Reference no: EM131918935

Porter's strategic development process starts by looking at the relative position of a firm in a specific industry.

This is, we start by considering the firm's environment and then try to assess what strategy is the one that may maximize the firm's performance.

The Resource-Based (RB) Theory, by contrast, can be seen as an inside-out process of strategy formulation.

The resource-based view (RBV) of strategy holds company assets as the primary input for overall strategic planning, emphasizing the way in which competitive advantage can be derived via rare resource combinations.

To transform a short-run competitive advantage into a sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile.

Effectively, this principle translates into valuable resources that are cannot be either imitated or substituted without great effort. If the firm's strategy emphasizes and accomplishes this goal, its resources can help it sustain above-average returns.

In achieving a competitive advantage, the resource-based view defines characteristics which make a competitive process sustainable. These characteristics are described as valuable, rare, inimitable, and non-substitutable, referred to as VRIN:

Valuable - The value factor requires that the costs invested in the resource remain lower than the future rents demanded by the value-creating strategy.

Rare - In a perfectly competitive strategic factor market for a resource, the price of the resource will reflect expected future above-average returns.

Inimitable - This advantage can be sustained if competitors are not able to duplicate this strategic asset perfectly. Knowledge-based resources are "the essence of the resource-based perspective.

"Non-substitutable - If competitors are able to counter the firm's value-creating strategy with a substitute, prices are driven down to the point that the price equals the discounted future rents, resulting in zero economic profits.