All organizations must secure a continuing supply of resources from their environments. The initial mix of resources mobilized when an organization is created is critical as these resources constitute a structural pattern that tends to persist and is imprinted on organizational members. However, the question, which arises, is how do organizations create and sustain a strategy which provides profits continuously. A number of measures drew managers attention inwards, influencing them to build a set of unique capabilities and resources. Although, in practice, the exercise of determining and developing a competitive advantage is one in which a company never fails.
Two scholars of Harvard Business School, Montgomery and Collis, determined how organizations use their resources to enhance their performance, in a swiftly changing environment of competition. Moreover, these two scholars have also presented a framework which takes the strategic thinking into a couple of directions. The resource-based view of an organization is a powerful tool, which provides rigorous and realistic set of market tests, so as to determine whether the firm's resources are valued enough to suffice attaining strategic objectives. Moreover, it also integrates market view with the previous insight about industry structure and the competition which exists in it. The area where the company opts to play, as well as, the company's resources will identify its potential profitability. Researchers clearly describe why some organizations are more successful and profitable as compared to others and that too in straight managerial term.
Not only this, they also described how resources should be allocated in order to exploit the core competencies of the firm. A number of authors presented the examples of organizations such as Cooper, Disney, Newell and Sharp to show how resource-based strategies help firms in achieving greater profits. All of these organizations exploited their corporate resources to create and sustain a competitive advantage at the level of business, while achieving benefits from the attractiveness of the market in which these organizations operate (Cooper and Argyris, 1997).
Resource Based View (RBV)
It is a tool for business management, used to identify the strategic resources available for an organization. The underlying principle of this tool is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's disposal. In order to transform a temporary competitive advantage, into a sustainable one underscores the need of keeping the nature of resources heterogeneous, while not keeping them perfectly mobile. In turn, this transforms into resources which are worthwhile and can neither be entirely imitated nor are replaceable unless huge amount of effort is invested. Provided that these conditions remain unchanged, the resources of a firm can help it in maintaining a sustainable existence, providing returns which are above average. The VIRO model is also a part of the Resource-Based view.
How Resources Constitute Organizational Capabilities?
A number of researchers lay great stress on the difference between resources and capabilities of an organization. They define capabilities as “a special ...