Strengths and Weaknesses of Resource-Based View and Competitive Positioning View of Strategy - Coursework Example

The similarities and differences between the RBV of strategy and the CBV of strategy Name: Professor: Institution: Course: Date: Strengths and weaknesses of Resource Based View (RBV) of strategy Resource Based View (RBV) refers to a management tool that determines strategic resources in a firm. This model views a company as a bundle of resources and what differentiates one company from another is in the way they combine their resources to deliver products and services in the market (Barney 1986). This model also states that particular resources controlled and possessed by a company have the ability to generate competitive advantage and hence the company is in a better position to perform better than the other companies in the industry (Barney 1991). Resource based Strategy has its own strengths that keeps ahead of other models. It highlights the need for finding a fit between the external market within which the firm operates and the firm’s internal resources and capabilities. This model assists to explain why it’s more advantageous to generate some resources than others. It also explains why resource asymmetries and subsequent competitive advantages survive even in open competition. Instead of looking for profits at the match of the company’s product and the market, RBV model aims at delivering value using the company’s capabilities, resources and its core-competence (Drucker, 1963). This model emphasize that what differentiate one firm from another is in the way they allocate resource which are valuable to the firm, rare which means that they can deliver a unique strategy against the other firms, inimitable that means that other company cannot easily imitate them and are non-substitutable. Resources that have those characteristics give the firm a competitive advantage. Another one of the strengths of RBV model is that it focuses the company’s internal environment in relation to the firms capabilities and resources and its importance in determining the strategic action as compared to the external environment. It implies that the basis for a strategy lies in a firm’s unique resources and capabilities. This business strategy helps to exploit the core competences in relation to the opportunities in the external environment (Hamel & Prahalad 1994) However this model also has some weaknesses despite the strengths. Although resources can be bought, this model argues that in order to achieve competitive advantage from the resources, they have to be internally developed. This development however takes a very long time and is ambiguous on how to proceed (Dierickx & Cool, 1989). While it’s important to that companies are different from one another and have different resources, it’s also important to note that the market is important as well. The challenge of using this model is identifying opportunities that are a perfect match with the resources available in the company to gain a competitive advantage. According to Levitt (1960) it is also difficult to come across a resource that meets or the characteristics of VRIN. Also different resources can be allocated but still produce the same value as other firms and hence not able to create a competitive advantage. Moreover, there is an assumption that a company can generate profit in a very competitive market as long as it keeps on exploiting the unique resources which might not be the case. This model ignores external environment as pertains to the industry as a whole. The market keeps changing and this means that the company resources should also change to meet customer requirement. This has not been considered in this model as its emphasis is on development of the available resources to create competitive advantage (Teece, Pisano, & Shuen 1997). Strengths and weaknesses of the competitive positioning view of strategy The competitive positioning model by Michael porter allows a perspective form analysing and accessing competitive strength and position of a firm. Michael porter came up with generic strategies to offset the five industry forces which includes; rivalry, buy and supplier power, threat of new entrance and close substitutes. A firm is said to have competitive advantage over its competitors when its profits exceed the mean of its industry (Montgomery, n.d) . Porter came up with two type of competitive advantage, namely: cost advantage and differentiation advantage. A completive advantage can be achieved when a company is able to deliver a product at a lower price as compared to its competitors in the industry (cost advantage). Also a company can achieve competitive advantage when offers product or services with distinct feature to it customer compared to its competitor products or services (differentiation advantage). These two advantages are also referred to as positional advantage as they describe the position of a company as a leader either in differentiation or cost in the industry. This competitive advantage strategies developed by porter are known as generic strategies and their strength are outline in the table below in relation to the industry forces (Porter, 2008) Competitive Forces Generic Strategies Cost leadership Differentiation Focus Entry barriers Ability to cut price as a away To retaliate new entrants Customer loyalty Discourages entrants This develops distinctive features that makes it difficult for new firms to access the market. Buyer Power Gives the firm the ability to offer low prices to powerful buyers The buyers have no bargaining power as there are few alternatives The buyers have no bargaining power as there are few alternatives Supplier power Better protected from powerful suppliers In a better position of passing the increase in price to the customers Differentiation focus is able to pass on the supplier increases to the customer Threat of Substitutes Can use the low prices to defend against substitutes Customer loyalty reduces threat of substitutes Core competency & Specialized products protect against substitutes. Rivalry In a better position to compete on price Brand loyalty keeps customers from rivals Rivals cannot meet differentiation-focused customer needs. Source: Michael Porter (n.d) However, this model has some weaknesses in the way Porter argues about these strategies. He suggested that these strategies are not compatible and cannot be combined. If a company attempts to achieve advantage by using more than one of these strategies, then one will be ‘stuck in the middle’ and no competitive advantage will be achieved. However using a single generic strategy may not always be the best because customers of a product may want more satisfaction through combination of price, quality, style and convenience which could only be achieved by applying more than one generic strategy. There have also been cases of firms that produced high quality strictly following one strategy but ended up losing when other company penetrated the market with probably