immobility and heterogeneity. While the company has no financial resources to compete against BMW, it has the knowledge obtained from its R&D. Hence, Tesla has focused on manufacturing Tesla charging stations, which electric car owners have concentrated on buying. Further, while other companies have concentrated on making gas-powered vehicles, Tesla has concentrated training its staff on electric car manufacturing and making electric cars (KISSmetrics 2014 p.1). Resource management should be able to cease all efforts by competitors to duplicate the competitive advantage. Wright et al. (1993 p.5-7) pointed out that creating competitive advantage is not as vital as sustaining it in the long run. Sustained competitive advantage is hence not a variant of competitive advantage. Rather, it is an essential component of competitive advantage that the resource management should take into account. In respect to the resource-based theory, sustained competitive advantage is said to exist when alternative forms are not able to duplicate the benefits of competitive advantage a firm derives from its unique resources (Oliver, C 1997 p.697-698). Hence, competitive advantage would not be considered to be sustained unless the competitor’s efforts to duplicate the advantage are determined to have ceased. Hence, the resource management should as a result use four criteria to ensure sustained competitive advantage. First, the resource management should ensure that the resources add positive value to an organisation. Second, the resources have to be unique among the potential competitors. Third, the resources should be "imperfectly non-substitutable" and lastly, the resources should not be substitutable with resources of competitor firms. Resource management should control the organisational behaviour. In pursuing the sources of sustaining competitive advantage, Wright et al. (1993 p.5-7) contended that the resource-based theory of resource management requires that organisational behaviour and organisational theory provide a valuable source of findings, concerning non-imitable, rare and non-substitutable resources in an organisation. The resource management should also be capable of supporting a company's superior performance. Vucetic (2012) suggested three ways in which resource management can ensure that a resource maintains its value. First, they should be difficult to copy; they should be difficult to substitute for the gains they provide, and lastly, they should be durable. According to Vucetic (2012), the resource management should provide maintenance activity, ensure durability of the resource and prevent degradation. Institutionalisation of “best practices” within the RBV can lead to competitive advantage. Barney, Wright, & Ketchen (2001 p.628-630) suggested that “best practices” that have been institutionalised within an organisation can be an important source of competitive advantage. According to Barney, Wright, & Ketchen (2001 p.628-630), this may however depend on the level of skills applied in applying the “best practices” and the corporate governance devices. In which case, such skills should be heterogeneously distributed across the industry. For instance, Apple’s heterogeneous management has given it competitive advantage in the computer and electronics market. The company is organised in a different way from its competitors. While all competitor consumer electronics firms are organised in Business units that are fully integrated with their own research and design (R&D) and hence are in competition with each other, Apple takes a different approach as it is organised as a single company that manages rather than categorises products. As a result, its products are completely compatible with each other. Additionally, accessories can be used on multiple products (Ragnetti 2011;1). This has given the company a competitive edge as a manufacturer of consistent products. Conclusion Efficient management of resources based on the resource-based theory can lead to a firm’s competitive advantage. Resource management is of particular significance towards this end. It contributes to efficient resource allocation. Additionally, it promotes the discovery, cognition and analysis of the market opportunities, as well as, coordinated knowledge that ensure inputs are transformed into heterogeneous outputs. The resource management can also create a lasting relationship with the profitable consumers. However, for the resource management to lead to competitive advantage, resource immobility and heterogeneity must happen. Resource management should be able to cease all efforts by competitors to duplicate the competitive advantage. It should also be capable of supporting a company's superior performance. Reference List Akio, T 2005 "The Criticak Assessment of the Resource-Based View of Strategic Management: The Source of Heterogeneity of the Firm," Ritsumeikan International Affairs 3(1), 125-130 Barney, J 1991, “Firm Resources and Sustained Competitive Advantage," Journal of Management vol. 17 no. 1, pp.99-120 Barney, J, Wright, M. Ketchen, D 2001, "The resource-based view of the firm: Ten years after 1991," Journal of Management vol. 27, 625–641 Grant, R 2001, The Resource-Based Theory of Competitive Advantage for Strategic Formulation, viewed 5 May 2014, http://www.skynet.ie/~karen/Articles/Grant1_NB.pdf Kelliher, F. & Reinl, L. (2009). A resource-based view of micro-firm management practice. Journal of Small Business and Enterprise Development 16(3), 521-53 KISSmetrics 2014, Is Your Competitive Advantage Difficult for Your Competitors to Copy? viewed 5 May 2014, https://blog.kissmetrics.com/competitive-advantage/ Kraaijenbrink, J Spender, J & Groen, A 2009, The resource-based view: A review and assessment of its critiques, viewed 5 May 2014, http://mpra.ub.uni-muenchen.de/21442/2/MPRA_paper_21442.pdf Oliver, C 1997, "Sustainable Competitive Advantage: Combining Institutional and Resource-based views," Strategic Management Journal vol. 18 no. 9, 697-713 Peteraf, M 1993, " The Cornerstone of Competitive Advantage: A Resource-based View," Strategic Management Journal vol. 14, pp.179-191 Platts, K, Mills, J & Bourne, M 2003, “Applying Resource-based theory: Methods, outcomes and Utility for Managers," International Journal of Operations & Production Management vol. 23 no. 2. pp.148-166 Ragnetti, A 2011, Apple's Competitive Advantage, The Huffingpost, viewed 5 May 2014, http://www.huffingtonpost.co.uk/andrea-ragnetti/apples-competitive-advant_b_936215.html Vucetic, A 2012, "Human Resources as a Competitive Advantage of Travel Agencies in Montenegro," Turizam vol. 16 iss.2, pp78-87 Wright, P, McMahan, G & McWilliams, A 1993, Human resources and Sustained Competitive advantage: A Resource-based perspective. 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