41 Resource Based Theorylearning Objectives1 Define The Four Charact ✓ Solved

4.1 Resource-Based Theory Learning Objectives 1. Define the four characteristics of resources that lead to sustained competitive advantage as articulated by the resource-based theory of the company. 2. Understand the difference between resources and capabilities. 3.

Be able to explain the difference between tangible and intangible resources. 4. Know the elements of the marketing mix. Figure 4.1 Resource-Based Theory: The Basics © Thinkstock Show long description Four Characteristics of Strategic Resources Southwest Airlines provides an illustration of resource-based theory in action. Resource-based theory A theory that contends that the possession of strategic resources can provide an organization with competitive advantages over its rivals. contends that the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals ( Figure 4.1 ).

These competitive advantages in turn can help the organization enjoy strong profits. A strategic resource is an asset that is valuable, rare, difficult to imitate, and nonsubstitutable. A resource is valuable Resources that help a company create strategies that capitalize on opportunities and ward off threats. to the extent that it helps a company create strategies that capitalize on opportunities and ward off threats. Southwest Airlines’ culture fits this standard well. Most airlines struggle to be profitable, but Southwest makes money virtually every year.

One key reason is a legendary organizational culture that inspires employees to do their very best. This culture is also rare Resources that are unique when contrasted with the resources of competitors. in that strikes, layoffs, and poor morale are common within the airline industry. As part of its culture, Southwest embraces having fun in ways that most companies do not. This includes occasional in-flight concerts as part of Southwest’s “Live at 35†series. Southwest Airlines Live at 35: for KING & COUNTRY Southwest Airlines takes in-flight entertainment to a new level.

Competitors have a hard time duplicating resources that are difficult to imitate A resource is nonsubstitutable Resources that exist when competitors cannot find alternative ways to gain the benefits that a resource provides. when competitors cannot find alternative ways to gain the benefits that a resource provides. A key benefit of Southwest’s culture is that it leads employees to treat customers well, which in turn creates loyalty to Southwest among passengers. Executives at other airlines would love to attract the customer loyalty that Southwest enjoys, but they have yet to find ways to inspire the kind of customer service that the Southwest culture encourages. Ideally, a company will have a culture, like Southwest’s, that embraces the four qualities shown in Figure 4.1 .

If so, these resources can provide not only a competitive advantage but also a sustained competitive advantage A competitive advantage that will endure over time.—one that will endure over time and help the company stay successful far into the future. Resources that do not have all four qualities can still be very useful, but they are unlikely to provide long-term advantages. A resource that is valuable and rare but that can be imitated, for example, might provide an edge in the short term, but competitors can overcome such an advantage eventually. Resource-based theory also stresses the merit of an old saying: the whole is greater than the sum of its parts. Specifically, it is also important to recognize that strategic resources can be created by taking several strategies and resources that each could be copied and bundling them together in a way that cannot be copied.

For example, Southwest’s culture is complemented by approaches that individually could be copied—the airline’s emphasis on direct flights, its reliance on one type of plane, and its unique system for passenger boarding—to create a unique business model whose performance is without peer in the industry. Resource-based theory can be confusing because the term resources is used in many different ways within everyday common language. It is important to distinguish strategic resources from other resources. To most individuals, cash is an important resource. Tangible goods such as one’s car and home are also vital resources.

When analyzing organizations, however, common resources such as cash and vehicles are not considered to be strategic resources. Resources such as cash and vehicles are valuable, of course, but an organization’s competitors can readily acquire them. Thus, an organization cannot hope to create an enduring competitive advantage around common resources. On occasion, events in the environment can turn a common resource into a strategic resource. Consider, for example, a very generic commodity: water.

Humans simply cannot live without water, so water has inherent value. Also, water cannot be imitated (at least not on a large scale), and no other substance can substitute for the life-sustaining properties of water. Despite having three of the four properties of strategic resources, water in the United States has remained cheap. Yet this may be changing. Major cities in hot climates such as Las Vegas, Los Angeles, and Atlanta are confronted by dramatically shrinking water supplies.

