The effectiveness of the resource-based approach is determined by monitoring the start of the management process and assessing the organization’s ability to extract the resources necessary for successful activities effectively. Thus, the resource approach observes and evaluates the contribution of the organization’s management system since it is assumed that in order to be effective, the organization must be able to receive and manage valuable resources. An important feature is that the strategies “emerge from the historical and long-term development of the company and its social complexity” (Professor, 2020). From the point of view of the resource approach, the effectiveness of an organization is defined as its absolute or relative ability to attract rare and valuable resources, successfully integrate, and manage them. The resource approach is used when other approaches to assessing the effectiveness of management cannot be implemented due to the lack of the required number of indicators. However, this approach is often considered unsuited to dynamic contexts as to build competitive advantages on a resource base takes time. When the resources change quickly, the companies should look for other means of competitive advantages.
Limitations of The Resource-Based View
The resource approach has undeniable advantages when other approaches to measuring efficiency are not available, but it correspondingly has an undoubted disadvantage. An important aspect is that it does not consider the relationship of the organization’s activities with the needs of consumers. As a result, the resource strategy is most useful when obtaining and measuring plan performance indicators is challenging. This is reflected in the fact that a focused strategy for analyzing and measuring managerial performance is difficult to integrate. A clear focus on sales markets, according to supporters of the resource strategy, is not a guarantee of success or the enterprise’s long-term best position in the market.
The resource-oriented approach does not sufficiently examine organizational, scientific, psychological, and social factors of the company’s behavior in strategic terms. Several aspects are involved in the direct undertaking of this approach. They are related to the intra-company structure, social controls, resource provision, and the behavior of people directly involved in implementing the strategy. Furthermore, because of the various definitions of resources, determining the right degree of analysis may be difficult (Assensoh-Kodua, 2019). In addition, there are several points that are subjective – this is the reputation of the company and its knowledge in the field of activity. Furthermore, managers should consider the fact that heterogeneity does not necessarily imply uniqueness. Moreover, it should be indicated that rapid changes are taking place in the current situation, which is relatively difficult to evaluate. This refers to technologies that can affect the change and condition of the organization’s essential resources. All this cannot be taken into account in advance, which makes this approach insufficiently effective in conditions of rapid economic changes.
The resource-based view has been criticized for being too static and unsuitable for dynamic, changing contexts. Indeed, the resource-based view implies that resources are relatively static (Miller, 2019). The companies’ competitive advantages are seen as having certain types of resources in one’s possession, and the fact that the resources may change quickly is totally disregarded. Indeed, in dynamic companies where resources change quickly, the competitive advantages based on the acquisition of these or those types of resources are irrelevant. The examples of dynamic companies where the impact of a resource base is limited are IT companies, the sphere that develops quickly. Indeed, in IT, the equipment and material resource base can hardly be treated as sources for sustainable competitive advantages and are more likely to be seen as the necessities for efficient work. The relatively quick changes in the material base are seen as an attempt to keep up with the progress instead of being a base for competitiveness.
On the other hand, the competencies and abilities of IT staff seen as resources in themselves, develop relatively quickly. Though this aspect of a resource-based approach is rather dynamic, it can hardly be considered a unique source of companies’ advantage since other factors play an equally essential role in ensuring IT companies’ success. Creativity, and the ability to solve complex tasks do not come with experience but are seen as inherent qualities of a person. Moreover, since IT projects may involve working in different fields the companies attract outside specialists able to resolve the arising issues.
Key Structural Elements of The Resource-Based View Thinking
As a source of competitive advantages, this approach considers the subject’s effective industry and market position, considering its specifics. Therefore, a unique combination of its original and hard-to-copy specific types of resources acts as a source of competitive advantages.
The resource approach provides a basis for analyzing the resources and capabilities of a firm. However, it is rather abstract, which is why many authors develop their models of sustainability of competitive advantage within its framework. J. Barney created the VRIN model in 1991, which is organized around four primary concerns for examining the company’s current strengths and weaknesses within the context of the resource approach (Davis and DeWitt, 2021). This model reflects the relationship between the resource’s position in the matrix and its economic indicators. VRIO analysis is part of the methodological set of strategic analysis. It entails assessing the company’s resources and skills in order to establish the possibility of long-term competitive advantage. The purpose of VRIO is to identify a resource or opportunity that has the most significant potential to become a long-term competitive benefit.
Sustainable Competitive Advantage
When a company executes a strategy that creates value for clients that none of its competitors in this market are using, it gains a competitive advantage. A stable competitive advantage is called in the case when none of its current or potential competitors using the same strategy will be able to get a comparable gain from the strategy being implemented. In this approach, sustainability means long-term preservation from copying by competitors. However, the resource approach admits that over time, in the course of structural changes in the industry, the sources of competitive advantage may lose their relevance and the category of strategically important.
It is worth noting that the main resources of the company, which should guarantee its competitiveness, should be non-standardized (heterogeneous) and stationary. Otherwise, when several players in the market have similar resources, any company can repeat the strategy of another and get a comparable result. That is why, resource-based strategy is often considered unsuitable for changing contexts, though with adequate approach to resource change it may still be implemented. Critical competencies are safeguarded through a variety of methods, including limiting access to specific resources. The companies should think one step ahead of the competition and, if necessary, pay more attention to the replacement of resource types. Due to the complex nature of the changes in the external environment, it may be necessary to invest additional resources in order to update them in accordance with market conditions.
Assensoh-Kodua, A. (2019) ‘The resource-based view: a tool of key competency for competitive advantage.’ Problems and Perspectives in Management, 17(3), pp.143-152.
Davis, G. and DeWitt, T. (2021) ‘Organization theory and the resource-based view of the firm: the great divide.’ Journal of Management, 47(7), pp.1684-1697.
Professor. (2020) [Lecture Notes]
Miller, D. (2019). The resource-based view of the firm. In Oxford Research Encyclopedia of Business and Management.