What insights does the “resource based view” of Strategy add to an understanding of competitive advantage that the “design school” model leaves out?
Competitive Advantage
A company is said to be in competitive advantage when it develops or get hold of attribute which helps it to do better than its competitors in terms of higher rate of return on investment. Competitive advantage occurs when firm develops or acquire unique attributes which help it to outperform its competitors. This attributes can be new technology, business process, highly skilled technical resources etc.
Resource Based View (RBV)
Design school theory of business strategy caters mainly for external environment and leaves out any internal resources. Resource base view (RBV) is used to determine internal resources from within the firm contributing towards greater financial performance (Kearns & Lederer, 2003). The core of the RBV emphasises that organisation to maximise rate of return and financial profitability and form sustainable competitive advantage, should have heterogeneous resources and capabilities. The resources in question should be inimitable and non substitutable (e.g. strategic location for retail chain, high skilled IT workforce in Software Industry). The resources are tradable or can be created by skilled managers, but the organisations capabilities should be firm-specific and non tradable (e.g. patent, firm specific business process). Bowman and Toms (2010) suggests that highly skilled labour or resources tacit skills tend to be difficult to replicate and can help the firm possessing these resources to sustain higher financial profitability. The resources and capabilities are primary objects of the RBV theory and are primary source of firm’s profitability. Grant (1991) emphasises that RBV approach “understands relationship between Resources, Capabilities, Competitive advantage and profitability”.
To achieve sustainable competitive advantage, organisation has to evaluate its core capabilities and identify resources where investment in resources is lower than the discounted rate of return generated by them. After identifying core capabilities and valuable resources the RBV theory can help organisation to find the gap in its resources and capabilities preventing it to achieve sustainable competitive advantage. Now once gap has been identified, resources can be bought, hired or created with managerial activity (Bowman & Toms, 2010). Capabilities, given that they are inimitable and non-reproducible had to be acquired by means of transfer i.e. through acquisition or merger with some other firm.
Design school
The traditional design school theories focus upon the external environment for competitive advantage against the competitor firms. As a consequence to formulate strategy Design School strategist depends on external variables to identify opportunities and threats (OT) and their internal environment to identify strengths and weaknesses (SW). However Mintzberg (1990), Anon (2009) et al. questions the credibility of managers competency to identify their own weaknesses and expects them to overemphasize strengths.
Moreover, design school strategy theories propose that it is the task of leader or ‘strategist’ that formulates the strategy and give it to lower management for execution. It is what top managers’ thinks and do that really matters. Since its one person’s job to formulate strategy and it has to be ‘told’ to others for execution it has to be simple and easy to understand by others in organisation (Mintzberg, 1990). However, top management being on the front can exaggerate their own strategic decisions and implementations and play down the initiatives of middle managers. The top-down approach defines the process of implementing decisions made by top management and is transmitted to lower level for implementation by everyone else.
Although RBV approach does not prohibit consideration of the external aspects, the main focus of interest and strategic thinking in using the RBV is on the internal capabilities.
The centralized strategy formulation concept of design school falters if considered example of store planning by top management for a retail stores which may be spreading across globe. Some locations require different strategy adoption to cater taste of local customers. This demand need to design the strategy focused at store level rather than across the organisation as whole and implemented by the local managers to make use of available capabilities and resources at disposal by the store. After facing losses for many years in frozen food products, India’s biggest retail chain store Big Bazaar started stacking frozen products like Ice creams near to the checkout. Earlier due to high temperature in summer, discouraged customer to put frozen products in basket fearing it would melt ice cream before reaching checkout counter (Biyani, 2009).
Conclusion
Design School strategies were formed before 1950 or 1960. Critics of design school often label these theories as old and irrelevant in today’s fast changing life. However Igor Ansoff (1991, p. 452) defends the design school listing the contribution made by prescriptive schools in recent years to practice of management keeping pace with the changing world.
Critique of design school often term design school as unsuitable in changing circumstances and only appropriate when organisations are coming out to stability from turbulent era and not (1990, p. 191). However, looking at the current economic mess created by ‘emerging’ investment banking practices (Credit Default Swap-CDS, CDS Square and even CDS Square Square) and the sector’s reliance on RBV approach to take advantages of available resources to generate firm profitability reaffirms that after the crisis strikes, well formulated ‘old schools of thoughts’ can bring out the stability to the system. In the chaotic and uncertain economic situations organizations can increase survival chances by focusing on the internal capabilities. However, there is need to reassess the ever changing circumstances and based on the outcome take steps either using emerging or old design school strategy management.
Bibliography
Anon. (2009). Strategy, Business Information And Analysis. University Of Leicester.
Ansoff, H. I. (1991). Critique Of Henry Mintzberg's 'The Design School: Reconsidering The Basic Premises Of Stragic Management'. Strategic Management Journal , 12:449-461.
Biyani, K. (2009). Television Interview, CNBC TV18.
Bowman, C., & Toms, S. (2010). Accounting For Competitive Advantage: The Resource-Based View Of The Firm And The Labour Theory Of Value. Critical Response On Accounting , 21(3):183-194.
Grant, R. M. (1991). The Resource-Based Theory Of Competitive Advantage: Implications For Strategy Formulation. California Management Review , 33(3):114-135.
Kearns, G. S., & Lederer, A. L. (2003). A Resource-Based View Of Strategic IT Alignment: How Knowledge Sharing Creates Competitive Advantage. Decision Sciences , 34(1):1-29.
Mintzberg, H. (1990). The Design School: Reconsidering The Basic Premises Of Strategic Management. Strategic Management Journal , 11(3):171-195.
