Discuss the Similarities and Differences Between the Resourced Based View of Strategy and the Industrial Organisation (I/O) Based View of Strategy

Topics: Strategic management, Marketing, Management Pages: 6 (2047 words) Published: January 29, 2012
Discuss the similarities and differences between the resourced based view of strategy and the industrial organisation (I/O) based view of strategy

The similarities and differences between the two views of strategy, resource-based view (RBV) and industrial organization (I/O) view will be critically discussed. According to Hanson, et al. (2011), the RBV model specifies a firm’s strategy internally to earn above-average returns based on its unique resources and capabilities. Resources such as capital equipments, individuals’ skills, patents and finances are formed into a capability and is managed dynamically to achieve competitive advantages over its rivals. The I/O model specifies a firm’s strategy based on external environment with the characteristics of general, industry and competitor environments (Hanson, et al., 2011). This model allows the firms in an industry to compete on their performance regarding to the threat of new entrants, rivalry among competing firms threat of substitute products, bargaining power of suppliers and bargaining power of buyers. The RBV focuses on internal factors while the I/O model focuses on external factors to achieve above-average returns. The resource-based model assures the firm to acquire various resources and utilize them to achieve unique capability. To gain potential advantages over the competitors, the firm needs to choose valuable, rare, costly to imitate and non-substitutable resources and capability (Broderick, Hooley & Moller, 1988). However, resources such as human skills and creativity can be imitated and substituted as time passes. Therefore, they must be integrated and managed with potential capability in order to create customer value which can maintain good customer relationships. On the other hand, the I/O model suggests the firm to produce the standard products and services at lower cost than the competitors or the differentiated ones for which the customers are willing to pay at a premium price (Hanson, 2011).

Both RBV and I/O models need the firm to be observant in collecting the information regarding the customer wants and to differentiate its product. For RBV model, since similar resources are flowing in the industry, the firm needs to assure they have capability to create value and competitive strategies to win over the rivals. The firms need to know what the customers really want so they can do the strategic planning on how to integrate the resources differently, meet customer wants and create value. The I/O applied firms can reduce threats of new entrants by differentiating their products. More customers are attracted by unique products in the industry and the firm can maintain its loyal customers by offering differentiated products. Therefore, the I/O model also needs faster information flow about the customers wants.

For the management of for-profit organizations, both internal and external views are important to sustain competitive advantage over time. Broderick, et al. (1988) categorized the resources broadly into tangible and intangible resources. Tangible resources include financial resources, organizational, physical and technological resources while intangible resources include human, innovation and reputation resources. According to Hanson, et al. (2011), the value of tangible resources is difficult to leverage and are constrained, but intangible attributes of tangible assets can be developed over time and build competitive advantages. Aircraft is a tangible asset and an aircraft cannot be used on different routes at the same time. However, the attributes such as quality control process and unique manufacturing process can be developed to create the advantages.

Since intangible assets are less visible and more difficult for competitors to imitate, firms can more rely on intangible assets such as highly valued brand name, creativity and knowledge. As an example, according to the Anton Troianovskif (2011), Apple fans had waited outside the...
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