Resource Based Theory

Resource-based theory contends that the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals.

Types of Resources

A resource is valuable up to which it helps a firm create unique strategies that capitalize on opportunities and diminishes threats. A resource is non-substitutable when alternative ways to gain the benefits the resource provides is impossible to get. A rare resource provides strategic advantages to the company which owns it.

Competitors find it hard to duplicate resources that are difficult to imitate. Some of these are protected by various legal means, including trademarks, patents, and copyrights.

Resource-based theory also focuses on the merit of an old saying “the whole is greater than the sum of its parts”. Strategic resources can be created by various strategies and resources, bundling them together in a way that cannot be copied. Distinguishing strategic resources from other resources is important. Cash is an important resource. Tangible goods, including car and home are also vital resources.

From Resources to Capabilities

The tangibility of a firm’s resource is an important consideration within resource-based theory. Tangible resources are resources that can have a physical presence. A firm’s property, plant, and equipment, as well as cash, are tangible resources.

In contrast, intangible resources are not physically present. The knowledge and skills of employees, a firm’s reputation, and a firm’s culture are intangible resources.

Capabilities are another key concept. Resources refer to what an organization owns, capabilities refer to what the organization can do. Capabilities often arise over time while the firm takes actions that build on its strategic resources.

Some firms develop a dynamic capability, where a company has a unique ability of creating new capabilities to keep pace with changes in its environment.

Dynamic Capabilities of GE and Coca Cola

General Electric, for example, buys and sells firms to maintain its market leadership over time, while Coca-Cola is known for building new brands and products as the soft-drink market changes. Both of these firms are among the top fifteen among the “World’s Most Admired Companies”.

The Importance of Marketing Mix

Leveraging resources and capabilities to create desirable products and services is important. The marketing mix—also known as the four Ps of marketing—provides important insights into how to make customers convinced to purchase the goods and services.

The real purpose of the marketing mix is not to cheat but actually to provide a strong combination among the four Ps (product, price, place, and promotion) to offer the customers a useful and persuasive message.