A company is said to be in competitive advantage when it develops or get hold of attribute which helps it to do better than its competitors in terms of higher rate of return on investment. Competitive advantage occurs when firm develops or acquire unique attributes which help it to outperform its competitors. This attributes can be new technology, business process, highly skilled technical resources etc.
Resource Based View (RBV)
Design school theory of business strategy caters mainly for external environment and leaves out any internal resources. Resource base view (RBV) is used to determine internal resources from within the firm contributing towards greater financial performance (Kearns & Lederer, 2003). The core of the RBV emphasises that organisation to maximise rate of return and financial profitability and form sustainable competitive advantage, should have heterogeneous resources and capabilities. The resources in question should be inimitable and non substitutable (e.g. strategic location for retail chain, high skilled IT workforce in Software Industry). The resources are tradable or can be created by skilled managers, but the organisations capabilities should be firm-specific and non tradable (e.g. patent, firm specific business process). Bowman and Toms (2010) suggests that highly skilled labour or resources tacit skills tend to be difficult to replicate and can help the firm possessing these resources to sustain higher financial profitability. The resources and capabilities are primary objects of the RBV theory and are primary source of firm’s profitability. Grant (1991) emphasises that RBV approach “understands relationship between Resources, Capabilities, Competitive advantage and profitability”.
To achieve sustainable competitive advantage, organisation has to evaluate its core capabilities and identify resources where investment in resources is lower than the discounted rate of return generated by them. After identifying core capabilities and valuable resources the RBV theory can help organisation to find the gap in its resources and capabilities preventing it to achieve sustainable competitive advantage. Now once gap has been identified, resources can be bought, hired or created with managerial activity (Bowman & Toms, 2010). Capabilities, given that they are inimitable and non-reproducible had to be acquired by means of transfer i.e. through acquisition or merger with some other firm.
Design school
The traditional design school theories focus upon the external environment for competitive advantage against the competitor firms. As a consequence to formulate strategy Design School strategist depends on external variables to identify opportunities and threats (OT) and their internal environment to identify strengths and weaknesses (SW). However Mintzberg (1990), Anon (2009) et al. questions the credibility of managers competency to identify their own weaknesses and expects them to overemphasize strengths.
Moreover, design school strategy theories propose that it is the task of leader or ‘strategist’ that formulates the strategy and give it to lower management for execution. It is what top managers’ thinks and do that really matters. Since its one person’s job to formulate strategy and it has to be ‘told’ to others for execution it has to be simple and easy to understand by others in organisation (Mintzberg, 1990). However, top management being on the front can exaggerate their own strategic decisions and implementations and play down the initiatives of middle managers. The top-down approach defines the process of implementing decisions made by top management and is transmitted to lower level for implementation by everyone else.
Although RBV approach does not prohibit consideration of the external aspects, the main focus of interest and strategic thinking in using the RBV is on the internal capabilities.
The centralized strategy formulation concept of design school falters if considered example of store planning by top management for a retail stores which may be spreading across globe. Some locations require different strategy adoption to cater taste of local customers. This demand need to design the strategy focused at store level rather than across the organisation as whole and implemented by the local managers to make use of available capabilities and resources at disposal by the store. After facing losses for many years in frozen food products, India’s biggest retail chain store Big Bazaar started stacking frozen products like Ice creams near to the checkout. Earlier due to high temperature in summer, discouraged customer to put frozen products in basket fearing it would melt ice cream before reaching checkout counter (Biyani, 2009).
Conclusion
Design School strategies were formed before 1950 or 1960. Critics of design school often label these theories as old and irrelevant in today’s fast changing life. However Igor Ansoff (1991, p. 452) defends the design school listing the contribution made by prescriptive schools in recent years to practice of management keeping pace with the changing world.
Critique of design school often term design school as unsuitable in changing circumstances and only appropriate when organisations are coming out to stability from turbulent era and not (1990, p. 191). However, looking at the current economic mess created by ‘emerging’ investment banking practices (Credit Default Swap-CDS, CDS Square and even CDS Square Square) and the sector’s reliance on RBV approach to take advantages of available resources to generate firm profitability reaffirms that after the crisis strikes, well formulated ‘old schools of thoughts’ can bring out the stability to the system. In the chaotic and uncertain economic situations organizations can increase survival chances by focusing on the internal capabilities. However, there is need to reassess the ever changing circumstances and based on the outcome take steps either using emerging or old design school strategy management.
Bibliography
Anon. (2009). Strategy, Business Information And Analysis. University Of Leicester.
Ansoff, H. I. (1991). Critique Of Henry Mintzberg's 'The Design School: Reconsidering The Basic Premises Of Stragic Management'. Strategic Management Journal , 12:449-461.
Biyani, K. (2009). Television Interview, CNBC TV18.
Bowman, C., & Toms, S. (2010). Accounting For Competitive Advantage: The Resource-Based View Of The Firm And The Labour Theory Of Value. Critical Response On Accounting , 21(3):183-194.
Grant, R. M. (1991). The Resource-Based Theory Of Competitive Advantage: Implications For Strategy Formulation. California Management Review , 33(3):114-135.
Kearns, G. S., & Lederer, A. L. (2003). A Resource-Based View Of Strategic IT Alignment: How Knowledge Sharing Creates Competitive Advantage. Decision Sciences , 34(1):1-29.
Mintzberg, H. (1990). The Design School: Reconsidering The Basic Premises Of Strategic Management. Strategic Management Journal , 11(3):171-195.
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