In this question, you will consider two theoretical views of an organization’s internal
environment. First, explain the resource-based theory from the textbook and its relevance
to strategic management. Then, select one of the other theories to research on your own
(enactment, environmental determinism, institutional theory, or transaction cost
economics) and compare and contrast it to the resource-based view. Which do you think
best explains the internal environment? Why?
Resource-based theory
The resource-based theory stipulates that firms that have "strategic resources" will gain a
competitive advantage in the market (Kennedy, 2020). Here, we need to define a few terms like
strategic and resources. Strategy is defined as a mechanism to attain improved performance in
the market and gain a competitive advantage. Resources are defined as any tangible or intangible
assets that the firm can use to put forward its strategy (Barney, 2001).
As mentioned above, resources can be tangible like physical capital (buildings and vehicles),
financial capital (equity, debt, and cash), and intangible assets like human capital (experience,
intelligence, and training) and organizational capital (reputation and culture). Firms need to
develop strategies on how to best use these resources to achieve superior performance. This will
require something called capabilities.
Capabilities are defined as specific attributes that enable a firm to capitalize on its resources by
employing its strategies (Harrison et al., 2001). A resource can be regarded as strategic if it
exhibits VRIO attributes which stand for value, rarity, immutability, and organized to capture
value (Kennedy, 2020). If a resource can fulfill all four requirements then it can provide the firm
with a long-term competitive advantage. If it can exhibit two or three attributes it provides a
temporary competitive advantage (Kennedy, 2020).
This theory recommends firms look inside and find strategic resources that would provide them
with a long-term competitive advantage. This could be done using one product and service or a
combination of multiple products or factors. It's a view that capitalizes on a firm's internal
resources and capacities rather than on changes or conditions of the external environment
(Kennedy, 2020). A firm can benefit from the change or condition of the external environment
by using its resources and capabilities rather than focusing on the external environment.
environment. First, explain the resource-based theory from the textbook and its relevance
to strategic management. Then, select one of the other theories to research on your own
(enactment, environmental determinism, institutional theory, or transaction cost
economics) and compare and contrast it to the resource-based view. Which do you think
best explains the internal environment? Why?
Resource-based theory
The resource-based theory stipulates that firms that have "strategic resources" will gain a
competitive advantage in the market (Kennedy, 2020). Here, we need to define a few terms like
strategic and resources. Strategy is defined as a mechanism to attain improved performance in
the market and gain a competitive advantage. Resources are defined as any tangible or intangible
assets that the firm can use to put forward its strategy (Barney, 2001).
As mentioned above, resources can be tangible like physical capital (buildings and vehicles),
financial capital (equity, debt, and cash), and intangible assets like human capital (experience,
intelligence, and training) and organizational capital (reputation and culture). Firms need to
develop strategies on how to best use these resources to achieve superior performance. This will
require something called capabilities.
Capabilities are defined as specific attributes that enable a firm to capitalize on its resources by
employing its strategies (Harrison et al., 2001). A resource can be regarded as strategic if it
exhibits VRIO attributes which stand for value, rarity, immutability, and organized to capture
value (Kennedy, 2020). If a resource can fulfill all four requirements then it can provide the firm
with a long-term competitive advantage. If it can exhibit two or three attributes it provides a
temporary competitive advantage (Kennedy, 2020).
This theory recommends firms look inside and find strategic resources that would provide them
with a long-term competitive advantage. This could be done using one product and service or a
combination of multiple products or factors. It's a view that capitalizes on a firm's internal
resources and capacities rather than on changes or conditions of the external environment
(Kennedy, 2020). A firm can benefit from the change or condition of the external environment
by using its resources and capabilities rather than focusing on the external environment.
