Resource-Based View
The RBV framework combines the internal (core competence) and external (industry structure) perspectives on strategy. Like the frameworks of core competence and capabilities, firms have very different collections of physical and intangible assets and capabilities, which RBV calls resources. Competitive advantage is ultimately attributed to the ownership of a valuable resource. Resources are more broadly defined to be physical (e.g. property rights, capital), intangible (e.g. brand names, technological know how), or organizational (e.g. routines or processes like lean manufacturing). No two companies have the same resources because no two companies have had the same set of experience, acquired the same assets and skills, or built the same organizational culture. And unlike the core competence and capabilities frameworks, though, the value of the broadly-defined resources is determined in the interplay with market forces. Enter Porter's 5 Forces. For a resource to be the basis of an effective strategy, it must pass a number of external market tests of its value.

The focus is therefore on the supply side (the accumulation of organisational resources and capabilities) rather than the demand side (the nature of the industry) and in value creation rather than value appropriation.

Valuable Resource
Collins and Montgomery (1995) offer a series of five tests for a valuable resource:

1. Inimitability - how hard is it for competitors to copy the resource? A company can stall imitation if the resource is (1) physically unique, (2) a consequence of path dependent development activities, (3) causally ambiguous (competitors don't know what to imitate), or (4) a costly asset investment for a limited market, resulting in economic deterrence.

2. Durability - how quickly does the resource depreciate?

3. Appropriability - who captures the value that the resource creates: company, customers, distributors, suppliers, or employees?

4. Substitutability - can a unique resource be trumped by a different resource?

5. Competitive Superiority - is the resource really better relative to competitors?

competitive advantage
Peteraf (1993) proposes four theoretical conditions for competitive advantage to exist in an industry:

1. Heterogeneity of resources => rents exist A basic assumption is that resource bundles and capabilities are heterogeneous across firms. This difference is manifested in two ways. First, firms with superior resources can earn Ricardian rents (profits) in competitive markets because they produce more efficiently than others. What is key is that the superior resource remains in limited supply. Second, firms with market power can earn monopoly profits from their resources by deliberately restricting output. Heterogeneity in monopoly models may result from differentiated products, intra-industry mobility barriers, or first-mover advantages, for example.

2. Ex-post limits to competition => rents sustained Subsequent to a firm gaining a superior position and earning rents, there must be forces that limit competition for those rents (imitability and substitutability).

3. Imperfect mobility => rents sustained within the firm Resources are imperfectly mobile if they cannot be traded, so they cannot be bid away from their employer; competitive advantage is sustained.

4. Ex-ante limits to competition => rents not offset by costs Prior to the firm establishing its superior position, there must be limited competition for that position. Otherwise, the cost of getting there would offset the benefit of the resource or asset.

Implications for strategy
Managers should build their strategies on resources that pass the above tests. In determining what are valuable resources, firms should look both at external industry conditions and at their internal capabilities. Resources can come from anywhere in the value chain and can be physical assets, intangibles, or routines.

Continuous improvement and upgrading of the resources is essential to prospering in a constantly changing environment. Firms should consider industry structure and dynamics when deciding which resources to invest in.

In corporations with a divisional structure, it's easy to make the mistake of optimizing divisional profits and letting investment in resources take a back seat.

Good strategy requires continual rethinking of the company's scope, to make sure it's making the most of its resources and not getting into markets where it does not have a resource advantage. RBV can inform about the risks and benefits of diversification strategies.

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