As water becomes more and more rare, landowners in Maine stand to benefit. Maine has been described as “the Saudi Arabia of water†because its borders contain so much drinkable water. It is not hard to imagine a day when companies in Maine make huge profits by sending giant trucks filled with water south and west or even by building water pipelines to service arid regions. Figure 4.2 Resources and Capabilities Show long description Research Round-Up © Shutterstock The Importance of Strategic Resources for Company Performance What can resource-based theory tell us about how to best manage resources to increase company performance? A lot, according to a study of more than 29,000 organizations.

Fortune magazine were tied to better company performance than resources that did not meet the criteria outlined in the resource-based theory of the company. They key message of this research is that unique resources that are valuable to procure, difficult to copy, and challenging to integrate into an organization put a company in a much stronger position to be successful than resources that are readily available to all competitors. Crook, T. R., Todd, S. Y., Combs, J.

G., Woehr, D. J., & Ketchen, D. J. 2011. Does human capital matter?

A meta-analysis of the relationship between human capital and firm performance. Journal of Applied Psychology, 96(3), 443–456. From Resources to Capabilities The tangibility of a company’s resources is an important consideration within resource-based theory. Tangible resources Resources than can be readily seen, touched, and quantified, such as physical assets, property, plant, equipment, and cash. are resources that can be readily seen, touched, and quantified. Physical assets such as a firm’s property, plant, and equipment, as well as cash, are considered to be tangible resources.

In contrast, intangible resources Resources that are difficult to see, to touch, or to quantify, such as the knowledge and skills of employees, a company’s reputation, and a company’s culture. are quite difficult to see, to touch, or to quantify. Intangible resources include, for example, the knowledge and skills of employees, a company’s reputation, and a company’s culture. In comparing the two types of resources, intangible resources are more likely to meet the criteria for strategic resources (i.e., valuable, rare, difficult to imitate, and nonsubstitutable) than are tangible resources. Executives who wish to achieve long-term competitive advantages should therefore place a premium on trying to nurture and develop their companies’ intangible resources.

Capabilities What the organization can do based on the resources it possesses. are another key concept within resource-based theory. A good and easy-to-remember way to distinguish resources and capabilities is this: resources refer to what an organization owns , capabilities refer to what the organization can do ( Figure 4.2 ). Capabilities tend to arise over time as a company takes actions that build on its strategic resources. Southwest Airlines, for example, has developed the capability of providing excellent customer service by building on its strong organizational culture. Capabilities are important in part because they are how organizations capture the potential value that resources offer.

Customers do not simply send money to an organization because it owns strategic resources. Instead, capabilities are needed to bundle, to manage, and otherwise to exploit resources in a manner that provides value added to customers and creates advantages over competitors. Some companies develop a dynamic capability A unique ability to create new capabilities by continually updating a firm’s array of capabilities to keep pace with changes in its environment.. This means that a company has a unique capability of creating new capabilities. Said differently, a company that enjoys a dynamic capability is skilled at continually updating its array of capabilities to keep pace with changes in its environment.

General Electric, for example, buys and sells companies to maintain its market leadership over time, while Coca-Cola has an uncanny knack for building new brands and products as the soft-drink market evolves. Not surprisingly, both of these firms ranked among the top twenty listed as the “World’s Most Admired Companies†for 2017. Strategy at the Movies © Shutterstock That Thing You Do! How can the members of an organization reach success “doing that thing they doâ€? According to resource-based theory, one possible road to riches is creating—on purpose or by accident—a unique combination of resources.

In the 1996 movie That Thing You Do! , unwittingly assembling a unique bundle of resources leads a 1960s band called The Wonders to rise from small-town obscurity to the top of the music charts. One resource is lead singer Jimmy Mattingly, who possesses immense musical talent. Another is guitarist Lenny Haise, whose fun attitude reigns in the enigmatic Mattingly. Although not a formal band member, Mattingly’s girlfriend Faye provides emotional support to the group and even suggests the group’s name. When the band’s usual drummer has to miss a gig due to injury, the door is opened for charismatic drummer Guy Patterson, whose energy proves to be the final piece of the puzzle for The Wonders.

Liv Tyler played FayeDolan, the love interest of drummer Guy Patterson in That Thing You Do! Source: Featureflash Photo Agency / Shutterstock.com Despite Mattingly’s objections, Guy spontaneously adds an up-tempo beat to a sleepy ballad called “That Thing You Do!†during a local talent contest. When the talent show audience goes crazy in response, it marks the beginning of a meteoric rise for both the song and the band. Before long, The Wonders perform on television and “That Thing You Do!†is a top-ten hit record. The band’s magic vanishes as quickly as it appeared, however.

