Resource-Based Theory: Path to Competitive Advantage

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  • 0:04 What Is Resource-Based Theory?
  • 1:26 Tangible Resources
  • 2:06 Intangible Resources
  • 2:50 Capabilities vs. Resources
  • 3:30 Lesson Summary
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Lesson Transcript
Instructor: Amber Dejmal
In this lesson, you'll learn the definitions of resource-based theory and the three key terms used within the theory: tangible resources, intangible resources, and capabilities.

What Is Resource-Based Theory?

Resource-based theory states that the possession of resources is valuable, difficult to imitate, rare, and cannot be substituted. The resource-based theory suggests that organizations should look inside the company to find the sources of competitive advantage through the use of their resources. Competitive advantage is an advantage that a firm has over its competitors that allows it to generate sales or margins and/or retain more customers than the competition. A firm's competitive advantage evolves from the resources that the organization has.

In the resource-based theory model, resources are given the major role of assisting companies in achieving higher organizational performance and competitive advantage. The theory has been redeveloped and redefined through research and the evidence that supports it. Resource-based theory prescribes that organizations position themselves strategically based on their resources and capabilities rather than their products and services. Within resource-based theory, the key terms include tangible resources, intangible resources, and capabilities.

Let's pretend that you're the owner of a fast food chain called McDreamy's. In your company, you have tangible resources, intangible resources, and capabilities that all contribute to your success in the fast food industry.

Tangible Resources

Tangible resources are resources that can be seen, touched, and quantified. A few examples of tangible resources include the company's property, factory, equipment, and even cash. These physical resources can easily be bought by other fast food chains, so in the long run, the physical resources give you little advantage. However, you must have these types of resources in order to achieve the company's goals.

Blendy's, your main rival, was founded over a decade after you founded McDreamy's. Blendy's uses many of the same tangible resources. It has a very similar building, similar cooking supplies, and even similar ingredients as your company.

Intangible Resources

Intangible resources are resources that are hard to see, touch, or quantify. An example of this type of resource would be the skills of the employees, the company's reputation, patents, brand names, customer loyalty, and copyrights. These are things that have no physical presence.

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