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What is a resource-based analysis of a firm?

by Dan Power

Overall, a resource-based analysis attempts to identify or determine if characteristics and capabilities are strengths, basic business requirements, weaknesses or a competitive advantage. A resource is a tangible or intangible asset that is used in the process of creating goods or services. A resource assists in completing an activity or it is an asset that becomes an integral part of a product or service. In a resource-based analysis, assets are evaluated to determine if they create value, are rare, are hard to imitate and whether the organization exploits the resource in its processes. An asset that creates value, is rare and is hard to imitate and that is used effectively in an organization is considered a competitive advantage. A competitive advantage yields above average returns for shareholders. The resource-based view (RBV) of the firm (Barney, 1991) identifies four criteria for evaluating resources:

  • Valuable A resource must create value for a firm.
  • Rare scarce, uncommon
  • Inimitable hard to imitate or copy
  • Non-substitutable providing a special or unique capability that no other resource can.

    Capabilities are specific resources that enable or help an organization do something. Capabilities that are VRIN create competitive advantage.

    Firm specific resources and capabilities help explain a firm's performance. The RBV makes the following assumptions: 1) Resource heterogeneity, firms have differing bundles of resources and capabilities; 2) Resource immobility, some of the resources and capabilities are in limited supply or costly to copy.

    Examples of resources include: Patents and trademarks, Brand name, reputation, Installed base, expertise or knowledge.

    An analysis should ask and answer the following questions in a hierarchical decision tree:

    1. Does the resource help a firm exploit an opportunity or neutralize a threat and hence create value? If YES, proceed to the next question. If NO, ask this question again for a different capability or resource.

    2. Is the resource limited, scarce or rare and does your firm control the resource in a significant way? If YES, proceed to the next question. If NO, start again with question 1 for a different capability or resource.

    3. Will a firm that wants to create or purchase the rare and scarce resource and hence imitate the capability incur a significant cost? If YES, proceed to next question. If NO, start again with question 1 for a different capability or resource.

    4. Does one or more competitors have a substitute capability that provides the same functionality and results? If YES, start again with question 1 for a different capability or resource. If NO, proceed to the next question.

    5. Is the firm organized to strategically exploit the resource or capability? If YES, the capability or resource provides a competitive advantage. If NO, start again with question 1 for a different capability or resource.

    References

    Barney, J. B., (1991), Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1), pp. 99120.



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