How does the resource-based view of the firm provide a superior means of evaluating a company’s competitive advantage?

  How does the resource-based view of the firm provide a superior means of evaluating a company’s competitive advantage?

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A resource-based approach to organizational analysis highlights the resources of the firm with which it can confront the environment for success. This kind of analysis not only identifies resources, but also examines how well the organization is developing and taking advantage of the resources they display. Grant proposed a five-stage approach to resource-based analysis: (1) identify the firm’s resources as strengths or weaknesses; (2) combine the firm’s strengths into competencies; (3) appraise the profit potential of said competencies; (4) select a strategy that best exploits the resources; and (5) identify resource gaps and weaknesses.

5-2.      Explain how using an IFAS Table impacts the understanding of a company’s internal resources and capabilities.

An IFAS (Internal Factor Analysis Summary) is one way to organize the internal factors into strengths and weaknesses as well as to analyze how well a particular company’s management is responding to these specific factors in light of the perceived importance of these factors to the organization.

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

5-3.      What is the relevance of the resource-based view of the firm to strategic management in a global environment? (LO 1)

The resource-based view of the firm is an attempt to bring attention to the importance of a corporation’s resources in strategic management.  For much of the 1980s, Porter’s concepts of industry analysis and competitive strategy dominated the field of strategic management to such an extent that many felt that industry structure alone seemed to determine a firm’s profit potential.  Unfortunately, this emphasis on the industry tended to ignore a firm’s core skills and competencies.  What good is the knowledge that a niche in the market exists that can be reached through a focused differentiation competitive strategy if a corporation doesn’t have the resources to implement such a strategy? Experts on the resource-based view suggest that differences in performance among companies may be explained best not through differences in industry structure identified by industry analysis, but through differences in corporate assets and resources and their application.  The resource-based view of the firm is compatible with the traditional concepts of SWOT and distinctive competence, popular in the field since the 1960s.  The only danger with the resource-based approach is that analysts may put too much emphasis on internal factors and not enough on external factors.  Nevertheless, the idea that the durability and imitability of corporate resources determine competitive advance is a very useful one.

5-4.      How can value-chain analysis help identify a company’s strengths and weaknesses? (LO 2)

Value-chain analysis, as proposed by Porter, is a way of examining the nature and extent of the synergies that do or do not exist between the internal activities of a corporation.  The systematic examination of individual value activities can lead to a better understanding of a corporation’s strengths and weaknesses.  Its advantage over other methods of an…………………………….