a lower quality product that conformed to the needs of the customer. Common and Differing themes between the RBV model and competitive positioning These two perspectives models of strategies have similar themes and differing themes as well. The similar themes between RBV and competitive positing include developing strategies which are unique from other firms in the industry, the need to gain competitive advantage over the other firms in the industry and the motive to gain above average profit as compared to the other firm. The two schools focus on coming up with strategies which are unique in the industry. The objectives of these unique strategies is basically to act as strong pillars to assist a firm gain competitive advantage over the competitors in the industry by either a dominating the market or through mobilization of the company’s unique capabilities and resources (Peteraf et al 2003). It also has differing themes in the way they view achievement of competitive advantage. For RBV model attributes competitive advantage to possessing particular resources and capabilities, a part of enables the firm to gain competitive advantage and the other leads to outstanding performance of the firm. It argues that resources that are rare and valuable leads to achievement of competitive advantage that can be sustained for long periods until the firm is insulated against resource substituted, imitation or transfer (Ross et al 1996). Competitive positioning on the other hand attributes competitive advantage to analysis of the competitive forces and development of generic strategies (cost leadership and product differentiation) to offset these forces. It argues that competitive advantage is achieved when the company is able to deliver distinctive product as compared to those of competitors through product differentiation or deliver the same products at a lower price than those of competitors (Oliver 1997) Aspects of RBV and competitive positioning that are relevant to the management of for-profit organisations in developed economies in the 21st century A good example the follows resource base view strategy is Honda Company. This company has developed its strategies on the basis of the firm’s strength which is building petrol based engines. Honda started with producing engine bicycles to motorbikes, marine engines, generators and finally cars. Each of these competes in product markets that are different but these products have the power to lever the same resource so as to build quality petrol base engines. Nokia Company can be used as a good example where competitive positioning has been used to achieve competitive advantage. The company has embarked on product differentiation where it produces phones that have distinct features as compared to its competitor. The Nokia phone has a digital cameras, radios, and internet facilities, diaries, slim in size and with other attributes that offer benefits to the consumer in a way that other firms are not able to do. The basic function of a phone is make calls, but Nokia phones are incorporated with other attributes that has the same application as a computer, diary and others. This feature have ensured that the company has remained ahead of the competition hence have a competitive advantage over its competitors. Similarities and differences between the resourced based view of strategy and the competitive positioning based view of strategy. The aim of every business is to make profits and when a company is able to make profits that exceed those of the industry under which it exist, the company is said to have a competitive advantage over the other firms. The objective of developing a business strategy is to gain competitive advantage that is sustainable. Resource based models have their similarities as well as their differences as will be discussed in this essay. To start with, the two models have similarities in that they both perceive the primary objective of developing a strategy as gaining competitive advantage in a unique way compared to the other firms. It is also common that they both aim at gaining competitive advantage over the other firms either by excelling in value chain activities which allows the firm to position itself in the industry or through mobilization of the rare and valuable resources and capabilities. The two models also aim at making sustainable profits as a result of staying ahead of competition. However some differences emerge in what they attribute to competitive advantage to. In RBV model, competitive advantage is achieved through combining the rare and valuable resources and capabilities of a firm (Mahoney 1992). It argues that resources and capabilities provide a basis for developing strategy. This strategy allows the firm to exploit opportunities in relation to its core-competences (Stalk et al 1992). In competitive positioning, competitive advantage is developed using cost leadership strategy and product differentiation. In conclusion, it’s worth noting that although this two views have been presented as conflicting, they contribute greatly to development of strong strategy and can there be combined to complement each other. References Barney, J. B. 1986. Strategic factor markets: Expectations, luck, and business strategy Management Science, 32(10): 1231-1242. Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99-121. Dierickx, I., & Cool, K. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12): 1504-1512. Drucker, P. F. 1963. Managing for business effectiveness. Harvard Business Review, Vol. 41: 53: Harvard Business School Publication Corp Hamel, G., & Prahalad, C. K. 1994. Competing for the future. Harvard Business Review, 72(4): 122-129. Levitt, T. 1960. Marketing myopia. Harvard Business Review, 38(4): 45-56. Mahoney, J. T., and J. R. Pandian (1992). “The resource-based view within the conversation of strategic management.” Strategic Management Journal, 13, pp. 363-380. Montgomery C, The essence of Corporate Advantage. Harvard Business School. Case N1-792- 064 Oliver C. 1997. Sustainable competitive advantage: Combining institutional and resource-based views. Strategic Management Journal. 18(9): 697-713 Porter, M. E, Competitive Strategy: Techniques for analyzing Industries and Competitors ________(2008).Five Competitive forces that Shape strategy, Harvard Business Review, January Peteraf MA, Bergen ME. 2003. Scanning dynamic competitive landscapes: A market- based and resource-based framework. Strategic Management Journal. 24: 1027- 1041. Ross, J. W., C. M. Beath, and D. L. Goodhue (1996) "Develop long-term competitiveness through assets," Sloan Management Review ) Fall, pp. 31-42. Rumelt, R. P. 1991. How much does industry matter? Strategic Management Journal, 12(3): 167-185. Stalk G, Evans P & ShulmanL.E (1992) Competing on Capabilities: The New Rules of Corporate Strategy, Harvard Business School, March-April. Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic capabilities and strategic management. Strategic Management Journal, 18(7): 509-534. Read More