Summary of the article
“The Resource-Based Theory of Competitive Advantage:
Implications for Strategy Formulation”
By R.M. Grant (1991)
Strategy = the match an organization makes between its internal resources and skills and
the opportunities and risks created by its external environment
Previously focus on link between strategy and external environment (e.g. Porter),
but no focus on link between strategy and the firm's resources & skills
Recently more attention towards the resources as foundation for strategy
Implications of the resource-based theory unclear for 2 reasons
1. The various contributions lack a single integrating framework
2. Little effort has been made to develop the practical implications of this theory
Purpose of this article
To make progress on the 2 points above by proposing a framework for a resource-based
approach to strategy formulation which integrates a number of the key themes arising from
this stream of literature
The framework is a 5 stage procedure for strategy formulation
1. Analyzing the firm’s resource base
2. Appraising the firm’s capabilities
3. Analyzing the profit-earning potential of firm’s resources and capabilities
4. Selecting a strategy
5. Extending and upgrading the firm’s pool of resources and capabilities
, Making the resources and capabilities of the firm the foundation of long-term strategy
because:
- Internal resources and capabilities provide the basic direction for a firm’s strategy
o Starting point of strategy formulation must be a statement that answers
“what is our business?”
o Don’t focus the strategy on customers because they are constantly changing:
firm’s own resources/ capabilities are much more stable
o Companies should define served markets broadly instead of narrowly (e.g.
transportation instead of railroad)
o Serving broadly defined customer needs is difficult
- Resources and capabilities are the primary source of profit for the firm
o A firm’s ability to earn profit depends on 2 factors (see model below)
The attractiveness of the industry in which it’s located
Its establishment of competitive advantage over rivals
o Research states first factor is primary basis, but research has failed to support
link between industry structure and profitability
o The 2nd factor more likely and shows that resources are most important
“The Resource-Based Theory of Competitive Advantage:
Implications for Strategy Formulation”
By R.M. Grant (1991)
Strategy = the match an organization makes between its internal resources and skills and
the opportunities and risks created by its external environment
Previously focus on link between strategy and external environment (e.g. Porter),
but no focus on link between strategy and the firm's resources & skills
Recently more attention towards the resources as foundation for strategy
Implications of the resource-based theory unclear for 2 reasons
1. The various contributions lack a single integrating framework
2. Little effort has been made to develop the practical implications of this theory
Purpose of this article
To make progress on the 2 points above by proposing a framework for a resource-based
approach to strategy formulation which integrates a number of the key themes arising from
this stream of literature
The framework is a 5 stage procedure for strategy formulation
1. Analyzing the firm’s resource base
2. Appraising the firm’s capabilities
3. Analyzing the profit-earning potential of firm’s resources and capabilities
4. Selecting a strategy
5. Extending and upgrading the firm’s pool of resources and capabilities
, Making the resources and capabilities of the firm the foundation of long-term strategy
because:
- Internal resources and capabilities provide the basic direction for a firm’s strategy
o Starting point of strategy formulation must be a statement that answers
“what is our business?”
o Don’t focus the strategy on customers because they are constantly changing:
firm’s own resources/ capabilities are much more stable
o Companies should define served markets broadly instead of narrowly (e.g.
transportation instead of railroad)
o Serving broadly defined customer needs is difficult
- Resources and capabilities are the primary source of profit for the firm
o A firm’s ability to earn profit depends on 2 factors (see model below)
The attractiveness of the industry in which it’s located
Its establishment of competitive advantage over rivals
o Research states first factor is primary basis, but research has failed to support
link between industry structure and profitability
o The 2nd factor more likely and shows that resources are most important
