Question

Critically discuss the role of Resource Based View and Value Chain in gaining competitive advantage. Please give real life examples.

Answer 1

Every business needs to understand its competitive edge. Its a value proposition that helps businesses identify what sets it apart from competitors. How can one tell if a specific business activities are creating the most value for customers and a great profit margin?

Two methods - Resource based view argues that CA or the competitive advantage comes from the resources at the firm. These are the resources the firm can manage. On the other hand, the firms specific activity in the industry creates the sources of CA. This view is called as Value Chain gaining the competitive advantage. Both are explained below with example.

The Resource Based View (RBV) analyzes and interprets internal resources of the organizations and emphasizes resources and capabilities in formulating strategy to achieve sustainable competitive advantages. Resources may be considered as inputs that enable firms to carry out their activities. Internal resources and capabilities determine strategic choices made by firms while competing in their external business environment. Firm’s abilities also allow some firms to add value in customer value chain, develop new products or expand in new marketplace. The RBV draws upon the resources and capabilities that reside within the organization in order to develop sustainable competitive advantages. According to RBV, not all the resources of firm will be strategic and hence, sources of competitive advantage. Competitive advantage occurs only when there is a situation of resource heterogeneity and resource immobility.

Honda, the world’s largest engine manufacturer is following a RBV strategy. Honda built its business strategy around the firm’s strength, capability andexpertise in building petrol-based engines. Honda initially started with smallclip-on engines for bicycles then moved to two wheelers such as scooters andmotorbikes, marine engines, generators, lawn and garden equipment, and cars(Honda and Acura automobiles) and even jet planes. Each of these productscompetes in quite different product verticals, but leverages a unique resource andcapability of Honda to build world class petrol-based engines.

Value chain analysis provides insight into how different activities within the firm contribute to customer value. The activities are considered to be primary or supportive to the creation and delivery of the firm’s product or service. Primary activities include operations, logistics, sales and service. Supportive activities provide infrastructure and assistance for the primary activities and include functions such as human resources management, procurement and technology development. During value chain analysis, each activity is evaluated in terms of the value it adds on its own as well as its contributions to other value-added activities in the firm’s overall value chain.

Businesses use value chain and resource-based analyses to identify internal activities and assets that contribute to competitive advantage. The value chain approach targets business processes as drivers of customer value and competitive differentiation. The resource-based view focuses on the firm’s collective assets and competencies as drivers of economic performance and competitive market advantage.

Cost Leadership: McDonald's and Walmart

The goal of a cost leadership strategy is to become the lowest-cost provider in your industry or market. Companies who excel with a low-cost strategy have extreme operational efficiency and use low-cost materials and resources to reduce the overall price of their product or service.

Differentiation: Starbucks and Apple

With a differentiation strategy, the competitive advantage is gained by offering a unique or highly specialized product or service. The business needs to dedicate time and resources to innovation, research, and development. A successful differentiation strategy allows the business to set a premium price for its product or service.