Comparison of Market Based and Resource-Based Approach to Operations Strategy

Since Porter's assertions, there has been a recognition that traditional strategic management has been focused on 'market-based' strategies. Whereas a recognition of 'resource based' strategy is growing (Gagnon, 1999). The resource-based approach is based on the concept of rent. This concept was first introduced by Ricardo (1817) as part of his endeavours to do away with England's Corn laws. He identified that farm land on a mountain side varied in fertility depending whether it was towards the valley or nearer the mountain top. He pondered the point that when demand was sufficient to make it economic to grow corn on less fertile land - closer to the mountain top, higher profits were achieved by those owning the more fertile land - closer to the valley. The extra profits he termed rents because they accrued to the landowner. Ricardo argued that the price of corn was determined by the availability of fertile land and not the level of rents. Thus the achievement of above normal rent must be achieved through valuable resources that are scarce. These resources may be land, location, patents, monopoly, high entry barriers or innovation.