After their bass player joins the Marines, Lenny elopes on a whim, and Jimmy’s diva attitude runs amok, the band is finished and Guy is left to “wonder†what might have been. That Thing You Do! illustrates that while bundling resources in a unique way can create immense success, preserving and managing these resources over time can be very difficult. A new drummer transforms a sleepy ballad into rock and roll gold. Transcript Is Resource-Based Theory Old News? Resource-based theory has evolved in recent years to provide a way to understand how strategic resources and capabilities allow companies to enjoy excellent performance.

But more than one wry observer has wondered aloud, “Is resource-based theory just old wine in a new bottle?†This is a question worth considering because the role of resources in shaping success and failure has been discussed for many centuries. Aesop was a Greek storyteller who lived approximately 2,500 years ago. Aesop is known in particular for having created a series of fables—stories that appear on the surface to be simply children’s tales, but that offer deep lessons for everyone. One of Aesop’s fables focuses on an ass (donkey) and some grasshoppers. When the ass tries to duplicate the sweet singing of the grasshoppers by copying their diet, he soon dies of starvation.

Attempting to replicate the grasshoppers’ unique singing capability proved to be a fatal mistake ( Figure 4.3 ). The fable illustrates a central point of resource-based theory: it is an array of resources and capabilities that fuels enduring success, not any one resource alone. In a far more recent example, sociologist Philip Selznick developed the concept of distinctive competence A set of activities that an organization performs especially well. through a series of books in the 1940s and 1950s. A distinctive competence is a set of activities that an organization performs especially well. A distinctive competence is not merely a strength that a company possesses.

Instead, a company that has a distinctive competence in marketing, for example, stands out as exceptional among company who all have strengths in marketing. Although several airlines are good at operations management, for example, Southwest Airlines appears to have a distinctive competency in operations, as evidenced by how quickly it moves its flights in and out of airports relative to even its worthiest rivals. Similarly, Apple appears to have a distinctive competence in creating innovative new products. Selznick also suggested that possessing a distinctive competency creates a competitive advantage for a company. Not surprisingly, Southwest’s unique skills in operations management and Apple’s unique ability to devise game-changing products provide these two companies with an edge over their rivals.

The concept of distinctive competence is useful to individuals too. If you are an exceptionally persuasive speaker, for example, then you might excel in a sales career or as a lawyer. If you have uniquely strong math skills, then a career as an accountant or a financial analyst could be a good choice. Figure 4.3 Aesop’s Fables Adapted from Chapter 4 of Atlas Black: Managing to Succeed. Short, J., & Ketchen, D.

2005. Using classic literature to teach timeless truths: An illustration using Aesop’s fables to teach strategic management. Journal of Management Education, 29, 6, 816–832. Show long description So is resource-based theory, in fact, old wine in a new bottle? Not really.

Resource-based theory builds on past ideas about resources, but it represents a big improvement on past ideas in at least two ways. First, resource-based theory offers a complete framework for analyzing organizations, not just snippets of valuable wisdom like Aesop and Selznick provided. Second, the ideas offered by resource-based theory have been developed and refined through scores of research studies involving thousands of organizations. In other words, there is solid evidence backing it up. The Marketing Mix Figure 4.4 The Marketing Mix Images courtesy of Adventures of Pam & Frank, (first); Fuzzy Gerdes, (third); Extended Image Photography, (fourth); other images © Thinkstock.

Show long description Leveraging resources and capabilities to create desirable products and services is important, but customers must still be convinced to purchase these goods and services. The marketing mix The four Ps (product, price, place, and promotion) that companies use to offer customers a coherent and persuasive message.—also known as the four Ps of marketing—provides important insights into how to make this happen. A master of the marketing mix was circus impresario P. T. Barnum, who is famous in part for his claim that “there’s a sucker born every minute.†The real purpose of the marketing mix is not to trick customers, but rather to provide a strong alignment among the four Ps (product, price, place, and promotion) to offer customers a coherent and persuasive message ( Figure 4.4 ).

