Resource Based Sources of Competitive Advantage

2170 Words Jul 24th, 2011 9 Pages
|

Critically discuss the importance of resource-based sources of competitive advantage in one of the industries studied on this module. You should discuss a range of companies.

‘Competitive advantage’ is when a firm sustains profits that exceed the average for its industry. The goal of much of business strategy is to achieve a sustainable competitive advantage. Porter identified two basic types of competitive advantage; cost and differentiation. These two advantages are known as ‘positional advantages’ as they describe the firm’s position in the industry as a leader in either cost or differentiation. However, in this assignment I will discuss and analyse the importance of the resource based view, (which is also known as the
…show more content…
This core competence is of vital importance as the inability to innovate in today’s ever changing environment may lead to entropy and ultimately cessation of trade.
Being truly competitive. It is crucial that a resource ultimately delivers a true competitive advantage. This core competence highlights the fact that it is not enough for an organisation just to realise the resource as being a strength, but that it must also be able to prove that it is of both better quality and at a lower cost than the competition. This in basic terms means that it is not good enough for instance to produce a low-cost, high quality product, but that it must have not only lower costs than the competitors, it must also produce items of a higher quality or standard that that of its competitors. An example of this is to consider that if Rolls Royce’s Far East division does not produce higher quality at a lower cost than both General Electric and Pratt & Whitney, it could not gain competitive advantage as this core competence would not be relevant in this situation.
Substitutability. A resource is more likely to be able to gain competitive advantage if it cannot be substituted. Although the resource based view is in opposition to Porter’s views on strategy, his ‘five forces’ model identified the threat of substitutes as an environmental force that can influence an organisation in gaining
Open Document