In the previous article we discussed scenario based planning and how it is applied to mergers and acquisitions to handle synergies. In this article we will discuss resource based view (RBV) which is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage. This will help identify gaps and synergies either internally or fasttrack through acquisition or partnership.
Resource Based View (RBV) is an approach to identify and achieve competitive advantage. This technique was quite popular in the 80s and 90s in the corporations. The RBV model helps analyze existing resources and identify or stabilize internal resources to exploit external opportunities. In RBV resources are central in helping the company achieve higher performance and growth. There are two classes of resources: Tangible and intangible.
Tangible resources
Tangible resources or assets are items in the physical state such as buildings, material, equipment, etc. Tangible assets alone give little advantage to companies as they can be easily bought or acquired by the competitors.
Intangible resources
Intangible assets, on the other hand, are logical belongings of the company. For instance, talent, brand, intellectual property, etc. These assets are obtained with more effort and are those that the competitors cannot easily obtain unless they acquire other companies for these specific reasons. The reasons for these types of acquisitions are to get access to patents, licenses, talent (acquihire), etc. If stabilized, intangible assets can be the main source of competitive advantage.
The following diagram provides some examples of tangible and intangible resources.
Two other assumptions in RBV are that resources must be heterogeneous and immoble.
Heterogeneity refers to the fact that companies possess different resources and capabilities. This is why two companies that are after a market segment use different resources and capabilities to outperform the competition. Take Samsung and Apple as examples. Samsung uses its price point to get access to a larger part of the market. However, Apple uses its great UX and brand to get a larger profit margin on its product. Samsung uses other price and market penetration strategies as well as uses 3rd party vendors and partners.
Immobility assumes that resources cannot easily be copied or moved from one company to another. Due to that companies cannot easily get access to the resources to combat the competitors’ strategy. This assumption of RBV undermines the fact that companies can get access to resources via acquisition quickly.
Having the right resources and capabilities is not sufficient to have competitive advantages. The question is how well is the company organized to exploit value from those resources. VRIO is a framework that helps classify the resources and capabilities into five buckets as shown below.
The Venn diagram provides a framework to bucketize all resources and identify growth paths in the business. One can capitalize on resources in the sustained competitive advantage while identifying strategies that leverage resources in near adjacency areas. Acquisition is a strategic vehicle that can augment these resources and create sustained competitive advantage.