A company’s product Goods and services a company sells to customers. is what it sells to customers. Southwest Airlines sells, of course, airplane flights. The airline tries to set its flights apart from those of other airlines by making flying fun. This can include, for example, flight attendants offering preflight instructions as a rap. The price The amount companies charge for their goods or services. of a good or service should provide a good match with the value offered.

Throughout its history, Southwest has usually charged lower airfares than its rivals. Place A physical purchase point as well as a distribution channel. can refer to a physical purchase point as well as a distribution channel. Southwest has generally operated in cities that are not served by many airlines and in secondary airports in major cities. This has allowed the company to get favorable lease rates at airports and has helped it create customer loyalty among passengers who are thankful to have access to good air travel. Recently, a Girl Scout cleverly set up a table to sell cookies outside a medical marijuana clinic in San Francisco.

Danielle Lei sold 117 boxes of cookies within two hours. This was a perfect place to sell sugary cookies because the active ingredient in marijuana is an appetite stimulant. Few executives in history have had the marketing savvy of P. T. Barnum.

Source: Oldrich / Shutterstock.com Finally, promotion The communications used to market a product, including advertising, public relations, and other forms of direct and indirect selling. consists of the communications used to market a product, including advertising, public relations, and other forms of direct and indirect selling. Southwest is known for its clever advertising. In a recent television advertising campaign, for example, Southwest lampooned the baggage fees charged by most other airlines while highlighting its more customer-friendly approach to checked luggage. Given the consistent theme of providing a good value plus an element of fun to passengers that is developed across the elements of the marketing mix, it is no surprise that Southwest has been so successful within a very challenging industry.

Promotion within the airline industry is now even taking place within airplanes after passengers board. Delta’s flight attendants have been armed with wireless devices that allow them to sell passengers seat upgrades on the spot. Key Takeaway · Resource-based theory suggests that resources that are valuable, rare, difficult to imitate, and nonsubstitutable best position a company for long-term success. These strategic resources can provide the foundation to develop company capabilities that can lead to superior performance over time. Capabilities are needed to bundle, to manage, and otherwise to exploit resources in a manner that provides value added to customers and creates advantages over competitors.

Exercises 1. Does your favorite restaurant have the four qualities of resources that lead to success as articulated by resource-based theory? 2. If you were hired by your college or university to market your athletic department, what element of the marketing mix would you focus on first and why? 3.

What other classic stories or fables could be applied to discuss the importance of company resources and superior performance? Annotate ‹ PreviousNext ›

Paper for above instructions

Resource-Based Theory (RBT) has garnered attention as a critical approach to understanding how organizations gain and sustain competitive advantages. It posits that the possession of strategic resources is key to enabling firms to outperform their competitors (Barney, 1991). This essay will define the four characteristics of strategic resources that lead to sustained competitive advantage, differentiate between resources and capabilities, explain the difference between tangible and intangible resources, and outline the elements of the marketing mix.

Characteristics of Strategic Resources

According to RBT, strategic resources must exhibit four essential characteristics: value, rarity, inimitability, and non-substitutability (Barney, 1991).
1. Value: For a resource to be considered strategic, it must provide value, enabling the firm to develop strategies that leverage opportunities in the market or mitigate threats it faces (Barney, 1991). For instance, Southwest Airlines utilizes its unique organizational culture—a valued asset that enhances employee performance and customer satisfaction—allowing it to consistently achieve profitability compared to its peers (O’Reilly & Tushman, 2013).
2. Rarity: Strategic resources must be rare among competitors. If many companies possess the same resource, it cannot provide a competitive advantage (Barney, 1991). Southwest Airlines illustrates this point; their culture of fun and teamwork is not common in the aviation industry, giving them a unique status compared to rivals who often face labor issues and strikes.
3. Inimitability: Resources must also be difficult to imitate. If competitors can easily replicate a strategic resource, its value diminishes (Barney, 1991). For instance, the specific culture at Southwest Airlines, developed over decades, is not easily copied by other airlines despite their desire to do so.
4. Non-substitutability: Finally, these resources must be unique to the firm, meaning competitors cannot find alternative resources that offer the same benefits (Barney, 1991). The customer loyalty that results from Southwest's employee engagement is a prime example; other airlines may offer similar services but often fail to replicate the unique customer experience Southwest provides.

