resource based theory of the firm

resource based theory of the firm

a conceptual framework developed by business strategists which focuses on the key resources and capabilities possessed by a business which forms the basis of establishing a sustainable COMPETITIVE ADVANTAGE over rival suppliers. The resource-based theory postulates that all firms are different to a greater or lesser degree – in essence, a firm consists of a ‘unique bundle of resources and capabilities’. If a firm is to develop a sustainable competitive advantage, it must be underpinned by resources and capabilities that are scarce and imperfectly mobile otherwise its advantages could be quickly replicated by other firms. Thus, firm-specific assets such as patents, brand names, human assets and systems that arise from a firm's experience become the basis of long-term competitive advantage. See MOBILITY BARRIERS, CRITICAL OR KEY SUCCESS FACTORS.

The theory is useful in a wider context since it can provide an explanation of why some firms decline and fail while others thrive and increase their market shares. The resource-based theory suggests that, looking at market processes dynamically, some firms may be more efficient than others because they possess better resources and capabilities than rivals; for example, their internal organizations may be ‘leaner and fitter’ and better able to adapt to changes in customer demands, they may possess superior product methods and techniques, and their ability to create and market new products may be greater than that of rivals. See BUSINESS GROWTH, VALUE CREATED MODEL, VALUE CHAIN ANALYSIS, COSTS DRIVERS, BENEFIT DRIVERS, DISTINCTIVE CAPABILITIES, CORE SKILLS OR COMPETENCY.

Full browser ?