The Nature of Resources

Competitive advantage

The idea of competitive advantage was made popular by Porter (1985), but it has no generally accepted definition in management and research literature. Porter (1985) showed that a firm can create competitive advantage through “cost” if a firm can produce goods and sell goods at a lower cost than competitors or through “differentiation” if it can produce goods that customers value more than those of competitors and are prepared to pay a premium price for them. Where an organisation is able to generate a profit which is above average in the industry and maintains this advantage in the long-term, the organisation is said to achieve a “sustainable competitive advantage”. This suggests that competitive advantage is achieved through a firm’s activities and processes, and the way the firm manages them (Gruchman, 2009). Though this idea of competitive advantage is valuable, it is not likely that organisations that focus on improving operations alone can sustain that advantage, because it is easy for a competitor to imitate the operations of another and find ways to perform better or even put it out of business. For example, many organisations now use low costs as their business models such as Easy Jet, Primark and Aldi.

The resources based view (RBV) now dominates the contemporary thinking in strategic management from which has emerged the knowledge – based view (KBV) of a firm.. Under the RBV, a firm is seen as comprising strategically relevant resources or assets, both tangible and intangible ( please see Glossary), that can enable it to create superior performance and achieve sustainable competitive advantage. Resources are of strategic relevance if they are valuable, rare, “imperfectly imitable and non-substitutable (Barney, 1991). Resources that are valuable and rare create competitive advantage while those that are not perfectly imitable and non – substitutable can sustain competitive advantage. This definition is adopted in this report because knowledge is widely known to be a strategic asset that cannot be perfectly imitated by a competitor (Halawi, Aronson and McCarthy 2005) and it supports the knowledge – based view of a firm (Alavi and Leidner 2010).

In addition, it is increasingly being recognized that knowledge is critical factor that influences the capacity of the firm to innovate and achieve distinctive competitive advantage because, while conventional resources; land labor and capital used by a firm can be imitated by competitors and are scare, knowledge, especially human knowledge is inexhaustible. (Houghton and Sheehan, 2000). Of particular importance here is the concept of distinctive capabilities that create competitive advantage developed by Kay (1993). He stated that a distinctive capability creates a competitive advantage when it is applied to an industry and brought to the market and identified three distinctive capabilities namely; innovation, architecture and reputation.