CHAPTER 4

IDENTIFYING ATTRIBUTES OF STRATEGIC RESOURCES

LEARNING OUTCOME

• At the end of this class, students should be able to:– Understanding the nature and type of resources– Understanding the Resource-based View Theory– Identify the attributes of strategic resources

What is a RESOURCE?

• Any thing that is useful, tangible or intangible. • Another characteristic -semi permanent or sticky; it

adheres to the venture and the entrepreneur.• Resources can be property based or knowledge based. • Property-based resources give the entrepreneur

“rights” and enable a firm to control its environment.• Knowledge-based resources are more intangible, like

talent or skill. Knowledge-based resources enable the firm to adapt to a changing environment.

• Resources can be divided into three (3) types:– Financial resources– Human resources– Operating resources

Financial Resources

• Resources which take the form of, or can be readily converted to cash (monetary form)

• Cash- most liquid and flexible, readily to buy other resources

• Eg: Cash in hand, overdraft facilities, loans, outstanding debtors, investment capital, investment in other businesses.

Operating Resources

• The facilities which allow people to do their jobs and used by business to deliver its outputs to the marketplace.

• Eg: Premises, motor vehicles, production machinery, raw materials, storage facilities, office equipment.

Human Resources

• People and the efforts, knowledge, skill and insights they contribute to the success of the venture

• Eg: Productive labour, technical expertise, provision of business services, communication skills, strategic and leadership skills

Combination of resources

Financial

Human

Operating

Innovative Combination New value delivered

Source: Wickham (2006)

Figure 1: Entrepreneurship and the combination of resources

Resource-Based View Theory of the Firm

• RBV-firms must access, mobilize and deploy resources before they can generate strategic resources for firm growth (Garnsey, 1988).

• Business performance and growth is achieved when the firm has valuable resources and capabilities available as a source of sustainable competitive advantages (Mahoney, 1995; Peteraf, 1993; Garnsey, 1988; Barney, 1986; Wernerfelt, 1984).

Cont..• Resource-based theory holds that sustainable

competitive advantage is created when firms posses and employ resources and capabilities that are:

1. Valuable because they exploit some environmental opportunity2. Rare in that there are not enough for all competitors3. Hard to copy, so that competitors cannot merely duplicate them4. Non-substitutable with other resources

Strategic Resources

• Create competitive advantage. • There is a distinction between

strategic and non-strategic, or common resources.

• Not all capital resources and assets are strategically important.

Cont…

• Common - necessary for carrying out the firm’s usual activities, but provide no specific advantage. E.g. Ordinary desks, chairs, and office furniture.

• Some resources may prevent the formulation and implementation of valuable strategies due to their shoddiness (poor quality) and imperfections.

Attributes of Strategic Resources

1. Valuable

2. Rare

3. Imperfectly Imitable

4. Non-substitutable

Attributes of Strategic Resources

• Valuable resources– Resources are valuable when they help the

organization implement its strategy effectively and efficiently, which means that in a “strengths, weaknesses, opportunities, and threats in the firm’s environment.

– A valuable resources is useful for the venture’s operation. E.g. property, equipment, people, and skills such as marketing, finance, and accounting

• Rare resources– A unique and valuable resource clearly gives a firm

source of competitive advantage.– A resource may be considered rare when it is not

widely available to all competitors.– If supply and demand are in equilibrium, and the

price of the resource is generally affordable, the resource will cease to be rare.

– E.g. a good location, managers who are also considered good leaders, or the control of natural resources like oil reserves.

• Imperfectly imitable (hard to copy) resources– Firms which have rare and valuable resources clearly

have advantages over firms lacking such assets.– However, even rare resources can be obtained at

some price. If the price is so high that the firm makes no profit, there is no source of competitive advantage, because the firm has spent its advantage on the resource.

– Where duplication is not possible at a price low enough to leave profits, the resource is said to be imperfectly imitable or hard to copy

• Non-substitutable resources– Non-substitutable resources are strategic resources that

cannot be replaced by common resources.– E.g. Firm A has a rare and valuable resources, which it

uses to implement its strategy. If firm B has common resources that can be substituted for firm A’s valuable resources, and these common resources do basically the same things, then the rare and valuable resources of firm A do not confer strategic advantage.

– In fact, if firm B can obtain common resources that threaten firm A’s competitive advantage, then so can many other firms, thereby ensuring that firm A has no advantage.

Cont…

– Very different resources can be substitutes for each other.

– For example, an expert-system computer programme may substitute for a manager.

– A charismatic leader may substitute for a well-designed, strategic-planning system.

– A well-designed, programmed-learning module may substitute for an inspirational teacher.

REFERENCES• Barney, J.B. (1991). Firm resources and sustained competitive

advantage. Journal of Management, 17,1, 99-120.• Barringer, B and Ireland, D (2012) Entrepreneurship – Successfully

Launching New Ventures (4th Ed.). Pearson Education, Global Edition.

• Dollinger, Marc J., (2003) Entrepreneurship: Strategies and Resources, 3rd Edition, Prentice Hall International Edition.

• Mahoney, J. 1995. The management of resources and the resource of management. Journal of Business Research, 33, 91-101.

• Peteraf, M. (1993). The cornerstones of competitive advantage: a Resource-Based View. Strategic Management Journal, 14 (3), 179-191.

• Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171-80.

• Wickham, P. A. (2006) Strategic Entrepreneurship. (4th. Ed.). England: Pearson Education Ltd.

THANK YOU…