ABSTRACT
As we highlighted earlier, the fundamental question in strategic management is how firms achieve and sustain superior financial performance. Successful firms must achieve this performance in a world characterized by intense global competition, with strong rivalry in terms of the price/performance characteristics of competing products, where all firms are attempting to innovate with new products and business models. The ARM Holdings example demonstrates that success is strongly influenced by the unique skills and capabilities of the firm – what is referred to as the resource-based view (often abbreviated to RBV) (Mauri & Michaels, 1998). Strategy must be concerned with the development and deployment of firmspecific factors that will contribute to competitive advantage. This view contrasts with the structural view of success discussed in Chapter 1 (‰Chapter 1), which suggests that strategy involves the firm finding an attractive industry and taking actions to achieve a strong position
In Chapter 1 we discussed two major theories regarding the determinants of firm success, the structureconduct-performance theory and the resource-based theory. In this chapter we explore the latter, the resourcebased theory, in more detail. As the ARM Holdings example illustrates, successful firms which enjoy substantial growth possess unique skills and capabilities, and these skills must be continually developed to be able to take advantage of new opportunities. So firm success depends on the strategic management of the firm, ensuring that current capabilities are exploited and new capabilities are developed to take advantage of new opportunities. We commence this chapter by reviewing the role of resources – the tangible and intangible assets owned by the firm which are combined to form these skills. Resources by themselves are a necessary but not sufficient condition for a capability; for example, a firm may have highly qualified R&D personnel and still be poor at new product development. So we explore how the firm develops these capabilities, which almost always requires integrating the resources available to deliver a competitive advantage. Given the high rate of change in the firm’s external environment, we then move on to examine how management must ensure that new capabilities are developed over time, introducing the concept of dynamic capabilities.