Resources vs. Capabilities

RBT distinguishes between resources and capabilities. While resources refer to what an organization owns, capabilities signify what it can do with those resources (Teece, Pisano, & Shuen, 1997). Resources include tangible items such as equipment and facilities, as well as intangible ones like brands and patents. Conversely, capabilities arise from the complex interaction of resources. For example, a hotel might have the physical resources of luxurious facilities and services (resources), but combining these effectively to deliver exceptional customer service is its capability (Day, 1994). Thus, while resources are essential, it is the capabilities that enable firms to utilize these resources effectively and drive performance.

Tangible vs. Intangible Resources

Resources can be classified into tangible and intangible categories.
1. Tangible Resources: These are physical and easily valued items, such as machinery, buildings, and capital. They are often quantifiable and used in day-to-day operations (Barney & Hesterly, 2015). For example, an airline’s fleet of aircraft is a tangible resource that plays a direct role in its operations.
2. Intangible Resources: These encompass non-physical assets that are often harder to quantify but are crucial for competitive advantage, such as brand reputation, intellectual property, and corporate culture (Barney, 1991). Southwest Airlines leverages its intangible resources—its reputation for customer service and employee morale—to differentiate itself in a highly competitive industry.
While tangible resources are important for any organization's functioning, intangible resources tend to provide a more sustainable competitive advantage. For instance, a company known for innovation (an intangible asset) can develop new products much faster than others, driving long-term profitability (Kotler & Keller, 2016).

Elements of the Marketing Mix

The marketing mix, often referred to as the four Ps—product, price, place, and promotion—plays a critical role in how organizations position themselves in the market to leverage their resources (McCarthy, 1960).
1. Product: This denotes what the company sells to its clientele. In the case of Southwest Airlines, their core product is air travel, which they differentiate through enjoyable experiences by integrating entertainment and a customer-friendly approach.
2. Price: The cost consumers pay for a product should align with the value provided. Southwest often maintains lower airfares than its competitors, enhancing its appeal to price-sensitive customers while maintaining quality service.
3. Place: This refers to where the product is available for purchase, and how it is distributed. Southwest Airlines operates in underserved markets, often using secondary airports, which reduces operational costs and enhances convenience for customers.
4. Promotion: This element encompasses all promotional activities and communications designed to persuade consumers to buy. Southwest Airlines utilizes witty advertisements and engages in social media promotions to communicate its unique value proposition.
When these four elements are strategically aligned, as seen with Southwest Airlines, it maximizes the effectiveness of the marketing strategy, ultimately leading to greater competitive advantage and market success (Kotler & Keller, 2016).

Conclusion

The resource-based theory posits that an organization's competitive advantage stems from unique strategic resources that are valuable, rare, difficult to imitate, and non-substitutable. By distinguishing between resources and capabilities, as well as tangible and intangible resources, organizations can better strategize to utilize their assets effectively. Additionally, integrating the elements of the marketing mix into operations can enhance how firms leverage these resources to achieve superior performance. Understanding these concepts is vital for organizations aiming to sustain competitive advantages in an increasingly dynamic business environment.

References

1. Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.
2. Barney, J. B., & Hesterly, W. S. (2015). Strategic Management and Competitive Advantage: Concepts and Cases. Pearson.
3. Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J. (2011). Does Human Capital Matter? A Meta-Analysis of the Relationship Between Human Capital and Firm Performance. Journal of Applied Psychology, 96(3), 443-456.
4. Day, G. S. (1994). The Capabilities of Market-Driven Organizations. Journal of Marketing, 58, 37-52.
5. Kotler, P., & Keller, K. L. (2016). Marketing Management (15th ed.). Pearson Education.
6. McCarthy, E. J. (1960). Basic Marketing: A Managerial Approach. Irwin Press.
7. O’Reilly, C. A., & Tushman, M. L. (2013). Organizational Ambidexterity: When, How, and Why. Annual Review of Organizational Psychology and Organizational Behavior, 1, 1-21.
8. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509-533.
9. Selznick, P. (1957). Leadership in Administration: A Sociological Interpretation. University of California Press.
10. Short, J., & Ketchen, D. (2005). Using Classic Literature to Teach Timeless Truths: An Illustration Using Aesop’s Fables to Teach Strategic Management. Journal of Management Education, 29(6), 816-832.