In the 1980s, Michael Porter emerged as a notable proponent of the market-based positioning methodology as a means to achieve strategic competitive advantage. As technology advances, there is a heightened level of competition, workplace cultures evolve, and employees acquire greater expertise in crafting exceptional value propositions.
A multitude of scholars and researchers have put forth alternative frameworks in an effort to achieve Profitability and sustainable competitive advantage. Rumelt discovered in 1991 that individual organizational resources, not enterprise-level resources, were the primary source of exceptional performance and profitability in large U.S. corporations, in contrast to Porter's assertion that industry solutions are the principal source of profitability.
Superior performance and a competitive advantage can be achieved, according to Pralahad and Hamel, through the utilization of distinctive organizational competencies or capabilities. Understanding the variability in organizational performance is substantially facilitated by the Resource-Based View (RBV) and VRIN. The RBV argues that internal resources—including personnel possessing specialized skills, critical competencies, procedures, and knowledge—are the most crucial determinants in enabling an organization to achieve a competitive advantage over its rivals. These internal resources undergo a process of development, inhibition, and subsequent re-emergence.
Responsibility-Based View (RBV) guarantees the allocation of suitable resources to suitable projects with the aim of maximizing productivity and facilitating seamless project execution. RBV asserts that resources may take the following forms:
- Tangible resources include capital, land, structures, apparatus, and machinery, among others. These physical assets are easily accessible to rival firms.
- Intangible — Brand reputation, trademarks, and intellectual property are examples of intangible assets.
Principal benefits of employing the RBV include:
- A strong internal orientation that enables organizations to develop strategies that leverage their internal resources and capabilities. RBV demonstrates superior effectiveness and longevity when compared to those that rely solely on external market conditions.
- Prioritizes the allocation of resources in accordance with internal capabilities, assets, and competencies.
- Enables informed Decision making by the identification of unique capabilities and resources.
- Provides a thorough understanding of the dynamic relationship between internal capabilities and resources and their impact on the enterprise's overarching strategic goals.
- Enhances the ability to navigate uncertainties, risks, and vulnerabilities by focusing on internal strengths.
As postulated by Jay Barney in 1991, for an organization to differentiate itself from rivals and establish a sustainable competitive advantage, its strategic internal resources must demonstrate these attributes:
- Valuable
- Rare
- Inimitable (or difficult to imitate)
- Non-substitutable
The VRIN attributes of strategic internal resources delineate the determinants that contribute to the competitive advantage of an organization.
Let’s now discuss the first two attributes of the VRIN.
Valuable
The VRIN model, an element of the RBV, asserts that the value of an organization's resources is determined by whether they facilitate the achievement of its objectives, stimulate demand for its offerings, improve quality, increase revenue, reduce expenses, differentiate the organization's offerings in the market, or counteract environmental threats.
By maximizing the use of valuable resources, the organization enhances its operational efficiency and effectiveness, thus taking advantage of market opportunities and assets. Assets that enhance the value proposition for consumers, such as unique technological innovations or well-established brand recognition, can potentially increase Customer Loyalty and stimulate demand for premium pricing. For instance, the distinctive flavor of the proprietary formulation of Coca-Cola syrup, which is universally revered and fosters strong brand loyalty, constitutes a valuable asset. This invaluable resource supports the company's capacity to sustain its market leadership position and charge a premium price. The syrup's formulation is subject to stringent protection measures, guaranteeing that its exact flavor has yet to be replicated by any competitor. Coca-Cola has thus maintained a sustained competitive advantage.
Rare
A resource is categorized as scarce when the number of competitors who possess it is restricted and it is not easily obtainable. Replicating these resources or capabilities is difficult due to their scarcity.
Every organization possesses a unique and distinguishing characteristic. Rarity increases the worth of a resource by means of its limited availability, which hinders all firms from utilizing it to implement competitive strategies. A resource that is universally accessible to all competitors will render it ineffective as a source of competitive advantage, regardless of its inherent value.
To provide an example, a prime retail location could potentially be an insufficient supply.
Interested in learning more about the other attributes of RBV and VRIN framework? You can download an editable PowerPoint presentation on Resource-Based View (RBV) and VRIN Framework here on the Flevy documents marketplace.
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