Relevance of resource based view of strategy

"In the emerging economy, a firm's only advantage is its ability to leverage and utilize its knowledge."

...Larry Prusak, Executive Director - The Institute for Knowledge Management

A successful organization constantly redefines their methods of creativity and problem solving.

For any high performance organization, knowledge management is the central pillar in its strategic plans. It remains to be seen if they will bounce back from their fall. Therefore resource-based view is essential in this global environment.

Strategic management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the company's Chief Executive Officer (CEO) and executive team.

It provides overall direction to the whole enterprise. An organization’s strategy must be appropriate for its resources, circumstances, and objectives. The process involves matching the companies' strategic advantages to the business environment the organization faces. One objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics) into a cohesive whole.

Resource view based on Porter’s Model

Various management consultants and thinkers have defined the process of strategy in various ways. Porter’s model focused on defining a firm’s strategy in terms of it’s product/ market positioning. Building on Porter’s notion of competitive advantage, the resource based view of strategy argues that the resources and capabilities of an organization can be a source of competitive advantage if they processes certain characteristics of being rare, durable and difficult to imitate, flexible and durable.

If firms have resources with these characteristics, they can position themselves strategically on the basis of these resources and capabilities. Most of the tangible resources may not have these characteristics and hence organisations have to focus on intangible assets to be a source of competitive advantage. Many authors have stressed on the strategic importance of intangible assets for firms to achieve competitive. Thus the resource view is based on knowledge, which emphasizes building, and sustaining competitive advantage on the basis of the knowledge resources and capabilities of a firm has gained currency due to the following reasons:

• Market is in a state of flux and going through a string of realignments

• Resources and capabilities are easily replicable

• The unprecedented growth of information superhighway has accelerated the spread of explicit knowledge and consequently the speed of replicability

• Tacit knowledge gained through years of experience is not easily replicable.

Reasons for emphasis on Resources Based view:

The need to focus on managing knowledge within the enterprise results from

• Economic and market-driven requirements created by customer demands and international competition

• Increase in customer demands for products and services that fulfill their particular needs more precisely and to a greater advantage

• Loss of knowledge to the organization due to increased personnel turnover

• It helps organizations to be able to repeat the processes followed in past successful projects.

• Effective knowledge management practices helps organisations avoid repeating mistakes of past projects, thereby reducing the time span required for completing current projects.

Reference:

STRATEGIC MANAGEMENT BY WHEELEN