Resource Based Theory
The Resource-Based Theory (RBT) is a tool which enables managers to examine how a companys internal resources can be managed to enhance competitive advantage. RBT was developed in the 1980’s as an alternative to Porter’s Five Forces Framework, which focused on analyzing the external environment of the firm. RBT suggests that a company’s competitive advantage lies within its unique resources and capabilities, which they can use to gain a competitive advantage over their competitors. The theory argues that these resources and capabilities are what make businesses competitive and allow them to succeed. In order for a resource to give a competitive advantage, it must meet three different criteria: it must be rare, valuable, and inimitable.
Rarity means that the resource itself is not found in all businesses within an industry, making it rare and hard to come by. Valuable means that the resource can be used to create value for the company, and make it more successful in the market. Inimitability means that the resource is not easily duplicated or stolen by another firm, allowing it to provide the firm with a sustainable advantage.
Examples of resources which could fit these criteriainclude intellectual property, specialized equipment, customer loyalty, and unique talent. These resources are often referred to as “core competencies” because they are the foundations of a company’s competitive advantage. Companies can leverage these competencies to gain market share and/or increase profit margins.
For example, a company may have unique talent in the form of scientists and engineers who are able to develop new products faster than their competitors. The company could use this talent to come up with a new product faster than other companies and have a first-mover advantage in the market. Or, a company may have a specialized piece of equipment which reduces production costs compared to competitors. This would give the company a cost advantage, as well as a quality advantage.
The RBT can be used to analyze the resources and capabilities of any firm, and to determine which ones can be used to gain a competitive advantage. It can also be used to analyze a company’s current resources and capabilities, so that they can be improved upon and enhanced to gain an even bigger advantage. RBT is an invaluable tool for managers, who can use it to evaluate their company’s resources and identify which ones can be used to gain a competitive edge.
In conclusion, the Resource Based Theory is a powerful tool which can be used to analyze a company’s internal resources and capabilities, and to determine which ones can be used to gain a competitive advantage. This theory argues that the unique resources and capabilities of a company are what allow it to compete in the market and gain an edge over its competitors.The theory also outlines the criteria these resources must meet in order to be considered a source of competitive advantage. By applying these criteria to a company’s resources and capabilities, managers can identify which ones can be leverage to gain a competitive advantage.
