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Why Use

The resource-based view as a basis for the competitive advantage of a firm lies primarily in the application of a bundle of intangible resources and tangible resources at the firm’s disposal. The resource-based view has been extensively applied in marketing and management.

  1. Identify the firm’s potential key resources.
  2. Evaluate whether these resources fulfill the following criteria
  • Valuable – The resource must enable a firm for employing a value-creating strategy, by reducing its own weaknesses or by either outperforming its competitors. With the investment in the resource; the transaction costs associated, in this perspective cannot be higher than the discounted future rents which flow out of the value-creating strategy.
  • Rare – the price of the resource is a reflection of the expected discounted future above-average returns, a resource must be rare by definition.
  • In-imitable – It is a source of competitive advantage if a valuable resource is controlled by only one firm. If the competitors are not being able to duplicate this strategic asset perfectly, this advantage could be sustainable. Rumelt introduced the term isolating mechanism, for explaining why firms might not be able to imitate a resource to the degree that they have been able to compete with the firm having the valuable resource
  • Non-Substitutable – Even if the resource is rare, imperfectly imitable and potentially value-creating is an equally important aspect of the lack of substitutability. If the competitors with a Substitute can counter the firm’s value-creating strategy, prices are driven down to the point that the price equals the discounted future rents resulting in zero economic profits.
  1. Protect resources or care for that possess these evaluations, as doing so can improve organizational performance. The VRIN characteristics are individually necessary but are not sufficient conditions for a sustained competitive advantage. The chain is as strong as its weakest link, within the framework of the resource-based view and therefore requires the resource for displaying each of the four characteristics to be a possible source of a sustainable competitive advantage. Amit & Schoemaker made a subsequent distinction, that the encompassing construct is previously known as “resources” can be divided into capabilities and resources. In this respect, capabilities are used for engaging the resources within the firm and are firm-specific, whereas, resources are non-specific and trad-able to the firm. This distinction has been widely adopted through the resource-based view literature.

Makadok in the year 2001, emphasizes the distinction between the resources and capabilities, by describing capabilities as “a special type of resource, specifically an organizationally embedded non- transferable firm- a specific resource whose aim is to improve the productivity of other resources processed by a firm.

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