This post introduces the Resource Based View strategic framework and provides examples of using it.
It provides an outline or process for applying the framework in practice. It identifies the strengths and shortcomings of RBV as a strategic framework and how to overcome those. Finally, it lays out a road map for leveraging RBV using strong project management capabilities.
What Is a Resource Based View?
The Resource Based View (RBV) framework provides an internal view of the world based on leveraging a firm’s resources. The idea is that managers can build sustainable competitive advantages based on their organization’s internal resources – its assets, capabilities, and competencies.
The origin of the modern Resource Based View (RBV) generally points to an article entitled, “Firm Resources and Sustained Competitive Advantage“, written by Jay Barney in the ‘Journal of Management’ in 1991.
RBV bases competitive advantage on resources, but the starting point is to identify all resources and determine how much value each adds, and what value there might be in specific combinations of the resources.
An organization’s resources can be divided into two categories:
- Tangible – A physical asset, such as a building, machine, piece of equipment, or tool. A building location can be unique, but a building itself can usually be replicated by a competitor. Equipment is usually also widely available, but occasionally a company might have proprietary machinery or equipment technology, or processes for using them. Tangible, or physical, assets are usually not unique.
- Intangible – Intangible assets can include a unique culture, or a proprietary or hard to replicate process. Generally, intangible assets tend to be the hardest for competitors to replicate, and thus are the greatest source of competitive advantage.
But the analysis goes further – to determine whether the assets provide a moat to protect the organization against competitors. To assess that using the RBV framework, the initial analysis needs to consider these two conditions:
- Heterogeneous – Assets are different from those of competitors. They must also be different as a deliverable combination. For example, if products delivered from a set of unique assets are not different in terms of quality, cost, or another factor from that of competitors, the uniqueness does not add value.
- Immobile – Assets have a permanence within the organization. In other words, the value of the asset cannot be transferred to another organization, as would happen, for example, if an executive, scientist, sales person, or other individual would leave and move to another organization.
But analysis goes beyond that. There is more to the RBV and achieving competitive advantage
Michael Porter, the Resource Based View, and the VRIO Framework
Michael Porter, in his ‘Strategy and Project Management’ presentation to the Project Management Institute (PMI), explained the difference between two types of projects:
- Projects that create added value and are strategically driven
- Projects that create greater efficiencies and thus achieve lower costs
In Porter’s category 2 projects, greater efficiencies, lower costs, or successful compliance with a regulation or some other required condition are not heterogeneous and immobile and can be replicated by competitors. They keep the company in the game, but do not provide competitive advantage.
Porter’s category 1 projects, however, do provide competitive advantage. These projects support initiatives to produce heterogeneous and immobile assets.
But there is more to analyze. In analyzing a RBV of a company, a manager needs to apply the VRIO framework (illustrated in the diagram above):
- V – Is the resource Valuable? Do customers want it? If so, how much of it do they want or need?
- R – Is the resource Rare? Do few – or no other – companies have it?
- I – Can the resource be Imitated? Can it be replicated with relative ease by some competitors?
- O – Is the firm Organized to capture the advantage? If the above three factors are in place, there is potential to build competitive advantage by organizing accordingly. If the organization is already in place, it already has the competitive advantage!
As part of the Resource Based View approach, applying the VRIO framework provides a more thorough analysis to determine if an asset provides sustainable competitive advantage.
Strategy and Advantages/Disadvantages of RBV
RBV is an internally focused approach to strategy. As such, it has something in common, and something to be borrowed from, some other internally focused strategy frameworks such as:
- Core Capabilities – What is the core set of capabilities within the organization?
- Change Management – Vulnerability and adaptability of the organization to inevitable change.
- Value Stick Framework – Framework to assess what value your organization is adding.
- Value Proposition of the Business Model Canvas – What is the company’s value proposition?
- Business Model Innovation – The capability of a company to innovate – a virtual capability unto itself.
- McKinsey 7S Framework – Assess the organization’s capabilities and preparedness for an initiative.
- Nadler Tushman Congruence Model – Are capabilities within the organization in sync?
- Dynamic Capabilities – Ability of firm to adapt to changing conditions.
With this ‘internal focus’, the Resource Based View framework has a few disadvantages to consider:
- Pure strategic approach, lacking in implementation – A manager might have all the info from the RBV…and be stuck at, “So what?!” The RBV approach does not specify the action that needs to be taken to move the organization forward.
- External customer facing view completely missing – This alone indicates that the RBV framework is best used in conjunction with some other externally facing strategic frameworks.
- A snapshot in time – The RBV is like a balance sheet; it provides a picture of what assets we have right now. While this has value, it is critical to also assess where things will or can evolve.
The RBV framework is good at pinpointing the assets that can provide value, but it clearly needs to be complemented with some other approaches that fill these gaps.
Project Management and RBV Implementation
As I mentioned above, a manager might look at the strategic assets listed and evaluated as part of an RBV and say, “So what!” Indeed, one of the biggest criticisms above of the Resources Based View is its lack of implementation focus.
That’s where project management comes in.
A strong implementation capability is needed in any organization. Project management is one such implementation competency and capability – mostly intangible – unto itself.
Let’s look at where project management might fit in the RBV framework.
A good starting point could be to look at the three broad activities in project management and begin to build a road map to leverage the assets identified in the RBV.
- Portfolio management – What sorts of projects are needed to leverage specific assets? Which projects need to come first? What projects do we need as a whole, and what is the priority order?
- Program management – What strategic threads flow through the whole set of assets? Does the combination of asset view and external customer-facing view point to some broad programs that need to be executed?
- Project management – What execution capabilities do we have? What can we do to improve that, or build it to a level needed to support the portfolio and program initiatives?
The criticisms of the RBV approach are real, but the benefits are real, too. One of the keys to extracting value from the RBV framework is to ensure that your organization has the capability to execute via strong project management capabilities.
Conclusion
This post has surveyed the Resource Based View framework and its natural extension, the VRIO framework. It has looked at the advantages and shortcomings of RBV as a strategic framework and how to overcome those. Finally, it laid out a road map for leveraging RBV using strong implementation capabilities through portfolio, program, and project management.
The following is a thorough, clear, and lively/humorous summary by David Halliday of the Resource Based View (RBV) strategy: