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Features of Resource Based View Theory: An Effective Strategy in Outsourcing

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  • Murang'a University of Technology, Murang'a, Kenya

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In Resource Based viewpoint theory (RBV), the resources possessed by a firm are the primary determinants of its performance. The resources may remain latent until the firm deploy its capabilities, with these may contribute to a sustainable competitive advantage. RBV in Human resource management aims in providing justification for attaching importance to especially talent management and aid in enhancing the value of the HR contribution in achieving competitive advantage by strategically fitting and bundling as HR best practices. Outsourcing is built from an organization that lacks Valuable, Rare, Inimitable, Organized resources and capabilities thus seeks for an external provider in order to overcome that weakness. In outsourcing, Firm’s performance in the marketplace depends on the different characteristics of the industry in which it compete and through innovation, persistent improvement and management of relationship with external entities may lead to sustain competitive advantage and be above average performance.
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Features of Resource Based View Theory: An
Effective Strategy in Outsourcing
Maina Charity Mweru1, Maina Tirus Muya2
MSc Project Management Student, Jomo Kenyatta University of Agriculture and Technology, Kenya1,
Senior ICT Technologist, Murang‟a University College, Kenya2
Abstract: In Resource Based viewpoint theory (RBV), the resources possessed by a firm are the primary
determinants of its performance. The resources may remain latent until the firm deploy its capabilities, with these
may contribute to a sustainable competitive advantage. RBV in Human resource management aims in providing
justification for attaching importance to especially talent management and aid in enhancing the value of the HR
contribution in achieving competitive advantage by strategically fitting and bundling as HR best practices.
Outsourcing is built from an organization that lacks Valuable, Rare, Inimitable, Organized resources and
capabilities thus seeks for an external provider in order to overcome that weakness. In outsourcing, Firm’s
performance in the marketplace depends on the different characteristics of the industry in which it compete and
through innovation, persistent improvement and management of relationship with external entities may lead to
sustain competitive advantage and be above average performance.
Keywords: Outsourcing, Competitive advantage and Resource based view theory.
1. INTRODUCTION
Outsourcing is a tool that enables organizations to leverage value from virtually anywhere in the world. Although
outsourcing is a popular topic in many academic articles, a clear definition of outsourcing is rarely given. [11] defines and
explain Outsourcing or contracting out, as it deals with the delegation of operations from internal production to an
external party, or parties. In order to deliver a quality and stable service, the provider must have a service methodology,
the needed infrastructure, people, and skills, technology, and metrics capabilities.
Scope of outsourcing varies greatly. Recent trends in outsourcing have been toward services that are more complex and to
those services that are more near to central management functions, most importantly IT. Outsourcing is an increasingly
popular method of achieving performance improvement [6].
Outsourcing has been guided by a number of theoretical perspectives from economics, strategy, and sociology and
systems science. According to [19] and [5] theories from economics include: Transaction Cost Economics, Agency
Theory theories on contracting where the agent‟s base outsourcing decisions and engage in contracts to minimize total
costs and to mitigate risks.
Theories from strategy as stated in [19] and [5] study include: the Resource-Based View, Resource Dependency Theory
and Theories of firm strategy where agents build or acquire resources to execute strategies that lead to “winning”.
Theories from sociology include: Social Exchange Theory, Social Capital which focuses on relationships among agents,
including levels of trust and power, feelings of mutual obligation and social norms.
The rationale of cost efficiency for outsourcing motivation leads directly to transaction cost and agent cost theories. [19]
study also further defined two types of viewpoints on outsourcing as transaction-based viewpoint and the resource based
viewpoint. This paper aim to discuss the aspect Resource based viewpoint as an effective strategy in outsourcing.
International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online)
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2. FEATURE OF RESOURCE BASED VIEWPOINT AS AN EFFECTIVE STRATEGY IN
OUTSOURCING
[19] defines Resource based view (RBV) theory as where the outsourcing decision is based on the client company‟s
abilities to invest in internal capabilities and thus sustain competitive advantage. RBV as suggested by [5] deliberate on
the resources that are possessed by a firm are the primary determinants of its performance, and may contribute to a
sustainable competitive advantage of the firm.
In the early stage of the RBV, the main concern was to identify the characteristics of resources that are not subject to
imitation by competitors but [2] argues that even if the resources possessed by a firm can easily be replicated by
competitors and even though the resources are the source of competitive advantage of the firm, then the advantage will
not last long. Productive activity requires the cooperation and coordination of teams of resources. [4] Explains that the
firm capability is the capacity for a team of resources to perform some task or activity and conclude that the firm‟s
resources are the source of a firm‟s capabilities which are the main source of its competitive advantage.
Cooperation and coordination of teams of resources is required in any productive function or operation in any firm. The
firm‟s resources are the source of a firm‟s capabilities where firm capability is the capacity for a team of human resources
to undertake some task or activity. Grant study defines firm‟s capabilities as the main source of its competitive advantage
among other firms either in the same function or share same market niche.
In this strategic RBV theory according to [19], a firm is viewed as a collection of physical and intangible resources that
enable it to compete with other firms. To provide sustained competitive advantage, a resource must have four qualities
and RBV compose them as heterogeneous resources, and can be classed as Valuable, Rare, In-Imitable, And Non-
Substitutable (VRIN). [2] and [16] studies acknowledge a company that possesses VRIN and exploits its capabilities says
that will certainly achieve sustainable competitive advantage and above-average performance as shown in figure 1.
Figure 1: Features of RBV and its results.
2.1. Value:
[2] study suggests value-creating strategy as possible solution to outperforming competitors or reduce own weaknesses
this can be achieved by having a resource that must enable a firm to employ either factors. This factor requires the costs
invested in the resource to remain lower than the future rents demanded by the value-creating strategy. He continues to
elaborate and seconded by [12] that an attribute creates value and becomes a resource if it enables the exploitation of
opportunities and/or the neutralization of threats according to (SWOT) strengths, weaknesses, opportunities and threats
analysis.
As [12] concluded in their study that certain resources may have the potential to create valuable services, the value of
these services will remain latent until the firm has the capabilities needed to deploy them. This implies that the firm-
specific way of cooperation and coordination of resources causes the heterogeneity among firms in an industry, however,
the ability to leverage distinctive internal and external competencies relative to environmental situations ultimately affects
the performance of the business.
Source: Talaja, 2012 and Barney, 1991
International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online)
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[5] Observed that Barney‟s 1991 concept of „valuable‟ is an ambiguous criterion to measure the competitive advantage of
a firm. Whether the resource is valuable or not should be measured by its profitability, and thus it ought to take the form
of an economic asset regardless of how tangible or intangible it is. [16] study also conquers and says that company‟s asset
influences market performance, but not profitability. [6] recommend management of relationship with external entities
and accessing its key resources in a way that span that boundaries of the firm as a way of sustaining competitive
advantage.
Contribution to the understanding of outsourcing, [14] Specifies the value generation potential of an outsourcing
relationship consists of three factors: client characteristics, the vendor-client relationship, and vendor characteristics. A
key client characteristic is an understanding of how to manage resources that a firm does not own. A key in the vendor-
client relationship is formal (contractual) aspect of the relationship. The third factor shaping the outsourcing value
proposition is the vendor‟s own capabilities. From an outsourcing vendor‟s perspective, there are many potential
opportunities and benefits for the client.
2.2. Rare:
A resource must be rare among the firm's present as well as potential competitors. As long as the number of firms
possessing this resource is less than the number of firms needed to generate perfect competition, Barney‟s findings
suggests the resource is adequately rare to potentially create competitive advantage.
Valuable resources that are not rare cannot be the sources of the competitive advantage. To achieve the competitive
advantage, resource must be valuable and rare [2], [5], [16]. However, this does not mean that valuable resources that are
not rare are irrelevant to a company but considered strengths.
2.3. In imitable:
If the resources possessed by a firm can easily be replicated by competitors, even though the resources are the source of
competitive advantage of the firm, then the advantage will not last long. [2], [18] all agree that a resource may be
imperfectly imitable due its dependent on unique historical settings; its relation to competitive advantage is causally
ambiguous and its social complexity.
2.4. Non-substitutable:
Non-substitutability indicates that there are no strategically equivalent substitutes that are valuable but are either imitable
or not rare [2]. If potential competitors can easily acquire or imitate these substitutes for the resource, then the resource
does not provide a means for sustained competitive advantage. [19] Believes RBV in outsourcing build from an
organization that lacks valuable, rare, inimitable and organized resources and capabilities, shall seek for an external
provider in order to overcome that weakness.
From a resource-based perspective, sustainable competitive advantage is the Outcome of resource selection, accumulation
and deployment; through organizational capabilities, and is based upon the premise of firms‟ resource heterogeneity [17]
as shown in figure 2 below.
Figure 2: Sustainable Advantage and RBV.
According to [2], he defines resources includes all assets, capabilities, organizational processes, firm attributes,
information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that
improve its efficiency and effectiveness. He points out that the decision about how to obtain the capabilities needed by
organizations depends not only on the degree of specificity, but also on the cost of developing capabilities or of acquiring
those from other organizations that already possess them.
Firm Choices
Sustainable
advantage
Firm
heterogeneity
Resources and
capabilities
External
Factors
Value, Rareness,
Imitability,
substitutability
Source (Kostopoulos et al , 2002)
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A company can sustain competitive advantage only through persistent improvement. [7] and [8] both believe in
innovation. [8] indicated that Innovation grows out of pressure and challenges. Therefore, competitive realities demand
leadership and good governance. Resources are not equally the same mainly to buy, manage and difficult to substitute
thus companies must strategically position themselves with their competitors else competitors cannibalize on the profits.
The essence of Porter five forces model, a firm‟s performance in the marketplace depends critically on the characteristics
of the industry in which it compete. In [9] study, Industry structure defines the „five-force model‟ as entry barriers, threat
of substitution, bargaining power of supplier, bargaining power of buyer and rivalry among industry incumbents which
drives the industry competition.
Location addresses the determinants of productivity and importance of dynamic improvement to competitiveness. [9] and
[10] acknowledge Intangible resources as difficult to acquire, substitute like experience and knowledge in which is
considered as core competence of the company this is where the competitive position is built in. [10] concludes and says
that, if a company knows once core competence then it‟s easy to know what to outsource. If resources and capabilities of
a firm are mixed and deployed in a proper way they can create competitive advantage for the firm. Eventually, only
companies themselves can achieve and sustain competitive advantage by innovation and strategically positioning in the
market.
When assessing strategic goals of outsourcing, the resource-based viewpoint of competitive strategy gives important
insights in helpful those outsourcing contracts that are described as partnerships. RBV gives implications on which
activities are of core competence and thus should be produced internally. Companies can find outsourcing hazards beyond
the usual opportunisms by one party in the relationship. [4] describes this hazards identified by utilizing as asset erosion,
loss of access to assets and loss of control over strategic assets.
3. RBV IN HUMAN RESOURCE MANAGEMENT CONCEPT
The RBV has considerable influenced Human resource Management. According to Armstrong (2009), RBV theory aims
in providing justification for attaching importance to resourcing activities especially talent management and can also be
used to enhance the value of the HR contribution in achieving competitive advantage.
In applying the concepts of value, rareness, inimitability, and substitutability, [15]suggest human capital pool must have
both high levels of skill and a willingness (i.e., motivation) to exhibit productive behavior this is because HR practices
could not form the basis for sustainable competitive advantage since could be easily copied by competitors.
Armstrong (2009) argues that RBV has limitation which first, it may be difficult to find resources which satisfy all the
criteria and it provides only generalized guidance on what resources are suitable. Secondly, External factor for instance
product market pressures are ignored and third, different resource configuration can provide the same value for firms.
Strategic fit means developing HR strategies that are integrated with the business strategy and support its achievement
that is (vertical integration or fit) [1]. This approach aid in development of HR practices such as resourcing, employee
development, and reward and employee relation so that they complement and support one another that is (horizontal
integration or fit). [15] noted that most models of HRM based on fit assume that (a) a certain business strategy demands a
unique set of behaviors and attitudes from employees and (b) certain human resource policies produce a unique set of
responses from employees.
Armstrong (2009), Suggests the three HRM perspective include: universalistic, contingency and configurationally
provides best practice as bundling. Bundling is the development and implementation of several HR practices together so
that they are interrelated and concerned with the organization as a total system and addresses what needs to be done across
the organization as a whole.
4. CONCLUSION
One of the key findings related to the strategic outsourcing, researchers suggest that outsourcing leads to improved
performance and cost, and investing in internal capabilities sustain competitive advantage but a firm must identify its
capabilities which are characterized as Valuable, Rare, In-Imitable, and Non-Substitutable (VRIN). This capabilities
should employ a value-creating strategy by either outperforming its competitors or reducing its own weaknesses and
exploitation of opportunities else will remain latent.
Company‟s asset influences market performance, but not profitability, most researcher recommend resources that are
valuable and rare resulting to many outsourcing, meaning shall seek for an external provider in order to overcome that
weakness but can develop valuable resources by carefully managing relationship with external entities.
International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online)
Vol. 3, Issue 2, pp: (215-218), Month: October 2015 - March 2016, Available at: www.researchpublish.com
Page | 218
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A resource may be imperfectly imitable but this advantage will not last long only through persistent improvement and
innovation can sustain competitive advantage. The essence of Porter five forces model, the firm‟s performance in the
marketplace depends critically on the characteristics of the industry in which it compete. HR practices could not form the
basis for sustainable competitive advantage but human capital that has both high levels of skill and willingness, however,
HR best practice as Strategic fit and bundling has been suggested.
Although many scholars have contributed to identification of the mechanism of sustainable competitive advantage of the
firm by considering the RBV of strategic management, few scholars have paid attention to the outsourcing strategic
decision process and its relation to RBV.
REFERENCES
[1] M. Armstrong, Armstrong handbook of Human Resource management practice. vol. 11th, London and Philadelphia:
Kogan Page Limited, 2009.
[2] J. Barney, "Firm resources and sustained competitive advantage," Journal of Management, 1991.
[3] A. Tokuda, "The Critical Assessment of the Resource-Based View of Strategic Management. The Source of
Heterogeneity of the Firm," Institute of International Relations and Area Studies. Ritsumeikan University, 2005.
[4] R. Grant, "The Resource Based Theory of Competitive Advantage: Implication of Strategy formulation," California
Management Review, Vol. 33, Issue 3, California, 1991.
[5] M. C. Lacity and L. Will cocks, Information systems and outsourcing: studies in theory and practice, Palgrave
Macmillan, 2008.
[6] R. McIvor, A. Wall, P. Humphreys and A. McKittrick, A Study Of Performance Measurement In The Outsourcing
Decision, Great britain: CIMA, 2009.
[7] M. A. Peteraf, "The cornerstones of competitive advantage: A resource-based view," Strategic Management Journal,
pp. 179-191, 1993.
[8] M. E. Porter, "The Competitive Advantage of Nations." Havard Business Review, 1990.
[9] M. E. Porter, On Competition, Updated and expanded edition. ed., Boston: Harvard Business School Publishing
Corporation, 2008.
[10] E. Beulen, P. Ribbers and J. Roos, Managing IT Outsourcing: Governance in Global Partnerships, New York:
Routledge, 2006.
[11] W. Giesberts, "(How) Can (Firms with) IT Outsourcing Relationships Innovate," Platform Outsourcing Nederland &
Vrije Universiteit Amsterdam., Amsterdam, 2006.
[12] N. Cardeal and N. Antonio, "aluable, rare, inimitable resources and organization (VRIO) resources or valuable, rare,
inimitable resources (VRI) capabilities: What leads to competitive advantage?," African Journal of Business
Management Vol 6, 10159-10170, 2012.
[13] A. Wall, P. Humphreys, R. McIvor and A. McKittrick, "A Study Of Performance Measurement In The Outsourcing
Decision," Butterworth-Heinemann, 2009.
[14] H. Solli-Sæther, "Transplants‟ role stress and work performance in IT outsourcing relationships," 2006.
[15] B. B. Dunford, S. A. Snell and P. M. Wright, "Human Resources and the Resource Based View of the Firm,"
CAHRS Working Paper 01 03, 2001.
[16] A. Talaja, "Testing vrin framework: resource value and rareness as sources of competitive advantage and above
average performance." Journal of Contemporary Management Issues, pp. 51-64, 2012.
[17] K. Kostopoulos, Y. E. Spanos and G. P. Prastacos , "The Resource Based View of the Firm and Innovation:
Identification of critical linkages," European Academy of Management Conference, Stockholm, Sweden., 2002.
[18] T. F. Espino-Rodríguez and V. Padrón-Robaina, "A review of outsourcing from the resource-based view of the
firm." Blackwell Publishing Ltd, Spain, 2006.
[19] L. Rantakari, "Governance in business process outsourcing: case study on call center outsourcing," Aalto university
school of economics, 2010.
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