How does resource provide competitive advantage?

“The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes (discussed in the next question), the resource enables the firm to gain and sustain competitive advantage” (Jurevicius, 2013). RBV became popular in the ’80s and ’90s after some authored publishings on the subject. The theory has been redefined and refined through research with evidence supporting its basis. The foundation of philosophy about RBV says companies should be looking to use external factors to achieve competitive advantage. These external factors are referred to as resources and are the major reasons organizations get to a place where they operate on a higher level of performance. The two types of resources are tangible and intangible.

As just discussed there are two types of resources within the RBV framework:

Tangible - These resources can be seen, touched, and quantified (Dejmal, n.d.). They are physical things like land, buildings, equipment, capital, etc. These tangible resources really don’t give companies much of competitive advantage because they are easily bought by rival competitors which gives them the same advantage. (Jurevicius, 2013).

Intangible - Intangible resources are everything that does not have a physical presence but can be owned by the company, used to describe them uniquely, and cannot be bought in the marketplace. Intangible examples would be employee skills, company reputation, a company’s branding, customer loyalty and more.

Companies sometimes have multiple tangible and intangible resources. The way to determine which are useful in obtaining a competitive advantage is the use of the VRIO analysis. “VRIO analysis is a tool in strategic planning, used by firms to make effective business decisions. The analysis provides information and the results will hopefully provide a competitive advantage. VRIO is internal analysis, thus used to identify and evaluate resources in a company” (VComply, 2017) and most often the process is expressed as a series of questions. Neil Patel (n.d.) of Clearpoint Strategy refers to VRIO as value, rarity, imitability, and organization and offers the following information about the acronym:
Value - Do you offer a resource that adds value for customers? Are you able to exploit an opportunity or neutralize competition with an internal capability? If no, you are at a competitive disadvantage; reassess your resources to uncover value. If yes, value is there and move on to rarity analysis.
Rarity - Do you control scarce resources or capabilities? Do you own something that’s hard to find yet in demand? If no, your resources are valuable, but common which makes competing harder, competitive parity. Go back to step one and reassess. If yes, move on to imitability.

Imitability - Is it expensive to duplicate your organization’s resource or capability? Is it difficult to find an equivalent substitute to compete with your offerings? If no, your resource is affordable and easy to replicate and it will be difficult to set the resource apart from others, temporary competitive advantage. Go back one step to reassess. If yes,  you have value, rarity, and a resource that’s hard to imitate. Proceed to focus on your organization.


Information systems participate in the creation of sustainable competitive advantage in multiple ways. Millar and Porter (1985) of the Harvard Business Review describe three ways information affects the competitive advantage:

It changes industry structure and, in so doing, alters the rules of competition. Information technology changes company operations, thereby alter how companies create products. Evidence is also seen with its inclusion in the value chain as the company divides business activities into two, economic and technological.

It creates a competitive advantage by giving companies new ways to outperform their rivals. IT collects more data than ever before which allows companies to capture uncharted information to be used for better decision making. IT has also taken over the repetitive functions of business thereby freeing up the mental capacity of those who used them. Information Technology also greatly increased the opportunities for companies to look between product lines, find common, exploitable ground to create and grow revenue. IT gave companies a further geographical reach for expanded research and coordinated efforts.

It spawns whole new businesses, often from within a company’s existing operations. It has made new business technologically feasible, by creating new product demand, and creating new businesses within the old (Millar & Porter, 1985). For example, a company with an overabundance of skills derived from IT can sell those services to other companies. They can even sell unused information to other companies.


Nicholas Carr, an acclaimed writer on technology, economics, and culture, examined IT’s evolutional use into business and likened it to the same course in history as railroads and electricity. As they gained importance, prominence, and use into the infrastructure of a business, they opened up opportunities like never before and paved a pathway to competitive advantage. After a while, they became more available and less costly. This made them more essential to society, but less visible. They become the standard. They no longer matter (Carr, 2003). Carr (2003) further states:
“We’re at the point where any technological improvement in the management of information will be quickly and broadly copied, rendering it meaningless for competitive advantage.”

Having read his position statements and compared them to the rebuttals detailed in the article, I can easily see Carr’s side to a point. It makes perfect sense to me, even though I’m not an IT expert and may be overlooking some deeper professional insights. Carr used railroads and electricity as infrastructures that changed business but became commonplace. Others that come to mind are cell phones, laptops, automobiles, televisions, and let’s not forget the Internet and WIFI. I see their initial introduction to the world was at an almost inaccessible point for most of us. They provided the owners with an advantage no one else had. Then as they increased in popularity, they became mass produced, more accessible and less expensive. Everyone has it or uses it, so now they don’t provide a competitive edge. Where I diverge from Carr’s theory is that the use of the product carries its importance when the technology becomes common. Yes, it’s a cell phone but this cell phone allows you to see the person you’re talking to, remembers who called you, allows you to watch movies, etc. It’s the application of the technology makes it matter.


References
Carr, Nicholas. (May 2003). It Doesn’t Matter. Retrieved from http://www.nicholascarr.com/?page_id=99

Dejmal, Amber. (n.d.). Resource-Based Theory: Path to Competitive Advantage. Retrieved from https://study.com/academy/lesson/resource-based-theory-path-to-competitive-advantage.html

Jurevicius, Ovidijus. (October 2013). Resource-Based View. Retrieved from https://www.strategicmanagementinsight.com/topics/resource-based-view.html

Millar,  M. and Porter, Victor. (July 1985). How Information Gives You Competitive Advantage. Retrieved from https://hbr.org/1985/07/how-information-gives-you-competitive-advantage

Patel, Neil. (n.d.). Explaining The VRIO Framework (With A Real-Life Example). Retrieved from https://blog.v-comply.com/vrio-analysis/

VComply Editorial. (September 2017). What is VRIO Analysis and What is its Importance? Retrieved from https://blog.v-comply.com/vrio-analysis/