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Resource-Based View

The resource-based view is a model of competitive advantage that suggests that a firm can gain a sustainable competitive advantage by having resources, or a mix of resources, that are not easily replicable or transferred. If the resources your firm owns or has access to are not replicable, your firm will not be replaceable in the value chain. More importantly, if your firm controls a heterogenous mix of resources that are best suited for your business's value proposition, the likelihood that all of the resources can be duplicated is small.

A firm's key resources can provide a competitive advantage if they are valuable, rare, inimitable, and non-substitutable. These conditions are necessary (not merely sufficient) conditions for a sustained competitive advantage. That is, a firm's resources must have each of the four conditions, and the competitive advantage the firm receives from its resources is only as strong as its weakest link.

  1. Valuable: Are the resources best-suited for creating the type of product or service your firm provides? What business processes does your firm employ to provide their products or services? Do these resources add value or reduce costs in these processes?
  2. Rare: The more scarce a resource, the more valuable it is.
  3. Inimitable: Resources that cannot be copied can be a source of competitive advantage. Resources become more inimitable in one way. For one, if a resource is part of a bundle of resources that the firm employs, the likelihood that the bundle of resources can be duplicated is low. For example, the probability of copying a resource perfectly is less than one (maybe it's 90%). Therefore, the more resources the firm employs together, the likelihood that the whole system of resources will be copied reduces exponentially (0.9 x 0.9 = 0.81%, 0.9 x 0.9 x 0.9 x 0.9 = 0.66%). Secondly, the more knowledge-based or socially complex the resource is, the less likely it is to be imitated.
  4. Non-substitutable: Resources must be rare and inimitable. They must also be valuable, that is, the unique set of resources a firm employees to create, produce, sell and distribute its products and services must create value - they must be suited for the processes in which they are employed, either saving costs, or adding value to the end product or service. The fourth dimension is non-substitutable. That is, the mix of resources the firm employs must be the BEST mix of resources for delivering the firm's products or services. If another mix of resources could equally or better support the operations of the firm, and another company could obtain those resources, the firm will not have a sustainable competitive advantage.


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