Resource Based Sources of Competitive Advantage

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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 ‘inside out’ approach) to gaining competitive advantage in the civil aero-engine industry. The civil aero engineering industry is an oligopolistic global industry in which no single organisation dominates the market. There are three main market competitors who are Rolls Royce, General Electric and Pratt & Whitney. The resource based view (RBV) approach to strategy represents a substantial shift in emphasis towards the individual resources of an organisation and away from the market-based view that strategists such as Professor Michael Porter favoured during the 1980s and early 1990s. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal (Wernerfelt, 1984; Rumelt, 1984). In order to discuss the importance of resources, we must first define and understand what a resource is. A resource can be tangible, examples of these are buildings, plant, machinery and stock. Resources can also be intangible or human resources, examples of these intangibles can be items such as good will and reputation, core competencies and also core staff. Pralahad and Hamel (1990) identified seven core competencies of resources that an organisation may possess in order to gain a competitive advantage. “A core competence is an area of specialized expertise that is the result of harmonising complex streams of technology and work activity” (C K Prahalad). A company’s core competences are the things that they can do better than their competitors in the critical, central areas of the company where the most value is added to their products. The core competencies identified by Prahalad and Hamel are: prior or acquired resources, innovative capability, imitability, durability, appropriability, substitutability and truly competitive. An example of prior or acquired resources is the existing reputation that an organisation already has. This strength is particularly important in an industry such as civil aero engineering because it is such an expensive industry, any movement in reputation could have an immense effect on an organisation. For instance, in my opinion Rolls Royce up until recently has had a better reputation in the industry than that of its two major competitors, General Electric and Pratt & Whitney due to its relationship marketing over the last few years. Rolls Royce has evolved from the 1970s by developing an improved range of services for customers. It now provides a complete service to its customer base rather than that of just providing engines. However, the very recent problem with engine failure on a Qantas A380 Airbus which had four Rolls Royce engines fitted, and the threat of legal action from Qantas due to this failure have damaged the reputation of the organisation and could be catastrophic to its competitive advantage as sales and profits may drop, allowing an increase in market share to Rolls Royce’s other two main competitors. Innovative Capability. It is a well known fact that some organisations are better than others in innovation. Rolls Royce for instance have a rolling research and development venture with one of the leading postgraduate...
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