GAIN COMPETITIVE ADVANTAGE AND PROFITABILITY: RBV

In continuing the process of creating an marketing analysis from SWOT & Porter’s Five Forces to gain a Competitive Advantage and Profitability we continue to look internally by way of the resources the firm controls.  Using the Resource-Based View (RBV) is not just looking at the hard assets, but includes the firm’s culture, intellectual property, corporate, as well as product brand, etc..

The RBV tool understands that not all resources that a firm controls are equal in their significance.  We focus on those resources that are valuable, rare, and hard to replicate, that differentiate the firm, as well as create a difficult barrier for competitors to overcome.

These key resources may include:

1. Patents
2. Brand-name reputation
3. Installed base
4. Human assets
5. Corporate culture
6. Capabilities (activities that a firm does better than its competitors)

When we look at your own firm’s resources, we will understand your firm’s profitability. For Competitive Advantage and Profitability strategies to be successful, they must flow from your firm’s resources.  When we develop a firm’s strategies we make sure they are “internally consistent” with the firm’s resources. That is, the firm’s strategies, like their competitive advantages, must be built on the firm’s resources.

Now let’s take a more comprehensive look at a very important resource a firm may have, intellectual capital.  Intellectual capital refers to the informational resources a firm has and can utilize to create and launch new products, attract and build a new customer base, and ultimately drive profits. It includes employee knowledge and competence, brand awareness, trademarks, proprietary databases, customer relationships, and more. Intellectual capital is a real business asset, along with physical and financial assets, but it is intangible, so it is difficult to measure except subjectively.

One very important aspect of intellectual capital, and that is commonly overlooked is human capital, or the capabilities of the firm that are contributed by its labor force.  Human capital, like the employees in which it is inherent in, is able to leave the firm, making the retention of human capital a focus for human resources managers. The success of a firm, and the ability to create Competitive Advantage and Profitability is heavily reliant on the expertise of its workforce.

Intellectual capital include the firm’s IT, proprietary databases, patents, processes-and even the firm’s image.  For example, industry leader Walmart, owes much of the success to the powerful and efficient distribution system.  Apple guards the firm’s image with an unyielding ferocity, and of course Coca Cola guards its secret formula with equal fierceness.

We’ve now generated a Five Forces and the Resource-Based View of the firm.   RBV pronounces the need to identify key resources to be successful, and the firm’s strategy needs to be based upon those resources.  The Five Forces identified competitive threats, and we were able to create some potential remedies to those threats.  We’ve already discussed the SWOT, which stands for Strengths, Weaknesses, Opportunities, and Threats.   Porter’s Five Forces and the RBV framework consist of a more sophisticated SWOT analysis.  Five Forces analysis looks at the opportunities and threats that a firm might face in the external market.  Our RBV analysis is more internally focused, identifying the firm’s weaknesses and strengths.  Together, these frameworks provide a way for a firm to both understand how strong it is internally, but also how to understand the external environment.  Ultimately, both of these frameworks are concerned about long-run profitability.