Critically Analyse The Resource Based View Of The

The resource based view of the firm (RBV) deals with the concept that by understanding the internal resource base and core competences, the management of a business will be able to employ this specific knowledge to create and sustain a competitive advantage. The RBV promotes the idea of firm heterogeneity and the notion that the conscious and tacit development of idiosyncratic bundles of resources and competences will provide competitive advantage. This is in contrast to the traditional analysis and strategy formulation that considered, in a neo-classical light, each firm to be a representative entity whose strategy was guided by the selection of a profitable industry followed by the pursuit of a generic strategy. ?It has been shown that intra-industry differences in profits are greater than inter-industry differences in profits, strongly suggesting the importance of firm-specific factors and the relative unimportance of industry effects? (Teece et al, 1997, p.514). Ultimately the RBV helps to create an understanding of how a firm relative to its peers generates a sustainable competitive advantage. I intend to elucidate upon the fundamental elements of the RBV, including its strengths and limitations and hopefully prove that its internal focus should be considered as ?a complement to the traditional emphasis of strategy on industry structure and strategic positioning as the determinants of competitive advantage? (Eisenhardt & Martin, 2000, p.1105).

The concept of strategy formulation and the RBV are inextricably linked; Grant (1998) identifies three ways in which the resource-based approach can be tailored to develop a successful and revealing long term strategy. Firstly companies should adopt a strategy that takes advantage of the internal primary resources and core competences. A prime example of this is the company BMW, which has consistently maintained resources and competences closely linked to the manufacture and sale of luxury cars. Next it is very