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The resource based model of above average returns

FREE online courses on Introduction to Strategic Management - Alternative Models of Developing Strategic Competitiveness - The Resource-Based Model The Resource-Based model adopts an internal perspective to explain how a company's unique bundle or collection of internal resources and capabilities represent the foundation upon which value-creating strategies should be built. Resources are inputs into a company's production process, such as capital equipment, individual employee's skills, patents, brand names, finance and talented managers.

These resources can be tangible or intangible. Capabilities are the capacity for a set of resources to integratively-or in combination-perform a task or activity. Thus, according to the Resource-Based model, a company's resources and capabilities are more critical to determining the appropriateness of strategic actions than are the conditions and characteristics of the external environment.

Thus, strategies should be selected that enable the company to best exploit its core competencies, relative to opportunities in the external environment.

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Five steps of the Resource-Based Model The Resource-Based model of above-average returns is grounded in the uniqueness of a company's internal resources and capabilities.

The five-step model describes the linkages between resource identification and strategy selection that will lead to above-average returns as shown in the figure above. Companies should identify their internal resources and assess their strengths and weaknesses. The strengths and weaknesses of company resources should be assessed relative to competitors.

Companies should identify the set of resources that provide the company with capabilities that are unique to the firm, relative to its competitors. The company should identify those capabilities that enable the company to perform a task or activity better than its competitors.

Companies should assess or determine the potential for their unique sets of resources and capabilities to outperform its competitors in terms of returns.

Determine how a company's resources and capabilities can be used to gain competitive advantage. Locate and compete in an attractive industry. Determine the industry that provides the best fit between the characteristics of the industry and the company's resources and capabilities. To attain a sustainable competitive advantage and earn above-average returns, companies should formulate and implement strategies that enable them to better exploit their resources and capabilities to take advantage of opportunities in the external environment than can their competitors.

However, taking advantage of or exploiting resources and capabilities in the new competitive landscape may not always result in a company achieving a sustainable competitive advantage and above-average returns.

The potential to achieve a sustainable competitive advantage will be realised when company resources and capabilities are: Valuable, allowing the company to exploit opportunities or neutralise threats in the external environment Rare or possessed by few, if any, current and potential competitors Costly to imitate such that other companies will be able to obtain them only at a cost disadvantage relative to companies that already have them Non-substitutable as there are no strategic equivalents Core competencies are resources and capabilities that serve as a source of competitive advantage over a company's rivals and represent the dominant influences on the appropriateness of a company's strategic actions.

One strategy that may enable a company to transform or develop its resources and capabilities into core competencies is to organise itself to take advantage of them through firm-specific patterns of combinations of its human resources. Using these resources companies may be able to better utilise their managerial competencies to better organise and manage diverse, complex operations, develop and communicate a strategic intent and mission or to reengineer products to better meet changing customer expectations.

Views of Competitive Advantage Compared Whichever way the strategies are developed, they affect all the stakeholders.

Resource-Based Model and Above Average Returns

These stakeholders determine the success or the failure of these strategies. Who are these stakeholders? Our Network Of Sites: